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On November 1, 2023, the Congressional-Executive Commission on China (CECC) issued a press release regarding the extent to which large enterprises have been complying with U.S. sanctions regimes touching on human rights.
Letter to Costco and ADI Raises Concerns about Sale of Hikvision and Dahua Products; Chairs Ask Whether Costco’s Seafood Supply Chain Is Tainted by Forced LaborNovember 1, 2023
(Washington)— Representative Chris Smtih (R-NJ) and Senator Jeff Merkley (D-OR), the Chair and Cochair, respectively, of the bipartisan and bicameral Congressional-Executive Commission on China (CECC) today released letters to the chief executives of Costco and ADI, asking questions about the ongoing sales of security equipment made by Hikvision and Dahua, PRC-based brands whose products are banned for use by the U.S. Government and implicated in assisting with genocide and other horrific human rights abuses in the Xinjiang Uyghur Autonomous Region (XUAR). Major competitors of Costco and ADI stopped selling security equipment from these brands citing human rights and ethical sourcing concerns, so the Chairs asked why each continues to market products made by these companies to U.S. schools, businesses, and families. The Chairs also asked ADI why its website still markets Hikvision and Dahua security equipment as “NDAA compliant”, despite Congress banning the use and sale of these products on U.S. military bases in the National Defense Authorization Act of 2019.
The Chairs also asked Costco’s CEO about the company’s seafood supply chain and for any risk assessments the company has done regarding seafood caught by China’s “illegal, unregulated, and unreported” fishing fleet and processed by companies using Uyghur or North Korean labor. The issue of forced labor in the seafood supply chains of major wholesalers, restaurants, and grocery chains was the topic of the recent CECC’s hearing “From Bait to Plate—How Forced Labor in China Taints America’s Seafood Supply Chain.” After the hearing, the Chairs sent a letter to Department of Homeland Security Secretary Alejandro Mayorkas urging him to take “immediate actions” to curb seafood imports caught or processed with forced labor in China.
Follow the hyperlinks to read the signed letters to Costco and ADI.
The Press Release suggests the growing maturity of American style administrative supervision measures which are developing in marked contrast to the style of administrative supervision developing in Europe (and of course fundamentally different from the Marxist-Leninist style of administrative supervision arising in New Era China) (see, e.g., The US Two-Thrust Campaign Against Chinese Policy in Xinjiang). All three imperial regulatory centers are converging on administrative supervision as the preferred style for managing the productive forces of their respective empires (however they choose to label themselves to their own people and in light of their historical self-categorization). But the Chinese Marxist-Leninist style tends to favor CPC generated and administratively coordinated systems of objectives based management which embeds political goals and policy with the operational characteristics of markets based production. The Europeans tend to favor a more intense values and values-objectives based compliance regimes that fuse the techniques of risk based management with the traditional techniques of modern public administrative bureaucracies that favor risk aversion respecting privileged policy objectives (under a prevent-mitigate-remedy model).
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The two letters follow below.
Dear Mr. Jelinek:
We write to ask questions about Costco’s sale of Lorex security products, which are linked directly to the
Chinese company Dahua, whose products are restricted for all in the U.S. by the Federal Communications
Commission (FCC). The bulk of this letter details our concerns about the sale of Lorex security products to American consumers. However, given recent reports indicating the possibility of forced labor in your
company’s seafood supply-chain, we also seek from you the audits and risk assessments used by your
company to justify the sale of seafood caught and processed by companies in the People’s Republic of China (PRC). We should both agree that American consumers should not be subsidizing horrific human rights abuses—by either Chinese security or seafood companies.
The sale of Lorex security equipment allows Dahua to profit from the U.S. market even though its equipment is banned from U.S. government use because of security and human rights concerns. Dahua has also been placed on the Department of Commerce’s “Entity List,” because of its role in the PRC’s genocide in the Xinjiang Uyghur Autonomous Region (XUAR).
Your competitors, Best Buy, Home Depot, and Lowe’s, discontinued the sale of Lorex products, citing
human rights and ethical sourcing concerns—making Costco’s continued sale of the equipment all the more puzzling and seemingly in conflict with your company’s stated commitment to the United Nations Guiding Principles on Business and Human Rights and the International Bill of Human Rights.
