Fears of Chinese Spying Mount

January 29, 1998 - Tom Lowry - USA Today

On a trip to China last May, Peter Lee could have been any other Asian-American on business. But the 58-year-old physicist for TRW Space and Electronics was hardly anonymous. He was being watched by FBI counterintelligence agents.

Lee had been contacted by the Chinese numerous times over more than a decade. On the May trip, he spoke to Chinese scientists about his work - classified research into the use of satellite radar imaging to track submarines. When he later denied those meetings took place, federal agents knew they had a case.

In December, Lee pleaded guilty to lying on Defense Department security forms and passing classified nuclear secrets to the Chinese.

Lee's case and others like it are "just the tip of a large and dangerous intelligence iceberg," FBI Director Louis Freeh said Wednesday in written testimony for the Senate Select Intelligence Committee's annual hearing on national security threats.

And the espionage isn't being conducted by traditional spies. China, along with Russia and South Korea, are just as likely to use students, visiting scientists and foreign business people to collect information, Freeh said.

"Foreign intelligence activities against the United States have grown in diversity and complexity in the past few years," he said.

Intelligence officials are increasingly alarmed by the Chinese threat as U.S. businesses rush to exploit China's market of 1.2 billion people.

Dow Chemical, Boeing and BF Goodrich are among companies announcing joint ventures in China in the past year. And President Clinton has given U.S. firms permission to sell civilian nuclear equipment and licensed technology in China for the first time.

But with greater access, U.S. companies' technology and intellectual property - from mundane formulas for textiles to detailed designs for weapons - are increasingly at risk, intelligence experts say.

China's goal? To quickly transform itself from an underdeveloped nation to a military and economic power. "Through deceptive means, we can get both money and technology from Western countries," says dissident Wei Jingsheng, who was freed in November after 18 years in Chinese prisons.

Chinese officials deny charges of economic espionage. Shuning Yu, a spokesman for the Chinese embassy in Washington, calls the allegations "unproven" and untrue. "All of China's relations with other countries have been conducted in compliance with international norms and the laws of those countries," he says.

But U.S. officials are so concerned about China stealing intellectual property that they've made spying an issue in China's efforts to join the World Trade Organization, a 131-nation group that referees trade disputes. Acceptance into the organization would give China access to more markets and protect it from certain trade sanctions.

"The trade-related aspects of piracy and industrial espionage are being treated very seriously," says Bob Cassidy, assistant U.S. Trade Representative for China, who has been involved in China's application.

Companies in a bind

The spying threat presents a dilemma for U.S. companies. "The only thing worse than doing business in China is not doing business in China," says Nicholas Eftimiades, author of Chinese Intelligence Operations and an officer at the Defense Intelligence Agency.

Other countries, including longtime allies, steal U.S. business secrets. But China particularly worries officials.

"It's like a big strong kid with a chip on its shoulder," says Eftimiades. "The intent of the Chinese is unknown. Combine a brutal authoritarian government with a modernizing military and feelings of being oppressed by the West, and you have a volatile mixture."

Last year, retired Eastman Kodak manager Harold Worden pleaded guilty to peddling trade secrets to Kodak officials who were posing as Chinese agents. During the sentencing in November, Federal Judge Michael Telesca chastised Worden for passing secrets to "not just any foreign national, but China."

Some companies doing business in China deal with the spying threat by not using their most advanced technology there or counting lost secrets as the price of doing business. Other companies are taking preventive steps by hiring security firms, many staffed by former FBI and CIA agents.

DuPont has eight joint ventures in the People's Republic of China and began doing business there in the 1970s. "It's a serious problem protecting information like patents, trademarks and copyrights," says Geoffrey Gamble, DuPont's chief international counsel.

Another threat is "passive espionage" at home, Gamble says. That's when chemical use or product data from a company posted on the Internet site of the Environmental Protection Agency, for example, is picked up by foreign competitors.

And while DuPont offers a patent education program for Chinese nationals, Gamble says, "We would never open our files to them."

Some U.S. companies lose secrets in China when joint ventures with Chinese companies are secretly disbanded and records are taken from the U.S. firms' offices before they can respond. In the USA, theft often occurs when Chinese students and scientists, like Lee, are recruited to infiltrate companies, investigators say.

Losses from the theft of intellectual property cost U.S. companies more than $300 billion in 1997, according to a survey by the American Society for Industrial Security.

Geographic regions most often targeted for spying are Silicon Valley, Detroit, North Carolina's research triangle, and the Pennsylvania-New Jersey area, where many pharmaceutical and biotechnology companies are based, says Richard Power of the Computer Security Institute.

Few companies that fall victim to spying report the crimes to law enforcement, Power says. They fear shareholder backlash, negative publicity and further exposure of trade secrets during prosecution.

But prosecutors have a new weapon in their fight against corporate spying: a year-old economic espionage law created to make it easier to bring criminal cases. The law has a provision that allows trade secrets to remain sealed and confidential during a criminal trial.

That's the case with Peter Lee's plea agreement, which remains sealed because of the classified information he was discussing.

Money not the motive

A naturalized U.S. citizen born in Taiwan, Lee acted out of empathy for China, not for money. He accepted only enough money to cover his travel expenses, prosecutors say.

Lee also pleaded guilty to passing information to the Chinese in 1985 while working at Los Alamos National Laboratory on classified projects using lasers to simulate nuclear detonations.

Lee worked at defense contractor TRW in the 1970s, then returned to work at the company's Redondo Beach, Calif., office in 1991. TRW, which fired Lee after his guilty plea in December, said in a statement, "We are relieved the investigation is finally over." The company cooperated with the FBI.

Lee also is cooperating with federal investigators. He is scheduled to be sentenced Feb. 23 and faces up to 15 years in prison. His lawyer, James Henderson Sr., did not return phone calls.

"This case serves as a warning to any scientist or businessman looking to develop relationships in China," says Jonathan Shapiro, assistant U.S. attorney in Los Angeles. "Be vigilant. Don't allow yourself to be tricked or lulled into giving out secret information."

But some companies without the experience or resources are naive about how sophisticated the Chinese are.

"U.S. companies are foolish to think that just because the Chinese are friendly, polite and eager to do business they won't go the extra step to steal the part you've been withholding from them," says Ken deGraffenreid, a professor at the Institute of World Politics and a former National Security Council intelligence official.

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