China’s reputation for cyber-espionage has cost the country’s largest network equipment manufacturer a shot at billions of dollars in infrastructure sales to Australia. The Australian government has moved to block Huawei from bidding on Australia’s approximately $36 billion-dollar National Broadband Network project.
The decision by Australia’s attorney general, reported March 26, was based on concerns raised by the Australian Security Intelligence Organization over the number of cyberattacks coming out of China, and that the company’s equipment would provide the Chinese government backdoors into the network.
“The National Broadband Network is the largest nation-building project in Australian history,” a spokesperson for Australian Attorney General Nicola Roxon said in a statement, “and it will become the backbone of Australia’s information infrastructure. As such, and as a strategic and significant government investment, we have a responsibility to do our utmost to protect its integrity and that of the information carried on it.”
The Australian government has cause for concern. In 2011, the computers of Australian Prime Minister Julia Gillard and then-Foreign Minister Kevin Rudd were reportedly hacked by Chinese intelligence agents. And the US defense and intelligence community have continued to warn about China’s involvement in industrial espionage.
Huawei has been alleged to have benefitted from that espionage in past: Cisco accused the company of stealing technology from Cisco, but dropped its legal claims in 2004 after Huawei stopped producing a contested product. And the US Department of Defense expressed concerns about Huawei in a 2011 report to Congress (PDF) on Chinese military and security issues, because of the company’s close ties to the People’s Liberation Army.
Those connections haven’t stopped Huawei from selling network gear elsewhere. The company has won a number of large network infrastructure supply contracts in Europe, including equipment for the deployment of LTE wireless in the UK. And Huawei has been hoping to replicate that success in Australia by bringing in local political muscle: the board of the company’s Australian subsidiary is stacked with former government officials, and chaired by the former commander of the Australian Navy, retired Rear Admiral General John Lord. The company also sponsored trips to China for members of the leadership of Australia’s Liberal Party. In fact, it was believed that Huawei was the internal favorite after the technical team for the NBN visited the company’s headquarters in Shenzen in 2010.
So the announcement has come as something of a shock to the company’s Australian executives. “This sort of whole concept of Huawei being involved in cyber warfare, presumably that would just be based on the fact that the company comes from China and everybody in China is—who’s involved with information technology is involved in cyber warfare,” said Alexander Downer, an independent director of Huawei Australia and a former Australian foreign affairs minister, told reporters for an Australian TV network. “This is just completely absurd.”
The plan, the official said, was developed in response to a classified study completed last year by the director of national intelligence that concluded that the military’s espionage efforts needed to be more focused on major targets beyond the tactical considerations of Iraq and Afghanistan.
The new service will seek to “make sure officers are in the right locations to pursue those requirements,” said the official, who spoke on the condition of anonymity to describe the “realignment” of the military’s classified human espionage efforts.
The official declined to provide details on where such shifts might occur, but the nation’s most pressing intelligence priorities in recent years have included counterÂterrorism, nonproliferation and ascendant powers such as China.
Creation of the new service also coincides with the appointment of a number of senior officials at the Pentagon who have extensive backgrounds in intelligence and firm opinions on where the military’s spying programs — often seen as lackluster by CIA insiders — have gone wrong.
Defense Secretary Leon E. Panetta, who signed off on the newly created service last week, served as CIA director at a time when the agency relied extensively on military hardware, including armed drones, in its fight against al-Qaeda.
Michael Vickers, the undersecretary of defense for intelligence and the main force behind the changes, is best known as one of the architects of the CIA’s program to arm Islamist militants to oust the Soviets from Afghanistan in the 1980s. He is also a former member of U.S. Special Operations forces.
The realignment is expected to affect several hundred military operatives who already work in spying assignments abroad, mostly as case officers for the Defense Intelligence Agency (DIA), which serves as the Pentagon’s main source of human intelligence and analysis.
The official said the new service is expected to grow “from several hundred to several more hundred” operatives in the coming years. Despite the potentially provocative name for the new service, the official played down concerns that the Pentagon was seeking to usurp the role of the CIA or its National Clandestine Service.
This “does not involve new manpower . . . does not involve new authorities,” the official said. Instead, the official said, the DIA is shifting its emphasis “as we look to come out of war zones and anticipate the requirements over the next several years.”
Congressional officials said they were seeking more details about the plan.
Jake Tapper, the White House correspondent for ABC News, pointed out that the administration had lauded brave reporting in distant lands more than once and then asked, “How does that square with the fact that this administration has been so aggressively trying to stop aggressive journalism in the United States by using the Espionage Act to take whistle-blowers to court?”
He then suggested that the administration seemed to believe that “the truth should come out abroad; it shouldn’t come out here.”
