Intelligence: Low Risk, Dirty Money Available


November 24, 2019: In October 2019 an American court indicted a U.S. Navy lieutenant (Fan Yang) and his wife (Yang Yang) for secretly working for a Chinese company and conspiring to export restricted items to Chinese firm Shanghai Breeze Technology. The two were arrested earlier in the month when their home was raided and searched for evidence of the smuggling plus another illegal scheme that supplied pistols for Chinese citizens visiting the United States who wanted to fire them at shooting ranges while in the U.S. Fan Yang bought at least one pistol and that led to the illegal firearms prosecution. It also led to Shanghai Breeze Technology, which his wife had been working for since 2016. Yang Yang had been paid $205,000 via money sent to a company (BQ Tree LLC) Yang Yang had set up. It seemed like easy money without much risk.

Fan Yang was a flight officer for P-8 maritime patrol aircraft and was assigned to the Maritime Patrol Reconnaissance Weapons School at a Florida naval base. He had a top-secret security clearance and double-checking his activities when his clearance was renewed earlier in 2019 led to the discovery of the illegal pistol scam and then to his wife’s activities. Two Chinese employees of Shanghai Breeze Technology were also indicted as they were found to be the key connection back to China.

In the last few years, the United States has been indicting, prosecuting and convicting a growing number of Chinese born men (and a few women) conspiring to commit or actually carry out economic espionage in the United States. Some of these suspects are naturalized American citizens but a growing number are Chinese citizens here on legitimate visas. In the case of the Yangs, the Chinese they worked with were in the U.S. on tourist visas. When one of those men was shown to have a connection with a navy lieutenant it set off alarms because this sort of connection often indicated smuggling or espionage was involved. There were two forms of illegal activity, in this case, one involving obtaining weapons for Chinese tourists and the more serious issue of enabling the export of restricted items to China. The lure was apparently money, which the Yangs were apparently convinced could be obtained at little risk.

China has used similar tactics in Russia, Japan and Taiwan. Russia was particularly hard hit this by this in the 1990s. After the Soviet Union dissolved in 1991 thousands of highly educated employees of defense industries were left unemployed because post-1991 Russia could no longer afford most military research and development efforts. The U.S. noticed the danger and sought to provide work for many of these Russia researchers and that succeeded to a certain extent. But the Chinese (Iranians and North Koreans) quietly made offers of employment. In the case of Russia, the Chinese cash and offer of business opportunities also made it possible for high-tech military gear to be disposed of as scrap and show up in China largely intact. China also bought design and manufacturing documents or hired those who designed or were involved in the manufacture of these items. Even North Korea benefitted from Russian economic desperation, obtaining retired submarines and obsolete ballistic missiles to be turned into scrap metal. The North Koreans scrapped some of it, but the most intact items were studied by engineers who figured out how to make some of those in North Korea.

China hired Russia scientists for seemingly innocent commercial projects but then paid the new employees bonuses to work on military tech-related projects. The Russian government eventually found out and are still angry about that and the continued Chinese theft of their tech. By the late 1990s growing Russian threats over this caused the Chinese to sign agreements that declared Chinese firms would stop stealing and reselling Russian tech. In practice, this only slowed the Chinese down, but it placated the Russians for a while. Currently, the Americans are starting to sound like the Russians in the 1990s, but the Americans have more legal and economic clout to deploy and this situation is liable to get ugly before (if ever) it gets better.

By 2012 most American officials had come to openly admit that a whole lot of American military and commercial technical data has been stolen via Chinese Internet (and more conventional) espionage efforts as employed by the Yangs. Details of exactly all the evidence of this are unclear, but apparently, it was pretty convincing for many American politicians and senior officials who had previously been skeptical. The Chinese efforts have resulted in most major American weapons systems having tech details obtained by the Chinese, in addition to a lot of non-defense or dual-use technology. It’s not just the United States that is being hit but most nations with anything worth stealing. Many of these nations are noticing that China is the source of most of this espionage and few are content to remain silent any longer.

It’s no secret that Chinese intelligence collecting efforts since the late 1990s have been spectacularly successful. As the rest of the world comes to realize the extent of this success, there is a growing desire for retaliation. What form that payback takes remains to be seen. At the moment more scrutiny is making it more difficult for the Chinese to operate but is not stopping them.

Collecting information, both military and commercial, often means breaking laws and striking (or hacking) back at the suspected attackers will involve even more felonies. China has broken a lot of laws. Technically, China has committed acts of war because of the degree to which it penetrated military networks and carried away copies of highly secret material. The U.S. and many other victims have been warning China there will be consequences. As the extent of Chinese espionage becomes known and understood, the call for “consequences” becomes louder.

