Department Of State Employee Sentenced For Transmitting National Defense Information To Suspected Chinese Government Agents

The U.S. Justice Department released the information below:

A U.S. Department of State (DOS) employee was sentenced to 48 months in prison for conspiring to collect and transmit national defense information to individuals he believed to be working for the government of the People’s Republic of China (PRC).

“The defendant threw away his career, betrayed his country, and abused the trust the United States placed in him by granting his Top-Secret security clearance. He will spend years of his life in prison for passing classified information to individuals he believed to be Chinese government agents,” said Assistant Attorney General for National Security John A. Eisenberg. “Today’s sentence serves as a warning to those who would violate the trust placed in them by our Nation and double-cross the American people.”

“The price of Michael Schena’s disgraceful betrayal of his country is far more than the paltry amount for which he traded his honor,” said U.S. Attorney Erik S. Siebert for the Eastern District of Virginia. “His acts of selfish avarice left that price to be paid by the faithful women and men of our intelligence community and the nation they serve. The cost Schena will pay is the loss of his integrity, his reputation, and, by today’s sentence, his freedom.”

“Michael Schena deliberately undermined U.S. national security and put American lives at risk by selling classified information to the Chinese government,” said Assistant Director Roman Rozhavsky of the FBI’s Counterintelligence Division. “The Chinese government continues to aggressively target U.S. government employees to steal our classified information, and this sentencing makes clear the FBI and our partners will do everything in our power to defend the homeland. Anyone thinking of betraying their oath to the United States should consider the severe consequences and know the FBI will work tirelessly to bring them to justice.”

According to court documents, beginning in April 2022, Michael Charles Schena, 42, of Alexandria, Virginia, communicated with people he met online through various communication platforms and provided them sensitive U.S. government information, in exchange for money. Two of these individuals represented themselves as employees of international consulting companies. Despite clear indications and believing that they were working on behalf of the PRC, Schena continued his relationship with them.

In August 2024, Schena met an individual at a hotel in Peru who provided Schena $10,000 and a cellphone that was intended to be used for Schena to receive taskings and transmit information.

In October 2024, while at work, Schena used the cellphone he received in Peru to photograph and transmit at least four classified documents that contained national defense information and which were classified at the SECRET level. In February 2025, surveillance video captured Schena again using the cellphone to photograph seven documents marked as SECRET that contained national defense information. FBI agents seized the cellphone before Schena could transmit photographs of these classified documents to his handlers, and arrested Schena.

John A. Eisenberg, Assistant Attorney General for National Security; U.S. Attorney Erik S. Siebert for the Eastern District of Virginia; Assistant Director Roman Rozhavsky of the FBI Counterintelligence Division; and Special Agent in Charge Daniel Wierzbicki of the FBI Washington Field Office’s Counterintelligence and Cyber Division made the announcement after sentencing by U.S. District Judge Michael S. Nachmanoff.

The FBI Washington Field Office investigated the case with assistance from the FBI Richmond Field Office, the Department of Justice’s Office of Enforcement Operations, and the Department of State’s Diplomatic Security Service Office of Counterintelligence.

Assistant U.S. Attorneys Michael Ben’Ary and Gavin R. Tisdale for the Eastern District of Virginia and Trial Attorney Maria Fedor of the National Security Division’s Counterintelligence and Export Control Section prosecuted the case. 

Electrical Engineer Sentenced To More Than Five Years In Prison For Conspiring To Illegally Export To China Semiconductor Chips With Military Uses

The U.S. Justice Department released the below information: 

A California man was sentenced today to 63 months, or more than five years, in prison for his role in a scheme to illegally export integrated circuits with military applications to China the required filing of electronic export information. As part of his sentence, the Judge ordered Shih to pay $362,698 in restitution to the IRS and fined him $300,000. 

Yi-Chi Shih, 66, of Hollywood Hills, was convicted on July 2, 2019, to one count of conspiracy to violate the International Emergency Economic Powers Act (IEEPA) and the Export Administration Regulations (EAR). Shih also was convicted of four counts of mail fraud, two counts of wire fraud, one count of conspiracy to gain unauthorized access to a protected computer to obtain information, one count of making false statements to an FBI agent, three counts of subscribing to a false tax return, and four counts of making false statements to the IRS about his foreign assets. 

According to court documents, Shih defrauded a U.S. company that manufactured broadband, high-powered semiconductor chips known as monolithic microwave integrated circuits (MMICs) out of its confidential and proprietary business information that was part of its MMIC manufacturing services, according to trial evidence. 

As part of the scheme, Shih accessed the victim company’s web portal after obtaining that access through an associate who posed as a domestic customer seeking to obtain custom-designed MMICs that would be used solely in the United States. In this way, Shih concealed his true intent to export the U.S. company’s MMICs to the People’s Republic of China. 

The victim company’s semiconductor chips have several commercial and military applications. MMICs are used in missiles, missile guidance systems, fighter jets, electronic warfare, electronic warfare countermeasures and radar applications. The MMICs Shih exported to China were intended for AVIC 607, a state-owned entity in the PRC. 

Shih was the President of Chengdu GaStone Technology Company (CGTC), a Chinese company that was building a MMIC manufacturing facility in Chengdu. In 2014, CGTC was placed on the Commerce Department’s Entity List, according to court documents, “due to its involvement in activities contrary to the national security and foreign policy interest of the United States – specifically, that it had been involved in the illicit procurement of commodities and items for unauthorized military end use in China.” 

Shih used a Hollywood Hills-based company he controlled – Pullman Lane Productions, LLC – to funnel funds provided by Chinese entities to finance the manufacturing of the MMICs by the victim company. Pullman Lane received financing from a Beijing-based company that was placed on the Entity List the same day as CGTC “on the basis of its involvement in activities contrary to the national security and foreign policy interests of the United States,” according to court documents. 

Shih’s associate, Kiet Mai, pleaded guilty in December 2018 to one felony count of smuggling and was sentenced to 18 months’ probation and a $5,000 fine.

Acting Assistant Attorney General Mark Lesko of the Justice Department’s National Security Division and Acting U.S. Attorney Tracy Wilkison for the Central District of California made the announcement. 

The FBI, the U.S. Department of Commerce’s Bureau of Industry and Security Office of Export Enforcement, and IRS Criminal Investigation investigated the case, with valuable assistance provided by the Royal Canadian Mounted Police. 

Assistant U.S. Attorneys Judith A. Heinz, Melanie Sartoris, Khaldoun Shobaki, William M. Rollins, James C. Hughes and Daniel G. Boyle of the Central District of California prosecuted the case with assistance from Elizabeth Cannon, Deputy Chief of the National Security Division’s Counterintelligence and Export Control Section.

Chinese National Sentenced To More Than Three Years In Federal Prison For Attempting To Illegally Export Maritime Raiding Craft And Engines to China

 The U.S. Justice Department released the below information: 

A Chinese national was sentenced Wednesday to three years and six months in federal prison for conspiring to submit false export information through the federal government’s Automated Export System and to export maritime raiding craft and engines to China fraudulently, and attempting to export that equipment fraudulently in violation of U.S. law. In addition, the Court ordered Songtao to forfeit $114,834.27, the amount caused to be wired to a U.S. manufacturer to purchase the raiding craft and engines. 

