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Probe links corporate spying to Chinese government

A chance discovery during an FBI investigation uncovered what authorities say is proof of a phenomenon long suspected by corporate espionage experts: Companies owned by the Chinese government have a growing appetite for the trade secrets of American corporations, and they're soliciting foreign nationals in the U.S. to steal them.

In this case, a couple allegedly spent more than 10 years tracking down the formula for a white pigment produced by chemical company DuPont. The Wall Street Journal reported that Walter and Christina Liew planned to turn over their findings to Pangang Group, a company owned by the Chinese government.

"Chinese actors are the world’s most active and persistent perpetrators of economic espionage," the Office of the National Counterintelligence Executive wrote in a congressional report last October. "Of the seven cases that were adjudicated under the Economic Espionage Act ... in Fiscal Year 2010, six involved a link to China."

DuPont's method for manufacturing titanium dioxide is closely guarded by the company. Correspondence uncovered in a safe-deposit box linked the operation back to Pangang and high-level Communist Party officials in China, according to the Journal. The paper said DuPont alerted the FBI after receiving an anonymous letter about Liew's activities and finding DuPont information on the computer of a colleague, who has not been charged. 

The Liews were arrested in July and have been charged with trying to steal trade secrets and sell them to China. They have denied the charges.

Last week, the Department of Justice announced that another participant in the operation, Tze Chao, pleaded guilty to conspiracy to commit economic espionage. Chao, a former DuPont employee, "admitted that he provided trade secrets concerning DuPont’s proprietary titanium dioxide (TiO2) manufacturing process to companies he knew were controlled by the government of the People’s Republic of China," the DOJ said in a statement. 

M.E. "Mich" Kabay, chief technical officer of Adaptive Cyber Security Instruments Inc., and professor of information assurance and statistics at Norwich University, called state-sponsored corporate espionage "standard operating procedure" for China, although this case unearthed the first paper trail showing a request for trade secrets that began with the state, rather than a corporation, according to the Journal.

Chinese government officials have denied knowledge or endorsement of these kinds of activities. But Kabay said it's hard to believe that an autocratic, controlling government with significant involvement in the nation's industrial sector would be unaware of efforts to steal American trade secrets.

Unlike the relatively low-tech methods used by the spies in the DuPont case, Kabay said many attempts to steal trade secrets from American businesses are undertaken by computer hackers. He cited this as another example of Chinese state complicity or involvement in the theft of intellectual property, given its notoriously tight grip on its citizens' use of the Internet. "Their tolerance of criminal hacker groups is inexplicable without the assumption that the government is encouraging criminal hacking," he said. 

"Cyberspace is a unique complement to the espionage environment," the congressional counterintelligence report said, adding that "an onslaught" of recent attempts to penetrate the online security systems of American companies were traced to Chinese Internet  addresses. 

Author and former sr. partner at Goldman Sachs Peter Kiernan discusses America's complicated relationship with China and why the two countries need each other.