Competitive Intelligence

China Floods the Zone: FBI Details the New Economic Espionage Threat

The FBI has just asked for help in combatting the armies of industrial spies being sent to the U.S. from China to acquire proprietary trade secrets and other ill-gotten-gains through espionage on American companies... particularly in Silicon Valley.

FBI Assistant Director for Counter-Intelligence David Szady also named Russia, Iran, Cuba and North Korea among countries involved in economic and other espionage against the U.S. "There are 150,000 students from China. Some of those are sent here to work their way up into the corporations," Szady was quoted by CNN as saying. There are about 300,000 Chinese visitors annually, and 15,000 Chinese delegations touring the United States every year, 3,500 of them in the New York area alone, he claimed. CNN said he estimated that about 3,000 false-front Chinese companies operate in the United States, and urged private-sector employers to "partner up" with FBI agents to help protect national security. Meanwhile, Time Magazine did a short piece on how high-tech spying his home, right here in Wisconsin, as the FBI nabbed a pair of naturalized Chinese immigrants working for their former government:

Ning Wen and his wife were arrested last fall at their home office in Manitowoc, Wis., for allegedly sending their native China $500,000 worth of computer parts that could enhance missile systems. As these naturalized citizens await trial, similar episodes in Mount Pleasant, N.J., and Palo Alto, Calif., point only to the tip of the iceberg, according to FBI officials keeping tabs on more than 3,000 companies in the U.S. suspected of collecting information for China. A hotbed of activity is Silicon Valley, where the number of Chinese espionage cases handled by the bureau increases 20% to 30% annually. Says a senior FBI official: "China is trying to develop a military that can compete with the U.S., and they are willing to steal to get [it]."

But instead of assigning one well-trained agent to pursue a target, "the Chinese are very good at putting a lot of people on just a little piece and getting a massive amount of stuff home," says a U.S. intelligence official. The number of Chinese snoops is staggering, if only because average civilians are enlisted in the effort. FBI officials say state security agents in China debrief many visitors to the U.S. before and after their trips, asking what they saw and sometimes telling them what to get.

This "flooding the zone" MO for getting LOTS of people working an intel angle is characteristic of Chinese economic spying, especially in Silicon Valley:

Suspected espionage cases have been reported from New Jersey on the east coast to California in the west, the weekly magazine reported. The FBI is watching more than 3,000 companies in the United States suspected of collecting information for China, Time magazine reported.

"A hotbed of activity is Silicon Valley (California), where the number of Chinese espionage cases handled by the bureau increases 20 percent to 30 percent annually," Time said, referring to the state's corridor of high-tech companies.

"China is trying to develop a military that can compete with the US, and they are willing to steal to get (it)," a senior Federal Bureau of Investigation official was quoted as saying.

A US intelligence official said: "The Chinese are very good at putting a lot of people on just a little piece and getting a massive amount of stuff home."

Time called the number of Chinese spies "staggering, if only because average civilians are enlisted in the effort."

Chinese nationals are debriefed by state security agents in China before and after their trips to the United States. They are asked what they saw and sometimes told what to get, the magazine said.

A couple of Chinese origin was arrested last year in Wisconsin for allegedly sending to China 500,000 dollars worth of computer parts that could enhance missile systems, Time said. The couple, who are naturalized Americans, are awaiting trial.

The FBI has added hundreds of counter-intelligence agents and put at least one in every US Energy Department research facility, Time said.

It has also begun cooperation initiatives with corporations and considers universities as a soft spot, since there are some 150,000 Chinese studying in the United States, according to the magazine.

The FBI relies heavily on Chinese informants to sort spies from the thousands of Chinese who travel to the United States for work, Time said.

Could this lead to a change in U.S. intelligence policy, where America could follow its foreign rivals in deploying national intelligence resources in a commercial capacity?

"The economic viability of the United States we now look at as a counterintelligence problem," he said.

"We now see almost all of the adversaries, the Chinese being a classic example, of using students, delegations, researchers, visitors ... and false-front companies," Szady said.

Another senior FBI official, who spoke anonymously, was more blunt.

"The Chinese are stealing us blind," he said. "The 10-year technological advantage we had is vanishing."

The FBI has been successful, he said, in making some arrests.

"We took down some cases in Milwaukee, Trenton, New Jersey, and Palo Alto. These were false-front companies that were stealing technologies for the Chinese. Every person arrested was a student. They studied here, got their PhD here, and went to work for places like Lockheed, Raytheon, and Northrop."

Szady said spies do not limit espionage activities to large cities, and the Chinese presence is pervasive. "Even as we increase our numbers of agents, we can't possibly totally stop it," he said.

"If you have a little national asset, whatever it is ... they want that little thing that you produce," he said. "And they need it to make their missile fly straight or so they can compete in electronic warfare, and you have that key component."

- Arik

Posted by Arik Johnson at February 18, 2005 06:28 PM