Ge Songtao, 51, of Nanjing, People’s Republic of China, pleaded guilty on Nov. 2, 2020. According to court documents, Ge was the chairman of Shanghai Breeze Technology Co. Ltd., a company headquartered in Shanghai, China. Beginning in 2018, Ge was interested in identifying a source of supply of U.S.-manufactured combat rubber raiding craft equipped with engines that could operate using gasoline, diesel fuel or jet fuel. These vessels and multi-fuel engines are used by the U.S. military and can be operated after being launched from a submerged submarine or dropped into the ocean by an aircraft. No comparable engine is manufactured in China. 

One of Ge's U.S.-based employees, co-defendant Yang Yang, attempted to order seven of the raiding craft equipped with these engines from a U.S. manufacturer. When the U.S. manufacturer suggested that Yang purchase cheaper gasoline-fueled engines, she insisted that she wanted to purchase the military-model multi-fuel engines. To induce the manufacturer to sell this equipment, Yang falsely represented that her customer was an entity called United Vision Limited in Hong Kong, rather than Shanghai Breeze Technology Co. in Shanghai. One of Yang’s Chinese co-workers had told her that American manufacturers would be more likely to sell to an entity in Hong Kong rather than one in mainland China. By misrepresenting what company was buying the equipment and where it was located, Yang caused the entry of false information in the Department of Commerce’s Automated Export System in violation of federal law. 

To facilitate the purchase of the raiding craft and engines, Ge arranged for wire transfers to a separate company in Hong Kong, Belt Consulting Company Limited, which in turn wired $114,834.27 to the U.S. manufacturer. He also coordinated plans to send an employee to Hong Kong to receive the raiding craft and engines and transship them to mainland China. The plot failed and authorities arrested Ge and his co-defendants before the raiding craft and engines were shipped overseas. 

On Sept. 15, 2020, Yang pleaded guilty to the same two charges to which Ge pleaded guilty, and on Dec. 9, 2020, was sentenced to a time-served sentence or the equivalent of approximately 14 months’ imprisonment. On Aug. 13, 2020, co-defendant Zheng Yan pleaded guilty to conspiring to submit false export information and to export the raiding craft and engines fraudulently in violation of U.S. law, and on March 31, was sentenced to a time-served sentence or the equivalent of approximately 6 months’ imprisonment and 11 months’ home-detention. The trial of remaining co-defendant, Fan Yang, is scheduled to begin on August 2. 

Acting U.S. Attorney Karin Hoppmann for the Middle District of Florida made the announcement.

The FBI, the U.S. Naval Criminal Investigative Service, the U.S. Department of Commerce – Bureau of Industry and Security, and the Bureau of Alcohol, Tobacco, Firearms and Explosives investigated the case.

Trial Attorney Heather Schmidt of the National Security Division’s Counterintelligence and Export Controls Section and Assistant U.S. Attorney Michael J. Coolican of the Middle District of Florida prosecuted the case.

Man Who Worked At Local Research Institute For 10 Years Pleads Guilty To Conspiring To Steal Trade Secrets, Sell Them In China

 The U.S. Justice Department released the below information: 

A former Dublin, Ohio, man pleaded guilty in U.S. District Court today to conspiring to steal exosome-related trade secrets concerning the research, identification and treatment of a range of pediatric medical conditions. 

Yu Zhou, 50, also pleaded guilty to conspiring to commit wire fraud. 

Zhou admitted to conspiring to steal scientific trade secrets related to exosomes and exosome isolation from Nationwide Children’s Hospital’s Research Institute for his own personal financial gain in China. 

“Today’s plea underscores the Department of Justice’s commitment to protecting American research and trade secrets from those incentivized to steal them by Chinese Government programs,” said John C. Demers, Assistant Attorney General for National Security.  “China’s endemic efforts to rob, replicate and replace products that they do not have the ability to develop themselves will not go unchecked, and those who seek to profit from the theft of trade secrets will be held accountable.” 

“The Chinese government has created a large-scale, sophisticated system to steal American ingenuity,” U.S. Attorney David M. DeVillers said. “We hope this conviction demonstrates that we will fight this system.” 

“Zhou and his wife have both accepted responsibility for establishing a company in China to personally profit from the cutting-edge work done at Nationwide Children’s Hospital,” stated FBI Cincinnati Special Agent in Charge Chris Hoffman. “The FBI will continue to work closely with our partners to protect the innovations that have made America a global leader.” 

Zhou and his wife, Li Chen, 47, worked in separate medical research labs at the Research Institute for 10 years each (Zhou from 2007 until 2017 and Chen from 2008 until 2018). They conspired to steal trade secrets related to exosome research from Nationwide Children’s Hospital. 

Exosomes play a key role in the research, identification and treatment of a range of medical conditions, including necrotizing enterocolitis (a condition found in premature babies), liver fibrosis and liver cancer. 

According to his plea agreement, Zhou and Chen conspired to steal and then monetize one of the trade secrets by creating and selling exosome “isolation kits.” Zhou’s research at Nationwide Children’s included a novel isolation method in which exosomes could be isolated from one drop of blood. This method was vital to the research being conducted in Zhou’s lab – because necrotizing enterocolitis is a condition found primarily in premature babies, only small amounts of fluid can safely be taken from them. 

The defendants admitted to starting a company in China to sell the isolation kits. They received benefits from the Chinese government, including the State Administration of Foreign Expert Affairs and the National Natural Science Foundation of China. 

Zhou and Chen were arrested in California in July 2019 and their case was unsealed in August 2019 when they appeared in federal court in Columbus. Chen pleaded guilty in July 2020 to conspiring to steal trade secrets and commit wire fraud. 

As part of their pleas, the couple has agreed to forfeit property or gains associated with their crimes.  For Chen, this included approximately $1.4 million, 500,000 shares of common stock of Avalon GloboCare Corp. and 400 shares of common stock of GenExosome Technologies, Inc. The details of Zhou’s forfeiture will be finalized through the sentencing process. 

David M. DeVillers, United States Attorney for the Southern District of Ohio; John C. Demers, Assistant Attorney General for National Security; and Chris Hoffman, Special Agent in Charge, Federal Bureau of Investigation (FBI), Cincinnati Division, announced the plea entered into today before U.S. District Judge Sarah D. Morrison. Assistant United States Attorneys S. Courter Shimeall, Peter K. Glenn-Applegate, Special Assistant United States Attorney J. Michael Marous and National Security Division Trial Attorney Matthew J. McKenzie, are representing the United States in this case.

NASA Researcher Arrested For False Statements And Wire Fraud in Relation to China’s Talents Program: Texas A&M University Professor Working On U.S. Space Projects Allegedly Hid Affiliations With Chinese State Owned Academic And Commercial Institutions

The U.S. Justice Department released the below information:

A criminal complaint has been unsealed today, charging Zhengdong Cheng, 53, of College Station, Texas, for conspiracy, making false statements and wire fraud. 

