Editors note: China’s access to the US equity market, not just our consumer market, has become a very big issue.
Millions of dollars from US university endowments, foundations, and retirement plans have helped fund two billion-dollar Chinese facial recognition startups: SenseTime and Megvii. The Chinese government is using their technologies to surveil and profile its own citizens.
[Ryan Mac | May 30, 2019 | Buzzfeed]
HONG KONG — Princeton University and the US’s largest public pension plan are among a number of stateside organizations funding technology behind the Chinese government’s unprecedented surveillance of some 11 million people of Muslim ethnic minorities.
Since 2017, Chinese authorities have detained more than a million Uighur Muslims and other ethnic minorities in political reeducation camps in the country’s northwest region of Xinjiang, identifying them, in part, with facial recognition software created by two companies: SenseTime, based in Hong Kong, and Beijing’s Megvii. A BuzzFeed News investigation has found that US universities, private foundations, and retirement funds entrusted their money to investors that, in turn, plowed hundreds of millions of dollars into these two startups over the last three years. Using that capital, SenseTime and Megvii have grown into billion-dollar industry leaders, partnering with government agencies and other private companies to develop tools for the Communist Party’s social control of its citizens.
Also among the diverse group of institutions helping to finance China’s surveillance state: the Alaska Retirement Management Board, the Massachusetts Institute of Technology, and the Rockefeller Foundation all of which are “limited partners” in private equity funds that invested in SenseTime or Megvii. And even as congressional leaders, such as Sen. Marco Rubio of Florida, have championed a bill to condemn human rights abuses in Xinjiang, their own states’ public employee pension funds are invested in companies building out the Chinese government’s system for tracking Uighurs.
“The story here is why private equity firms and venture capitalists are aiding the government of China, which has a history of surveilling and curtailing behavior deemed inappropriate to the goals of the Communist Party,” said one US-based technology investor, who declined to be named for fear of ruining business relationships. Being a limited partner is “not an excuse” for ignorance, he added, noting that any organization deploying millions of dollars should bear some of that responsibility.
In statements to BuzzFeed News, SenseTime and Megvii distanced their technologies from what’s happening in the region and downplayed the significance of US funding.
“SenseTime’s success in original AI research and commercialization has attracted top-tier investors from around the world,” the company said in a statement, which also noted that it welcomed regulation of facial recognition tools. “We have always been committed to fair and responsible applications of AI technology and we take this duty of care seriously.”
Megvii told BuzzFeed News its “solutions are not designed or customized to target or label ethnic groups. We are concerned about the well-being and safety of individuals, not about monitoring any particular demographic groups.”
Recently, the US has been ramping up its trade war against China. In the last two weeks, the Trump administration has increased tariffs on certain Chinese goods by $200 billion, kneecapped telecoms giant Huawei with an executive order, and considered banning several Chinese technology manufacturers from working with US companies, according to reports. US institutional investors, however, remain financially entangled with China’s facial recognition leaders.
An analysis by BuzzFeed News of known private equity and venture capital investors in the two largest Chinese facial recognition companies shows that US dollars are facilitating the Communist Party’s surveillance of ethnic minorities. BuzzFeed News used PitchBook, a private equity research outfit, and combed through public financial disclosures to understand which institutions committed capital to firms that ended up backing SenseTime and Megvii.
While the data is incomplete — not all limited partners are required to publicly disclose their investments in venture or private equity firms — it paints a stark picture of the US organizations that stand to benefit financially as these startups grow and expand their government work. BuzzFeed News identified six prominent universities and at least 19 public pension plans or retirement systems that have an indirect interest in at least one of the two companies.
When asked if they were aware their money was indirectly funding the surveillance of Uighurs, most institutional investors did not respond to BuzzFeed News’ requests for comment. Some declined to comment. Only one, the Los Angeles County Employees Retirement Association (LACERA), responded on the record saying it would evaluate its investment.
That Chinese authorities have deployed SenseTime and Megvii technologies in Xinjiang is hardly a secret. A recent study found that local authorities were employing Megvii platform Face++ for personal identification recognition on a mobile app to collect data on Turkic Muslim minorities. Media reports have described SenseTime’s joint security ventures in Xinjiang, while BuzzFeed News also found the company partnered with Infinova, a New Jersey–based security camera manufacturer that provides surveillance systems to Xinjiang officials.
