The U.S. examined Alibaba's cloud unit to determine whether it poses a national security risk

January 20, 2022: According to three people briefed on the matter, the Biden administration reviews e-commerce giant Alibaba’s cloud business to determine whether it poses a risk to U.S. national security. The government ramps up scrutiny of Chinese technology companies that deal with U.S. firms.

The probe focuses on how the company stores U.S. clients’ data, including personal information and intellectual property. The potential for Beijing to disrupt access by U.S. users to their data stored on the Alibaba cloud is also a concern, one of the people said. If the Chinese government could gain access to it, the people said.

U.S. regulators could choose to force the company to reduce the risks by the cloud business or prohibit Americans at home and abroad from using the service altogether.

Former President Donald Trump’s Commerce Department was concerned regarding Alibaba’s cloud business. Still, the Biden administration launched the formal review after he took office in January, according to one of the three people and a former Trump administration official.

According to research firm Gartner Inc, Alibaba’s U.S. cloud business is small, with annual revenue of less than an estimated $50 million. But suppose regulators ultimately decide to block transactions between American firms and Alibaba Cloud. In that case, it will damage the bottom line of one of the company’s most profitable businesses and deal a blow to its reputation as a whole.

A Commerce Department spokesperson said the agency does not comment on the “existence or non-existence of transaction reviews.” The Chinese Embassy in Washington did not respond to a request for comment.

Alibaba declined to comment. It did similar flag concerns nearly operating in the U.S. in its most recent annual report, which says U.S. companies that have contracts with Alibaba “may be prohibited from continuing to do business with us, which include performing their obligations under agreements involving our cloud services.”

A small office leads the probe into Alibaba’s cloud business within the Commerce Department known as the Office of Intelligence and Security. The Trump administration created it to wield broad new powers to ban or restrict U.S. firms and internet, telecom, and tech companies from “foreign adversaries” nations such as China, Russia, Cuba, Iran, North Korea, and Venezuela.

One of the sources said that the office had been mainly focused on Chinese cloud providers amid growing concern for the potential for data theft and access disruption by Beijing.

The Trump administration issued a warning in August 2020 against Chinese cloud providers, which include Alibaba, “to prevent U.S. citizens’ most sensitive personal information and our businesses’ most valuable intellectual property from being stored and processed on cloud-based systems accessible to our foreign adversaries.”