Texas A&M University (TAMU) Professor Zhengdong Cheng is expected to make his initial appearance before U.S. Magistrate Judge Sam Sheldon today at 10 a.m. in Houston, Texas.  Authorities took him into custody Sunday, Aug. 23. 

Cheng allegedly led a team conducting research for NASA. According to the criminal complaint, for several years he willfully took steps to obscure his affiliations and collaboration with a Chinese University and at least one Chinese-owned company.  The terms of Cheng’s grant prohibited participation, collaboration or coordination with China, any Chinese-owned company or any Chinese University, according to the charges.

“Once again, we have witnessed the criminal consequences that can arise from undisclosed participation in the Chinese government’s talent program,” said Assistant Attorney General for National Security John C. Demers.  “Professor Cheng allegedly made false statements to his university and to NASA regarding his affiliations with the Chinese government.  The Department of Justice will continue seeking to bring participation in these talent programs to light and to expose the exploitation of our nation and our prized research institutions.”

“China is building an economy and academic institutions with bricks stolen from others all around the world,” said U.S. Attorney Ryan K. Patrick for the Southern District of Texas. “While 1.4 million foreign researchers and academics are here in the U.S. for the right reasons, the Chinese Talents Program exploits our open and free universities. These conflicts must be disclosed, and we will hold those accountable when such conflict violates the law.”

“As alleged, Zhengdong Cheng knowingly deceived NASA officials about his association with Chinese owned companies and universities, willingly accepted U.S. government funding, and defrauded his university,” said Assistant Director Alan Kohler, Jr. of the FBI’s Counterintelligence Division.  “The FBI is committed to aggressively pursuing those individuals who try and undercut our U.S. research institutions and government agencies by concealing their participation in Chinese talent recruitment programs and to hold them accountable for their actions.” 

“NASA’s funding restrictions are in place to protect taxpayer-financed research dollars and intellectual property,” said Special Agent in Charge Mark Zielinski, NASA Office of Inspector General (OIG) - Eastern Field Office.  “We will continue pursue anyone who attempts to circumvent these guidelines and conceal affiliations with Chinese institutions and companies in order to obtain NASA grant money.”

“Dr. Cheng is accused of hiding his affiliation with the Guangdong University of Technology, along with other foreign universities, while disregarding the rules established under his NASA contract during his employment at TAMU,” said FBI Houston Special Agent in Charge Perrye K. Turner.  “These alleged actions came to light through the tireless work of the FBI-Bryan Resident Agency and NASA-OIG investigative teams.  We are grateful to TAMU, TAMU System and TAMU Engineering Experiment Station for providing significant assistance through their partnership with us throughout this case.”

The charges allege Cheng and TAMU received funds based on Cheng knowingly providing false information to TAMU and consequently to NASA.  In addition to the funds, Cheng personally benefited from his affiliation with TAMU and NASA with increased access to unique NASA resources, such as the International Space Station, according to the complaint.  This access allegedly allowed Cheng to further his standing in China at Guangdong University of Technology and other universities.  The charges further allege he held senior research positions there unknown to TAMU and NASA and was able to serve in the People’s Republic of China Talents program.  China’s Talents Plans are allegedly designed to attract, recruit and cultivate high-level scientific talent in furtherance of China’s scientific development, economic prosperity and national security.

The FBI-Bryan Resident Agency and NASA-Office of Inspector General conducted the investigation with the assistance of TAMU.  Assistant U.S. Attorneys Carolyn Ferko and S. Mark McIntyre are prosecuting the case with the assistance of trial attorney Matthew McKenzie of the National Security Division’s Counterintelligence and Export Control Section.

The details contained in the charging documents are allegations.  The defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law. 

Former CIA Officer Arrested and Charged with Espionage

The U.S. Justice Department released the below information:

Alexander Yuk Ching Ma, 67, a former Central Intelligence Agency (CIA) officer, was arrested on Aug. 14, 2020, on a charge that he conspired with a relative of his who also was a former CIA officer to communicate classified information up to the Top Secret level to intelligence officials of the People’s Republic of China (PRC).  The Criminal Complaint containing the charge was unsealed this morning.

Assistant Attorney General for National Security John C. Demers, U.S. Attorney for the District of Hawaii Kenji M. Price, Assistant Director of the FBI’s Counterintelligence Division Alan E. Kohler Jr., and Special Agent in Charge of the FBI’s Honolulu Field Office Eli S. Miranda made the announcement.

“The trail of Chinese espionage is long and, sadly, strewn with former American intelligence officers who betrayed their colleagues, their country and its liberal democratic values to support an authoritarian communist regime,” said Assistant Attorney General for National Security John C. Demers.  “This betrayal is never worth it.  Whether immediately, or many years after they thought they got away with it, we will find these traitors and we will bring them to justice.  To the Chinese intelligence services, these individuals are expendable.  To us, they are sad but urgent reminders of the need to stay vigilant.”

 “The charges announced today are a sobering reminder to our communities in Hawaii of the constant threat posed by those who seek to jeopardize our nation’s security through acts of espionage,” said U.S. Attorney Price. “Of particular concern are the criminal acts of those who served in our nation’s intelligence community, but then choose to betray their former colleagues and the nation-at large by divulging classified national defense information to China. My office will continue to tenaciously pursue espionage cases.”

“This serious act of espionage is another example in a long string of illicit activities that the​People's Republic of China is conducting within and against the United States,” said Alan E. Kohler Jr., Assistant Director of the FBI's Counterintelligence Division.  “This case demonstrates that no matter the length or difficulty of the investigation, the men and women of the FBI will work tirelessly to protect our national security from the threat posed by Chinese intelligence services.  Let it be known that anyone who violates a position of trust to betray the United States will face justice, no matter how many years it takes to bring their crimes to light.”

“These cases are very complicated and take years if not decades to bring to a conclusion,” said Eli Miranda, Special Agent in Charge of the FBI's Honolulu Division.  “I could not be more proud of the work done by the men and women of the FBI's Honolulu Division in pursuing this case. Their dedication is a reminder that the FBI will never waiver when it comes to ensuring the safety and security of our nation.”

Ma is a naturalized U.S. citizen born in Hong Kong. According to court documents, Ma began working for the CIA in 1982, maintained a Top Secret clearance, and signed numerous non-disclosure agreements in which he acknowledged his responsibility and ongoing duty to protect U.S. government secrets during his tenure at CIA.  Ma left the CIA in 1989 and lived and worked in Shanghai, China before arriving in Hawaii in 2001. 

According to court documents, Ma and his relative (identified as co-conspirator #1) conspired with each other and multiple PRC intelligence officials to communicate classified national defense information over the course of a decade. 

The scheme began with three days of meetings in Hong Kong in March 2001 during which the two former CIA officers provided information to the foreign intelligence service about the CIA’s personnel, operations, and methods of concealing communications.  Part of the meeting was captured on videotape, including a portion where Ma can be seen receiving and counting $50,000 in cash for the secrets they provided.

