By Alexandra Alper

WASHINGTON, (Reuters) – The Biden administration examines the e-commerce giant Alibaba According to three persons briefed, the U.S. will examine the cloud business of the (NYSE:), in order to assess whether there is any risk to national security. The matter comes amid increased scrutiny by the U.S. government over Chinese tech companies’ transactions with U.S. entities.

People said that the probe focuses on whether Chinese authorities could access the data stored by the company. One of the sources said that Beijing could also try to block access to U.S. customers’ information on Alibaba cloud.

U.S. regulators may eventually choose to make the company take steps to lessen the risk of the cloud business. Or, they could ban Americans living in the United States from accessing the service. According to one source, the Commerce Department of former President Donald Trump was worried about Alibaba’s cloud-based business. However, the Biden administration initiated a formal review shortly after Trump took office.

Research firm reveals that Alibaba’s U.S. business in cloud services is very small with annual revenues of just $50 million. Gartner (NYSE:) Inc. If regulators do decide to ban transactions between American businesses and Alibaba Cloud, this would hurt one of the largest and most profitable business lines of the company. It also could damage the company’s reputation.

Commerce Department spokesperson stated that the department does not comment on “existence or absence of transaction reviews.” An inquiry to the Commerce Department was unsuccessful.

Alibaba declined comment. Alibaba declined to comment.

One small department within Commerce Department, known as the Office of Intelligence and Security, is overseeing the investigation into Alibaba’s cloud-business. This office was established by Trump to allow for broad new powers that can ban or limit the transactions of U.S. businesses with internet, telecom, and tech companies from “foreign enemy” countries like China, Russia Cuba Iran North Korea and Venezuela.

One source said that the office is particularly concerned about Chinese cloud providers amid increasing concerns over data theft and access disruptions by Beijing.

Trump’s administration warned in August 2020 that Chinese cloud providers such as Alibaba would be held responsible for “preventing U.S. citizens’ most sensitive personal and business information…from being stored or processed on cloud systems which are accessible to foreign adversaries.”

Because they are able to conceal the source of an attack and provide access to many client networks, cloud servers can also be used by hackers as cyber-attack vectors.

There are few public instances of the Chinese government requiring tech companies to hand over customer data. However, Chinese hackers were indicted and shown to have used cloud servers to obtain private information.

For example, hackers connected to the Chinese Ministry of State Security penetrated HPE’s cloud computing service https://www.reuters.com/investigates/special-report/china-cyber-cloudhopper and used it as a launch pad to attack customers, plundering reams of corporate and government secrets for years in what U.S. prosecutors say was an effort to boost Chinese economic interests.

Alibaba is the “Pillar of Growth” According to Canalys research, Alibaba ranks fourth in cloud providers worldwide. It has approximately 4 million customers. Alibaba describes its cloud business “second pillar for growth.” Although it saw an increase of 50% in its revenue to $9.2Billion in 2020, the business accounts for only 8%.

It boasts business relations with top U.S. corporations, including Ford Motor (NYSE 🙂 Co. IBM According to press releases, (NYSE:) Red Hat and Hewlett Packard Enterprise are listed.

The Trump administration’s broad powers do not apply to U.S. subsidiaries, but U.S. regulators had previously discovered ways to tie them to U.S. parent corporations. These can then be restricted.

Alibaba was ambitious before tensions in tech between China and the United States boiled over. In 2015, it launched a cloud computing hub in Silicon Valley https://www.reuters.com/article/alibaba-cloud/corrected-alibaba-cloud-unit-sets-sights-on-amazon-in-1-billion-global-push-idUSL1N1090C220150729, its first outside of China, with plans to compete with Amazon.com Inc (NASDAQ:), Microsoft Corp (NASDAQ -) and Alphabet NASDAQ – Inc’s Google. The company later opened additional data centers in Virginia, and it continued to expand its operations there. An individual familiar with the matter said that the company reduced its U.S.-based strategy under Trump’s presidency, as China tensions escalated.

In 2018, U.S. authorities blocked a bid https://www.reuters.com/article/us-moneygram-intl-m-a-ant-financial/u-s-blocks-moneygram-sale-to-chinas-ant-financial-on-national-security-concerns-idUSKBN1ER1R7 by Alibaba affiliate Ant Financial, now Ant Group, to acquire U.S. money transfer company MoneyGram International Inc over national security concerns. But a move to put Ant Group on a trade blacklist failed https://www.reuters.com/article/us-usa-china-ant-exclusive/exclusive-trump-administration-shelves-bid-to-blacklist-chinas-ant-group-sources-idUSKBN27J2OD and an executive order banning its mobile payment app Alipay was revoked by Biden https://www.reuters.com/technology/us-withdrawing-trump-executive-orders-that-sought-ban-tiktok-wechat-2021-06-09.

Biden and Trump have placed increasingly restrictive measures on Chinese firms. Last month, the U.S. government put investment and export curbs on dozens of Chinese firms https://www.reuters.com/markets/us/us-adds-more-chinese-firms-restricted-entity-list-commerce-2021-12-16, including top drone maker DJI, accusing them of complicity in the oppression of China’s Uyghur minority or helping the military.