Authorities have used software and devices from those firms to effectively create a police state in the region, which is home to more than 11 million Uighurs. Experts and US government officials estimate that at least a million Muslim and religious minorities are currently detained in internment camps, while those who’ve escaped have reported being subjected to torture, abuse, and political indoctrination.
Sen. Mark Warner of Virginia, a long-standing critic of the Chinese government, called the oppression in Xinjiang “a wake-up call” to companies on how advanced technologies can be used for nefarious purposes. “It is disturbing that American companies, researchers, and investors are helping facilitate grave human rights abuses in Xinjiang,” he told BuzzFeed News.
One Silicon Valley venture capitalist, who also requested anonymity for fear of jeopardizing business relationships, told BuzzFeed News human rights issues like those in Xinjiang may not be a consideration for institutional investors in private equity funds.
“As long as [limited partners] are making money, no one will care about human rights violations,” he said. “Do you think CalPERS cares as long as they’re making money?”
CalPERS or the California Public Employees’ Retirement System, the US’s largest public pension fund with more than $350 billion in assets, declined to comment for this story.
Two Facial Recognition Unicorns
Megvii and SenseTime have grown in lockstep in their competition to develop cutting-edge facial recognition tools. Founded in 2011 by three graduates from Beijing’s Tsinghua University, Megvii launched the first version of its facial analysis platform Face++ the following year. Today, the $4 billion company, which is reportedly readying for an initial public offering, has more than 500 employees and raised more than $1 billion, with commercial success boosted in large part by the Chinese government’s desire to become an artificial intelligence leader.
“The government is pushing the need for this technology from the top, so companies don’t have big obstacles in making it happen,” Megvii Vice President Xie Yinan told NPR last year. American money is just one source of funds — the company’s many investors include the Bank of China’s private equity arm and the state-owned Capital Venture Investment Fund, part of a government push to build an artificial intelligence industry worth $150 billion by 2030. Megvii is also a technology supplier for a China-wide surveillance program called the Skynet Project, which uses more than 20 million closed-circuit TV cameras to monitor citizens around the country, policing for criminals.
Part of the value proposition for both companies — and investment opportunity for their financial backers — is the wide range of consumer applications for their technology. At an April smart city trade show in Hong Kong, sales associates for SenseTime wowed attendees with various use cases: mobile apps that could read facial expressions, smart screens in cars to detect sleepy drivers, and admission gates that flipped open when they recognized someone’s face.
Though it was founded in 2014, Hong Kong–based SenseTime has outgrown Megvii, raising more than $1.6 billion from the likes of e-commerce giant Alibaba and a host of international private equity firms and Chinese institutions. Its latest valuation, based on a fundraising round from May 2018, is $4.5 billion.
In an April 2018 interview with Quartz, SenseTime CEO Xu Li estimated that 30% of its clients are “government-related,” a figure that some experts believe is higher. The company’s marketing materials, which boast of a “face recognition surveillance platform” capable of tracing the routes of up to 200,000 “targets,” are clearly intended for a government and law enforcement audience. Last year, SenseTime told NPR that it was working with 40 local police forces, or “public security bureaus.”
At a recent artificial intelligence conference in Dubai, demos of SenseTime’s video analytics software showed off footage of small crowds with people’s bodies circled in coded colors that represented individuals who appeared to be loitering or embroiled in “chaos,” according to a Chinese-language key. “We use people’s hair, their clothing, their faces, and movements to track them,” a company official said at the conference. “We can help governments go through hours of security camera footage to find them.”
Maya Wang, a senior research fellow at Human Rights Watch, said that the Communist Party’s implementation of facial recognition will allow it to “control reality in ways that would make it capable to rule forever.” And unlike in some Western countries, where concerned citizens and privacy advocates have expressed worries about the deployment of government facial recognition tools, Wang said, those debates don’t happen in China, where authorities place what they see as safety and social stability above all else.
“It’s about one of the world’s most abusive governments developing advanced technologies that are capable of monitoring and controlling people’s behavior,” she said, noting that those tools will only get better as improvements are made in computer processing power. “The Chinese government, as part of its mass surveillance infrastructure, will really rely on facial recognition technology as a fundamental building block for tracking people, particularly in Xinjiang.”