The court documents further allege that after Ma moved to Hawaii, he sought employment with the FBI in order to once again gain access to classified U.S. government information which he could in turn provide to his PRC handlers. In 2004, the FBI’s Honolulu Field Office hired Ma as a contract linguist tasked with reviewing and translating Chinese language documents.  Over the following six years, Ma regularly copied, photographed and stole documents that displayed U.S. classification markings such as “SECRET.”  Ma took some of the stolen documents and images with him on his frequent trips to China with the intent to provide them to his handlers.  Ma often returned from China with thousands of dollars in cash and expensive gifts, such as a new set of golf clubs.

According to court documents, in spring 2019, over the course of two in-person meetings, Ma confirmed his espionage activities to an FBI undercover employee Ma believed was a representative of the PRC intelligence service, and accepted $2,000 in cash from the FBI undercover as “small token” of appreciation for Ma’s assistance to China.  Ma also offered to once again work for the PRC intelligence service.  On August 12, 2020, during a meeting with an FBI undercover employee before arrest, Ma again accepted money for his past espionage activities, expressed his willingness to continue to help the Chinese government, and stated that he wanted “the motherland” to succeed.

Ma will make his initial appearance before a federal judge tomorrow in the U.S. District Court for the District of Hawaii.  He is charged with conspiracy to communicate national defense information to aid a foreign government and faces a maximum penalty of life imprisonment if convicted.  The maximum sentence is prescribed by Congress and is provided here for informational purposes.  In the event Ma is convicted, a federal district court judge will determine any sentence after taking into account the advisory Sentencing Guidelines and other statutory factors.

The investigation was conducted by the FBI’s Honolulu and Los Angeles Field Offices. Assistant U.S. Attorney Ken Sorenson and Trial Attorneys Scott Claffee and Steve Marzen of the National Security Division’s Counterintelligence and Export Control Section are prosecuting the case.

China Flexes Its Military Muscle: Beijing Exploits Covid Crisis To Assert Control Of Strategically Vital South China Sea - And The US Sends Three Warships In Response

Mark Nicol at the Daily Mail offers a piece on Communist China taking advantage of the COVID-19 outbreak by displaying their military might in the South China Sea. 

China has taken advantage of the world’s struggle with Covid-19 to mount a disturbing display of military firepower and push its illegal claims to land and oilfields in a two-million-square-mile area in the South China Sea.

The moves have triggered an immediate response from US President Donald Trump.. 

Deeply worried about Beijing’s insatiable desire for land and the way its military has occupied areas by stealth, Washington has sent three warships to the region. 

China’s escalation of war games in the region follows decades of aggression by the Communist government. 

You can read the rest of the piece via the below link:

https://www.dailymail.co.uk/news/article-8304031/China-flexes-military-muscle-Beijing-exploits-Covid-crisis-assert-control-South-China-Sea.html 

Former CIA Officer Sentenced For Conspiracy To Commit Espionage

The U.S. Justice Department released the below information:

A former Central Intelligence Agency (CIA) case officer was sentenced today to 19 years in prison for conspiring to communicate, deliver and transmit national defense information to the People’s Republic of China (PRC).

“In just over a year, we have convicted three Americans for committing espionage offenses on behalf of the Chinese government.  Each has now received a sentence of at least a decade,” said Assistant Attorney General for National Security John C. Demers.  “Sadly, all three of them are former members of the U.S. Intelligence Community.  These convictions and sentences should send a strong message to current and former security clearance holders: be aware that the Chinese government targets you -- and if you betray us, be aware that the Department of Justice will hold you accountable.”

“As I stated at the time of the defendant’s admission of guilt, those Americans entrusted with our government’s most closely held secrets have a tremendous responsibility to safeguard that information,” said G. Zachary Terwilliger, U.S. Attorney for the Eastern District of Virginia.  “Instead of embracing that responsibility and honoring his commitment to not disclose national defense information, Lee sold out his country, conspired to become a spy for a foreign government, and then repeatedly lied to investigators about his conduct.  This prosecution and sentence should serve as a clear warning to others who are contemplating selling out to the highest bidder and capitalizing on their position of trust.  My thanks to the prosecutors, agents and our intelligence community partners for their terrific work on this important case.”

According to court documents, Jerry Chun Shing Lee, 55, left the CIA in 2007 and began residing in Hong Kong.  In April 2010, two Chinese intelligence officers (IOs) approached Lee and offered to pay him for national defense information he had acquired as a CIA case officer.  The IOs also told Lee they had prepared for him a gift of $100,000 cash, and they offered to take care of him “for life” in exchange for his cooperation.

Beginning sometime in May 2010 and continuing into at least 2011, Lee received requests for information, or taskings, from the Chinese IOs.  The majority of the taskings asked Lee to reveal sensitive information about the CIA, including national defense information.  On May 14, 2010, Lee made or caused to be made a cash deposit of $138,000 HKD (approximately $17,468 in USD) into his personal bank account in Hong Kong.  This would be the first of hundreds of thousands of dollars (USD equivalent) in cash deposits Lee made or caused to be made into his personal HSBC account from May 2010 through December 2013.

On May 26, 2010, Lee created on his laptop computer a document that described, among other things, certain locations to which the CIA would assign officers with certain identified experience, as well as the particular location and timeframe of a sensitive CIA operation.  After Lee created this document, he transferred it from his laptop to a thumb drive.  The document included national defense information of the United States that was classified at the Secret level.

In August 2012, the FBI conducted a court-authorized search of a hotel room in Honolulu, Hawaii, registered in Lee’s name.  The search revealed that Lee possessed the thumb drive within his personal luggage.  The FBI forensically imaged the thumb drive and later located the document in the unallocated space of the thumb drive, meaning that it had been deleted.  The search also revealed that Lee possessed a day planner and an address book that contained handwritten notes made by Lee that mostly related to his work as a CIA case officer prior to 2004.  These notes included, among other things, intelligence provided by CIA assets, true names of assets, operational meeting locations and phone numbers, and information about covert facilities.

“Mr. Lee served as a CIA officer and was entrusted with extremely sensitive national security information, and he broke that trust with no regard for the consequences,” said John Brown, Assistant Director of Counterintelligence for the FBI.  “His actions aided a foreign government, hurt our national security, and jeopardized the safety of his former intelligence colleagues.  The FBI takes such acts of betrayal very seriously and will be relentless in pursuing these cases.  I want to thank the agents, analysts, and prosecutors who worked tirelessly to bring Mr. Lee to justice.”

“Lee betrayed his own country for greed and put his former colleagues at risk.  The seriousness of his betrayal and crime is demonstrated by today's sentencing,” said Timothy R. Slater, Assistant Director in Charge of the FBI's Washington Field Office.  “The FBI and our partners will continue to aggressively pursue those who put our nation's security in danger to benefit our adversaries.  The U.S. government will not stand by while the Chinese intelligence service targets our government employees for their gain and to the detriment of U.S. national security.”

