Democrats question the semiconductor program’s ties to Wall Street
Two Democratic lawmakers raised concerns Tuesday about ex-Wall Street financiers overseeing the Commerce Department’s distribution of $39 billion in subsidies to the semiconductor industry. They said the staffing raised questions about the creation and abuse of a revolving door between government and industry.
In a letter to the Commerce Department, Senator Elizabeth Warren of Massachusetts and Representative Pramila Jayapal of Washington criticized the department’s decision to staff a new office overseeing subsidies to the chip industry with former employees of Blackstone, Goldman Sachs, KKR and McKinsey & Company.
Lawmakers said the personnel decisions jeopardized an outcome in which staff members could favor past or future employers and spend taxpayer money “on industry wish lists, and not in the public interest.”
Trade officials have rejected this characterization, describing the more than 200-person team they built to assess applications in the chip industry as coming from a variety of backgrounds, including investment, industry analysis, engineering and project management. In a statement, a Commerce Department representative said the agency had received the letter and would respond through appropriate channels.
The criticism underlines the stakes for the Biden administration as it begins doling out billions of dollars in an effort to rebuild the country’s chip manufacturing capacity.
More than 570 companies and organizations have expressed interest in obtaining a share of the funding, and it is up to the Commerce Department to determine which of the projects deserve funding. Biden officials have said they will review applications based on their ability to increase U.S. manufacturing capacity and national security, as well as benefit local communities.
The department announced the first prize from the program in December and another prize this month, both for chipmakers involved in military procurement. These awards totaled less than $200 million, but the Commerce Department is expected to announce larger subsidies for major chip manufacturing facilities in coming months, amounting to billions of dollars.
Given the amount of taxpayer money at stake, attention is focused on who will review the applications. The chip office’s director, Michael Schmidt, is a former official in the Treasury Department and the New York State government. Other distinguished contributors have extensive experience in the financial industry, including Chief Investment Officer Todd Fisher, a longtime employee of global investment firm KKR.
Gina Raimondo, the Secretary of Commerce, also had a background in venture capital and ran her own investment firm before becoming governor of Rhode Island.
The Commerce Department has said it will take a hard look at applications and that granting them will depend entirely on the strength of the applications and their ability to advance U.S. economic and national security interests. Advocates have said staffing the team with investment analysts would give the government the expertise it needs to analyze complex business proposals from chip companies.
“We here at the Commerce Department must be fundamentally good stewards of taxpayers’ money and only provide money to projects that need that money to stimulate investment,” Ms. Raimondo told reporters in August.
Some critics even threw the Biden administration for placing too many non-financial demands on chip applicants, such as the need to provide affordable child care for their employees.
But in an interview, Ms. Warren said the Commerce Department had created a potential ethics issue “like I’ve never seen before” by deciding to hire a “who’s who of Wall Street’s most powerful firms.”
“This creates an opportunity for a gross conflict of interest,” Ms. Warren said.
“These small handful of staffers can use Wall Street’s revolving door to provide their former and possibly future employers with an excessive benefit that is not in the public interest,” she said. “They can also benefit those employers’ current customers, or use their position to build relationships and business opportunities with future customers.”
The letter from Ms. Warren and Ms. Jayapal asked for more information about the ethics rules the chip office employees had to comply with, including whether employees filed personal financial disclosure forms and whether the department established restrictions on where the employees could work after they left the government. .
Ms. Warren and Ms. Raimondo have clashed before, including over the Commerce Department meetings with major technology companies. Mrs. Warren has done that before concerns expressed on the possibility that federal chip subsidies could be used to buy back stock or otherwise enrich chip industry executives, and proposed legislation to place stricter limits on the types of jobs former government employees can take after leaving public service to leave.
In a letter last February, responding to an earlier inquiry from Ms. Warren about the chip program, the Commerce Department said it had “made ethics a priority in staffing the CHIPS offices.” Employees would be vetted for potential conflicts of interest and receive mandatory ethics training, the department said.