China's Spying Overwhelms U.S. CounterIntelligence

By Jeff Bliss
April 2, 2007
Bloomberg

In a Santa Ana, California, courtroom, 66-year-old engineer Chi Mak listens to federal prosecutors describe how he and his family stole secrets from his employer, L-3 Communications Holdings Inc.

The alleged target: data about Navy submarine engines that run silently to avoid detection.

U.S. intelligence officials say the Mak case is unusual -- not in the nature of the charges brought against him, but that charges were brought at all.

For every person caught and accused of passing U.S. military and trade secrets to China, they say, scores of others go undetected.

Taking advantage of an outmanned counterintelligence effort drained and distracted by the wars in Iraq and against al-Qaeda, current and former officials say, China has systematically managed to gain sensitive information on U.S. nuclear bombs and ship and missile designs.

``Iraq and the struggle with terrorism are sucking resources across the board,'' says Joel Brenner, the top counterintelligence official in the office of Director of National Intelligence Michael McConnell.

Meanwhile, ``the Chinese are really making a run at us.''

Adds Keith Riggin, a former senior official at the Central Intelligence Agency who focused on China issues: ``If the American people knew the number of officers going against the Chinese, they would be appalled.''

He says his frustration with the lack of resources was one reason he ended a 24-year career in 2006.

`Troublesome'

While 140 foreign intelligence services are trying to penetrate U.S. agencies, China's is the most aggressive, Brenner says. He describes China's activities as ``an intensifying and troublesome pattern.''

Chinese officials say the U.S. allegations are meritless.

``I wonder why people always feel threatened by others and treat others as thieves,'' Qin Gang, a spokesman for the Foreign Ministry, said at a March 15 press briefing in Beijing.

``It indicates these people have a chip on their shoulders and have fragile psychologies.''

While the Federal Bureau of Investigation tripled the size of its China unit in 2001, plans for further expansion were scotched when the Iraq war began, says Rudy Guerin, a China expert who retired from the bureau last year.

David Szady, the FBI's former assistant director for counterintelligence, says the FBI should hire another 1,500 agents, and most should be used against China's espionage within the U.S.
More Agents

Stephen Kodak, an FBI spokesman, declines to say how many more might be necessary. At the same time, he adds that ``the bureau would always welcome additional assets.''

Central Intelligence Agency spokesman Paul Gimigliano says his agency has enough resources, and that ``it would be wrong to suggest that other priorities have diluted the attention we pay to China. Over the past five years, the opposite has been true.''

The FBI spent $2.2 billion on counterterrorism and counterintelligence programs last year; the CIA budget is classified.

The U.S. won't disclose how many counterintelligence agents are working on China-related issues.

U.S. officials say there's overwhelming evidence that China has a well-thought-out plan to employ thousands of professional spies and amateurs to get sensitive U.S. military and business data, sometimes directly from sympathetic employees, sometimes through a joint venture or third party.

Submarine Data

Mak, his wife, brother, sister-in-law and nephew were indicted on charges of conspiring to export U.S. defense articles to China's government.

In court papers, prosecutors say he copied submarine data from L-3's Anaheim, California-based Power Paragon unit onto compact discs and enlisted the other family members to encrypt the information and help smuggle it to China.

Brenner says the disks also contained information on the U.S. Navy's next-generation DD(X) warship.

Under questioning, Mak admitted sending information to Chinese operatives since 1983 on technology that included radar systems of Aegis cruisers, which are used to defend against multiple missile attacks, Brenner says.

Mak and his relatives pleaded innocent to the charges. His lawyer, Ronald Kaye, says he was taking the disks for a conference with fellow engineers, and that the information about the Navy engine was obsolete. The engineer also got approval from his supervisor to make presentations at the conference, Kay says.

`Asset To His Country'

Mak ``was not only an asset to the company but a profound asset to his country,'' he says. Mak's relatives will go on trial in May.

U.S. officials say China's effort encompasses industrial secrets as well as national-security ones. Brenner cites the case of Gary Min, a DuPont Co. chemist who admitted obtaining information on company products, including materials used in airplane construction, that prosecutors valued at $400 million.

Authorities say that between August and December 2005, Min, 43, downloaded 22,000 confidential abstracts from the Wilmington, Delaware-based company's electronic library.

The documents included information on all DuPont's major product lines as well as emerging technologies.

Some of the searches focused on Vespel, a synthetic resin used to coat car, airplane and oil pump parts, and Declar, a plastic material used in the automotive and energy industries and in airplane interiors, according to court papers.

Shredded Documents

U.S. law-enforcement authorities said that when they searched Min's Grove City, Ohio, home, they found computers containing confidential files, garbage bags filled with shredded company documents and the remains of DuPont papers that had been burned in the fireplace.

In court documents, DuPont said the information would be ``highly valuable'' on the open market in ``foreign countries, specifically China.''

A call to Min's lawyers wasn't returned. Min hasn't been charged with being a Chinese spy.

Brenner says his office is still assessing the damage from another case involving Katrina Leung, who the FBI had used for 20 years as a double agent to obtain information from the Chinese, and who prosecutors in turn accused of being a Chinese agent herself.

Authorities accused Leung, 52, of taking documents from James Smith, head of the FBI's Chinese counterintelligence operation in Los Angeles, over the course of a nearly 20-year affair with him.

Peter Lee

Some of those documents related to ``Royal Tourist,'' the FBI code name for the investigation of Peter Lee, an employee of defense contractor TRW Inc.

Lee, who was accused of giving radar technology being developed to track submarines to Chinese scientists, pleaded guilty in 1997 to willful transmission of national defense information to a person not entitled to receive it.

While the case against Leung was dismissed in 2005, Smith pleaded guilty to making a false statement to the FBI about his relationship with her. Smith was one of the FBI's most seasoned China experts, a resource the agency has struggled to replace, intelligence officials say.

The CIA also hasn't been able to replace its veteran China experts when they retire, Riggin says.

``We're losing huge experience in this area.''

With the CIA occupied with preventing U.S. government secrets from falling into the wrong hands, Riggin and others say, companies doing business in China are especially vulnerable to losing non-defense information.

U.S. businesses are paying particular attention to the first intellectual-property suit brought in a Chinese court by Santa Clara, California-based Intel Corp., the world's biggest semiconductor maker.

Intel Suit

In the suit, Intel said Shenzhen Dongjin Communication Tech Co. Ltd. illegally used its software, which Dongjin had obtained through a third party, for network communication cards in its own products. Shenzhen Dongjin has countersued, accusing Intel of being an illegal monopoly.

Spokesmen for Shenzhen Dongjin haven't responded to e-mails and phone calls for comment. A ruling may come as early as next month, says Intel spokesman Chuck Mulloy.

Whatever the ruling, U.S. companies face an uphill battle to keep secrets secret, says Thomas Donohue, president of the U.S. Chamber of Commerce, the nation's largest business group.

``If you're going to make a huge move toward innovation, well, get ready in this system to lose it,'' he told reporters March 26 in Beijing. ``Because somebody's going to steal it.''

To contact the reporters on this story: Jeff Bliss in Washington jbliss@bloomberg.net .

Last Updated: April 2, 2007 11:07 EDT