Chinese Spies in Silicon Valley

Date: Monday, January 27, 2003 10:31 AM

H-1B and JOB DESTRUCTION NEWSLETTER

www.ZaZona.com

The frustrating thing about so many articles that discuss espionage by
foreign workers is that the journalists never ask what visas were used
by the spies to enter our country. In the case of Frank Jiang, a
nonimmigrant visa such as an L-1 or H-1B could have been used since he
was a Chinese national who was allowed to work in the USA. The other
possibility is that he obtained a Green Card to work in the U.S.

I agree with Asian business leaders that there is a danger of a
backlash against foreign workers. We should all keep in mind that the
United States government welcomed these spies into our country by
giving them legal visas. Let's focus our energies on abolishing the
visas, not on any particular ethnic group that uses the visas. Our
government has been warned many times about the potential for foreign
workers to engage in spying but so far the warnings have been ignored.
This may be just another incident that is shoved under the rug in the
interests of corporate profits. Cheap labor has always been more of a
priority than national security.

http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2003/01/24/BA64284.DTL

Not guilty plea in China export case
Man in Cupertino has expired visa
Vanessa Hua, Chronicle Staff Writer
Friday, January 24, 2003
)2003 San Francisco Chronicle | Feedback

URL:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2003
/01/24/BA64284.DTL

A man living in Cupertino charged with shipping missile guidance
technology to the Chinese military pleaded not guilty Thursday in a San
Jose federal court.

It is the latest of several Silicon Valley cases alleging illegal
business practices involving China.

Qing Chang "Frank" Jiang, 51, is accused of illegally exporting "dual
use" technology with both commercial and military applications. He
faces up to 10 years in prison and a $250,000 fine if convicted.

A Chinese citizen with an expired U.S. visa, he is being held without
bail as a potential flight risk pending a hearing next week.

Jiang, president of EHI Group USA Inc and Araj Electronics, both in
Cupertino, allegedly exported three microwave amplifiers to the Hebei
Far-East Harris Company in Shijianzhuang, China, without a license.
Microwave amplifiers can be used in missile guidance systems.

The address of the Chinese company in question is the same as the 54th
Research Institute, a Chinese military agency.

In 1998, Jiang purchased an Intel supercomputer from Sandia National
Laboratories in New Mexico for $30,800 -- which was repurchased a year
later for $88,888, at the request of the Department of Energy.

Jiang's is the latest Silicon Valley case involving tech workers who
face charges of illegal business dealings with China.

In December, Fei Ye of Cupertino and Ming Zhong of San Jose were
indicted for economic espionage, possession of stolen trade secrets and
transportation of stolen property. They stand accused of stealing
proprietary information from Transmeta Corp., Sun Microsystems, Trident
Microsystems and NEC Electronics Corp. Both men were former employees
of Transmeta and Trident. Ye also worked at Sun and NEC.

Ye is a U.S. citizen and Zhong is a permanent resident.

In May 2001, two former Lucent scientists, Kai Xu and Hai Yu, were
indicted along with optical networking vendor Yong-Qing Cheng, in the
theft of Lucent software to give to the state-owned Datang phone
company. All three are Chinese citizens.

Asian business leaders cautioned against a backlash based on race and
place of origin.

"There is a huge Asian American society in technology. Like any
community, there are more law-abiding ones than others," said Robert
Lee, president of the Asia America Multi-technology Association.

E-mail Vanessa Hua at vahua@sfchronicle.com.

)2003 San Francisco Chronicle | Feedback

Page A - 22

http://www.taipeitimes.com/News/worldbiz/archives/2003/01/24/192247

Published on TaipeiTimes
http://www.taipeitimes.com/News/worldbiz/archives/2003/01/24/192247
Spies have Silicon Valley spooked

AP
Friday, Jan 24, 2003,Page 12
"We've got to make sure we don't throw the Constitution out the window
in the name of national security."

Lupe Martinez, the lawyer representing an alleged Chinese spy

The case of a Chinese businessman charged with illegally shipping
missile guidance technology to China's military has intensified
concerns about foreign espionage in Silicon Valley.

Qing Chang-jiang, who will be arraigned today, is at least the fourth
Chinese-born person indicted since October on charges involving the
shipment of equipment or trade secrets to China from the nerve center
of the US technology industry. Prosecutors worry that Jiang may have
been illegally exporting technology to China since 1998, when he bought
one of the world's fastest computers from a federal weapons lab.

Although it never left the US, the sale was a major embarrassment for
Sandia National Laboratories.