Fair point. The Obama administration, which promised during its transition to power that it would enhance “whistle-blower laws to protect federal workers,” has been more prone than any administration in history in trying to silence and prosecute federal workers.
The Espionage Act, enacted back in 1917 to punish those who gave aid to our enemies, was used three times in all the prior administrations to bring cases against government officials accused of providing classified information to the media. It has been used six times since the current president took office.
Setting aside the case of Pfc. Bradley Manning, an Army intelligence analyst who is accused of stealing thousands of secret documents, the majority of the recent prosecutions seem to have everything to do with administrative secrecy and very little to do with national security.
In case after case, the Espionage Act has been deployed as a kind of ad hoc Official Secrets Act, which is not a law that has ever found traction in America, a place where the people’s right to know is viewed as superseding the government’s right to hide its business.
In the most recent case, John Kiriakou, a former C.I.A. officer who became a Democratic staff member on the Senate Foreign Relations Committee, was charged under the Espionage Act with leaking information to journalists about other C.I.A. officers, some of whom were involved in the agency’s interrogation program, which included waterboarding.
For those of you keeping score, none of the individuals who engaged in or authorized the waterboarding of terror suspects have been prosecuted, but Mr. Kiriakou is in federal cross hairs, accused of talking to journalists and news organizations, including The New York Times.
Mr. Tapper said that he had not planned on raising the issue, but hearing Mr. Carney echo the praise for reporters who dug deep to bring out the truth elsewhere got his attention.
“I have been following all of these case, and it’s not like they are instances of government employees leaking the location of secret nuclear sites,” Mr. Tapper said. “These are classic whistle-blower cases that dealt with questionable behavior by government officials or its agents acting in the name of protecting America.”
Mr. Carney said in the briefing that he felt it was appropriate “to honor and praise the bravery” of Ms. Colvin and Mr. Shadid, but he did not really engage Mr. Tapper’s broader question, saying he could not go into information about specific cases. He did not respond to an e-mail message seeking comment.
In one of the more remarkable examples of the administration’s aggressive approach, Thomas A. Drake, a former employee of the National Security Agency, was prosecuted under the Espionage Act last year and faced a possible 35 years in prison.
His crime? When his agency was about to spend hundreds of millions of dollars on a software program bought from the private sector intended to monitor digital data, he spoke with a reporter at The Baltimore Sun. He suggested an internally developed program that cost significantly less would be more effective and not violate privacy in the way the product from the vendor would. (He turned out to be right, by the way.)
He was charged with 10 felony counts that accused him of lying to investigators and obstructing justice. Last summer, the case against him collapsed, and he pleaded guilty to a single misdemeanor, of misuse of a government computer.
Jesselyn Radack, the director for national security and human rights at the Government Accountability Project, was one of the lawyers who represented him.
“The Obama administration has been quite hypocritical about its promises of openness, transparency and accountability,” she said. “All presidents hate leaks, but pursuing whistle-blowers as spies is heavy-handed and beyond the scope of the law.”
Mark Corallo, who served under Attorney General John D. Ashcroft during the Bush administration, told Adam Liptak of The New York Times this month that he was “sort of shocked” by the number of leak prosecutions under President Obama. “We would have gotten hammered for it,” he said.
As Mr. Liptak pointed out, it has become easier to ferret out leakers in a digital age, but just because it can be done doesn’t mean it should be.
These kinds of prosecutions can have ripples well beyond the immediate proceedings. Two reporters in Washington who work on national security issues said that the rulings had created a chilly environment between journalists and people who work at the various government agencies.
During a point in history when our government has been accused of sending prisoners to secret locations where they were said to have been tortured and the C.I.A. is conducting remote-controlled wars in far-flung places, it’s not a good time to treat the people who aid in the publication of critical information as spies.
And it’s worth pointing out that the administration’s emphasis on secrecy comes and goes depending on the news. Reporters were immediately and endlessly briefed on the “secret” operation that successfully found and killed Osama bin Laden. And the drone program in Pakistan and Afghanistan comes to light in a very organized and systematic way every time there is a successful mission.
There is plenty of authorized leaking going on, but this particular boat leaks from the top. Leaks from the decks below, especially ones that might embarrass the administration, have been dealt with very differently.
Reported by Jack Cloherty , Pierre Thomas and Jason Ryan:
The Justice Department today charged that Chinese-controlled companies conspired to steal production secrets potentially worth billions of dollars from U.S. chemical giant DuPont.
The long-running, multi-billion dollar economic espionage plot was revealed as five people and five companies were indicted for allegedly stealing trade secrets to benefit companies controlled by the People’s Republic of China.
