[IWAR] CHINA espionage, economic

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Date: Wed Jan 28 1998 - 21:27:53 PST

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    Posted at 7:32 p.m. PST Wednesday,
    January 28, 1998
    China's hunger for Western know-how feeds spying fears
    USA Today
     WASHINGTON -- 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
     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 where
     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
     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
     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
     That's the case with Peter Lee's plea
     agreement, which remains sealed because
     of the classified information he was
     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
     ``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
     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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