A newly released State Department cable reveals Chinese intelligence-gathering efforts in Chile and U.S. concerns that Beijing’s growing ties to the Chilean military will compromise U.S. defense secrets shared with the South American nation’s armed forces.
“Sources have told the [U.S.] Embassy [in Santiago] that Chile’s close military ties with the United States are of great interest to the Chinese,” said the Aug. 29, 2005, cable, labeled “secret.”
“There is concern that the Chinese could be using Chilean officers and access to the Army training school to learn more about joint programs, priorities and techniques that the Chileans have developed with their U.S. counterparts.”
The cable said U.S. officials based in Chile worked with their Chilean counterparts to “sensitize them to the security and intelligence threats emanating from China.”
The cable, which was released by the anti-secrecy website WikiLeaks, is a rare disclosure of U.S. government concerns about Chinese intelligence-gathering, a problem highlighted by numerous U.S. espionage-related cases and technology-theft prosecutions over the past five years.
**FILE** President Obama walks with the Chilean Foreign Affairs Minister Alfredo Moreno (center right) and Gen. Marcos Gonzalez (center left) upon his arrival in Santiago, Chile, on March 21. (Associated Press)
The cable said Chinese intelligence and security organizations will step up spying in the key South American state as its business interests grow.
A key worry is that as a result of closer U.S. military cooperation with the Chilean military, “Chinese interest in [U.S. government] activities in the Southern Cone will most assuredly increase,” said the cable.
“The Chinese will likely attempt to learn more about U.S. military strategies and techniques via Chilean participation in bilateral training programs and joint exercises.”
Emilia Edwards, a spokeswoman for the Chilean Embassy in Washington, had no immediate comment.
Jamie Smith, a spokeswoman for Director of National IntelligenceJames R. Clapper, declined to comment. A Pentagon spokesman had no immediate comment.
China has over 400 million internet users, more than any other nation. This exponentially increasing population of Chinese netizens entering the global internet community has not come without serious negative externality. Over the past decade, there has been a marked increase in cyber-espionage and hacking coming from Mainland China. Espionage is not new, even between close allies such as the United States and Israel, but the unusually high frequency and intensity of Chinese cyber-spying from both state and non-state actorsis causing great concern.
Besides the traditional attacks on security institutions, Chinese hackers have placed a new focus on private business. For example, over the last several months network, security experts have noticed that Facebook internet traffic has been purposely routed through China.
“It’s real. It is happening. It can’t be described as an ‘accident’ anymore,” Joffe [Rodney Joffe, senior technologist at DNS (Domain Name System) registry Neustar], who observed similar traffic snafus involving China last year, said in an e-mail to CNET today.
Although Beijing is notorious for draconian internet censorship, having invested inordinate resources in a 30-50,000 man-strong internet shield, known as the Golden Shield (金盾工程: jīndùn gōngchéng), the new focus is on offensive international attacks and data gathering raids. In the case of Facebook, analyst are concerned that China is spying on foreign users in order to lift session ID information, personal information, e-mails, photos, chat conversations, all in order to lift propitiatory information, as well as monitor human rights activism.
The issue of Intellectual Property theft has become a palpable one. Western economies, especially the U.S., have become knowledge based service economies, where first mover advantage and property right protections are essential to long term economic growth. The technological advantages the U.S. has enjoyed since the end of the Second World War has been depreciating much faster over the last 10-15 years, especially in relation to the Pacific Rim. Due to the ease of information transfer, technical capital is being distributed far more quickly than in the past. Any developed nation, including the U.S.,that wants to maintain its economic edge must address these increasing cyber security threats.
The infamous “Google E-mail Hacks” of 2010, are a case and point. Google openly implicated China in an e-mail hacking scandal, but this situation is actually not uncommon, it is just that Google went public and garnered significant media attention due to its status. Over 34 other companies, tech and defense firms, are also thought to have been targets for corporate espionage by government and non-government actors from China. Companies doing direct business with “Chinese partners” usually come under attack immediately. The real numbers are astounding, reported in the press:
A study released by computer-security firm McAfee and government consulting company SAIC on March 28 shows that more than half of some 1,000 companies in the United States, Britain and other countries decided not to investigate a computer-security breach because of the cost. One in 10 companies will only report a security breach when legally obliged to do so, according to the study.
