During the week of October 29, the U.S. Department of Justice announced three significant actions directed at economic espionage by the Chinese government. First, on October 30, the Justice Department disclosed the unsealing of an indictment in the Southern District of California against ten individuals alleged to be Chinese intelligence officers. The indictment charged the defendants with conspiracy to damage computers and substantive offenses of damaging protected computers, in violation of the Computer Fraud and Abuse Act. Although foreign intelligence officers ordinarily would be expected to be beyond the reach of U.S. authorities, the Justice Department also announced on October 10 that an officer of the Jiangsu Province Ministry of State Security (JSSD) — a provincial foreign intelligence arm of the People’s Republic of China’s Ministry of State Security — was extradited to the Southern District of Ohio, on charges that he attempted to steal trade secrets related to jet aircraft engines.
According to the indictment, supervising and managing officers at JSSD, including two of the defendants, directed hackers and victim company insiders, including the other defendants,
to hack into or facilitate intrusions into computers of companies based in the United States and abroad for the purpose of gaining and maintaining unauthorized access to those computers, stealing information, and using the computers to facilitate additional computer intrusions. Members of the conspiracy targeted, among other things, companies in the aerospace and other high-technology industries, and attempted to steal intellectual property and confidential business information, including information that was commercial in nature.
The Justice Department’s press release further stated that the conspirators conducted or otherwise enabled repeated intrusions into private companies’ computer systems in the United States and abroad for more than five years, with their ultimate goal being “to steal, among other data, intellectual property and confidential business information, including information related to a turbofan engine used in commercial airliners.”
Second, on November 1, U.S. Attorney General Jeff Sessions announced the unsealing of an indictment in the Northern District of California against a state-owned enterprise of the People’s Republic of China (PRC), Fujian Jinhua Integrated Circuit Co. Ltd. (Jinhua), a Taiwan company, United Microelectronics Corporation (UMC), and three individuals. The indictment included counts charging conspiracy to commit economic espionage and to commit theft of trade secrets, as well as substantive counts of economic espionage and theft of trade secrets and criminal forfeiture allegations, pertaining to an alleged conspiracy to steal, convey, and possess stolen trade secrets of an American semiconductor company, Micron Technology Inc., for the benefit of Jinhua. The United States also filed a parallel civil lawsuit seeking an injunction against further transfer of the stolen trade secrets and to enjoin certain defendants from exporting to the United States any products manufactured by UMC or Jinhua that were created using the trade secrets at issue.
According to the Department of Justice press release about this indictment, the defendants were allegedly engaged in a conspiracy to steal the trade secrets of Micron, which is
a leader in the global semiconductor industry specializing in the advanced research, development, and manufacturing of memory products, including dynamic random-access memory (DRAM). DRAM is a leading-edge memory storage device used in computer electronics. Micron is the only United States-based company that manufactures DRAM. According to the indictment, Micron maintains a significant competitive advantage in this field due in large part from its intellectual property, including its trade secrets that include detailed, confidential information pertaining to the design, development, and manufacturing of advanced DRAM products.
One of the individual defendants, Chen Zhengkun, allegedly
was a General Manager and Chairman of an electronics corporation that Micron acquired in 2013. Chen then became the president of a Micron subsidiary in Taiwan, Micron Memory Taiwan (“MMT”), responsible for manufacturing at least one of Micron’s DRAM chips. Chen resigned from MMT in July 2015 and began working at UMC almost immediately. While at UMC, Chen arranged a cooperation agreement between UMC and Fujian Jinhua whereby, with funding from Fujian Jinhua, UMC would transfer DRAM technology to Fujian Jinhua to mass-produce. The technology would be jointly shared by both UMC and Fujian Jinhua. Chen later became the President of Jinhua and was put in charge of its DRAM production facility.
While at UMC, Chen recruited numerous MMT employees, including [defendants J.T. Ho and Wang Yungming], to join him at UMC. Prior to leaving MMT, Ho and Wang both stole and brought to UMC several Micron trade secrets related to the design and manufacture of DRAM. Wang downloaded over 900 Micron confidential and proprietary files before he left MMT and stored them on USB external hard drives or in personal cloud storage, from where he could access the technology while working at UMC.
Third, on November 1 Attorney General Sessions also announced that he had ordered the creation of a Justice Department “China Initiative. ” The China Initiative is to be led by the Assistant Attorney General for the National Security Division, John Demers, and is composed of an unnamed senior FBI executive, five United States Attorneys (including the United States Attorney for the Northern District of California, Alex G. Tse), and several other Department of Justice leaders and officials, including the Assistant Attorney General for the Criminal Division, Brian A. Benczkowski.
The Initiative, as the Attorney General described it, “will identify priority Chinese trade theft cases, ensure that we have enough resources dedicated to them, and make sure that we bring them to an appropriate conclusion quickly and effectively.” It also will address two major responsibilities of the Department’s National Security Division: the Foreign Investment Review Staff’s review of investments and licenses in U.S. infrastructure and telecommunications, and the Foreign Agent Registration Act Unit’s work to counter covert efforts to influence our leaders and the general public.
Note: These actions, taken together, constitute the most concentrated U.S. law enforcement response to economic espionage by Chinese authorities directed at U.S. companies. Some may view these actions as merely another salvo in the Trump Administration’s broadsides against what Vice President Mike Pence called China’s “whole-of-government approach” to advancing its economic and political interests. The U.S. intelligence community, however, has long been aware that China has persistently engaged in systematic economic espionage, through conventional and cyber methods, and is one of the United States’ “most aggressive and capable adversaries using economic espionage.”
The U.S. National Counterintelligence and Security Center’s (NCSC’s) 2018 report, Foreign Economic Espionage in Cyberspace, summarized the current state of affairs as follows:
China has expansive efforts in place to acquire U.S. technology to include sensitive trade secrets and proprietary information. It continues to use cyber espionage to support its strategic development goals—science and technology advancement, military modernization, and economic policy objectives. China’s cyberspace operations are part of a complex, multipronged technology development strategy that uses licit and illicit methods to achieve its goals. Chinese companies and individuals often acquire U.S. technology for commercial and scientific purposes. At the same time, the Chinese government seeks to enhance its collection of U.S. technology by enlisting the support of a broad range of actors spread throughout its government and industrial base.
The NCSC also warned that China “will continue to be a threat to U.S. proprietary technology and intellectual property through cyber-enabled means or other methods. If this threat is not addressed, it could erode America’s long-term competitive economic advantage.”
Even after the September 2015 agreement by the U.S. and Chinese Presidents that neither country’s government would conduct or knowingly support cyber-enabled theft of intellectual property, the Chinese government has continued its economic-espionage cyber activity, although reportedly at lower volumes than before the 2015 agreements, as well as non-cyber measures such as those in the second indictment. This week’s announcements – especially the deliberately-named “China Initiative” — should be recognized as an enhanced commitment by the Justice Department to use criminal and civil enforcement and regulatory authority against economic espionage by Chinese agencies and state-controlled companies.