In November of 2022, the Federal Communications Commission (FCC) deemed that telecommunications
and surveillance equipment from Hikvision and Dahua posed an “unacceptable risk” to national security and announced that additional equipment sales in the United States would not be authorized until the companies submitted a plan for approval. As you likely know, Dahua submitted a plan, though the FCC did not approve it. New rules issued in February of 2023 state that the FCC will no longer approve plans from five different entities including Dahua, Hikvision, and their respective subsidiaries and affiliates.
In addition to concerns about security, the United States government linked Dahua to the genocide of the
Uyghurs and other predominately Muslim ethnic minorities in the XUAR. Dahua developed alert and
tracking technology that allows police to identify ethnic Uyghur faces and deploy invasive surveillance
technology, such as Wi-Fi sniffers. Dahua also co-developed “ethnicity tracking” technical standards within China that predict the probability an individual is a Uyghur, Tibetan, or other ethnic group.
We should all agree that in a national security state like the PRC, Dahua’s efforts to help track and identify
ethnic minorities are particularly noxious and should be condemned. American consumers should not be
subsidizing a company actively enabling the PRC’s atrocities, including imports of goods made with forced labor in the XUAR.
Lorex products are also a known security risk to U.S. customers because critical vulnerabilities are regularly discovered in Dahua products, including unauthorized viewing of video and audio feeds and archives, as well as unauthorized network access and remote tampering with settings. While Dahua denies it shares any data and claims its products are safe, the PRC’s 2017 National Intelligence Law requires Dahua to support national intelligence work. No data collected can be withheld from PRC authorities should they request it for intelligence purposes—a vulnerability that your U.S. and global customers should be notified of. The recent sale of Lorex to a Taiwanese company Skywatch does not allay our concerns or immediately change the security risks posed to U.S. companies and consumers moving forward, as Dahua still supplies all the component parts for the Lorex cameras and other surveillance equipment.
The material and reputational risks associated with selling Lorex equipment are something your company
recognizes. After an Internet Video Protocol Market (IVPM) report showed that Lorex video surveillance kits sold in Costco bore “Made in the USA” labels, the kits were later re-labeled as “Made in China.”
Nevertheless, they stayed on Costco’s shelves, with no further explanation of who was responsible for this
mistake or why the Lorex name stayed on Dahua equipment.
In addition to our concerns about the sale of Lorex equipment, we ask that you also provide a detailed
response to reports about Costco’s sale of seafood from Chinese companies that use forced labor to catch and process seafood for the U.S. market. The research done by the Outlaw Oceans Project, detailed in the New Yorker and other publications, is compelling and implicates the supply-chains of Costco and many other retailers and grocery chains in forced labor, including of ethnic Uyghurs and North Koreans.
To help us understand Costco’s decision to sell security equipment and seafood products from the PRC to
American consumers, and given Costco’s massive footprint in the U.S. and global market, please respond to the questions below about our concerns and other issues regarding Costco’s business practice that will help the Commission’s oversight of U.S. laws and national security.
Questions:
1. How has the sale of Lorex security equipment complied with Congressional and FCC restrictions? How is it consistent with Costco’s commitment to the United Nation’s Guiding Principles on Business and Human Rights?Thank you for your consideration. We look forward to your response.
2. Given that your competitors have stopped selling Lorex products citing human rights and sourcing concerns, why didn’t Costco follow suit? Does Costco have information that contradicts the concerns raised by your competitors? If so, can you share it with us?
3. Would Costco commit to ending the sale of Lorex security equipment, given its continued association with Dahua components?
4. Has Costco done any analysis of the risks to the personal sensitive information of customers presented by Lorex equipment? If so, can you share this analysis with us?
5. Have U.S. customers been warned about the security vulnerabilities associated with Lorex equipment and offered ways to mitigate such risks? If so, can you provide the Commission with these warnings?
