Democrats question semiconductor program’s ties to Wall Street

Two Democratic lawmakers expressed concerns Tuesday that former Wall Street financiers are overseeing the Commerce Department’s distribution of $39 billion in subsidies to the semiconductor industry, saying the allocation raises questions about the creation and abuse of a revolving door between government and industry.

In a letter to the Commerce Department, Sen. Elizabeth Warren of Massachusetts and Rep. Pramila Jayapal of Washington criticized the department’s decision to staff a new office to oversee chip industry subsidies with former Blackstone employees , Goldman Sachs, KKR and McKinsey & Company.

Lawmakers said personnel decisions risked an outcome in which staffers could favor past or future employers and spend taxpayer dollars “on industry wish lists, and not in the public interest.”

Trade officials rejected that characterization, describing the team of more than 200 people they assembled to review chip industry applications as coming from diverse backgrounds, including investment, industrial 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.

These criticisms highlight the stakes for the Biden administration as it begins doling out billions of dollars to try to rebuild the nation’s chip manufacturing capacity.

More than 570 companies and organizations have expressed interest in securing a portion of the funding, and it is up to the Department of Commerce to determine which projects merit funding. Biden officials said they would judge applications based on their ability to improve U.S. manufacturing capacity and national security, as well as benefit local communities.

The department announced its first award under the program in December and another this month, both to chipmakers tied to military procurement. These subsidies totaled less than $200 million, but the Commerce Department is expected to begin announcing larger subsidies in the coming months for large chip manufacturing facilities, which could reach several billion dollars.

Given the amount of taxpayer money at stake, scrutiny has turned to who will evaluate the applications. The director of the chip office, Michael Schmidt, is a former official of the Treasury Department and New York state government. Other senior staff members have extensive experience in the financial sector, including chief investment officer Todd Fisher, a longtime employee of global investment firm KKR.

Gina Raimondo, the Commerce Secretary, also had a background in venture capital, running her own investment firm before becoming governor of Rhode Island.

The Commerce Department said it would review applications rigorously and that awards made would depend entirely on the strength of the applications and their ability to advance U.S. economic and national security interests. Supporters said staffing the team with investment analysts would give the government the expertise it needs to analyze complex business proposals from microchip companies.

“Here at the Commerce Department, we fundamentally have to be good stewards of taxpayer dollars and provide money only to projects that need that money in order to encourage investment,” Ms. Raimondo told reporters. in August.

Some criticisms I even slammed the Biden administration for imposing too many non-financial demands on flea candidates, 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 ethical problem “unlike anything I’ve seen before” by deciding to hire “the who’s who of the most powerful companies on Wall Street.” .

“This creates an opportunity for a blatant conflict of interest,” Ms. Warren said.

“This small handful of employees can use the revolving door of Wall Street to provide their former and potentially future employers with an unfair advantage that is not in the public interest,” she said. “They may also benefit current clients of these employers, or use their position to establish relationships and business opportunities with future clients.”

The letter from Ms. Warren and Ms. Jayapal requested more information about the ethics rules to which office workers were subject, including whether employees had filed personal financial disclosure forms and whether the department had established restrictions on the place where employees could work after leaving government. .

Ms. Warren and Ms. Raimondo have clashed before, notably over the Commerce Department’s decision. meetings with major technology companies. Ms. Warren has already raised concerns on the possibility that federal chip subsidies could be used to buy back stock or otherwise enrich chip industry executives, and on a proposed law to set stricter limits on the types of jobs that former government employees can take after leaving public service.

In a letter last February responding to a previous inquiry from Ms. Warren about the chip program, the Commerce Department said it had “made ethics a priority in recruiting staff for CHIPS offices.” Employees would be screened for possible conflicts of interest and receive mandatory ethics training, the ministry said.