China has been getting away with something the Soviet Union never accomplished, stealing Western technology and then using it to move ahead of the West. The Soviets lacked the many essential supporting industries found in the West. These firms were largely founded and run by entrepreneurs, which was illegal in the Soviet Union. Because of that, the Russians were never able to acquire all the many pieces needed to match Western technical accomplishments. Soviet copies of American computers, for example, were crude, less reliable, and less powerful. It was the same situation with their jet fighters, tanks, and warships.

China got around this by making it seemingly profitable for Western firms to set up factories in China, where Chinese managers and workers were taught how to make things right. At the same time, China allows thousands of their best students to go to the United States to study. While many of these students will stay in America, where there are better jobs and more opportunities, a growing number are coming back to China and bringing American business and technical skills with them. Finally, China energetically uses the "thousand grains of sand" approach to espionage. This involves China trying to get all Chinese going overseas, and those of Chinese ancestry living outside the motherland, to spy for China, if only a tiny bit. This is where the Yangs were operating. The tech they were sending back had limited military value but the sheer volume of these low-level items getting back to China added up and made a difference. American sailors at sea viewing new Chinese warships through binoculars are surprised to see so many familiar design features and a bit of equipment. It’s as if the Chinese were buying from the same suppliers the U.S. Navy uses. In a way, the Chinese were doing that, after getting samples of the real thing and duplicating it.

This approach to espionage is nothing new. Other nations have used similar systems for centuries. What is unusual is the scale of the Chinese effort, and that makes a difference. Supporting it all is a Chinese intelligence bureaucracy back home that is huge, with nearly 100,000 people working just to keep track of the many Chinese overseas and what they could, or should, be trying to grab for the motherland. This is where many of the graduates of the National Intelligence College program will work.

It begins when Chinese intelligence officials examine who is going overseas and for what purpose. Chinese citizens cannot leave the country legally without state security organizations being notified. The intel people are not being asked to give permission. They are being alerted in case they want to have a talk with students, tourists, or business people before leaving the country. Interviews are often held when these people come back as well.

Those who might be coming in contact with useful information are asked to remember what they saw or bring back souvenirs (legal or otherwise). Over 100,000 Chinese students go off to foreign universities each year. Even more, go abroad as tourists or on business. Most of these people were not asked to actually act as spies but simply to share, with Chinese government officials (who are not always identified as intelligence personnel), whatever information they obtained. The more ambitious of these people are getting caught and prosecuted. But the majority are quite casual and individually bring back relatively little and are almost impossible to catch, much less prosecute.

Like the Russians, the Chinese are also employing the traditional methods, using people with diplomatic immunity to recruit spies and offering cash or whatever to get people to sell them information. This is still effective and, when combined with the "thousand grains of sand" methods, brings in a lot of secrets.

The final ingredient is a shadowy venture capital operation, sometimes called Project 863, that offers money for Chinese entrepreneurs who will turn the stolen technology into something real. No questions asked. If you can get back to China with the secrets, you are home free and potentially very rich. This is the approach Chinese firms are often set up to do, and little else. While these firms are technically supposed to develop new technologies in China the unofficial mandate was to steal as much as possible from other nations and not get caught.

Not getting caught is becoming more important because that can lead to increasingly dangerous diplomatic and legal problems. When the Chinese steal some technology and produce something that the Western victims can prove was stolen (via patents and prior use of the technology), legal action can make it impossible, or very difficult, to sell anything using the stolen tech outside of China. For that reason, the Chinese long preferred stealing military technology and tried to avoid using stolen commercial tech in a way that made it easy to determine the source of stolen data. This meant keeping stolen commercial tech inside China. And in some cases, like manufacturing technology, there's an advantage to not selling it outside of China. Because China is still a communist dictatorship, the courts do as they are told, and they are rarely told to honor foreign patent claims when stolen tech is discovered in China by its foreign owners.

But increasingly, Chinese firms are boldly using their stolen technology, daring foreign firms to try and use Chinese courts to get justice. Instead, the foreign firms are trying to muster support from their governments for lawsuits outside China. Naturally, the Chinese government will howl and insist that it’s all a plot to oppress China. This has worked for a long time, but many of the victims are now telling China that this conflict is being taken to a new, and more dangerous, level.




Help Keep Us From Drying Up

We need your help! Our subscription base has slowly been dwindling.

Each month we count on your contributions. You can support us in the following ways:

  1. Make sure you spread the word about us. Two ways to do that are to like us on Facebook and follow us on Twitter.
  2. Subscribe to our daily newsletter. We’ll send the news to your email box, and you don’t have to come to the site unless you want to read columns or see photos.
  3. You can contribute to the health of StrategyPage.
Subscribe   Contribute   Close