6. Did Lorex provide Costco with any special incentives or finance packages for the sale of Lorex equipment? Have those incentives continued after the sale of Lorex to Skywatch? Can you share that with us?
7. What is the policy of Costco to selling Dahua or other video surveillance equipment prohibited for sale in the U.S.—such as Hikvision— in stores outside the U.S.? Are the products widely available at Costco locations outside of the United States? If so, where?
8. Do any Costco Wholesale Corporation entities or subsidiaries in the PRC have communist party committees instituted in their corporate charters? Do communist party committees operate in Costco’s stores in the PRC?
9. Are Costco’s workers in the PRC allowed to organize labor groups or conduct religious activities at your stores? If not, why not and can you provide us with store policies regarding such associations and assembly?
10. Has Costco leadership met with Uyghur-Americans to discuss the genocide and forced labor experienced by their families in China? Would you commit to doing so?
11. Given the recent report by the Outlaw Oceans Project about forced labor in China’s fishing and seafood processing industries and Costco’s sale of seafood from China, we ask that you provide us with the audits and risk assessments your company completed to justify the sale of seafood from the PRC. Is it Costco’s position that its seafood supply-chain is completely free of forced labor and that no Uyghurs or North Koreans are processing seafood for sale at Costco? If not, what concrete steps are you taking right now to ensure that Costco’s customers are not consuming seafood tainted by forced labor?
Sincerely,
Representative Chris Smith Senator Jeffrey A. Merkley
Chair Cochair
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Dear Mr. Aarnes:
We write to express concerns about your company’s sale of Hangzhou Hikvision Digital Technology
(“Hikvision”) and Dahua Technology (“Dahua”) video security equipment to American schools, hospitals,
and other public and private entities in the United States. The telecommunication and surveillance equipment manufactured by these companies is a recognized threat to American users as the equipment is manufactured according to standards that could be leveraged by intelligence agencies of the People’s Republic of China (PRC), where private sensitive information of Americans is likely stored. In addition, the sales of Hikvision and Dahua cameras to U.S. federal agencies, including U.S. military sites, is prohibited by the National Defense Authorization Act (NDAA). Despite this, we found that ADI’s U.S. website still lists nearly a dozen Hikvision or Dahua security equipment as NDAA compliant, apparently marketing to those covered by the ban.
In addition to concerns about privacy, Hikvision and Dahua are both implicated by the U.S. government as
enablers of genocide and crimes against humanity. In October 2019, the Department of Commerce placed
both companies on its “Entity List” for their role in providing equipment to PRC government facilities used to arbitrarily detain over one million ethnic Uyghurs and other predominantly Muslim ethnic minorities in the Xinjiang Uyghur Autonomous Region (XUAR).
Leaked PRC government documents, known as the “Xinjiang Police Files,” detailed how Hikvision cameras in particular are used to arbitrarily identify specific innocent individuals for detainment, including Uyghurs returning from abroad. Dahua is linked to the PRC’s genocide through its development of “Uyghur alert” and tracking technology which identify so-called “hidden terrorist inclinations” through discriminatory facial recognition, and for its creation of “ethnicity tracking” standards within China.
If nothing else, we should all agree that American consumers should not be subsidizing the Chinese
Communist Party’s atrocities.
In November 2022, the Federal Communications Commission (FCC) deemed that telecommunications and surveillance equipment from Hikvision and Dahua posed an “unacceptable risk” to national security and announced that additional equipment sales in the United States would not be authorized until the companies submitted a plan for approval. Only Dahua submitted a plan, though the FCC did not approve it. New rules issued in February 2023 state that the FCC will no longer approve plans from five different entities including Hikvision and Dahau and their respective subsidiaries and affiliates.
The above prohibitions recognize the need to secure our communications networks and supply chains from equipment that poses an unacceptable risk to the national security of the United States or the security and safety of American citizens. Analysis of Hikvision and Dahua security equipment found they are vulnerable to spying from hackers and information requests from PRC intelligence entities. These findings are especially concerning given that Hikvision cameras use the servers of Chinese service providers from major Chinese companies Tencent, Alibaba, and state-owned enterprise Chinanet.