Jiang, 51, was arrested Jan. 10 for allegedly shipping three microwave
amplifiers to the Hebei Far-East Harris Company in Shijianzhuang,
China, without a license. At the same address is the 54th Research
Institute, a Chinese military agency, prosecutors say.

Most exports to the agency are outlawed; the US government says it
poses an ``unacceptable risk of diversion to developing weapons of mass
destruction.''

Jiang purchased a total of nine amplifiers from a division of L-3
Communications, a major supplier of intelligence, surveillance and
reconnaissance equipment, according to the indictment. The amplifiers
improve the quality of long-distance calls -- and can make
intercontinental ballistic missiles more accurate.

Jiang told federal agents he had withdrawn his export license
application and returned the equipment. But three of the amplifiers
were already in China, prosecutors say.

Jiang is president and the sole US employee of EHI Group USA Inc/Araj
Electronics, which he ran from his condominium. Held without bail, he
faces up to 10 years in prison and a US$250,000 fine if convicted.

His lawyer, Lupe Martinez, denied that Jiang was part of an organized
effort to get US technology.

Martinez said prosecutors exaggerated the danger posed by the Chinese
citizen, who has lived in the US legally since 1995 and has a wife and
son in China.

"We've got to make sure we don't throw the Constitution out the window
in the name of national security," Martinez said.

A spokesman for the Chinese Consulate in San Francisco said his
government has no relationship with Jiang. A China expert at the
American Foreign Policy Council was skeptical.

"They have hundreds of people and little companies operating like this,
basically getting our technology through means that are legal if
they're US companies, then illegally transferring them through Hong
Kong or Macau," said Santoli.

Jiang bought the Intel Paragon XPS computer in 1998.

After scientists deemed it obsolete, the US$10 million Paragon was
disassembled. The drives and disks that had been used for classified
computing were removed. The rest was offered on the open market and
purchased by EHI Group USA for US$30,800. Jiang contacted Intel Corp
and asked how to replace the missing parts.

Concerned the machine would be used in China, Intel notified the
laboratory. Inspectors found the Paragon, still wrapped in plastic in
Jiang's warehouse, and bought it back for US$88,888.

U.S. Agents Try to Tie Alleged Tech Thefts To Companies Run by Chinese

Government

By JOHN R. WILKE
Staff Reporter of THE WALL STREET JOURNAL

SAN JOSE, Calif. -- Federal agents are investigating whether Chinese
companies were involved in alleged attempts to steal vital commercial
technologies from two Silicon Valley companies.

Authorities see the two cases as part of an emerging pattern of
trade-secrets theft aimed at helping Chinese enterprises. In both
instances, the alleged thieves were arrested at San Francisco airport
as
they tried to board flights to China. The technologies at issue include
computer-chip designs and software used to find oil and gas, executives
of the allegedly targeted U.S. companies and federal officials say.

Investigators haven't found any links in the cases to China's state
security apparatus, but they have uncovered ties to other
government-controlled entities. Central- and local-government entities
own most businesses in China, but they often are autonomous and pursue
profits aggressively.

Denials by Chinese Government

A Chinese Embassy official in Washington said there was no
central-government involvement in the cases, calling them isolated
instances carried out by individuals. "There are several cases like
this
now in Silicon Valley," the official said. Likewise, a consular
spokeswoman in San Francisco called such incidents "personal behavior
[that has] nothing to do with the China government."

Prosecutors haven't charged any government entity in either of the
pending cases, and there is no suggestion the two are connected. But
the
prosecutors and Federal Bureau of Investigation agents have noticed an
increase in industrial spying by individuals associated with Chinese
companies. While French and Japanese companies have been implicated in
past economic espionage cases, federal officials suspect Chinese
entities are now among the worst offenders. Experts say economic
espionage of all stripes is on the rise, causing at least $45 billion
in
annual losses for the 1,000 largest U.S. companies, according to a
PricewaterhouseCoopers survey released in 2001.

Federal officials say the problem is especially prevalent in
California's Silicon Valley, where stealing a company's crown jewels
can
be as easy as clicking a computer mouse. "The losses to companies can
be
astronomical," says federal prosecutor Ross Nadel, who investigates
such
cases as chief of the San Francisco U.S. attorney's computer-hacking
and
intellectual-property unit. In addition to the pending criminal cases,
Mr. Nadel said many other attempts to steal trade secrets for companies
in China and elsewhere have been thwarted by FBI agents during the past
two years, though prosecutors were unable to secure indictments in some
instances. Prosecutions are hindered when "the victim companies don't
come forward to report the crime or don't cooperate with federal
officials" to avoid exposing their losses, he said.