Ties to Xinjiang
Though SenseTime and Megvii happily tout facial recognition for photography apps or office worker verification, they have tried to distance themselves from authorities’ use of their technology in tracking people in Xinjiang, where the government’s political reeducation centers were recently likened to “concentration camps” by one senior US Defense Department official. In statements for this story, both companies denied having direct work in the region.
In earlier interviews, Megvii and SenseTime have attempted to separate their technology from the less savory government use cases, while denying that they store the facial recognition data of their clients.
“We provide a tool for you to process your data,” Franky Chan, a SenseTime public relations manager at the Hong Kong trade show, told BuzzFeed News. Chan’s statement echoed what Xie, Megvii’s vice president, told Business Insider last year. “What we do is sell them a server [loaded with Face++],” he said. “That’s all.”
Still, there are threads connecting SenseTime and Megvii to Xinjiang. In August 2017, Megvii announced at the China-Eurasia Security Expo in Ürümqi, Xinjiang, that it would be the official technical support unit of the “Public Security Video Laboratory” in Xinjiang, according to one researcher’s findings, helping with “anti-terrorism, anti-riot, and other security work.”
Earlier this month, Human Rights Watch and Cure53, a Berlin-based security firm, determined that Megvii’s Face++ technology was being used in a data collection app employed by police called the Integrated Joint Operations Platform (IJOP) that tracked the personal details and whereabouts of citizens of Turkic Muslim descent.
In a statement, Megvii told BuzzFeed News that it had never had a contract with the Public Security Video Laboratory in Xinjiang.
The company also said that it “does not have any relationship with IJOP or understanding of why Face++ technology may be found in the IJOP mobile app.” It reiterated earlier statements, adding that “Megvii does not host any third-party data nor does it have any access to the IJOP platform or the national ID database.”
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SenseTime has invested in businesses with work in China’s northwest province and maintained a 51% stake in a joint venture with Leon Technology, a Xinjiang-based supplier of surveillance systems to the local government, until this March. It also held a 49% stake in a company called SenseNets Technology, now infamous for leaving a massive facial recognition database of some 2.5 million people in Xinjiang unsecured on the internet; nearly one-third of the individuals tracked were Uighurs. In both cases, SenseTime quietly divested from each venture after news reports of its involvement.
“We have no direct business in Xinjiang, and we are not aware that any of our technologies is being used in the region,” a SenseTime spokesperson told BuzzFeed News.
While the company denies direct business, it has partnered with other companies building surveillance infrastructure in the region, BuzzFeed News has learned. New Jersey–based security camera manufacturer Infinova has been a surveillance tech provider in Xinjiang since at least 2015. A trade publication, IPVM, first reported on Infinova’s work in the region. Current and former Infinova employees confirmed to BuzzFeed News that the company has used SenseTime software for surveillance systems in smart cities across China, including in Xinjiang. Infinova is listed as a smart city partner in SenseTime company marketing materials.
Fred Zhang, a former Infinova business manager, told BuzzFeed News that SenseTime’s facial recognition technology was an integral part of a smart city project in Shanghai that installed 3,000 cameras in building entrances. The government project had, in part, built a database of the faces of residents to detect if strangers entered, he said.
“We use their facial recognition software but our own surveillance camera devices,” said Zhang. “We detect the face and store the picture, but we work with SenseTime to compare the pictures in the database.”
Employing the SenseTime technology created a shortcut from Infinova having to build out its own facial recognition technology, explained a former Infinova engineer. It is unclear if the partnership is still active. Infinova declined to speak to BuzzFeed News about its relationship with SenseTime.
SenseTime and Megvii’s most obvious connections to the US are via component makers. SenseTime has called the chips of Silicon Valley’s Nvidia “fundamental” to its work and said that it uses 14,000 of them in servers across Asia to power its facial recognition technology. The San Diego–based Qualcomm, which provides processors to SenseTime, invested in the artificial intelligence company as part of a $600 million funding round in April 2018.
Qualcomm also maintains a business relationship with Megvii, and lists the company as an official artificial intelligence software provider on its corporate website. A representative for Qualcomm did not return multiple requests for comment. Nvidia declined to comment.
