Luke Bencie is the Managing Director of Security Management International, a global security consulting firm.
The ongoing tiff between the U.S. and China over economic espionage activities took an unexpected turn recently, with New York Times revealing alleged spying by the U.S. on Huawei. The Chinese company, which had been blocked by the U.S. government from acquiring companies in the United States due to security concerns, was itself reportedly being targeted by the U.S. intelligence community.
Most experts still agree, though, that the Chinese are winning the industrial espionage game. According to the FBI, since 2008, economic espionage arrests have doubled, indictments have increased five-fold, and convictions have risen eightfold. Many of these cases include a Chinese nexus.
There are three primary reasons that we don’t hear more about corporate espionage: First, because businesses often don’t realise they have been compromised. Second, if they do find out, a public announcement would be counterproductive, eroding investor confidence. Finally, industrial espionage works both ways — companies may keep compromises quiet to preserve their own business intelligence gathering activities.
Here are five ways Beijing is still eating America’s economic lunch:
Buying Trade Secrets: Earlier this month, naturalized Chinese American Walter Liew was found guilty of 20 criminal counts, including industrial espionage and theft of trade secrets. Liew was hired by a state-owned company in China to buy trade secrets pertaining to the production of chloride-route titanium dioxide from an American engineer employed by DuPont. Liew convinced the engineer to make copies of over 400 pages of secret documents and to provide photographs of restricted DuPont facilities. Liew and his wife were paid over $US12,000,000 by the Chinese company, which in turn got access to technology that DuPont refused to licence.
Digging Up Dirt, Literally: In 2011, a farmer spotted two men rooting around in his field. When he approached them, the Chinese men seemed at a loss for what to say, and when the farmer turned away to make a phone call they sped off in their car. After more than a year of investigation by the FBI, five Chinese men were charged with stealing — from DuPont as well as Monsanto and LG Seeds — a special strain of corn. The FBI alleges the men tried to “covertly transfer the inbred seed to China,” with a resulting estimated loss to the US company of $US30 to $US40 million. All five were employees of a seed company based in Beijing. They are currently awaiting trial.
Employee Poaching: In mid-2013, the Department of Justice handed down an indictment against Chinese company Sinovel Wind Group for stealing the source code for wind power generators from Wisconsin-based manufacturer ASMC, resulting in an alleged loss of more than $US800 million. The indictment alleges that Sinovel’s head of R&D and one of his employees recruited a Serbian employee of ASMC’s European subsidiary to leave ASMC and secretly download the source code for ASMC’s “Low Voltage Ride Through” software from a computer in Wisconsin. Sinovel reportedly offered the Serbian employee double his ASMC salary, more than $US280,000 per year.
Classified Ads: In 2012, a classified ad ran in the Sedalia Democrat (from the small town of Sedalia, Missouri) looking for a Pittsburgh Corning employee to help build a foam glass plant in China; an FBI informant with experience in the industry responded to the ad. When the informant met with Chinese nationals Ji Li Huang and Xiao Guang Qi, the two men promised to pay for documents the informant would steal from the glass plant pertaining to methods for manufacturing insulated storage tanks for natural gas. They offered the informant a total of $US100,000 for information that a court later ruled could result in economic damage to the company of more than $US7 million. Both men pleaded guilty.
Cyber Theft: China has developed a justly deserved reputation for cyber theft of secrets. In one of the most damaging cases, hackers stole technical documents from a variety of different defence contractors that allowed the Chinese military to produce a fighter jet with many features strikingly similar to those found on America’s new F-35 fighter. The Chinese government was thus able to reduce its R&D time and save massive amounts of money catching up with American military capabilities. The information was acquired by a Chinese military unit called the “Technical Reconnaissance Bureau,” which passed it to the state-run Aviation Industry Corporation, which manufactured the Chinese aircraft. Also compromised were technical documents relating to the new Terminal High Altitude Area Defence and the Patriot Advanced Capability-3 missile defence system.