"From a bottom-line perspective, economic espionage makes great sense

it's relatively easy, and there's little chance of getting caught or
punished," said Steven Fink, president of Lexicon Communications Corp.,
a Los Angeles firm that advises companies on how to prevent such
losses.

In the most recent case, an indictment that was filed in federal court
here last month alleged that two California residents conspired to
steal
secrets from four companies, including Sun Microsystems Inc., NEC
Electronics Corp. and Transmeta Corp., the developer of an innovative
new laptop computer chip. The men -- Fei Ye, an American citizen living
in Cupertino, and Ming Zhong, a Chinese national living as a legal
resident in San Jose -- had been arrested at the airport a year
earlier,
allegedly as they tried to fly to China with trade secrets in their
luggage. Their arrests attracted little attention at the time.

Ties to City of Hangzhou?

The indictment alleges the men had ties to a Chinese government
technology-development program and the southeast China city of
Hangzhou,
which is trying to expand its electronics industry. The indictment says
the city helped fund a joint venture, Hangzhou Zhingtian Microsystems
Co., formed by the men to commercialize the stolen technology. Federal
agents found correspondence between the men and officials with the
technology program -- formally known as the National High-Technology
Research and Development Program of China -- as well as the joint
venture's charter. One document, translated by the FBI, said a
government "panel of experts" found the venture would have "a positive
effect on development of China's integrated-circuit industry" and
recommended that "every government department implement and provide
energetic support."

People familiar with the matter say investigators are actively studying
what role, if any, the city and the technology program played in the
alleged conspiracy.

Economic Espionage Act Used

Both men have denied the charges through lawyers, saying the documents
in their luggage weren't trade secrets. Hangzhou officials said they
had
never heard of Hangzhou Zhingtian Microsystems or the two men in the
indictment. A supporter of one of the defendants suggested that ethnic
bias may have played a role in the investigation, asserting that the
men
wouldn't have been arrested "if these had been white businessmen flying
to Ireland."

The two men were charged under the rarely used Economic Espionage Act
of
1996, which outlaws possession of stolen trade secrets with the intent
to benefit a foreign nation. When the law passed, then-FBI Director
Louis Freeh called economic espionage the "greatest threat to our
national security since the Cold War."

Under the law, trade-secret thieves can be charged with economic
espionage even if they act without the direction of a foreign company
or
government. For example, two Lucent Technologies Inc. employees were
indicted in 2001 on federal economic-espionage charges for allegedly
stealing the software code of a popular voice- and data-management
product called Pathstar. They created a joint venture with China's
state-owned phone company, Datang Telecom Technology Co., but
prosecutors didn't allege that the company knew in advance that the
software was stolen. The case is awaiting trial in New Jersey.

In another case under investigation here, an employee of PetroChina, a
state-owned oil company, is alleged to have illegally downloaded the
secret design -- or "source code" -- of one of the world's most
powerful
software tools for locating oil and gas deposits. The employee, a
Chinese national named Yan Ming Shan, was training on the software at
3DGeo Development Inc. in Mountain View, Calif., and copied it into his
laptop, a federal indictment alleges. He was arrested at San Francisco
airport in September and remains in Santa Clara County Jail, on federal
charges of fraud and unauthorized computer entry.

While he isn't charged under the economic-espionage act, the FBI is
continuing to investigate his actions and could seek a superseding
indictment adding new charges, as they have done in other recent cases,
law enforcement officials said. Executives of 3DGeo said FBI agents
recently subpoenaed the PetroChina employee's e-mails and other
evidence.

The defendant has pleaded not guilty through his lawyer, Nick Humy of
the federal public defender's office in Santa Clara. An official in
PetroChina's Houston office declined to comment, referring inquiries to
the company's headquarters in China; officials there didn't respond to
inquiries.

Employee Surveillance

A unit of PetroChina sent its employee to the U.S. for training on
3DGeo's seismic-imaging software, which uses proprietary algorithms to
sift through seismic data and locate oil deposits. Dimitri Bevc,
3DGeo's
co-founder and chairman, said employees "were keeping an eye on" Mr.
Shan because two years earlier another PetroChina employee had entered
the company's offices on a weekend and entered its computer network
without permission.

One day last September, a 3DGeo employee noticed that something was
awry
with his computer. The employee discovered that Yan Ming Shan had
transferred the company's most precious software source code from the
network to this employee's computer. Later, the software was discovered
on Yan Ming Shan's laptop, prosecutors alleged.