Further Wiki Leaks Revealed,
“Since 2002, (U.S. government) organizations have been targeted with social-engineering online attacks” which succeeded in “gaining access to hundreds of (U.S. government) and cleared defense contractor systems,” the cable said. The emails were aimed at the U.S. Army, the Departments of Defense, State and Energy, other government entities and commercial companies…Between April and October 2008, hackers successfully stole “50 megabytes of email messages and attached documents, as well as a complete list of usernames and passwords from an unspecified (U.S. government) agency,” the cable says.
In a private meeting of U.S., German, French, British and Dutch officials held at Ramstein Air Base in September 2008, German officials said such computer attacks targeted every corner of the German market, including “the military, the economy, science and technology, commercial interests, and research and development,” and increase “before major negotiations involving German and Chinese interests,” according to a cable from that year…French officials said at the meeting that they “believed Chinese actors had gained access to the computers of several high-level French officials, activating microphones and Web cameras for the purpose of eavesdropping,” the cable said.
In mid-2009, representatives of the China Institutes for Contemporary International Relations, a nominally-independent research group affiliated with China’s Ministry of State Security, contacted James A. Lewis, a former U.S. diplomat now with the Center for Strategic and International Studies. The U.S. government is using Mr. Lewis as a proxy, there have been 3 formal meetings between him and his Chinese counterparts, but no progress has been made.
Various groups in China knows that innovation, like natural resources, is key to keeping the economy growing, which in turn will keep the communist party and it’s hangers-on in the business elite in power. It appears China will innovate “by hook or by crook”. The easiest and most cost effective way to innovate is to steal. Corporate espionage can be quite profitable:
Business Software Alliance, an international software industry group, estimates that 79% of the software sold in China in 2009 was illegally copied, creating a loss to the industry of US$7.6 billion in revenue. Even more important to Beijing, these statistics mean the vast majority of Chinese computer systems – government and private alike – remain vulnerable to malware.
Malware is important to the Chinese government, because China also claims it has also been the victim of numerous cyber attacks, and therein lies “the rub”.
As Minister of Public Security Meng Jianzhu said in December 2009, “The Internet has become a major vehicle through which anti-Chinese forces are perpetuating their work of infiltration and sabotage and magnifying their ability to disrupt the socialist order”.
Lets get a translation of what Mr. Meng is really saying. Shall we?
China is no doubt facing a paradox as it tries to manipulate and confront the growing capabilities of Internet users. Recent arrests of Chinese hackers and People’s Liberation Army (PLA) pronouncements suggest that China fears that its own computer experts, nationalist hackers and social media could turn against the government.
And it seems as if China has a lot of disgruntled netizens. Are “chicken’s coming home to roost”?
In June 2010, the State Council Information Office published a white paper on the growing threat of cyber-crime and how to combat it. Clearly, these challenges have been addressed this year. The Ministry of Public Security (MPS) announced on November 30 that it had arrested 460 suspected hackers thought to have been involved in 180 cases so far in 2010. This is part of the MPS’ usual end-of-year announcement of statistics to promote its success. But the MPS announcement also said that cyber-crime had increased 80% this year and seemed to blame the attacks only on hackers inside China…
These new efforts all contradict China’s long-standing policy of cultivating a population of nationalistic computer users. This effort has been useful to Beijing when it sees a need to cause disruption, whether by attacking US sites after perceived affronts like the Chinese Embassy bombing in Belgrade or preventing access by powerful foreign entities like Google.
Domestic hackers turning on the CCP, is such a concern that the People’s Liberation Army (PLA) has two military units dedicated to this issue, the Seventh Bureau of the Military Intelligence Department (MID) and the Third Department of the PLA. The MID is the offensive arm (or terrorist/spy wing, depending on how you wan t to see things). The Third Department is focused on national defense. Still, do not expect China to take serious means to halt cyber attacks imminating from the Mainland, instead, expect China to crackdown on non-government aligned hackers who may pose a threat to the CCP (Chinese Communist Party).
