fbi traces trail of spy ring to china

8/2/2019 FBI Traces Trail of Spy Ring to China

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3/10/12 12:BI Traces Trail of Spy Ring to China - WSJ.com

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Justin Scheck/The Wall Street Journal

A search of Walter and Christina Liew's home in

Orinda, Calif., pictured, led to seizure of a trove of

documents.

FBI Traces Trail of Spy Ring to China

By JUSTIN SCHECK And EVAN PEREZ

ORINDA, Calif.Federal agents were searching Walter and Christina Liew's home he

last July for evidence of corporate espionage when a safe deposit box key caught theattention. They asked Ms. Liew if she knew where the bank was located. Her husban

told her in Chinese to say she didn't, according to an account later given by federal pro

ecutors.

An agent who understood Chinese picked up o

the exchange and followed Ms. Liew as she le

the house, drove to an Oakland bank and tried

empty a safe deposit box the key fit. The box, acording to prosecutors, contained documents ou

lining a more than decadelong plot to ste

DuPont Co. corporate secrets and sell them to

Chinese government-owned company.

The Liews now are at the center of a case that th

Justice Department says marks the first time U

officials have filed criminal espionage chargagainst a state-owned foreign company. The company, Pangang Group, is fighting th

charges, which were unveiled a month ago in San Francisco. The Liews were charge

with conspiring to steal trade secrets and sell them to the Chinese, charges they deny.

The allegations involve an obscure chemical and a 50-year-old technology that is hard

cutting edge, but one DuPont has wanted, for decades, to keep secret. The case, d

scribed by people intimate with its details and revealed by documents reviewed by Th

Wall Street Journal, provides a rare view inside a stepped-up drive the federal goverment has mounted to combat organized efforts by foreign governments to steal U.S. i

tellectual property.

"What we've learned since the end of the Cold War is that when it comes to the econ

my, our adversaries and even our allies will spy on us when it's in their economic inte


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est," said Frank Figliuzzi, the Federal Bureau of Investigation's assistant director f

counterintelligence. He wouldn't comment on the DuPont-related case but said tha

speaking generally, the FBI is doubling down on corporate-espionage investigations b

cause despite years of attempts by the bureau to raise awareness at companies and pro

ecute trade-secret theft, the problem is growing.

Since passage of a law in 1996 giving the Ju

tice Department wide powers to prosecu

corporate espionage, only about a dozen cas

have been brought. The number of cases h

remained low even as Department officia

publicly announced attempted crackdown

on corporate spying before, including one

2007. Convictions are hard to get because therequire tying companies directly to foreig

governments, said Patrick Rowan, a form

national-security prosecutor.

Lisa Monaco, assistant U.S. attorney gener

for national security, who also wouldn't com

ment on the DuPont-related case, said th

while espionage is traditionally thought of nations trying to steal military or diplomat

secrets, "today's espionage also involves n

tion states like China focused on stealing r

search and development, sensitive technol

gy, corporate trade secrets and other mate

als to advance their economic and military c

pabilities."

China regularly denies that its government

state-owned companies engage in concerte

efforts at corporate espionage. On a broad

level, China aims at gathering already-disco

ered technical know-how to build global com


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petitors through legitimate means such

joint ventures. More controversially, Ch

has been insisting that foreign compani

hand over technology as the price of mark

access. Within China, many foreign comp

nies are so concerned about intellectual-proerty theft that they avoid bringing in their cu

ting-edge technology and manufacturin

processes.

Federal law-enforcement officials conten

many U.S. companies do too little to prote

their interests, failing to monitor employees and rarely bringing problems to feder

agents for fear of bad publicity.

That is not the case with DuPont. It hires former high-ranking federal agents to kee

tabs on its intellectual property and notifies federal officials of problems. The Justice D

partment has won at least four DuPont-related cases in recent years, among them co

victions in 2009 of a former DuPont employee for stealing information related to Kevl

high-strength fabric and giving it to a Korean company, and of another for stealin

trade secrets related to light-emitting diodes and taking them to China.