Employees of 3DGeo confronted him about the transferred files in early
September. A week later, on Sept. 17, he was arrested at the airport as
he prepared to board a plane to China. Later, FBI agents found a
program
called "Crack" on his laptop, which is used to break passwords and gain
unauthorized access to computer networks. They discovered that when a
group of company officials from China had visited Yan Ming Shan several
weeks earlier, one of them bought him a detachable disk drive capable
of
storing large amounts of data.

"It could have killed the company" if he had successfully stolen the
source code and given it to his employer, said Mihai Popovici, 3DGeo's
chief executive. He added, however, that 3DGeo hopes to continue
working
with PetroChina, which told 3DGeo executives it had no knowledge of any
intention by Yan Ming Shan to steal company secrets.

"Companies are under attack and at great risk," said Lexicon's Mr.
Fink,
author of "Sticky Fingers," a new book about economic espionage. "They
need to take steps to protect themselves."

Write to John R. Wilke at john.wilke@wsj.com

Updated January 15, 2003

http://story.news.yahoo.com/news?tmpl=story2&cid=519&ncid=519&e=13&u=/ap/20030123/ap_on_re_us/silicon_valley_espionage_8

Silicon Valley Espionage Fears Resurface
Thu Jan 23, 6:19 AM ET Add U.S. National - AP to My Yahoo!

By RACHEL KONRAD, AP Business Writer

CUPERTINO, Calif. - Fears about foreign espionage have resurfaced in
the Silicon Valley with the case of Chinese businessman Qing Chang
Jiang.

Jiang is at least the fourth Chinese native indicted since October on
charges involving the shipment of equipment or trade secrets to China
from the nerve center of the U.S. technology industry.

He was to be arraigned Thursday, and faces up to 10 years in prison if
convicted.

Jiang, president and sole U.S. employee of EHI Group USA Inc./Araj
Electronics, was arrested Jan. 10 for allegedly shipping three
microwave amplifiers that could be used to improve the quality of
long-distance calls or to make intercontinental ballistic missiles
more accurate.

Prosecutors say Jiang, a Chinese citizen, shipped the amplifiers
without a license to a company in Shijianzhuang, China, that shares its
address with the 54th Research Institute, a Chinese military agency.
Prosecutors allege Jiang shipped the amplifiers for use by the Chinese
military.

Most exports to the military agency are outlawed. The U.S. government
says the agency poses an "unacceptable risk of diversion to developing
weapons of mass destruction."

His lawyer, Lupe Martinez, denied Jiang is part of any organized
Chinese effort to get U.S. technology and questioned whether corporate
giants that legally export billions of dollars in equipment to China
are held to the same standard.

Martinez also said prosecutors are exaggerating the danger posed by
Jiang, who has lived in the United States legally since 1995 and has a
wife and son in China.

In the three years since the Justice Department (news - web sites)
established a computer hacking and intellectual property unit in
Northern California, there has been a "significant increase" in the
number of illegal technology shipments being reported, according to
Ross Nadel, the prosecutor who leads the unit.

But, Nadel added, the increase may stem from companies being more
willing to report such crimes.

"In large part, what gets on our radar screen depends on the victim
company's willingness and quickness to come forward to law
enforcement," Nadel said.

Prosecutors worry Jiang may have been illegally exporting technology to
China since 1998, when he bought what was once one of the world's
fastest computers from a federal weapons lab.

He bought the computer, once used for classified projects, from Sandia
National Laboratories in a sale one Sandia official later described as
an act of "enormous stupidity." The computer was repurchased and never
left the United States, and Jiang was never charged in the case.

His arrest followed the December indictments of Fei Ye, a U.S. citizen,
and Ming Zhong, a permanent U.S. resident, on charges of allegedly
stealing trade secrets from Sun Microsystems, Transmeta Corp (news -
web sites)., NEC Electronics and Trident Microsystems. Federal
officials say they planned to sell microprocessors to a Chinese
startup.

Chinese citizen Shan Yan Ming, who works for a division of PetroChina,
was indicted in October after allegedly copying proprietary software at
3DGeo Development Inc., which makes software to help identify oil
reserves.

http://www.wired.com/news/business/0,1367,57389,00.html

Espionage suspect pleads: A Chinese citizen charged with illegally
shipping missile guidance technology to China's military pleaded
innocent during an arraignment hearing in federal court.

Qing Chang Jiang, also known as Frank Jiang, was dressed in an orange
Santa Clara County Jail uniform. A translator helped him communicate
with his lawyer, and he did not speak directly to the judge during the
brief hearing.

