ProPublica, a nonprofit investigative newsroom, shared insights into the financial practices of SpaceX, an aerospace company led by Elon Musk. According to court records that have not been widely reported, SpaceX permits Chinese investors to acquire stakes in the company through offshore jurisdictions like the Cayman Islands.
This information emerged during a corporate dispute in Delaware, where SpaceX’s CFO and major investor Iqbaljit Kahlon provided testimony. Kahlon stated that while SpaceX generally avoids Chinese investors due to its status as a defense contractor, investments channeled through offshore vehicles are deemed “acceptable.” These offshore entities include structures set up in the British Virgin Islands, Cayman Islands, or Hong Kong, which help maintain investor anonymity.
Experts described this approach as unusual, expressing concerns over a defense contractor potentially obscuring foreign ownership. It was revealed that Kahlon, who holds substantial SpaceX shares through his investment firm, has facilitated Chinese investments in SpaceX via the Caribbean multiple times. In 2021, when news arose about a Chinese company’s intent to purchase $50 million in SpaceX stock, the deal was canceled by SpaceX, citing unhelpful media coverage for its government contracts.
Kahlon testified that SpaceX insiders were worried that public attention could lead to scrutiny from U.S. national security regulators. The company’s government contracts, valued in billions, involve sensitive work such as building a classified spy satellite network.
Federal regulations provide oversight for foreign investments in tech and defense sectors. Though direct reporting of Chinese investments is limited, U.S. officials can investigate and block transactions seen as a national security threat. SpaceX did not address detailed inquiries from ProPublica regarding this approach, and Kahlon chose not to comment on the motives behind it.
The insertion of offshore financial vehicles, common for cost-saving tax purposes, is atypical when preferred by a U.S. company, as noted by experts. Thirteen national security and corporate attorneys consulted on the matter, with twelve expressing unfamiliarity with such a practice by U.S. companies, suspecting concealment of Chinese ownership interests. The thirteenth noted precedent in using the tactic to obscure foreign investment origins.
Amidst Musk’s extensive ties with China, which raise significant scrutiny given his businesses in the country, the legal case unveiled SpaceX’s stringent secrecy regarding Chinese investments. The New York Times reported a canceled Pentagon briefing for Musk on US-China war plans, emphasizing his commercial vulnerabilities due to connections in China.
The Delaware court documents expose SpaceX’s network of middlemen facilitating Chinese access to its equity. Nonetheless, they leave unresolved the precise extent of Chinese ownership in SpaceX. Reports indicate that Chinese investors have acquired fractional amounts of SpaceX shares through offshore arrangements, with limited public knowledge of their financial scale.
SpaceX’s indirect investments strategy—from potentially needed scrutiny avoidance to more substantial hidden ties with China—remains ambiguous. Historically, U.S.-bound Chinese investments stirred debate, with legal advisors cautioning against offshore vehicle requirements for fear of appearing as deceptive practices.
Bret Johnsen, SpaceX CFO, attested that while the company has no formal adversary investment policy, it maintains a preference to avoid investment from specific nations. He underlined reliance on experienced middlemen like Kahlon to ensure vetted investor participation.
Kahlon has helped bring Chinese investors to SpaceX on several occasions using offshore proxies. With his longstanding affiliation, beginning with his involvement in SpaceX around 2007, Kahlon became instrumental in facilitating foreign investments through his firm, Tomales Bay Capital.
After a failed 2021 transaction involving Chinese investments, termed the worst professional incident for Kahlon, SpaceX restricted purchase abilities while still maintaining a partnership with him. Musk’s business ventures in China, including Tesla’s significant operations, underscore his complex ties with the country.
Given geopolitical and regulatory complexities, SpaceX and Musk’s dealings illustrate the nuanced interplay between securing business interests and navigating national security concerns.