Sino-American mutual suspicions are all the rave these days. Much less discussed in the Western media, but has been on this blog, China’s love/hate relationship with Russia. The next installment of this series will look out how increased trade is not necessarily bringing the two Eurasian giants closer together.
RENAULT says its number two executive will be demoted while three others will be sacked in the wake of an industrial espionage fiasco at the French car-maker’s electric vehicles program.
Patrick Pelata’s offer to resign as chief operating officer was accepted but he will stay within the company, the firm said in a statement, adding that three executives from the group’s security service will leave.
Three other top executives will be relieved of their duties while their fate is decided, it said.
The announcement came after an extraordinary board meeting at Renault to study an audit committee’s report on the scandal that saw three senior executives wrongfully accused of selling industrial secrets.
The meeting also agreed on a deal to compensate the executives falsely accused, Renault said.
The French Government, which owns 15 per cent of Renault, had said yesterday the executives responsible for the embarrassing debacle should be sacked.
Finance Minister Christine Lagarde said the audit report showed the company’s management style was “dysfunctional” and revealed the need for both a “revision of the governance rules and for sanctions”.
Chief executive Carlos Ghosn went on prime-time television last month to apologise “personally and in Renault’s name” for the affair, but said he had turned down an offer by Pelata to resign.
Mr Ghosn said he and Pelata would forgo their 2010 bonuses and Renault would review its security procedures and take disciplinary measures against three implicated security employees.
The French car giant in January sacked Michel Balthazard, Bertrand Rochette, and Matthieu Tenenbaum after accusing them of accepting bribes in return for leaking secrets about Renault’s electric vehicle program.
The Government branded the affair “economic warfare” and some pointed the finger at China, drawing an angry denial from Beijing.
But in March the firm apologised to the managers after it emerged police had found no trace of bank accounts the accused men were alleged to have held and that the source of the spying allegations may have been a fraudster.
Investigators later questioned three Renault security managers and one was placed under formal investigation on suspicion of organised fraud.
Renault and its Japanese partner Nissan have staked their future on electric vehicles and plan to launch several models by 2014 to meet rapidly rising demand for more environmentally friendly methods of transport.
They have invested €4 billion ($5.48 billion) in the program.
Nissan and Renault joined forces in 1999. Renault currently owns a 44.3 per cent stake in its Japanese partner, while Nissan holds 15 per cent of the French auto maker’s shares.
The letter accompanied a subpoena delivered this week to an individual in Boston — one of a number of individuals whom investigators have pressed or tried to press for information on WikiLeaks and who have been served with subpoenas this week. A copy of the subpoena was provided to The Washington Post with the name redacted.
Though the letter does not name WikiLeaks or Assange, sources said the subpoena was issued in relation to the probe.
The letter makes clear that an array of charges are being considered, in part, experts said, to avoid First Amendment challenges that would arise with a prosecution of WikiLeaks under the Espionage Act. That 1917 law makes it a crime to “communicate or transmit” sensitive information to an unauthorized party, and using it would probably set up a battle over an individual’s right to speak freely.
“If the Justice Department concludes that a crime has been committed, it will twist itself like a pretzel to avoid using the Espionage Act, not only because it is old and vague but because it raises a number of First Amendment problems for prosecutors,” said Abbe D. Lowell, a Washington defense attorney who has handled leak cases.
U.S. officials would not comment on any subpoenas but indicated that prosecutors are likely to carefully weigh any decision to file charges under the Espionage Act, in part because of First Amendment concerns.
“The Justice Department has decided to attack on many fronts at once,” said Assange, in a phone interview from London. One reason, he alleged, “is because it is difficult to extradite someone for espionage, espionage being a classic political offense, and most extradition treaties have exemptions” for political acts.
He blasted the investigation, saying, “It is quite wrong to go after publishers and journalists for performing their work.”
