A federal jury in San Francisco found two individuals and one company guilty of economic espionage, bankruptcy fraud, theft of trade secrets and tax evasion. The convicted were also charged for their parts in a long-running effort to acquire US trade secrets for the benefit of businesses controlled by the government of the People’s Republic of China (PRC).
According to a press statement released by the US Department of Justice, the jury found Walter Lian-Heen Liew and his company, USA Performance Technology Inc. (USAPTI) and Robert Maegerle had conspired to steal trade secrets from E.I. DuPont de Nemours & Company.
The theft of trade secrets related to the company’s chloride-route titanium dioxide production technology. USAPTI sold these secrets to state-owned businesses of the PRC. The aim of the conspiracy was to assist the state-owned companies to develop large-scale chloride-route titanium dioxide production capability in China. In return for the top secret information, USAPTI received large amounts of money.
56-year-old consultant Walter Liew, was found guilty of 22 counts of economic espionage, trade secret theft, making false statements and witness tampering. An anonymous letter to DuPont by a former employee who had been fired from Liew’s firm, accused Liew of larceny. The letter set the federal investigation in motion.
The trial lasted almost five weeks and included testimonies of 33 witnesses. The witnesses included engineers from the Delaware-based DuPont, which is the world’s largest producer of titanium dioxide. When federal agents raided Liew’s home they found top secret documents. At the trial, assistant US attorney, Peter Axelrod told the jury in 1991 Liew claimed Luo Gan, the former secretary general of China’s state council, had encouraged him to acquire technologies which would be beneficial to the nation, including titanium dioxide.
Victory for the Justice Department
The convictions of Liew and Maegerle, a former DuPont engineer, are considered a victory for the US Justice Department.
“Fighting economic espionage and trade secret theft is one of the top priorities of this Office and we will aggressively pursue anyone, anywhere who attempts to steal valuable information from the United States,” Melinda Haag, the US attorney in San Francisco said in a press statement.
“As today’s verdict demonstrates, foreign governments threaten our economic and national security by engaging in aggressive and determined efforts to steal US intellectual property,” Haag continued.
Liew denies stealing trade secrets. Stuart Gasner, Liew’s attorney said an appeal of the conviction is likely. Gasner also said the government was swayed by DuPont’s claims that trade secrets had been stolen. At the trial, Gasner claimed Liew had obtained the patents and publicly available information to come up with his own titanium dioxide plant design that would compete with DuPont’s technology.
The Economic Espionage Act was inaugurated in 1996 as an effort to safeguard the US’s economic secrets. This is the first time a conviction has been made on charges brought under the Act.
The FBI estimates, each year billions of US dollars are lost to domestic and foreign competitors that deliberately target economic intelligence in industries that are thriving. The FBI goes on to state that foreign competitors, which illegally seek economic trade secrets, operate in a number of ways.
They target and recruit insiders working for research institutions and for US companies. They operate economic intelligence through cyber intrusion, bribery, theft and wiretapping. They also conduct the economic theft through a process known as dumpster diving – finding discarded prototypes or intellectual property. Another way these economic spies conduct their thievery is by establishing seemingly innocent business relationships between foreign companies and US industries to gather trade secrets.
It is not, however, the first time China has been caught up in intelligence theft from a US company. In 2013, Sinovel Wind Group Co., a Chinese wind turbine company, was charged with stealing trade secrets from its former US supplier. The case involved Degan Karabasevic, a former employee of American Superconductor Corp. (AMSC) stealing source code for the turbine controllers made by AMSC. After the theft became public, the company lost more than $1 billion in market value. The case was referred to as industrial espionage.
The timing of the Sinovel Wind Group Co. scandal heightened tensions between the US and China in the wake of Edward Snowden’s disclosures of the NSA-based spying. Conflict was created between the two nations when China allowed the former NSA contractor to fly to Russia from Hong Kong.
Protecting trade secrets in the United States has been historically challenging. In January 2013, amendments were made to the Economic Espionage Act of 1996 to broaden the scope of prohibited conduct and enhance maximum penalties for offenders. The amendments prove just how serious the US government is in protecting its trade secrets.
Walter Lian-Heen Liew and his company’s conviction might mark the first sentence under the Economic Espionage Act. It is, however, far from the first time China has been implicated in stealing America’s business secrets for economic gain. In 2012, China’s Vice President Xi Jinping, got an earful from US officials over China’s “shady business practices”. In Xi’s first official tour of the US, Senator John Kerry accused a Chinese company of bankrupting a US competitor by ransacking its software. Kerry also alleged China’s “cyber attacks, access-to-market issues, espionage and theft” cost the US up to $4000 billion in data each year.
With the recent conviction of Liew and his company, Kerry’s quips and allegations about China’s penchant for looting technology and information from US businesses, has finally been recognized and penalized in a court of law.