During 2012, Lee had a series of interviews with the CIA.  Throughout these interviews, in response to questions about what the IOs had wanted from him, Lee intentionally failed to disclose that he had received taskings from them.  In May 2013, the FBI conducted multiple interviews with Lee.  During one of those interviews, Lee admitted that he had received taskings but stated that he had not kept the written requests because they would tend to incriminate him.

The FBI interviewers also confronted Lee with the sensitive document discovered on the thumb drive.  Lee falsely denied that he possessed it, claimed not to know who created it, and denied knowing why it would have been on his computer.  He also denied deleting the document.  Approximately one week later, in another FBI interview, Lee admitted that he created the document in response to two taskings from the IOs and transferred it to a thumb drive.  He also said he thought about giving it to the IOs but never did.

In a January 2018 interview with the FBI, Lee falsely denied that he ever kept any work-related notes at home.  When shown a photocopy of the front covers of the day planner and address book described above, as well as a copy of his handwriting therein, Lee falsely denied that he possessed the notebooks while transiting through Hawaii in August 2012.  Lee also falsely denied that either of the books contained notes from asset meetings but conceded that any such notes would be classified.  Further, Lee falsely denied that he ever put the sensitive document on a thumb drive, notwithstanding the fact that he had admitted having done so when interviewed by FBI agents in May 2013.  Finally, Lee also falsely told the interviewing agents that in drafting this document he was writing down things “more [like] a diary thing,” notwithstanding the fact that in May 2013 he had told FBI agents that he had created the document in response to two taskings from the Chinese IOs.

Lee pleaded guilty to conspiracy to deliver national defense information to aid a foreign government on May 1.

John C. Demers, Assistant Attorney General for National Security, G. Zachary Terwilliger, U.S. Attorney for the Eastern District of Virginia, and Timothy R. Slater, Assistant Director of the FBI’s Washington Field Office, made the announcement of the sentencing by Senior U.S. District Judge T.S. Ellis III. Assistant U.S. Attorney Neil Hammerstrom and Trial Attorneys Patrick T. Murphy and Adam L. Small of the National Security Division’s Counterintelligence and Export Control Section prosecuted the case with assistance from Assistant U.S. Attorney Inayat Delawala.

China Poses Largest Long-Term Threat To U.S., Defense Department Policy Chief Says

Terri Moon Cronk at the Department of Defense offers the below piece:

It is not an exaggeration to say China is the greatest long-term threat to the U.S. way of life, but China also poses the greatest challenge to the Defense Department, DOD's policy chief said.

John C. Rood (seen in the below photo), undersecretary of defense for policy, made the assertion during a panel discussion today at the Center for European Policy Analysis Forum in Washington.

"The National Defense Strategy very clearly lays out a blueprint for America's role in the world and how we see it," the undersecretary said. "It starts with recognition that in this highly complex, dynamic security environment, the great power competition has returned," he said.

In the last 10 years, the United States has witnessed a 750% growth in China’s defense spending, Undersecretary of Defense for Policy John C. Rood said during a panel discussion at the Center for European Policy Analysis Forum in Washington, Sept. 23, 2019. 

The United States doesn't seek a confrontational approach, nor is it destined to be adversaries with China, Rood noted. 

"We want to trade. We want to have interactions. But on the other hand, we want to protect our intellectual property," he said. "We want to protect the rules-based international order that we've both worked so hard to create since World War II. And we want respect for the sovereignty of others. We want respect for the role of individual in society."

We have to be serious about protecting this international rules-based order ..." 

Rood said it's important to recognize the scale of China's ambitions. China wants not only to become the world's largest and most influential economy, but also to be the world's largest and most influential nation in all spheres of life.

The undersecretary talked about China's ambitions to have a world-class military.

"[But] it's the way in which China is challenging this international rules-based order, challenging the individual freedoms that we support, challenging the free movement of ideas, and people, trade," Rood said. "And promoting an authoritarian model, one that doesn't respect the sovereignty of others, [is] what challenges our way of life."

If it were simply an economic competition, Rood said, America rather likes competition. "And so I wouldn't fear that at all," he added.

The U.S. innovation model would beat China's innovation model 10 times out of 10 times, Rood told the panel. "I really have tremendous confidence in it, he said, "and the best proof I can give you that China's leaders recognize that is that they are determined to steal from it."

The Chinese know they can't win a head-to-head competition, the undersecretary said; they know they can’t compete with that kind of entrepreneurship and innovation, so the state has to exercise that level of control. 

"You're starting to see China develop overseas military bases, overseas intelligence collection locations, and this is one of the areas in which to challenge sovereignty," Rood said. In the last 10 years, the United States has witnessed a 750% growth in China's defense spending, he noted.

"We have to be serious about protecting this international rules-based order, protecting free trade, protecting the free movement of ideas and the role of individual society," Rood said.

Communist Chinese Company Sinovel Wind Group Convicted Of Theft of Trade Secrets

The U.S. Justice Department released the below link:

A manufacturer and exporter of wind turbines based in the People’s Republic of China was convicted today of stealing trade secrets from AMSC, a U.S.-based company formerly known as American Superconductor Inc., announced Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division and U.S. Attorney Scott C. Blader for the Western District of Wisconsin.

Following an 11-day trial, a jury sitting in Madison, Wisconsin, convicted Sinovel Wind Group Co. Ltd., dba Sinovel Wind Group (USA) Co. Ltd. (Sinovel) of conspiracy to commit trade secret theft, theft of trade secrets, and wire fraud.  Sentencing is set for June 4.

“Sinovel nearly destroyed an American company by stealing its intellectual property,” said Acting Assistant Attorney General Cronan.  “As today’s jury verdict demonstrates, this type of conduct, by any corporation – anywhere – is a crime, and won’t be tolerated.  The Department is dedicated to helping foster innovation and growth in our economy by deterring and punishing intellectual property theft from American companies.”

“Today’s verdict sends a strong and clear message that the theft of ideas and ingenuity is not a business dispute; it’s a crime and will be prosecuted as such,” said U.S. Attorney Blader.  “Sinovel’s illegal actions caused devastating harm to AMSC.  I commend the efforts of the investigation and prosecution team, and reaffirm the commitment of this office to protect American commerce and prosecute those who would seek to steal intellectual property.”

As proven at trial, Sinovel stole proprietary wind turbine technology from AMSC in order to produce its own turbines powered by the stolen intellectual property.  AMSC developed the technology – software that regulates the flow of electricity from wind turbines to electrical grids – in Wisconsin and elsewhere.  At the time of the theft in March 2011, Sinovel had contracted with AMSC for more than $800 million in products and services to be used for the wind turbines that Sinovel manufactured, sold, and serviced.