But there are other connections and financial ties that are less visible. A BuzzFeed News analysis found that money from dozens of American institutions — universities, foundations, and retirement plans — has been central to some of Megvii and SenseTime’s massive funding rounds.
While these institutions did not actively invest in SenseTime or Megvii, the private equity fund managers with whom they entrusted their money backed those companies for them. For example, the endowments of Princeton, Duke University, and MIT committed money to Qiming Venture Partners, a China-based venture capital firm, which was part of a $100 million round of investment in Megvii in late 2016. MIT did not respond to requests for comment and a Duke spokesperson declined to comment.
“As a matter of policy, we do not comment on our investment portfolio,” a Princeton spokesperson told BuzzFeed News. “As a limited partner, we do not have control over specific investment decisions made by an outside manager.”
Having first invested in Megvii in 2014, Qiming continued to back the company in later rounds through its Qiming Venture Partners V fund, boosting its ownership stake. High-profile backers of that fund, according to PitchBook and the firm’s own press releases, include the Mayo Clinic, the family foundation of Philadelphia Eagles owner Jeffrey Lurie, and the Robert Wood Johnson Foundation, which bills itself as the US’s “largest public health philanthropy.” All three organizations did not respond to a request for comment.
Qiming founding managing partner Gary Rieschel did not respond to BuzzFeed News’ questions about the use of Megvii’s technology in Xinjiang. “We have sold nearly all of our position in Megvii over the last year,” he wrote in an email, before declining to say how much of the company Qiming still owned or how much his firm made from its investment.
Earlier this year, GGV Capital, a Menlo Park, California–based venture firm that’s invested heavily in China, was part of a $750 million round into Megvii, using a pool of money from limited partners that included the endowment for the University of Texas System, Northwestern University, and the Oregon State Treasury. Once called a “longstanding partner” in a GGV press release, the Oregon State Treasury did not respond to a request for comment. Northwestern also did not respond to requests for comment, while a spokesperson for the University of Texas System’s endowment said its “policy is not to discuss existing investments with external parties.”
A GGV spokesperson declined to comment.
US investors also stand to benefit handsomely with SenseTime’s continued growth. In 2014, IDG Capital, an early backer of Chinese tech leaders Baidu and Tencent, was part of SenseTime’s first institutional round of financing. In participating in that $10 million financing round, IDG invested capital from limited partners including the University of Michigan; Breyer Capital, the venture fund of early Facebook investor Jim Breyer; and the Rockefeller Foundation, which aims to “improve the well-being of humanity around the world,” according to its online mission statement.
Representatives for Breyer Capital and the Rockefeller Foundation did not respond to requests for comment. “We prefer not to discuss our investments or fund managers,” a University of Michigan spokesperson emailed BuzzFeed News.
Among US-based institutions with stakes in China’s two facial recognition leaders, public pension funds are the largest committers of capital, with 14 alone maintaining stakes in SenseTime through private equity giant Silver Lake according to PitchBook and public filings. Among the largest known investors in Silver Lake, which invested in SenseTime in May 2018, are CalPERS; the Teacher Retirement System of Texas, a pension plan for all public educators in the Lone Star State; and the Washington State Investment Board, which manages retirement plans for the state’s teachers, police officers, and firefighters. Other known limited partners include public employee pension and retirement plans in Florida, Illinois, Michigan, Minnesota, New York, Ohio, and the city of Los Angeles.
Silver Lake declined to comment for this story, refusing to answer questions about its investment in SenseTime and the company’s role in government surveillance. Of the 14 public pension plans and retirement funds contacted by BuzzFeed News, all but one declined to discuss their indirect ownership stake in SenseTime or did not respond to requests for comment.
“LACERA strongly values human rights and expects all investment partners to ensure robust human rights practices,” a spokesperson for the Los Angeles County Employees Retirement Association emailed BuzzFeed News, noting that the organization does due diligence on external money managers on topics including human rights violations. “Although our rights as a limited partner in a private equity fund are limited, LACERA is in contact with [Silver Lake] to further evaluate any exposures and risks.”
Limited partners typically have no say over the day-to-day decisions of the venture firms they invest in once they’ve committed capital, said Ilya Strebulaev, a professor at the Stanford Graduate School of Business. While an LP can “control the overall structure of the portfolio at the time they sign and negotiate an agreement,” allowing them to define if they want to invest in certain business sectors, he added, they are not involved in the process by which a firm decides to back a specific company.
