The following two articles appeared in ellinghuysen.com via BNO News/WireUpdate Local and Associated Press/Google  on Tuesday, August 31st, 2010.  Click on this link to see the articles on the ellinghuysen site.

Chinese national charged for stealing trade secrets from agricultural company in Indianapolis

INDIANAPOLIS, INDIANA (BNO NEWS) – A Chinese national was charged on Tuesday in a 17-count indictment related to the economic espionage of a leading agricultural company based in Indianapolis, the Federal Bureau of Investigation (FBI) Indianapolis announced.

Kexue Huang, also known as John, 45, was arrested on July 13 in Westborough, Massachusetts by FBI agents. He was the alleged responsible of stealing trade secrets from Dow AgroSciences LLC to China.

Huang, who was granted legal permanent residence status in the U.S., was working in the Indianapolis-based company as a research scientist beginning in 2003 until February 2008. Huang signed an agreement with Dow that prohibited him from disclosing any confidential information including trade secrets without Dow’s consent.

Dow is a leading agricultural company that provides agrochemical and biotechnology products. Since 1989, Dow has made substantial investments in research and development to produce a class of organic insect control and management products (organic insecticides).

In December 2008, Huang published an article, without Dow’s authorization, through Hunan Normal University (HNU) in China which contained Dow’s trade secrets. The article was allegedly based on work funded by the National Natural Science Foundation of China (NSFC).

In March 2008, after leaving Dow, Huang applied and received NSFC grants for developing Dow trade secrets. The defendant also directed research in China over Dow confidential information, beginning as early as September 2007.

Huang was allegedly trying to compete in the same market as Dow. In order to achieve so, he was scouting facilities in China that would allow him to develop such organic insect control and management products.

If convicted, Huang faces a maximum sentence of 15 years in prison and a $500,000 fine in each of the 12 counts of economic espionage. On each of the five counts of transportation of stolen property, he faces 10 years in prison and a $250,000 fine.

Ind. scientist accused of stealing trade secrets

by Charles Wilson

INDIANAPOLIS — A former Indiana scientist accused of illegally sending trade secrets worth $300 million to China and Germany was ordered detained Tuesday on rare charges of economic espionage.

A federal indictment unsealed in Indianapolis alleges that 45-year-old Kexue Huang, who was born in China, passed on proprietary information about the development of organic pesticides to Hunan Normal University while he worked as a researcher for Dow AgroSciences in Indiana from 2003 to 2008.

Dow Agrosciences is a subsidiary of Midland, Mich.,-based Dow Chemical Co.

Assistant U.S. Attorney Cynthia Ridgeway said Huang, a Canadian citizen with permanent U.S. resident status, used a “patient and calculated” plan to “drain” the Indianapolis-based company of technology that took 20 years to develop.

The indictment alleges that Huang published a paper in China about the organic pesticides and also directed students at Hunan Normal in further research.

FBI Special Agent Karen Medernach testified that e-mails showed Huang was developing an operation to market the pesticides in China, where he stood to make millions of dollars. She said the agency believed that Huang stole samples of the bacterial strain used in the pesticides and smuggled them to China in his son’s suitcase.

The indictment also included a vague reference suggesting Huang also transported stolen material to Germany but the document didn’t go into detail.

The gallery in federal court was occupied by about a dozen of Huang’s neighbors from his former home in the affluent Indianapolis suburb of Carmel and his current home in Westborough, Mass. Huang, clad in a jail uniform with gray and white stripes, was silent during the two-hour hearing.

Defense attorney Michael Donahoe called the alleged scheme “hypothetical” and said Huang maintained his innocence.

The indictment, which had been kept secret since it was filed June 16, charged Huang with 12 counts of theft and attempted theft of trade secrets to benefit a foreign government under the Economic Espionage Act. He also was charged with five counts of foreign transportation of stolen property. The economic espionage charges are each punishable by up to 15 years in prison while the lesser counts could each land him in prison for 10 years.