Jiang, who was arrested Jan. 10, was indicted on one charge of
violating U.S. export code. He faces up to 10 years in prison and a
$250,000 fine if convicted.

http://www.washingtonpost.com/wp-dyn/articles/A35093-2003Jan23.html

Arrests Raise Concern Over Tech Exports
By RACHEL KONRAD AP Business Writer

CUPERTINO, Calif. (AP) - The case of a Chinese businessman charged with
illegally shipping missile guidance technology to China's military has
intensified concerns about foreign espionage in Silicon Valley.

Qing Chang Jiang, who was to be arraigned Thursday, is at least the
fourth Chinese native indicted since October on charges involving the
shipment of equipment or trade secrets to China from the nerve center
of the U.S. technology industry.

In the three years since the Justice Department established a computer
hacking and intellectual property unit in Northern California, there
has been a "significant increase" in the number of illegal technology
shipments being reported, according to Ross Nadel, the prosecutor who
leads the unit.

But, Nadel added, the increase may stem from companies being more
willing to report such crimes.

"In large part, what gets on our radar screen depends on the victim
company's willingness and quickness to come forward to law
enforcement," Nadel said.

Jiang, 51, was arrested Jan. 10 for allegedly shipping three microwave
amplifiers that could be used to improve the quality of long-distance
calls - or to make intercontinental ballistic missiles more accurate.

Prosecutors say Jiang, a Chinese citizen, shipped the amplifiers
without a license to a company in Shijianzhuang, China, that shares its
address with the 54th Research Institute, a Chinese military agency.
Prosecutors allege Jiang shipped the amplifiers for use by the Chinese
military.

Most exports to the military agency are outlawed. The U.S. government
says the agency poses an "unacceptable risk of diversion to developing
weapons of mass destruction."

His lawyer, Lupe Martinez, denied that Jiang is part of any organized
Chinese effort to get U.S. technology and questioned whether corporate
giants that legally export billions of dollars in equipment to China
are held to the same standard.

Al Santoli, a China expert with the nonpartisan think tank American
Foreign Policy Council, said Chinese citizens in Silicon Valley
frequently ship technology through intermediaries to the People's
Liberation Army.

"They have hundreds of people and little companies operating like this,
basically getting our technology through means that are legal if
they're U.S. companies, then illegally transferring them through Hong
Kong or Macau," Santoli said.

Prosecutors worry Jiang may have been illegally exporting technology to
China since 1998, when he bought what was once one of the world's
fastest computers from a federal weapons lab.

Jiang bought the computer, once used for classified projects, from
Sandia National Laboratories in a sale one Sandia official later
described as an act of "enormous stupidity." The computer was
repurchased and never left the United States, and Jiang was never
charged in the case.

The drives and disks that had been used for classified computing had
been removed from the Intel Paragon XPS computer before it was sold.
Sandia's director at the time, however, later told Congress that the
computer "could have been useful for nuclear weapon applications" if
reassembled and combined with the appropriate software.

Jiang's arrest this month followed the December indictments of Fei Ye,
a U.S. citizen, and Ming Zhong, a permanent U.S. resident, on charges
of stealing trade secrets from Sun Microsystems, Transmeta Corp., NEC
Electronics and Trident Microsystems. Federal officials say they
planned to sell microprocessors to a Chinese startup.

Chinese citizen Shan Yan Ming, who works for a division of PetroChina,
was indicted in October after allegedly copying proprietary software at
3DGeo Development Inc., which makes software to help identify oil
reserves.

Ye and Zhong were indicted under the Economic Espionage Act of 1996,
which outlaws the possession of trade secrets with the intent of
benefiting a foreign nation. Ming was charged with unauthorized access
to a protected computer. Jiang allegedly ran afoul of export control
regulations.

Jiang, president and sole U.S. employee of EHI Group USA Inc./Araj
Electronics, is being held without bail and faces up to 10 years in
prison if convicted. Martinez, the attorney, said prosecutors are
exaggerating the danger posed by his client, who has lived in the
United States legally since 1995 and has a wife and son in China.

A spokesman for the Chinese Consulate in San Francisco said his
government has no relationship with Jiang.

"It's his personal behavior," Lei Hong said. "I'm not aware of the
details, but the Chinese government does not support that type of
behavior."

2003-01-23 09:17:28 GMT

Copyright 2003
The Associated Press All Rights Reserved
The information contained in the AP News report may not be published,
broadcast, rewritten or redistributed without the prior written
authorityof The Associated Press.

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