In the WikiLeaks investigation, prosecutors have sought personal Twitter account information from Assange, Manning and several others linked to WikiLeaks.
The recipients are not the targets of the probe, sources said.
The April 21 letter, first reported by Salon.com, indicated that the individual served with the subpoena was to appear next month before a grand jury to answer questions concerning “possible violations of criminal law.” Possible violations include conspiracy to “knowingly [access] a computer without authorization” and to “knowingly [steal] any record or thing of value” belonging to the government.
“What they are trying to do is find proof that the WikiLeaks people were in a conspiracy with the leaker to get the information,” Lowell said. “If WikiLeaks is involved in the theft or improper access to the information, that’s not protected under the First Amendment.”
Staff writer Dana Hedgpeth and research editor Alice Crites contributed to this report.
If you’re an active investor who occasionally buys or sells a stock based on tips, you might be understandably nervous about the massive insider trading crackdown surrounding Galleon Group. The now-defunct hedge fund is linked to 22 guilty pleas and more than two dozen arrests involving an array of alleged conspirators, including lawyers, consultants and investment managers.
And Galleon is only the latest in a bevy of recent insider-trading prosecutions, including one case filed against a group of technology salespeople who traded Apple shares based, allegedly, on confidential information and another case that nabbed a doctor for blabbing about clinical trials for a new drug.Yet if people couldnt trade on tips, Jim Cramer, the host of CNBCs Mad Money program, would be out of work. In reality, it is perfectly legal (although potentially unwise) to trade on some tips that you hear or overhear. Illegal insider trading is all about facts and circumstances. Which situations constitute illegal insider trading and which dont?
TAKE OUR QUIZ: ARE YOU GUILTY OF INSIDER TRADING?
Situation #1: Coffee Talk
You are standing in line at Starbucks, and a well-dressed couple in front of you is talking about retiring to Majorca after they sell their company. You recognize them as the founders of a publicly traded company and figure out that the deal hasnt yet been announced. You snap up as many shares as you can afford and make a killing when the takeover is announced. Is this insider trading?
No. If this couple bought or sold shares — or called you and tipped you off in private — it would be a violation. But illegal insider trading requires that you not only trade on the basis of important nonpublic information but that you also have some sort of duty to keep the information confidential. Former football coach Barry Switzer was sued for insider trading following a similar scenario in 1981, but he won the case because he had no duty to ignore a conversation he overheard in a public place.
Situation #2: Office Eavesdrop
Youre a janitor at a major company. You hear members of the companys board convening outside the room youre cleaning and decide to hide in the closet. The board okays a deal to sell the company for a fat premium to the current share price. You load up on the shares. Illegal insider trading?
Definitely. This is not a public place, and youd be in a position to understand that confidential information was being disclosed, which changes the calculus, says Andrew Stoltmann, a Chicago-based securities lawyer.
Situation #3: Stranger Danger
You hop in a cab at JFK and are startled by the drivers Armani suit and solid-gold pinkie ring. You learn that the driver is merely taking this shift as a favor for a friend. The driver is now happily retired, living on his investment portfolio. When you whine about your own, he says: Look, Ill give you a break. Buy as much stock in Google as you can. You do. Insider trading?
No . It may be unwise — because the cab driver could as clueless as you — but you have no reason to believe hes telling you anything thats not public information.
Situation #4: Proud Papa
Once again a cab driver is offering stock tips, but this time he mentions that his son is an attorney at Skadden, Arps, Slate, Meagher Flom, a major law firm in the merger game. Insider trading?
This scenario could qualify as insider trading. Its all about whether you have reason to believe that youre receiving important, nonpublic information from a person who has a duty to keep that information private. The cab drivers trading would definitely be verboten. Yours is in a hard-to-defend gray area, says Stoltmann.
Situation #5: Mass Exodus
You read a few years back that executives at Countrywide Financial, the big mortgage lender, were unloading their stock. You decided that they must know something you didnt, so you followed suit and sold your shares, too. Now you worry that the Feds are going to come after you. Insider trading?