The Economic Espionage Act was passed in 1996 after the U.S. realized China and other countries were targeting private businesses as part of their spy strategies.

Magistrate Judge Kennard Foster entered a not guilty plea on behalf of Huang, who has been held without bond since his arrest July 13 in Massachusetts.

Huang’s wife, who identified herself as Jie Sun, broke down in tears at one point as she urged the judge to release her husband pending trial, saying she had just bought a condominium with the couple’s life savings of $308,000 and her husband wouldn’t risk losing that. She also said her husband would do nothing to harm their children, ages 12 and 7.

“There’s no reason for us to go anywhere else,” she said. “This is our home.”

Government witnesses countered that Huang had made eight trips to China in recent years and stood to make millions of dollars from marketing the stolen pesticides.

Foster ordered that Huang remain in jail, saying he was a serious flight risk and that the alleged scheme posed a “clear economic danger.”

Daniel Kittle, Dow’s global vice president for research and development, testified that developing the organic pesticides called spinosyns had cost the company at least $300 million over 20 years. He said facing a new competitor in China would pose a threat to the company’s business.

Ridgeway said the FBI also is investigating allegations that Huang was involved in a similar scheme while he worked for Cargill Inc. in Minneapolis after he was fired from Dow. Most recently he had lived in Massachusetts and worked at a biofuels company called Qteros, witnesses said.

Ridgeway said the Department of Justice has only filed economic espionage charges seven times. Two cases last year resulted in trials, with one ending in a conviction and the other with a deadlocked jury.

The other cases were settled before trial.

This is the view of a neighbor.  Not isolationist, but geopolitical reality.

After years of dancing around this central factor in India’s foreign policy, foreign minister Pranab Mukherjee, for the first time, has described China as a security "challenge and a priority", but significantly not as an opportunity. …

China is aggressive.  Not interested in "win-win" laissez-faire stuff.  "Win-lose" is acceptable and preferable.  Thus the investment in massive international espionage.

Mukherjee said, "We are today faced with a new China. Today’s China seeks to further her interests more aggressively than in the past, thanks to the phenomenal increase of her capacities after 30 years of reforms. There are also new set of challenges which China poses such as the strategic challenge as China develops its capabilities in outer space; the geopolitical challenge as it reaches out to various parts of the globe in search of raw materials and resources." 

The debate about China.  People are uncomfortable with the focus on China.   

Get over your discomfort.  Clear away the philosophical cobwebs.  Look at the math and look at the intent. 

China is the single biggest source of our trade deficit, and our outsourcing.  If it was some other country, I would talk about that country.  But it is not another country.  It is China.  So says the math.  People here lose jobs.  People you know.  People I know.

As to intent.  The Chinese spying is hitting the front page.  It is not the third tier papers from China.  It is not a few whistleblowers hastily shut up.  

[Joel F. Brenner, the top U.S. counterintellingence official] described China’s information-gathering efforts as “a full-court press and relentless.” As a result, he said, few professional analysts “really think that what’s going on is anything other than an orchestrated, deeply thought-out, strategic campaign.”

But… but… it must be the free market working.  The invisible hand.  Or something.

David W. Szady, who as an assistant director of the F.B.I. ran its counterintelligence division until retiring in 2006, said the Chinese had “mastered the use of multiple redundant collection platforms” by looking for students, delegates to conferences, relatives and researchers to gather information. … the Chinese “have become very focused on what they want.”

The hand is invisible, but not the same hand as Adam Smith thought about while living with his mother in Scotland in the 1790′s. 

The 24 character strategy is the Chinese version.  They have not studied Adam Smith.  This 24 character strategy is a very different invisible hand.

In the early 1990s, former paramount leader Deng Xiaoping (d. 1997) gave guidance to China’s foreign and security policy apparatus that, collectively, has come to be known as the “24 character” strategy:

“observe calmly; secure our position; cope with affairs calmly; hide our capacities and bide our time;be good at maintaining a low profile; and never claim leadership.”