Sinovel was charged on June 27, 2013, along with Su Liying, the deputy director of Sinovel’s Research and Development Department; Zhao Haichun, a technology manager for Sinovel; and Dejan Karabasevic, a former employee of AMSC Windtec Gmbh, a wholly-owned subsidiary of AMSC.  The evidence presented at trial showed that Sinovel conspired with the other defendants to obtain AMSC’s copyrighted information and trade secrets in order to produce wind turbines and to retrofit existing wind turbines with AMSC technology without paying AMSC the more than $800 million it was owed and promised.  Through Su and Zhao, Sinovel convinced Karabasevic, who was head of AMSC Windtec’s automation engineering department in Klagenfurt, Austria, to leave AMSC Windtec, to join Sinovel, and to steal intellectual property from the AMSC computer system by secretly downloading source code on March 7, 2011, from an AMSC computer in Wisconsin to a computer in Klagenfurt.  Sinovel then commissioned several wind turbines in Massachusetts and copied into the turbines software compiled from the source code stolen from AMSC.  The U.S.-based builders of these Massachusetts turbines helped bring Sinovel to justice.  Su and Zhao are Chinese nationals living in China, and Karabasevic is a Serbian national who lived in Austria, but now lives in Serbia.

According to evidence presented at trial, following the theft, AMSC suffered severe financial hardship.  It lost more than $1 billion in shareholder equity and almost 700 jobs, over half its global workforce.

The case was investigated by the FBI’s Madison, Milwaukee, and Boston Offices; the FBI Legal Attachés’ Offices in Vienna, Austria and Beijing; the FBI Criminal Investigative Division; the FBI Intellectual Property Rights program; the Bundeskriminalamt (Federal Criminal Intelligence Service) and the Bundesministerium Fuer Justiz (Federal Ministry of Justice) in Austria; the Landeskriminalamt - Klagenfurt and the Staatsanwaltschaft - Klagenfurt (Criminal Investigative Police and State Prosecutor’s Office – Klagenfurt, Austria); and with the assistance of the Justice Department’s Office of International Affairs and the Cybercrime Laboratory of the Criminal Division’s Computer Crime and Intellectual Property Section (CCIPS).

Senior Counsel Brian L. Levine of CCIPS and Assistant U.S. Attorneys Timothy M. O’Shea and Darren Halverson for the Western District of Wisconsin prosecuted the case, with substantial assistance from CCIPS Trial Attorney Joss Nichols and Digital Investigative Analyst Laura Peterson.

The Department of Justice’s Task Force on Intellectual Property (IP Task Force) contributed to this case.  The IP Task Force is led by the Deputy Attorney General to combat the growing number of domestic and intellectual property crimes, to protect the health and safety of American consumers, and to safeguard the nation’s economic security against those who seek to profit illegally from American creativity, innovation, and hard work.  To learn more about the IP Task Force, go to https://www.justice.gov/iptf.  

U.S. Nuclear Engineer Pleads Guilty To Violating The Atomic Energy Act

The U.S. Justice Department released the below information:

Szuhsiung Ho, aka Allen Ho, 66, a naturalized U.S. citizen, pleaded guilty to conspiracy to unlawfully engage or participate in the production or development of special nuclear material outside the U.S., without the required authorization from the U.S. Department of Energy (DOE) in violation of the Atomic Energy Act.

Acting Assistant Attorney General for National Security Mary B. McCord and U.S. Attorney Nancy Stallard Harr of the Eastern District of Tennessee made the announcement.

In April 2016, a federal grand jury issued a two-count indictment against Ho; China General Nuclear Power Company (CGNPC), the largest nuclear power company in China, and Energy Technology International (ETI), a Delaware corporation.  At the time of the indictment Ho was a nuclear engineer, employed as a consultant by CGNPC and was also the owner of ETI.   CGNPC specialized in the development and manufacture of nuclear reactors and was controlled by China’s State-Owned Assets Supervision and Administration Commission.

According to documents filed in the case, beginning in 1997 and continuing through April 2016, Ho conspired with others to engage or participate in the development or production of special nuclear material in China, without specific authorization to do so from the U.S. Secretary of Energy, as required by law.  Ho assisted CGNPC in procuring U.S.-based nuclear engineers to assist CGNPC and its subsidiaries with designing and manufacturing certain components for nuclear reactors more quickly by reducing the time and financial costs of research and development of nuclear technology.  In particular, Ho sought technical assistance related to CGNPC’s Small Modular Reactor Program; CGNPC’s Advanced Fuel Assembly Program; CGNPC’s Fixed In-Core Detector System; and verification and validation of nuclear reactor-related computer codes.

Under the direction of CGNPC, Ho also identified, recruited, and executed contracts with U.S.-based experts from the civil nuclear industry who provided technical assistance related to the development and production of special nuclear material for CGNPC in China. Ho and CGNPC also facilitated the travel to China and payments to the U.S.-based experts in exchange for their services.

Sentencing has been set for May 17, 2017, at 11:00 a.m., in U.S. District Court in Knoxville, Tennessee.  Ho faces a maximum sentence of 10 years in prison and a maximum $250,000 fine. The maximum statutory sentence is prescribed by Congress and is provided here for informational purposes, as the sentencing of the defendant will be determined by the court based on the advisory Sentencing Guidelines and other statutory factors.

This case was investigated by the FBI, Tennessee Valley Authority-Office of the Inspector General, DOE-National Nuclear Security Administration and U.S. Immigration and Customs Enforcement Homeland Security Investigations, with assistance from other agencies. Assistant U.S. Attorneys Charles E. Atchley Jr. and Bart Slabbekorn of the Eastern District of Tennessee, and Trial Attorney Casey T. Arrowood of the Counterintelligence and Export Control Section and Attorney Jeffrey M. Smith of the Appellate Unit in the National Security Division, represented the U.S. 

Chinese National Admits To Stealing Sensitive Military Program Documents From United Technologies

The U.S. Justice Department released the below information:

Yu Long, 38, a citizen of China and lawful permanent resident of the U.S., waived his right to be indicted and pleaded guilty today in New Haven federal court in Connecticut, to charges related to his theft of numerous sensitive military program documents from United Technologies and transporting them to China.

Long pleaded guilty to one count of conspiracy to engage in the theft of trade secrets knowing that the offense would benefit a foreign government, foreign instrumentality or foreign agent, an offense that carries a maximum term of imprisonment of 15 years. He also pleaded guilty to one count of unlawful export and attempted export of defense articles from the U.S. in violation of the Arms Export Control Act, an offense that carries a maximum term of imprisonment of 20 years. The maximum statutory sentence is prescribed by Congress and is provided here for informational purposes. If convicted of any offense, the sentencing of the defendant will be determined by the court based on the advisory Sentencing Guidelines and other statutory factors.

The announcement was made by Acting Assistant Attorney General for National Security Mary B. McCord, U.S. Attorney Deirdre M. Daly for the District of Connecticut, Special Agent in Charge Matthew Etre of the FBI's Homeland Security Investigations (HSI) in Boston, Massachusetts, Special Agent in Charge Craig W. Rupert of the Defense Criminal Investigative Service (DCIS) Northeast Field Office, Special Agent in Charge Patricia M. Ferrick of the FBI’s New Haven Division and Special Agent in Charge Danielle Angley with the Air Force Office of Special Investigations (AFOSI).