DuPont tries as hard to protect long-established technologies as new ones. It was mo

than 50 years ago that the company laid the groundwork for an efficient process to pr

duce titanium dioxide, a white pigment used in paints and other products, according

court filings. The company honed the process through the years, becoming the world

largest producer of the chemical. To keep its complex production process secret, DuPo

allowed most employees to know about only individual pieces of it.

Chinese state-owned companies, including Pangang, a conglomerate based in Panzhhua in Sichuan Province, talked for years with DuPont about opening a joint-venture

tanium plant in China, say people familiar with the matter, but a deal was never worke

out.

In the 1990s, according to documents confiscated from Mr. Liew in Orinda last summ


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and since filed in federal district court in San Francisco, Pangang and Chinese-gover

ment officials started asking businessmen to procure DuPont's proprietary titanium-pr

duction methods.

A spokesman for the Chinese embassy in Washington called that assertion "groundless

saying: "There would not be any kind of instruction or request to Chinese businessmeThey behave on their own behalf." He said the DuPont case is a business dispute an

the businessmen involved "have no connection to the Chinese government."

Pangang didn't respond to requests for comment. A former chairman of the compan

denied it dealt in stolen intellectual property.

One document taken in the search of the Liews' home and filed with the court is a lett

Mr. Liew addressed in 2004 to Pangang officials, in which he stated that a high-rankin

Chinese Communist Party leader asked him in 1991 to bring titanium-dioxide-makin

secrets back to China.

"Some years ago China let me know that she urgently needed titanium white by chlo

nation technology," the letter reads. "After many years of follow-up research and app

cation, my company has possession and mastery of the complete DuPont way."

In an affidavit filed in court, Mr. Liewa 54-year-old Malaysian-born naturalized U.

citizen who worked in Silicon Valley as an electrical engineersaid, "Those documenare not accurate or reliable." Mr. Liew said he had misrepresented facts, including h

employment history and relationships with Chinese officials.

A lawyer for Mr. Liew said during a bail proceeding that his client hadn't told the tru

in some documents cited by the government, including business pitches that claime

ties to Chinese Communist Party officials.

A former Pangang executive to whom the letter was addressed, Hong Jibi, said he wunfamiliar with Mr. Liew. "I don't know him, I never met him, I never dealt with him

and I never got any letter from him," Mr. Hong said in Beijing.

Over the past 15 years, according to court filings and people familiar with the matte

Mr. Liew hired several former DuPont employees knowledgeable about specific piec


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Tim Spitler

of the titanium processa practice that isn't illegal.

One was Tim Spitler, an engineer in Reno, Nev., with a reputation for great titanium e

pertise. He told a friend around 2003 that he was working with Mr. Liew to cobble t

gether titanium-making know-how to sell to a Chinese company, the friend said in a

interview. A lawyer for Mr. Spitler said he eventually agreed to cooperate with invesgators.

Another was Tze Chao, a 36-year DuPont veteran. Mr. Chaowho last week pleade

guilty to conspiracy to commit economic espionagesaid in a statement filed in cou

that shortly after his 2002 retirement, Pangang officials asked him to provide DuPont

tanium-dioxide-making information. Mr. Chao said he hooked up with Mr. Liew aft

learning Mr. Liew was trying to sell similar information to Pangang.

Prosecutors have filed in court letters purportedly written by Mr. Liew in which he say

he has sold DuPont titanium-oxide technology to various companies affiliated with th

Chinese government.

Mr. Liew's companies received more than $12 million from a Pa

gang subsidiary between 2009 and 2011 for his efforts, prosecuto

alleged in their indictment of the Liews. The couple, prosecuto

charged, "wired millions of dollars in proceeds from Pangan

Group to Christina Liew's relatives" in China.

In 2010, DuPont received an anonymous letter saying that Mr. Lie

and one of his employees, a Bay Area man who was also employe

by Chevron Corp. , had sold DuPont information to a Chinese com

pany, according to court filings.

Chevron security officials began an investigation after hearing fro

DuPont, court filings say, and searched the computer of the employee, namedJohn Li

They found documents related to DuPont technology, court filings said. Mr. Liu

lawyer noted that his client hasn't been charged. According to people familiar with th

case, Mr. Liu has cooperated with prosecutors.