I have posted quite a few blog items on China's espionage operations in the U.S. and elsewhere.  Each time, I must confess, I have this nagging feeling that the "cloak and dagger" posts and stories seem too sensational… fiction… too Robert Ludlum (spy novel author).  My point in this trade-related blog is that "trade policy" usually trumps, but should not trump, other national policies like national security.

Some of my Chinese spying posts cite from obscure publications like The Epoch Times, an online newspaper I cited here.  And Bill Kauffman, a University of Michigan professor, has been very active in pointing out student spying risks at his university.  I respect Kauffman's bravery and intelligence as a whistleblower in fighting the battle against the university that is profiting from the Chinese government apparently paying full tuition (a big sum there) for many, many students to attend school in Ann Arbor.  But most whistleblowers are viewed as gadflies, and not taken seriously.  If you meet Kauffman, you must take him seriously. 

But one can be accused of "China bashing"… an accusation that detracts from the issue… an often effective claim to divert attention from the problem.  China has had its share of problems.  The colonial era was not good for the country.  Internal dictatorships have oppressed, and continue to oppress, its people.  Good people.

But the current Chinese government is spying on the U.S.  Period. It probaby operates the most sophisticated and effective spying operation in the world.  NPR reports on it, as does the Times of London.  The US FBI chief testifies about it. Yet our defense and technology companies scramble to sell their sophisticated stuff to China and other countries.

And the Washington Post reports on it.  For example, today's article is frightening… featuring the details and context surrounding a recent conviction of a Chinese sleeper agent employed by a U.S. defense contractor.

The individual story is this:

Prosecutors called Chi Mak the "perfect sleeper agent," though he hardly looked the part. For two decades, the bespectacled Chinese-born engineer lived quietly with his wife in a Los Angeles suburb, buying a house and holding a steady job with a U.S. defense contractor, which rewarded him with promotions and a security clearance. Colleagues remembered him as a hard worker who often took paperwork home at night.

Eventually, Mak's job gave him access to sensitive plans for Navy ships, submarines and weapons. These he secretly copied and sent via courier to China — fulfilling a mission that U.S. officials say he had been planning since the 1970s.

But this is not a "one bad apple case."  This is the context.

The Chinese government, in an enterprise that one senior official likened to an "intellectual vacuum cleaner," has deployed a diverse network of professional spies, students, scientists and others to systematically collect U.S. know-how, the officials said. Some are trained in modern electronic techniques for snooping on wireless computer transactions. Others, such as Mak, are technical experts who have been in place for years and have blended into their communities.

"Chi Mak acknowledged that he had been placed in the United States more than 20 years earlier, in order to burrow into the defense-industrial establishment to steal secrets," Joel Brenner, the head of counterintelligence for the Office of the Director of National Intelligence, said in an interview. "It speaks of deep patience," he said, and is part of a pattern.

China's official response?

Calls placed to the Chinese Embassy in Washington requesting comment on recent spy cases were not returned. But Chinese officials have repeatedly denied that their country is stealing military technology. "We have reiterated many times that allegations that China stole U.S. military secrets are groundless and made out of ulterior motives," Chinese Foreign Ministry spokesman Qin Gang said at a recent news conference in Beijing, commenting on the Mak case.

Surprise.

The spying accusations were baseless and undermined relations
between the countries, a spokesman for the Foreign Ministry, Liu
Jianchao, said at a news conference.

Four Chinese are charged with spying by the Justice
Department.  Australia, Great Britain, Germany, New Zealand and
Australia have all become upset with China’s increased "clandestine
efforts to collect military secrets and advanced technology."

All
baseless, say the Chinese.  Lies.  All Lies.  Its a good
thing they can’t arrest our reporters and whistleblowers and put them
in prison.  Like they do at home. 