“Long admitted to stealing and exploiting highly sensitive military technology and documents, knowing his theft would benefit China’s defense industry and deliberately contravene the embargo on U.S. Munitions List technology the United States has imposed on China,” said Acting Assistant Attorney General McCord. “Export laws exist as an important part of our national security framework and disrupting and prosecuting this kind of economic espionage is one of the National Security Division’s highest priorities.”

“In an effort to further his own career, this defendant stole an extraordinary amount of proprietary military program information from United Technologies and transported much of that stolen information to China,” said U.S. Attorney Daly. “His actions, which he knew would benefit China, not only violated his employment agreement and damaged the company, but have threatened our country's national security interests. U.S. companies continue to be targeted by those who seek to steal intellectual property, trade secrets and advanced defense technology – whether through a computer hack or cyber intrusion, or through a rogue employee. Working closely with our nation’s defense contractors, we will relentlessly investigate and prosecute those who steal, or attempt to steal, trade secrets and sensitive military information, whether for their own personal gain or for the benefit of foreign actors.”

“These sophisticated technologies are highly sought after by our adversaries,” said Special Agent in Charge Etre. “They were developed to give the United States and its allies a distinct military advantage, which is why HSI and our law enforcement partners will continue to aggressively target the individuals who steal the ideas of others and sell these items.”

"Today's plea demonstrates the commitment of the Defense Criminal Investigative Service and our federal law enforcement partners to identifying those who illegally export sensitive defense information to adversarial Foreign governments," said Special Agent in Charge Rupert. "DCIS will continue to safeguard sensitive technology and to shield America's investment in national defense by disrupting efforts of groups and individuals who try to illegally acquire our national security assets."

“This case highlights the complexity in which the FBI and law enforcement are being challenged to keep the integrity of our industry intellectual property intact,” said Special Agent in Charge Ferrick. “Investigating criminal activity of this nature will continue to be a priority.”

“This case was enabled by the outstanding teamwork of the FBI, DCIS, HSI, AFOSI and the U.S. Attorney's office,” said, Special Agent in Charge Angley. “In addition, it demonstrates the focus of law enforcement agencies to protect our nation's critical resources.”

According to court documents and statements made in court, from approximately May 2008 to May 2014, Long worked as a Senior Engineer/Scientist at United Technologies Research Center (UTRC) in Connecticut. Long’s employment at UTRC included work on F119 and F135 engines. The F119 engine is employed by the U.S. Air Force F-22 Raptor fighter aircraft, and the F135 engine is employed by the U.S. Air Force F-35 Lightning II fighter aircraft.

Beginning in 2013, Long expressed his intent to individuals outside UTRC to return to China to work on research projects at certain state-run universities in China using knowledge and materials he had acquired while employed at the UTRC. To that end, Long interacted with several state-run institutions in China, including the Chinese Academy of Science (CAS) and the Shenyang Institute of Automation (SIA), a state-run university in China affiliated with CAS.

During 2013 and 2014, Long was recruited by SIA and other state-run universities, during which he leveraged information that he had obtained while working at UTRC to seek employment in China, culminating in his travel to China in the possession of voluminous documents and data containing highly sensitive intellectual property, trade secrets and export controlled technology, which he had unlawfully stolen from UTRC.

In December 2013, after Long agreed in principle to join SIA, an SIA-CAS Director and an SIA-CAS Recruiter asked Long to provide documents from his work at UTRC and examples of projects on which he had worked to substantiate the claims Long made in his application, and interview with SIA. Long agreed.

On Dec. 24, 2013, Long emailed several documents to the SIA-CAS Director, including a document that contained the cover page of an export controlled UTRC presentation on Distortion Modeling dated Sept. 30, 2011.

While negotiating with SIA, Long also continued to explore other opportunities at other state-run institutions in China. In one email, Long stated: “I have made my mind to return to China, so have prepared a research plan based on my industry experience and current projects.” In the research plan, Long stated: “In the past five years, I have been working with Pratt Whitney, also other UTC business units, like UTAS (including Hamilton Sundstrand and Goodrich), Sikorsky, CCS (including Carrier and Fire & Security), and Otis. These unique working experiences have provided me a great starting point to perform R&D and further spin off business in China. I believe my efforts will help China to mature its own aircraft engines.”

On May 30, 2014, Long left UTRC. In June 2014, Long traveled to China and began working for SIA. Beginning in July 2014, digital evidence and forensic analysis indicated that Long brought with him and accessed in China a UTRC external hard drive that had been issued to him and that he unlawfully retained.

In July 2014, Long was listed as the project leader on a lengthy research plan for CAS involving fourteen other individuals. The plan was replete with references to how the proposed research and development would benefit China. The plan stated: “The three major engine companies in the world, i.e. GE, Pratt & Whitney in the US and Rolls-Royce in the UK, are all using this technology. . . Our nation lacks the ability to process high performance components, such as airplane wings, tail hooks on carrier aircrafts, and blisks . . . Because of the technology embargo imposed by western developed countries, it is very difficult for us to obtain more advanced design and manufacturing technology . . . This research project will increase our independent ability, efficient and quality in key component manufacturing.”

On or about Aug. 12, 2014, the document on Distortion Modeling – the same document from which Long had sent the cover page to the SIA-CAS Director on Dec. 24, 2013 – was accessed on the external hard drive. Travel records and forensic analysis confirmed that both Long and the external hard drive were in China when this file was accessed.

On Aug. 19, 2014, Long returned to the U.S. from China through John F. Kennedy International Airport in New York. During a secondary inspection screening by U.S. Customs and Border Protection (CBP) officers, Long was found in the possession of a largely completed application for work with a state-controlled aviation and aerospace research center in China. The application highlighted certain parts of Long’s work related to the F119 and F135 engines while at UTRC.

On or about Aug. 20, 2014, Long emailed an individual at a university in China, attaching an updated “achievement and future plan.” In the plan, Long discussed his work related to the F119 and F135 U.S. military fighter jet engines and stated that he also had knowledge of unpublished UTRC projects in which the U.S. Air Force had shown interest.

On Nov. 5, 2014, Long boarded a flight from Ithaca, New York to Newark Liberty International Airport in Newark, New Jersey, with a final destination of China. During Long’s layover in Newark, CBP officers inspected Long’s checked baggage and discovered that it contained sensitive, proprietary and export controlled documents from another defense contractor, Rolls Royce.

Further investigation determined that the U.S. Air Force had convened a consortium of major defense contractors, including Pratt and Rolls Royce, to work together to see whether they could collectively lower the costs of certain metals used. As part of those efforts, members of the consortium shared technical data, subject to restrictions on further dissemination. Rolls Royce reviewed the documents found in Long’s possession at Newark Liberty Airport and confirmed that it provided the documents to members of the consortium, which included Pratt. Rolls Royce further confirmed that Long was never an employee of Rolls Royce. A review of UTRC computer records indicated that Long had printed the documents while employed at UTRC. 

