Not all Chinese are economic spies

The issue of Chinese economic espionage was likely one of the issues addressed when President Obama met President Xi Jinping of China. This is a real and very serious issue. Economic espionage costs U.S. companies tens of billions of dollars in damages and causes the loss of thousands of U.S. jobs, and the FBI has identified China as the single greatest culprit. However, Obama should also have used this as an opportunity to apologize for the Justice Department’s misconduct in charging two Chinese-American U.S. citizens with economic espionage with the intention of benefitting China, and then abruptly dropping the charges after the evidence showed that there was no basis at all to charge the defendants, and they may have simply been caught up in a much broader dragnet aimed at combating Chinese industrial espionage.

{mosads}There is little doubt that Chinese government entities and Chinese companies are actively involved in economic espionage against U.S. companies and businesses. For example, a study I conducted found that, since the enactment of the Economic Espionage Act (“EEA”) in 1996, which the federal statute that criminalizes theft of trade secrets, more than 30 percent of all prosecutions involved Chinese citizens or naturalized U.S. citizens originally from China. In addition, in approximately 30 percent of the total EEA prosecutions, the defendant misappropriated the trade secrets to benefit the Chinese government, an existing Chinese company or to start a company there. Since 2008, approximately 50 percent of the cases have a China connection, and eight of ten prosecutions that the government has brought for state sponsored economic espionage involve an allegation of Chinese government involvement.

The cases involve a wide range of technology. In two recent cases, Chinese citizens were charged and pleaded guilty to stealing hybrid seeds from fields in the Midwest. Last year, a federal jury in San Jose, California convicted a Chinese company, and a number of individuals of economic espionage and theft of trade secrets for their roles in a long-running effort to obtain U.S. trade secrets for the benefit of companies controlled by the Chinese government. The trade secrets belonged to the E.I. du Pont de Nemours & Company and related to the development of chloride-route titanium dioxide (TiO2) production capabilities, which is a commercially valuable white pigment with numerous uses, including coloring paint, plastics and paper.  The lead defendant was sentenced to 15 years imprisonment. Other cases with a China connection have involved trade secrets stolen from Boeing relating to the Space Shuttle and Delta IV Rocket, secret compounds for drugs from Sanofi-Aventis, telecommunication technology from Motorola, computer source code for an electronic trading program from the CME group, automobile technology from Ford, new food products from Cargill, technology relating to organic LEDs also from DuPont.  

This and other evidence of a China connection to economic espionage should not make all Chinese-Americans a suspect group. Unfortunately the history of the United States is replete with xenophobia in times of crisis. Japanese-American citizens were “interned” during the Second World War because of questions about their allegiances. During the Red Scare of the 1950’s many people lost their careers and had their reputations destroyed based on little more than hearsay that the person may have known somebody who was allegedly a member of the Communist party. While it would be premature to say that we’re returning to the bad old days of the House UnAmerican Committee chaired by Senator McCarthy, two recent cases involving Chinese-Americans suggest that it may be “déjà vu all over again.”

In the first case, Sherry Chen a U.S. government hydrologist, born in China, a naturalized U.S. citizen and now living in Ohio was arrested last October and accused of economic espionage and lying about it. The government claimed that she had used “a stolen password to download information about the nation’s dams and of lying about meeting with a high ranking Chinese official.” She was immediately suspended from work without pay, ostracized in the community, and was facing decades in prison and $1 million in fines. Five months later, shortly before the trial was set to begin, the government dropped all charges.

Next, on September 11, 2015, the federal government dropped all charges against Xi Xiaoxing, who at the time of his arrest last spring was chairman of Temple University’s physics department. The government alleged that Dr. Xi, who is also a naturalized U.S. citizen, had sent the design of a device known as a “pocket heater” to fellow scientists in China. However, the defense was able to convince the government that it had made a major mistake and that the schematics for the pocket heater were actually not for a pocket heater. Oops.

The motto of the Justice Department is “who prosecutes on behalf of [the lady] justice.” As a former federal prosecutor I know that this does not simply mean obtaining a conviction at all costs. The government did justice by dismissing the counts against Mrs. Chen and Dr. Xi. However, it should not end there. President Obama should apologize to Dr. Xi, Ms. Chen, and their families, and admit that the U.S. government had unjustly prosecuted two Chinese-American citizens. That would be the just thing to do.

Toren is an expert cybersecurity attorney with Weisbrod Matteis & Copley in DC and former DOJ prosecutor with the IP and Computer Crimes Division.


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