No wait.  They do punish Americans, through paid intermediaries, for raising concerns.  The University of Michigan administration punished Professor Bill Kauffman for raising the issue of Chineses students being used to steal high technology from the university program. 

The
University of Michigan is paid large amounts of full tuition money (U
of M tuition is very very high) by the Chinese government to educate
Chinese students.  No background checks on those students.  U
of M is happy to take the checks, and implement the "don’t ask, don’t
tell" policy.  Kauffman asked and told.  They did not like it.

Vince Wade produced this video, the first in a series.  The
topic here is the U.S. university role in transferring sensitive
military and civilian technology to China.  It supports the FBI’s
conclusion that Chinese government espionage is a top worry.  See here, and here.

This link takes you to the NPR story.

Morning Edition, November 7, 2007 · The FBI is concerned that the
open environment at U.S. universities makes it child’s play for
political or corporate spies to steal U.S. research. The relationship
between the FBI and universities has traditionally been strained, but
the fight against terrorism creates new bedfellows. 

China’s military growth is finally being questioned, albeit meekly, by Secretary of Defense Robert Gates.

Pentagon officials describe China as a “peer competitor” — hardly
an adversary, often a partner, yet not a reliable, close ally. The
defense secretary’s visit was intended to nurture this complex
relationship and press for more open communication over military
issues. …

Mr. Gates and his counterparts also announced an agreement to
organize a new joint naval exercise, larger and more complex than
previous exercises; a plan to exchange military students; and a promise
to open Chinese archives to help account for American soldiers still
listed as missing from the Korean War. 

Hmm.   Given that China is the world’s most aggressively spying nation, some real thought must go into these joint activities.

China’s military strategy is outlined here. 
It is certainly worrisome.  Would other countries allow their
trade policies to facilitate becoming a trillion dollar debtor to their
biggest geopolitical rival?  Would China itself allow that? 
Doubtful.

I don’t consider myself a member of the Black Helicopter Society.  But this China espionage stuff keeps coming.

*  Our FBI told Congress that China’s civilian and military spies are the world’s most effective;

*  The FBI is investigating Chinese students in several universities for spying;

*  New Zealand’s secret service accused the Chinese government of hacker attacks on government networks.

Now the German government believes the Chinese government hacked tremendous amounts of data in an "extraordinary" economic espionage operation.

Der Spiegel, quoting senior officials from the German equivalent
of Special Branch, said that the hacking operation was discovered in
May. Computers in the Chancellery, the Foreign, Economics and Research
ministries had been targeted. The Federal Office for the Protection of
the Constitution (BfV) conducted a comprehensive search of government
IT installations and prevented a further 160 giga-bytes of information
being transferred to China. Commentators described it as “the biggest
digital defence ever mounted by the German state”.

The information was being siphoned off almost daily by hackers in
Lanzhou, northern China, in Canton province and in Beijing.  

I previously presented the concerns of Professor Bill Kauffman
who was punished by the University of Michigan for raising the issue of
Chinese students being used to steal high technology from advanced
science Ph.D. programs at that university.  These programs have
substantial military-related technology work.  China provides a
boatload of money to the Ann Arbor folks, and they naturally want to
"hear no evil."

Apparently the FBI
is now conducting a comprehensive investigation into student spies across
the U.S.  Yes, I know, this sounds like a conspiracy theory. 
The spy stuff is avoided by the mainstream press, but there are now
reports in second tier publications on the FBI investigation of Chinese students in several Eastern U.S. universities. 
I’m not representing this as fact, but as troubling.  We’ll see
where this goes.  A strong pattern seems to be emerging.  And Robert Mueller of the FBI told Congress that China was the most aggressive country for espionage.

UPDATED:  New Zealand’s secret service is now accusing
Chinese government spies of cyberattacks on government computer
networks. This is consistent with the People’s Liberation Army
publication, "Unrestricted Warfare," written by two Chinese colonels in 1999.