Costs of economic espionage mount
WASHINGTON – An ominous pattern of economic espionage has cost American companies at least $13 billion in recent years as corporate spies sell everything from chemical secrets to military technology – with China being the most persistent perpetrator, according to federal authorities.
“It’s never been a more significant issue than it is right now,” said Frank Figliuzzi, in charge of the FBI’s Counterintelligence Division.
Retired engineer David Wen-Chyu Liou, a naturalized U.S. citizen from China who worked for Dow Chemical Co. and lived for a time in Houston until he was convicted and sentenced to federal prison this year, was paid $600,000 for selling Dow’s chemical secrets to two Chi-nese companies.
“I’m not a Chinese spy,” Liou, who is to start his sentence in June, told the Houston Chronicle. “I am just an ordinary retiree, but they turned me into some kind of international spy.”
While employed by Dow for 27 years, Liou worked on the intricacies of things like Styrofoam, Napalm and Ziploc baggies. After retiring, he developed a business as a consultant helping his native China revolutionize its method of manufacturing chlorinated polyethylene, CPE, a polymer used for automotive hoses, electric cable jackets and vinyl siding.
But there was a problem: The world’s best-selling brand of CPE, Tyrin, belonged to Dow.
A Dow lawsuit against Liou and his business associates led to an FBI investigation, a federal indictment, a guilty verdict and a five-year prison sentence imposed in January.
“The U.S. intelligence community has characterized China as the most active and persistent perpetrator of economic espionage,” said Assistant Attorney General Lisa Monaco, who heads the Justice Department’s National Security Division, citing a publicly available 2011 U.S. intelligence report.
Of seven cases prosecuted under the main economic espionage statute in 2010, six involved a link to China, the report said.
Alerts by FBI
Spying today is “not just an effort to get diplomatic or military secrets as in days of yore, but corporate secrets for economic advantage,” Monaco said. For U.S. business, “there’s a demonstrable economic hit. I think it’s rightly viewed as a national security issue.”
To prevent more economic espionage, the FBI is alerting firms involved in vulnerable “pre-classified” research – cutting-edge high-tech innovations that might have a military or military-civilian application down the road – to be diligent.
“You walk in as the FBI and say, ‘Can I speak to your chief security officer?’ and they say, ‘We don’t have one,’ ” Figliuzzi said. “That’s where our focus is.”
Theft of trade secrets is just one front in a growing conflict between the U.S. and China over pirated movies and software, cheap knockoffs of brand-name goods and cyber-espionage – attempts to steal information by hacking into U.S. computer systems.
Ties to China
The economies of the U.S. and China are inextricably intertwined. The U.S. trade deficit with China was $295.5 billion in 2011, the highest on record. U.S. debt to China exceeds $1 trillion.
But U.S. law enforcement officials insist their hands are not tied, and prosecutions are on the rise. From 2010 to now, prosecutors brought at least 30 China-related cases involving economic espionage or violations of the law barring unlicensed export of militarily sensitive technology, according to Justice Department officials. Between 2007 and 2009, they brought 20.
The Liou case did not involve charges of overt Chinese government involvement. But testimony in Liou’s trial last year showed government-connected Chinese companies knew that Liou “had stolen technology from Dow, and that whetted their interest,” said Donald Cazayoux, the U.S. Attorney in Baton Rouge, La., who supervised the prosecution.
Liou himself insisted he never stole anything from Dow and that much of the technology Dow declared proprietary was widely known and publicly available. But one former Dow engineer testified Liou paid him to provide a process manual for Dow’s method of making CPE.
The engineer received $13,000 of a promised $50,000 to hand over the material. Liou’s $600,000 was wired to the U.S. by his brother-in-law in Hong Kong.
In China, the intermingling of government and industry is murky. Direct foreign government involvement is hard to prove. “But the smoke is there,” said Figliuzzi, who declined to speak specifically about China.
A common thread in these cases is desire by the scientist defendants, many of them Chinese-American immigrants, to help China advance economically. A case under way in San Francisco involves theft of a DuPont production process for titanium dioxide, which is used to whiten the centers of Oreo cookies as well as the trademark “M” on “MM’s” candies.
One scientist in the San Francisco case, Tze Chao, said in pleading guilty that executives from China “appealed to my Chinese ethnicity and asked me to work for the good of the PRC.”
‘Legal channels’
The Chinese Embassy did not return calls for comment, but China has always denied involvement in any effort to obtain trade secrets illegally.
“Theft of trade secrets should be addressed via appropriate legal channels in a fact-based manner, whether the perpetrator is in China or otherwise,” said John Frisbie, president of the U.S.-China Business Council, which represents some 240 U.S. companies doing business in China.
dan [at] hearstdc [dot] com