Fraud Management & Cybercrime , Governance & Risk Management , Incident & Breach Response

U.S. Charges 6 Chinese with Insider Theft

DoJ: Secrets from U.S. Firms Used to Start Up a Chinese Venture
U.S. Charges 6 Chinese with Insider Theft
A lab at Skyworks Solutions, where trade secrets were allegedly pilfered.

Federal authorities have indicted six Chinese nationals for economic espionage, and apprehended the ringleader, a Chinese professor, accusing him of pilfering trade secrets from the computer systems of two American high-tech companies, where he and a co-conspirator once worked. Those trade secrets helped the co-defendants get the Chinese government and a leading university to back their venture, prosecutors say.

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Authorities nabbed Hao Zhang on May 16 after his flight landed in Los Angeles from China, and charged him and five other Chinese nationals with economic espionage and theft of trade secrets in a decade-long, insider theft scheme aimed to benefit the Chinese government and a university, the Justice Department disclosed May 19 in a 32-count indictment.

Revelation of the indictments of the six Chinese nationals comes exactly one year after the U.S. charged five Chinese military officers for hacking U.S. companies, incidents federal authorities contend resulted in the shuttering of three American steel plants (see U.S. Charges 5 Chinese with Hacking).

Assistant Attorney General for National Security John Carlin says the Justice Department will continue to "relentlessly identify, pursue and prosecute offenders wherever the evidence leads. ... Economic espionage imposes great costs on American businesses, weakens the global marketplace and ultimately harms U.S. interests worldwide."

Defendants Face Decades in Prison

If convicted, each of the defendants could be sentenced to decades in prison and fined hundreds of thousands of dollars. However, except for Zhang, none of the other defendants in both cases have been arrested.

The U.S. government has complained at the highest levels to the Chinese government about the theft by the Chinese of intellectual property from American companies, an accusation that the Chinese generally dismiss. "No country should be involved in the theft of trade secrets and proprietary information that benefits their commercial sector," Christopher Painter, the U.S. State Department's cyber policy coordinator, said in an interview with Information Security Media Group (see the Rapid Evolution of Cyber Diplomacy). "We're going to continue to press that. That's critically important to us."

Chinese hacking came up at a Senate hearing last week on cyber-diplomacy, in which Painter identified four critical norms of cyber behavior, including nations not conducting or enabling intellectual property theft. In that hearing, James Lewis, a cybersecurity expert at the think tank Center for Strategic and International Studies, said he doubted the Chinese government would agree anytime soon to the norm regarding intellectual property theft. "Having sat in a room for many days with ... Chinese diplomats and military officials, we're not going to get them to agree anytime soon," Lewis said (see Promoting Cyber Norms of Behavior).

Details from Indictment

According to the indictment, Zhang met another defendant, Wei Pang, at the University of Southern California during their doctoral studies in electrical engineering. While at USC, Pang and Zhang conducted research funded by the U.S. Defense Advanced Research Projects Agency on thin-film bulk acoustic resonator technology known as FBAR.

FBAR technology filters incoming and outgoing wireless signals so that users only receives and transmits the specific communications they intended. FBAR technology offers numerous applications for a variety of consumer, military and defense communications technologies.

After earning their doctorates about 10 years ago, both men took jobs as FBAR engineers, Zhang with Skyworks Solutions in Woburn, Mass., and Pang with Avago Technologies in Fort Collins, Colo. The government alleges the stolen trade secrets belong to Skyworks and Avago.

In 2006 and 2007, according to the indictment, Zhang, Pang and other co-conspirators prepared a business plan and began soliciting Chinese universities and others, seeking opportunities to start manufacturing FBAR technology in China. Zhang, Pang and the others established relationships with officials from Tianjin University, one of China's oldest universities that's administered by the Ministry of Education.

Simultaneous Resignations

After Tianjin University agreed to back Pang's and Zhang's venture, the two men continued to work for the American companies. In mid-2009, according to the indictment, Pang and Zhang simultaneously resigned from their American employers and accepted positions as full professors at Tianjin University. Tianjin University later formed a joint venture with Pang, Zhang and the other defendants under the company name ROFS Microsystem, which intended to mass produce FBARs.

According to the indictment, both companies took reasonable measures to keep its intellectual property secret, including the need for users to clear several layers of security to access computers where the trade secrets were stored.

What was stolen? The indictment lists recipes, source code, specifications, presentations, design layouts and other documents marked as confidential and proprietary from the victim companies. Prosecutors contend the stolen trade secrets enabled Tianjin University to construct and equip a state-of-the-art FBAR fabrication facility, to open ROFS Microsystems, a joint venture located in the state-sponsored Tianjin Economic Development Area, and to obtain contracts for providing FBARs to commercial and military entities.

According to the indictment, Avago and its predecessor companies spent some $50 million over two decades researching and developing its FBAR technology. "Complex foreign-government sponsored schemes, such as the activity identified here, inflict irreversible damage to the economy of the United States and undercut our national security," says FBI Special Agent in Charge David Johnson. "The FBI is committed to rooting out industrial espionage that puts U.S. companies at a disadvantage in the global market."

Besides Zhang, 36, and Pang, 35, the other defendants are Jinping Chen, 41, a professor at Tianjin University and a ROFS Microsystems board member; Huisui Zhang, 34, who studied with Pang and Zhang at USC; Chong Zhou, 26, a Tianjin University graduate student and design engineer at ROFS Microsystem who studied under Pang and Zhang; and Zhao Gang, 39, general manager of ROFS Microsystems.

About the Author

Eric Chabrow

Eric Chabrow

Retired Executive Editor, GovInfoSecurity

Chabrow, who retired at the end of 2017, hosted and produced the semi-weekly podcast ISMG Security Report and oversaw ISMG's GovInfoSecurity and InfoRiskToday. He's a veteran multimedia journalist who has covered information technology, government and business.

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