In April, a significant ruling by the U.S. Court of Appeals for the 9th Circuit served as a stark reminder for lawmakers across the nation. In the case of US v. Pangang Group, China’s state-owned enterprise was implicated in state-sponsored industrial espionage, having allegedly pilfered American trade secrets to further the strategic interests of the Chinese government. They even attempted to assert sovereign immunity, arguing that such theft was a legitimate act of state for national industrial advancement.
This admission not only underscored China’s use of commercial entities for geopolitical agendas but also revealed vulnerabilities within the U.S. system to economic subversion. One particularly concerning aspect is the role of third-party litigation funding, a tool that’s not widely understood but could be incredibly damaging. It’s time for Congress to pay attention and take proactive measures against this emerging threat.
During my tenure in Congress, particularly with the National Security Committee, I encountered various forms of foreign interference. Yet, few methods are as insidious as third-party funding arrangements. These involved outside investors—often anonymous—who finance litigation in exchange for a share of potential winnings. The absence of federal requirements to disclose such arrangements, especially regarding the funders’ identities, raises serious concerns. Whether these supporters are from foreign nations, sovereign funds, or shell companies connected to adversarial governments, this situation needs to be rectified.
While third-party funding is not inherently nefarious, the lack of transparency surrounding it can invite misuse. Historically, such funding has been backed by hedge funds or other investors seeking high returns, somewhat detached from broader market dynamics. These investors often bring their own ethical dilemmas about how they impact the judicial system and their profit motives, but they don’t typically aim to undermine the U.S. at large.
On the contrary, foreign-backed funders can exploit the legal system to deplete resources from American companies through protracted litigation. Moreover, they can gain access to sensitive information during discovery, including technical data and trade secrets. This is particularly alarming for sectors like AI, pharmaceuticals, aerospace, and semiconductor design, posing a direct threat to national security.
The FBI has flagged China’s economic espionage as a significant long-term threat, stating it endangers the nation’s information, intellectual property, and overall economic health. Yet, alarmingly, there are no foundational safeguards to prevent our courts from serving as intelligence gathering venues for hostile foreign powers. This is simply unacceptable.
Fortunately, there is a promising legislative approach on the table. The Protecting the Courts from Foreign Operations Act of 2025, introduced by Rep. Ben Klein (R-VA), aims to address some of these concerns. It seeks to prohibit foreign governments and sovereign wealth funds from investing in third-party litigation funding and mandates transparency regarding the funding sources. Additionally, it directs the Department of Justice to provide annual reports on foreign involvement in this area.
Another constructive initiative led by Rep. Darrell Issa (R-CA)—the Litigation Financing Transparency Act—requires the disclosure of funding sources in all federal civil cases. This ensures that judges and defendants are aware of who is influencing the litigation behind the scenes.
These federal movements align with initiatives at the state level, such as a recent law in Kansas that mandates the disclosure of third-party litigation financing agreements within 30 days of execution. It includes statements of oath identifying all parties involved, particularly whether the funder has influence over litigation or settlement decisions and if foreign entities are involved. However, piecemeal state efforts have their limits, and swift congressional action is essential.
Third-party litigation funding should not serve as a backdoor for adversarial nations like China to compromise American businesses, pilfer intellectual property, or jeopardize national security. When state-owned enterprises openly admit in court to stealing American innovations for their own geopolitical gain, it’s clear that we can no longer treat litigation finance as a mere investment avenue; it has the potential to be a weapon of strategic exploitation.
National security issues know no state boundaries and are not confined to foreign influences. The threat is real, the stakes are high, and action must be taken promptly. It’s critical not to wait for further court admissions to recognize a truth that China seems to grasp: the American legal system is, in fact, a battleground, and without reform, we’re fighting blindfolded.