For you? No. For them? Maybe. Executives can sell their own companys stock without running afoul of the rules as long as theyre not trading based on information they havent shared with the public. The SEC sued Countrywides CEO, Angelo Mozilo, and several other insiders in 2009 (after the company had been acquired by Bank of America), alleging that they had improperly traded on undisclosed information about the evil lurking inside the companys loan portfolio. Mozilo, who netted some $140 million selling Countrywide stock before the company collapsed, eventually settled the suit without admitting or denying guilt by paying $67.5 million in fines and disgorging profits.
As for you: Mozilos trades were disclosed in SEC filings and in numerous news stories. Trading based on publicly available information is perfectly legal.
Situation #6: Disgruntled Employee
A woman in your Bunco group says shes about to quit her job because she cant stand the strain of working in a medical office where all the patients are dying. Because of previous casual conversations, you know that patients in this office are involved in early trials of a new drug. You know what the drug is and who makes it. You sell short shares of the drugs developer, betting that the stock will fall in value. Did you violate insider-trading rules?
This probably would not qualify as insider trading. Your playing partner is sharing information thats so general it cant be used to gauge whether the clinical trial will result in failure. Thus, the tip fails the materiality test. Its not significant enough to the companys stock price. And because the woman is just sharing information about the status of the offices patients and not the trial (including whether the ailing patients are taking the new drug or a placebo), no one appears to have a duty to keep quiet.
Situation #7: Disgruntled Employees Boss
Your friends boss calls and begs you to talk your friend out of quitting. The boss tells you confidentially that the drug trial your friend is upset about will soon be terminated because the drug is probably responsible for the deaths of those in the trial. You sell the developers stock short. Are you violating insider-trading rules now?
Yes. Youve been fed important information from an insider, who has said that the information was confidential. The SEC recently filed an insider-trading case against two individuals — a hedge fund manager named Joseph Chip Skowron and a medical researcher, named Yves Benhamou, who was overseeing a drug trial. The SEC alleges that Skowron paid Benhamou with envelopes stuffed with cash for confidential information about the results, which he then used to avoid tens of millions in stock losses on his holdings in Human Genome Sciences. Benhamou pled guilty; the case against Skowron is pending. The hedge fund Skowron worked for settled without admitting or denying guilt.
Situation #8: Shared Broker
Your broker calls and says you need to get out of ImClone Systems now because the CEO, who is also his client, is selling all his shares. Insider trading?
Maybe. The SEC filed suit against homemaking personality Martha Stewart in 2003 with these exact facts. Stewart did end up going to prison — but not for insider trading. She was convicted of obstructing justice and lying to prosecutors. Stewart settled the SECs insider-trading case, paying a fine and agreeing to never violate securities laws in the future. The settlement eliminated the need for a trial as well as a definitive answer about whether she had a duty to ignore the tip. But the case was complicated by the fact that Stewart had once been a stockbroker. The SEC contended that she should have known better.
Situation #9: Gordon Gekko
Youre a hedge fund manager, buying and selling stocks constantly. You pay a series of experts to feed you hush-hush information about pending mergers, and you earn millions in profits by buying shares of takeover targets before deals are announced. Insider trading?
Absolutely. If you bribed or bought insider information and traded on it, youre going to prison.
Situation #10: Information Seeker
Youre a hedge fund manager, and you pay dozens of analysts and consultants to provide seasoned advice about stocks to buy and sell. Some of those consultants may have access to secret information, but you trade based on a wide array of factors, including examination of public documents and detailed analysis about industries and companies operating within them. Insider trading?
This situation probably would not be considered insider trading. The key to the case against Galleon CEO Raj Rajaratnam hinges, says Stoltmann, on whether his lawyers were able to establish that his trading was based on assembling a mosaic of information or whether he paid consulants to feed him insider tips. The former, says Stoltmann, is perfectly legal. The latter is not.
**FILE** President Obama walks with the Chilean Foreign Affairs Minister Alfredo Moreno (center right) and Gen. Marcos Gonzalez (center left) upon his arrival in Santiago, Chile, on March 21. (Associated Press)