As recently as this year, experts found vulnerabilities in Dahua products, including unauthorized viewing of video and audio feeds and archives, as well as unauthorized network access and remote tampering with
settings. U.S. consumers, schools and private businesses should not have to worry about how their data is
stored and whether it will be accessed by foreign governments. The cybersecurity of your U.S. customers,
which includes large and small companies, schools, and remote working professionals, should be of
paramount concern.
Best Buy, Lowe’s, and Home Depot dropped the sale of Hikvision and Dahua security equipment, citing
human rights and supply-chain concerns. Your competitor Wesco/Anixter announced plans to drop cameras from Dahua and Hikvision because of “applicable U.S. laws and regulations.”
We noticed ADI has not made a similar announcement, even after news broke that U.S. Department of
Defense documents describe Hikvision as a partner of “Chinese intelligence entities” and “using
relationships with resellers to disguise its products for sale to government suppliers.”[1 Tessa Wong, Paul Adams, and Peter Hoskins, “Hikvision: Chinese
Surveillance Tech Giant Denies Leaked Pentagon Spy Claim,”British
Broadcasting Company, April 18, 2023, https://perma.cc/6F2A-RWWW.] These documents also claim that as of January 2023, rebranded Hikvision products were still available to customers in the U.S. government. If your company is engaged in such practices, we ask that you detail them for us thoroughly in your response.
In the current global context, the partnerships between U.S. companies and PRC entities are a congressional concern, particularly if those partnerships threaten national security, the private sensitive information of American citizens, or the freedoms guaranteed to both the Chinese and American people. Given your company’s ongoing relationship with Hikvision and Dahua, we ask that you respond to our questions below, as we are compiling information for future reports and a hearing where we may request your testimony.
Questions
1. Given that major retailers and your competitor are no longer selling Dahua or Hikvision products, and given concerns about consumer safety and supply-chain problems, what is the rationale for your continued marketing of these products to American customers? What is your plan to comply with FCC restrictions on the sale of telecommunications and security equipment manufactured by Hikvision and Dahua moving forward?
2. How is the sale of security equipment from Hikvision and Dahua compliant with NDAA restrictions, as stated on your website?
3. Is your company aware that the U.S. Department of Defense reportedly concluded that Hikvision is a partner with Chinese intelligence entities, and do you make this information available to your clients? If not, why not? If so, can you give us examples of how your clients are explicitly informed of this fact?
4. The U.S. Department of Defense also reportedly concluded that Chinese security equipment companies are “using relationships with resellers to disguise its products for sale to [U.S] government suppliers.” Is ADI disguising products made by Dahua and Hikvision for sale to federal agencies? What evidence can you provide the Commission to rule out this possibility? If you are rebranding such equipment for sale, what brand names are they sold under? Are you selling to U.S. government customers and are they aware that the security equipment being bought is simply Hikvision and Dahua equipment sold with a different
label?
5. Has ADI done an analysis of the security risks associated with Hikvision and Dahua security equipment? If so, is this analysis and any associated warnings easily available to customers? Are your customers aware of the security risks more generally and offered assistance for ways to protect their sensitive personal data?
6. Given that schools and school systems are a major customer of your security cameras, what extra steps are you taking to ensure the personal and data privacy of American children and students?
7. Are you selling to U.S. military personnel for personal and/or private business use? If so, are they made explicitly aware of the NDAA restrictions on the security equipment at military facilities and the security risks associated with this equipment, particularly from the People’s Republic of China?
8. Has your company done an assessment of the material and reputational risks associated with the sale of brands linked to genocide and crimes against humanity in the PRC? If not, why not, and do you think consumers should be made aware of the links?
9. Does your company have a compliance department and have they assessed the risks associated with a failure to disclose those risks resulting from your association with Hikvision or Dahua? If so, can you share with us that assessment?
10. Does your company accept or has it ever accepted discounts or other incentives from Hikvision or Dahua?
Thank you for your consideration. We look forward to your response.
Sincerely,
Representative Chris Smith Senator Jeffrey A. Merkley
Chair Cochair
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