Chevron last March forwarded information found on Mr. Liu's computer to DuPon


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which in turn brought it to FBI agents in San Francisco, said people familiar with th

case.

DuPont last spring also filed a civil suit against Mr. Liew in San Francisco federal cou

seeking damages for alleged theft of trade secrets. Mr. Liew's response denied that h

and his partners possessed DuPont trade secrets and said there was "no uniqueness" its titanium-dioxide process. He filed a counterclaim alleging that DuPont had impro

erly obtained his trade secrets. The suit is pending.

DuPont said the case "demonstrates that DuPont reacts swiftly and vigorously when i

trade secrets are stolen. When we learned of the suspected theft, we investigated furth

until we had sufficient information to file suit. We also notified law enforcement."

On July 19, FBI agents searched the Liews' gray house in Orinda, a hilly suburb about 2

miles east of San Francisco. It was during that search that an agent trailed Ms. Liew to

safe deposit box that contained documents and disk drives, prosecutors wrote la

month in a court filing opposing bail for Mr. Liew. The Liews were arrested on charg

of obstructing their investigation.

FBI agents soon learned that two senior Pangang executives were in California an

preparing to meet with the Liews, according to lawyers familiar with the case. They i

cluded a top company executive, Zhuang Kai. Agents confiscated the Chinese exec

tives' passports and told them to stay in the hotel in Alameda, Calif., as material w

nesses while the investigation continued.

Federal agents began translating thousands of pages of Chinese-language documen

confiscated from the Liews and following the leads generated.

The investigation led them to Mr. Chao, the DuPont retiree. Agents searched Mr. Chao

house in Delaware in October, according to a statement he made as part of his guil

plea. While they found some DuPont-related documents, said a person familiar with th

case, they missed others.

A few days later, Mr. Chao's court filing says, he took those others into his yard an

burned them. But the information the FBI did find was enough for the 77-year-old to d

cide to cooperate with investigators, court filings show.


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Prosecutors granted immunity to the two Pangang executives visiting California so the

would talk with prosecutors with their American lawyers present. In late fall prosec

tors decided they could no longer hold the men as witnesses and let them return to Ch

na. Lawyers for both men say their clients have done nothing wrong.

Prosecutors went ahead with preparations for a case against others, and made plans ask a grand jury to hand up an indictment on a Wednesday in early January, said pe

ple familiar with the case. But days before the scheduled grand jury meeting, one i

tended witness, Mr. Spitler, the Reno-area engineer with the wide knowledge of the tit

nium dioxide process, shot himself. His family hasn't returned calls requesting com

ment.

Prosecutors regrouped, and in early February obtained indictments that included M

and Ms. Liew; Pangang Group and three affiliates; a midlevel executive of a Panganaffiliate in China for whom the indictment said an arrest warrant had been issued; and

former DuPont engineer named Robert Maegerle. All were charged with conspiracy

commit economic espionage except for Mr. Maegerle, who was charged only with co

spiracy to commit theft of trade secrets. He pleaded not guilty on Thursday.

Mr. Chao, in pleading guilty in San Francisco federal court a week ago to conspiracy

commit economic espionage, said he had been led astray after officials from the People

Republic of China "overtly appealed to my Chinese ethnicity and asked me to work fthe good of the PRC."

Pangang Group's lawyers have said they believe the prosecutors must go through th

Chinese judicial system to serve the indictment and are fighting the matter in cour

They haven't filed a plea.

Ms. Liew pleaded not guilty Thursday. Mr. Liew intends to do so as well, his lawy

said. Mr. Liew remains in an Alameda County jail, where he has been since the July raon his home in Orinda.

Kersten Zhang and Carlos Tejada contributed to this article.

Write toJustin Scheck [email protected] and Evan Perez at [email protected]


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A version of this article appeared Mar. 9, 2012, on page A1 in some U.S. editions of The Wa

Street Journal, with the headline: FBI Traces Trail of Spy Ring to China.

fbi traces trail of spy ring to china

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