Winning: Scaring Chinese Spies

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August 30, 2020: The United States has been increasingly active in uncovering Chinese spies posing as academic researchers in the United States. These Chinese operatives seek to steal trade secrets or patented material. These agents are often assisted by Chinese graduate students studying in the United States while also working for Chinese intelligence. Until a few years ago there was no major effort to deal with the Chinese espionage efforts.

Several years of energetic work by the FBI and CIA has also uncovered how the five Chinese consulates in New York, NY; Chicago, IL; San Francisco, CA; Los Angeles, CA; Houston, TX are used to actively coordinate the work of these Chinese spies. The consulates are important because they have similar status as embassies. That means the consulate itself is considered Chinese territory and many of the consulate staff have diplomatic immunity. The Chinese agents working as graduate students or academic researchers do not have such immunity and can be arrested and prosecuted. More of them are being caught and prosecuted and that exposed the key role the consulates were playing. This led to the U.S. ordering the Houston consulate closed in July 2020 and apparently threatening to close the San Francisco consulate in August. Hours after the Houston consulate was evacuated by the Chinese, FBI and local police broke into the locked consulate building and carted away material left behind. Chinese consulate staff had earlier attracted the attention of the local fire department after they began burning large quantities of documents in a courtyard that was part of the consulate. The fire fighters were denied access. The next day China ordered the American Chengdu consulate in western China closed.

The San Francisco consulate incident arose when a Chinese academic, Juan Tang, was accused of lying on her visa application. She left out the fact that she was serving in the Chinese military and was a member of the Chinese Communist Party. She would not have gotten the visa if she had admitted that. No evidence of espionage was presented but someone like Tang is not sent to the United States to do academic research. Tang did have an academic degree that made it possible to pass as a researcher. But that also helped her identify and steal information she was sent to get. After the FBI interviewed Tang at her apartment and left, she went to the Houston consulate and refused to leave when the later FBI sought to arrest her. Lying on the via application can get you ten years in jail. The Chinese soon had second thoughts about harboring Tang and she left the consulate and was arrested by the FBI.

While the American consulates in China are useful for monitoring what is going on in China, the Chinese consulates in America are far more valuable to the Chinese because of support provided to local Chinese spies. It is illegal for American academics and researchers to secretly work for the Chinese government or commercial firms. These restrictions won’t trigger similar measures for Americans in China because China has long assigned police and intel specialists to closely observe who visiting Americans visit. This surveillance often involves MSS (secret police) agents “advising” Chinese to refuse such meetings or only do it with an MSS agent present, usually pretending to be an employee of the firm.

China has been making the most of their access and use of their consulates in the United States and other nations. It’s not just the consulates. Another FBI investigation documented the use of the Chinese Confucius Institute's cultural centers at American universities and how these programs were actually part of a widespread intelligence operation that employed visa fraud for Chinese visiting scholars who were actually MSS operatives. This program recruited Chinese-born businessmen, academics and others, often naturalized American citizens, to participate in IP (Intellectual property) theft. Further encouragement was that some of these operatives could sometimes profit from it personally. Not all these recruits knew they were participating in espionage but the Chinese could effectively pressure their citizens to cooperate. Worse, the FBI discovered that many of the Chinese in the U.S. on J-1 visas (for visiting scholars) spent most of their time on espionage and a bare minimum on actual research.

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 carrying 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. As more suspects were identified patterns began to appear which revealed the inner workings of known Chinese intellectual property espionage efforts.

Recent indictments are the result of the United States imposing more restrictions on Chinese officials who come to the U.S. and have contact, for whatever reason, with American academics, researchers and local (city, state and country) government officials. These Chinese will have to notify the U.S. government of such contacts. Based on recent FBI investigations and prosecutions, this will make it more difficult to operate their massive espionage program that seeks details of how American patents are implemented as well as trade secrets (items that are not patented but are essential for operating a business or factory).

The FBI and CIA again noted several interesting patterns. While many of the returning Chinese students were operating legally, a large number of those new Chinese firms were operating illegally by depending on stolen intellectual property. There were other patterns as well. A lot of the stolen tech seemed to involve Chinese and Americans associated with various Chinese efforts that helped returning Chinese profit from what they had learned in the West. These programs involved establishing hundreds of Confucius Institutes associated with Western universities, including a hundred in the United States. That, plus the aggressive recruiting of Chinese and non-Chinese academics willing to help China mobilize the largest IP theft in history.

Participating in this program has become riskier. The growing number of convictions are for conspiring to steal or actually stealing trade secrets. Many of the technologies involved are dual-use; for commercial and military applications. Many of these investigations begin when American companies provide the FBI with documentation showing how the Chinese obtained and applied the trade secrets. What the American firms usually lack is information about who was getting the information, often including detailed manufacturing techniques, to the Chinese. The U.S. is not the only victim here. Many other Western nations are experiencing the same losses. Even Chinese neighbor and ally Russia has suffered heavy losses due to this Chinese economic espionage.

There have been a lot more court cases about this because Chinese firms have become bolder in how they exploit stolen software, trade secrets and other technology. In the past, the Chinese were careful in the use of stolen tech when exporting their own military equipment copied from Russian designs. The Chinese had started doing this during the Cold War, which sometimes got fairly hot (there were some deadly border skirmishes in the 1970s) because China and Russia developed some territorial and ideological disputes that did not settle down until the Soviet Union dissolved in 1991.

The Russians are still angry about the continued Chinese theft of their tech, and growing Russian threats over this caused the Chinese to sign agreements in the last decade 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 admitted that a whole lot of American military and commercial technical data has been stolen via Chinese Internet (and more conventional) espionage efforts. Details of exactly all the evidence of this is 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. 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 tries hard to conceal its espionage efforts. Not just denying anything and everything connected to its hacking and conventional spying, but also taking precautions. But as their success continued year after year, some of the Chinese hackers became cocky and sloppy. At the same time, the victims became more adept at detecting Chinese efforts and tracing them back to specific Chinese government organizations or non-government hackers inside China.

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 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, 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.

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.

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.

 


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