One Silicon Valley investor, who declined to be named, noted that institutional investors can include clauses in agreements with venture funds that prevent them from investing in certain industries like firearms or gambling. That investor, however, noted that they had never seen clauses that directly address issues around human rights.
A private equity investor in SenseTime who spoke to BuzzFeed News on the condition of anonymity said that his firm had weighed the human rights issues, but ultimately decided that it was an investment with significant financial upside for his limited partners. He compared his firm’s investment in SenseTime to funds backing US defense companies or firearms manufacturers, stating that in those cases, investors aren’t responsible for how people or governments use those products.
He also noted that SenseTime’s collaboration with the Chinese government was a given from the start: “If you don’t work with them, you’ll no longer have a business. Doing business is expected.”
“It’s something worth thinking about.”
As the Trump administration ramps up its trade war on China and increases scrutiny on US–Chinese business relationships, the human rights abuses in Xinjiang have been a consistent target of ire from both Democrats and Republicans. In April, a bipartisan group of 24 senators and 19 House representatives led by Sens. Bob Menendez and Marco Rubio signed a letter to Secretary of State Mike Pompeo, Treasury Secretary Steven Mnuchin, and Commerce Secretary Wilbur Ross to enforce penalties against US companies found to be assisting the Chinese government in the surveillance of citizens in Xinjiang.
Following that letter, Pompeo issued a stern warning of the “enormous risk” to US companies doing business in China.
“We watch the massive human rights violations in Xinjiang, where there are over a million people being held in a humanitarian crisis that is the scale of what took place in the 1930s, and we see American businesses and their technology being used to help facilitate that activity from the Chinese government,” he said at a gala for Business Executives for National Security, comparing Xinjiang to Nazi Germany. “It’s something worth thinking about.”
Lawmakers who signed the letter warning the State and Commerce departments of potential US business ties to abuses in Xinjiang were mum when asked why their state employee pension plans were indirectly investing in two billion-dollar startups with business ties to the region.
Rubio, who is currently cosponsoring a bill called the Uyghur Human Rights Policy Act, did not respond to requests for comment. The Florida State Board of Administration, which manages the assets of the Florida Retirement System, is an indirect investor in SenseTime.
Other backers of the bill, Oregon Sen. Jeff Merkley and Texas Sen. John Cornyn, declined to comment. Oregon’s State Treasury, which oversees state employee retirement funds and other investments, is an indirect backer of Megvii through GGV Capital, while the Teacher Retirement System of Texas is invested in SenseTime through Silver Lake.
New Jersey Sen. Bob Menendez, the ranking Democrat on the Senate Foreign Relations Committee and the bill’s Democratic cosponsor, declined to comment when asked by BuzzFeed News about New Jersey–based Infinova’s ties to Xinjiang.
As pressure builds in Washington, SenseTime seems increasingly worried that it will be trapped in the trade war between the world’s two largest economies. In various media statements, including one to BuzzFeed News, the company has now said that it welcomes discussion on regulation around facial recognition, as some US lawmakers have called for a halt on the public implementation of the technology without further research and privacy safeguards.
Last week, Bloomberg reported that US officials are thinking of adding Megvii and SenseTime to a blacklist of companies that are barred from using US software and components. It’s unclear how those bans, if they came into effect, would affect US investment in those companies or the business relationships between Megvii and SenseTime with suppliers such as Nvidia and Qualcomm.
“I strongly encourage the Department of Commerce to move ahead with Entity List designations for Chinese companies that are at the forefront of China’s tech-enabled repression in northwest China, as has been reported,” Sen. Warner told BuzzFeed News. “Congress should also consider new penalties for US firms or researchers who directly enable human rights violations like this.”
Rep. Alexandria Ocasio-Cortez, speaking after a House Oversight Committee hearing last week on the government use of facial recognition, noted she is “absolutely concerned” about the use of such unchecked technologies in more authoritarian countries like China as a form of social control.
“This is tied to the political reality that there is a global rise in authoritarianism and fascism,” she said. “That could come from a state like China, or it could come from an authoritarian leader in any part of the country, regardless of politics.” ●
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