The conspiracy reportedly centered on DuPont because it produces one of the world’s most valuable, and ubiquitous, pigments – titanium dioxide.  Titanium dioxide infuses a bright, white, reflective glow in coloring paint, plastics, paper and other commercial products.  The worldwide titanium dioxide market has been valued at about $12 billion, and DuPont controls the largest share of the market.
The Justice Department indictment charges that the Chinese tried to steal unique, titanium dioxide production technology from DuPont and use it to open a new, 100,000 ton titanium dioxide plant at Chongqing, China.
To achieve that goal, the Justice Department charges, “companies controlled by the PRC government, specifically the Pangang Group companies … conspired and attempted to illegally obtain titanium dioxide (TiO2) technology that had been developed over many years of research and development … by DuPont.” The Pangang Group is the Chinese company that was to build the titanium dioxide plant in Chongquing , according to the Justice Department
Pangang and four other corporate defendants are charged with conspiracy to commit economic espionage, conspiracy to commit theft of trade secrets and attempted economic espionage. The Justice Department said the Pangang Group companies paid “significant sums of money” to at least five insiders for DuPont’s trade secrets.
The five people charged today are:
Walter Lian- Heen Liew , aka ” Liu Yuanxuan ,” 54, of Orinda , Calif.  Liew is a naturalized U.S. citizen and co-owner of USAPTI.  Liew is charged with conspiracy to commit economic espionage, conspiracy to commit theft of trade secrets, attempted economic espionage, attempted theft of trade secrets, possession of trade secrets, conveying trade secrets, conspiracy to obstruct justice, witness tampering, conspiracy to tamper with evidence and false statements. Liew was charged in August 2011 with obstruction of justice and making false statements to the FBI. He was arrested at that time and has been ordered detained pending trial based on a finding by Magistrate Judge Nathanael Cousins that he is a flight risk.
Christina Hong Qiao Liew , aka “Qiao Hong,” 49, of Orinda .  Christina  Liew is a naturalized U.S. citizen and co-owner, with her husband, Walter Liew , of USAPTI. Liew is charged with conspiracy to commit economic espionage, conspiracy to commit theft of trade secrets, attempted economic espionage, attempted theft of trade secrets, witness tampering, conspiracy to tamper with evidence and false statements. Liew was also charged in August 2011 with obstruction of justice and making false statements to the FBI. She was released by the court on conditions that include travel restrictions and electronic monitoring
Hou Shengdong , 42, a citizen of the PRC. Hou was the vice director of the Chloride Process TiO2 Project Department for the Pangang Group Titanium Industry Co. Ltd. According to the superseding indictment, Hou and other Pangang Group employees requested DuPont blueprints as a condition of working on the Pangang Group project. Hou is charged with conspiracy to commit economic espionage, conspiracy to commit theft of trade secrets and attempted economic espionage. A warrant has been issued for Hou ‘s arrest.
Robert Maegerle , 76, of Harbeson , Del. Maegerle was employed by DuPont as an engineer from 1956 to 1991. According to the superseding indictment, Maegerle had access to DuPont TiO2 trade secrets, including specific information regarding DuPont’s TiO2 facility at Kwan Yin, Taiwan. Maegerle is charged with conspiracy to commit theft of trade secrets, attempted theft of trade secrets, conveying trade secrets and conspiracy to obstruct justice. Maegerle was arrested this morning in Harbeson .
Tze Chao , 77, of Newark, Del. Chao was employed by DuPont from 1966 to 2002. Chao is charged with conspiracy to commit economic espionage.
“The theft of America’s trade secrets for the benefit of China and other nations poses a substantial and continuing threat to our economic and national security,” Assistant Attorney Lisa General Monaco said. “We are committed to holding accountable anyone who robs American businesses of their hard-earned research. I thank the agents and prosecutors who helped bring about this important case.”
The case is being prosecuted by the Special Prosecutions and National Security Unit of the U.S. Attorney’s Office in San Francisco, and the Counterespionage Section of the U.S. Department of Justice. The investigation, which is ongoing, is being conducted by the FBI.
DuPont spokesman Dan Turner issued this statement late today:
“DuPont has taken, and will continue to take, aggressive measures to protect its proprietary, unique  and confidential technologies for the benefit of our shareholders, employees and customers. We are disappointed that former DuPont employees working together with certain companies allegedly stole our proprietary technology. Upon learning of the apparent breach, we took prompt action and filed a civil suit. We also referred the theft of our technology to law enforcement.” “Because this matter is pending both criminally and civilly, we cannot comment  further.”
The Chinese Embassy did not immediately return calls for comment.
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.