Long was arrested on a federal criminal complaint on Nov. 7, 2014. A review of Long’s digital media seized at the time of his arrest revealed voluminous files protected by the International Traffic in Arms Regulations and Export Administration Regulations, and voluminous files proprietary to various U.S. companies. In short, the investigation revealed that Long took his laptop and the UTRC external hard drive with him to China in 2014, at which time there was a substantial body of highly sensitive, proprietary and export controlled materials present on that digital media. UTRC has confirmed that the hard drive that Long unlawfully retained and accessed in China contained not only documents and data from projects on which Long worked while employed at the company but also from projects on which he did not work to which he would have had access. 

A sentencing date has not been set. Long has been detained since his arrest.

This investigation is being led by the FBI in New Haven in coordination with Homeland Security Investigations in New Haven and Newark; the Defense Criminal Investigative Service in New Haven; the U.S. Air Force’s Office of Special Investigations in Boston, Massachusetts; and, the Department of Commerce’s Boston Office of Export Enforcement. U.S. Attorney Daly and Acting Assistant Attorney General McCord also thanked the FBI in Newark, Ithaca and Syracuse, New York, the U.S. Customs and Border Protection Service in New York and Newark, and the U.S. Attorney’s Offices for the Northern District of New York and the District of New Jersey, for their efforts and assistance in this matter.
           
This case is being prosecuted by Assistant U.S. Attorneys Tracy Lee Dayton and Stephen B. Reynolds of the District of Connecticut, and Trial Attorneys Brian Fleming and Julie Edelstein of the National Security Division’s Counterintelligence and Export Control Section. 

Four Chinese Nationals And China-Based Company Charged With Using Front Companies To Evade U.S. Sanctions Targeting North Korea’s Nuclear Weapons And Ballistic Missile Programs

The U.S. Justice Department released the below information:

Four Chinese nationals and a trading company based in Dandong, China, were charged by criminal complaint unsealed today with conspiring to evade U.S. economic sanctions and violating the Weapons of Mass Destruction Proliferators Sanctions Regulations (WMDPSR) through front companies by facilitating prohibited U.S. dollar transactions through the United States on behalf of a sanctioned entity in the Democratic People’s Republic of Korea (North Korea) and to launder the proceeds of that criminal conduct through U.S. financial institutions. 

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Assistant Attorney General for National Security John P. Carlin, U.S. Attorney Paul J. Fishman of the District of New Jersey and Assistant Director E.W. Priestap of the FBI’s Counterintelligence Division made the announcement.

On Aug. 3, 2016, a U.S. Magistrate Judge Joseph A. Dickson of the District of New Jersey signed a criminal complaint charging Ma Xiaohong (Ma) and her company, Dandong Hongxiang Industrial Development Co. Ltd. (DHID), and three of DHID’s top executives, general manager Zhou Jianshu (Zhou), deputy general manager Hong Jinhua (Hong) and financial manager Luo Chuanxu (Luo), with conspiracy to violate the International Emergency Economic Powers Act (IEEPA) and to defraud the United States; violating IEEPA; and conspiracy to launder monetary instruments. 

Today, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) also imposed sanctions on DHID, Ma, Zhou, Hong and Luo for their ties to the government of North Korea’s weapons of mass destruction proliferation efforts.

In addition, the department filed a civil forfeiture action for all funds contained in 25 Chinese bank accounts that allegedly belong to DHID and its front companies.  The department has also requested tha the federal court in the District of New Jersey issue a restraining order for all of the funds named in the civil forfeiture action, based upon the allegation that the funds represent property involved in money laundering, which makes them forfeitable to the United States.  There are no allegations of wrongdoing by the U.S. correspondent banks or foreign banks that maintain these accounts. 

“The charges and forfeiture action announced today allege that defendants in China established and used shell companies around the world, surreptitiously moved money through the United States and violated the sanctions imposed on North Korea in response to, among other things, its nuclear weapons program,” said Assistant Attorney General Caldwell.  “The actions reflect our efforts to protect the integrity of the U.S. banking system and hold accountable those who seek to evade U.S. sanctions laws.”

“The charges unsealed today reflect our nation’s commitment to using all tools to deter and disrupt weapons of mass destruction proliferators,” said Assistant Attorney General Carlin.  “One of the strengths of our sanctions programs is that they prevent sanctioned wrongdoers from engaging in U.S. dollar transactions.  Denying the use of the U.S. financial system can greatly curtail illegal activities and disrupt efforts to provide weapons of mass destruction to terrorists and rogue nations.  Those who seek to evade our financial sanctions will be fully prosecuted, and we will be unflagging in our efforts to bring them to justice.”

“The FBI takes violations of these laws extremely seriously and will not hesitate to use our full investigative resources to stop this type of illegal activity,” said Assistant Director Priestap.  “In this case agents, analysts and forensic accountants from field offices in Phoenix and Newark, as well as FBI Headquarters, all contributed to a successful investigation.”

According to criminal and civil complaints, DHID is primarily owned by Ma and is located near the North Korean border.  DHID allegedly openly worked with North Korea-based Korea Kwangson Banking Corporation (KKBC) prior to Aug. 11, 2009, when the OFAC designated KKBC as a Specially Designated National (SDN) for providing U.S. dollar financial services for two other North Korean entities, Tanchon Commercial Bank (Tanchon) and Korea Hyoksin Trading Corporation (Hyoksin).  President Bush identified Tanchon as a weapons of mass destruction proliferator in June 2005, and OFAC designated Hyoksin as an SDN under the WMDPSR in July 2009.  Tanchon and Hyoksin were so identified and designated because of their ties to Korea Mining Development Trading Company (KOMID), which OFAC has described as North Korea’s premier arms dealer and main exporter of goods and equipment related to ballistic missiles and conventional weapons.  The United Nations (UN) placed KOMID, Tanchon and Hyoksin on the UN Sanctions List in 2006.  In March 2016, KKBC was added to the UN Sanctions List. 

In August 2009, Ma allegedly conspired with Zhou, Hong and Luo to create or acquire numerous front companies to conduct U.S. dollar transactions designed to evade U.S. sanctions.  The complaints allege that from August 2009 to September 2015, DHID used these front companies, established in offshore jurisdictions such as the British Virgin Islands, the Seychelles and Hong Kong, and opened Chinese bank accounts to conduct U.S. dollar financial transactions through the U.S. banking system when completing sales to North Korea.  These sales transactions were allegedly financed or guaranteed by KKBC.  These front companies facilitated the financial transactions to hide KKBC’s presence from correspondent banks in the United States, according to the allegations in the complaints. 

As a result of the defendants’ alleged scheme, KKBC was able to cause financial transactions in U.S. dollars to transit through the U.S. correspondent banks without being detected by the banks and, thus, were not blocked under the WMDPSR program.

A complaint is merely an allegation and the defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

The FBI is investigating the case.  Trial Attorneys Jennifer Wallis and Michael Parker of the Criminal Division’s Asset Forfeiture and Money Laundering Section, Trial Attorney Christian Ford of the National Security Division’s Counterintelligence and Export Control Section and Chief Barbara Ward and Assistant U.S. Attorneys Joyce Malliet and Sarah Devlin of the District of New Jersey are prosecuting the case.  The Criminal Division’s Office of International Affairs provided valuable assistance in this matter.