Chinese Front Companies In The U.S.? A second try!

Seems my last post was damaged/hacked. Over half of the articles I posted disappeared after they were posted. We'll try this again, but so you that you now, the articles I post/refer to here are not my words, but simply excerpts from the original documents. I do appreciate when a reader identifies updates or changes to stories that I've posted. Similarly, if you have an issue as to the truthfulness of the article, please address it with the media outlet that published it. As a general rule, Cover For Action, assumes most popular media outlets are acceptable and accurate providers of news.

WASHINGTON TIMES:
U.S. government investigators say the number of cases involving China and its middlemen who have illegally obtained sensitive or classified U.S. weapons technology is growing. In the past few years, Chinese agents illegally purchased or were caught trying to steal night-vision technology, restricted electronic components, embargoed components for precision-guided missiles, radar and electronic warfare, and communications systems, according to Immigration and Customs Enforcement (ICE) officials.

China also sought to purchase encryption devices that are embargoed for export and computer software used in missile development, ICE officials said. In one recent case, China tried to purchase parts for F-4 and F-5 jets and Hawk missiles from U.S. suppliers that were intended for reshipment to Iran. Officials said one of the most damaging illegal technology exports to China took place in the late 1990s. In that case, China secretly obtained technology related to the Aegis battle management system, used in the most modern U.S. warships. A Chinese front company won a contract from the system manufacturer and then stole details about Aegis, according to FBI counterintelligence officials.

QUESTIA

In one case sketched out by Waultney's boss, John Hensley, before a Senate hearing in July 1997, a Chinese front company managed to purchase 37 guidance kits for F-117A stealth fighters from a Defense Department depot and ship them to China as "scrap."

In another case, brokers working for the Communist Chinese government snatched up an astonishing 26,000 fully operational encryption devices, including computer disk drives loaded up with top-secret technical documents all considered U.S.-government scrap.

A high concentration of Chinese-government front companies continues to operate out of El Monte, a modest working-class suburb located some 10 miles due east of downtown Los Angeles.

Primary among them is the China National Aero Technology Import Export Co., or CATIC. Back in China, CATIC owns factories that develop fighter aircraft and remotely piloted vehicles and contributes to cruise-missile development. In El Monte, CATIC buys paper pulp to be shipped to China for recycling and imports bicycles, electrical parts and hardware for sale in the United States. But it also purchases aerospace systems, which it ships back to China clandestinely for use in military projects.

CATIC is not the only mainland-Chinese company operating in the El Monte area. In one six-floor office building just around the corner at 9300 Flair Dr., no fewer than 150 Chinese trading companies have set up shop, although most of them appear to be little more than mailbox entities. Down in the lobby, which houses a bank and a California state health center, only a half-dozen companies are listed as having offices on the sixth floor of the handsome, black-glass office complex overlooking the freeway. But a quick trip up the elevator to the sixth floor reveals that more than 40 companies actually have hung name plates on the doors -- all of them Chinese.

According to David Su, an attorney who has incorporated dozens of these companies, "there are a few thousand Chinese companies in the Los Angeles area. Most of them were set up by individuals with management positions back in China and are controlled by Chinese state-owned companies." Su acknowledged that many of the companies listing his office suite as their address had no visible operations. Su said that in many cases he had not seen the owners since they filed the initial incorporation papers and returned to China. Although Su wouldn't comment on why they had established the companies in the first place, mailbox companies frequently are used as fronts for illicit business by money-launderers, high-tech bandits and arms dealers -- or more mundanely, by individuals keen on disguising the origins of their wealth.

Communist Chinese Procurement Activities in the United StatesTestimony by Kenneth R. Timmermanbefore the U.S. -China Commission

I have been investigating Chinese high-technology procurement efforts in the United States since I was a Congressional staffer for Rep. Tom Lantos (D, CA) in 1993. Shortly after leaving the Hill, in July 1994, I reported that U.S. Customs officials were investigating Chinese government companies that were attempting to purchase defense production equipment being sold at auction from U.S.

During one of my investigations in California, I personally visited around 150 Chinese front companies, many of them no more than placards on closet offices that came alive to support a particular clandestine deal. I have appended to my written testimony a print-out of just one such network, which includes freight forwarders, bankers, import-export agencies and insurance brokers used to support Chinese military procurement activities in this country.Because the Chinese mastered the whole process, using companies and agents they controlled and communicating almost exclusively in Mandarin, neither the FBI, Customs, or OEE had much success in penetrating these networks. One of these companies operated undetected for more than two years directly above a CIA liaison office in the Los Angeles area. Clearly, we need more Mandarin-speaking agents, and a much active Customs operation to infiltrate and disrupt these procurement networks.

THE WALL STREET JOURNAL

"China is the biggest (espionage) threat to the U.S. today," says Mr. Szady, now 61 years old and the FBI's top counterintelligence official.

Counterespionage experts say the trouble often starts when they are contacted by Chinese government officials or one of the more than 3,000 Chinese "front companies" the FBI alleges have been set up in the U.S. specifically to acquire military or industrial technologies illegally.

The U.S. government is prosecuting about a dozen cases against individuals alleged to have sent technology to China illegally. FBI officials say at least three more will likely go ahead in the coming months. Over the past five years, the total number of such charges has grown by around 15 percent annually, according to some FBI agents.

NBC

intensified campaign by the People's Republic of China to steal military and civilian technology.

U.S. officials say there are now 400 active investigations here involving illegal exports to China — more than any other country.

Undercover video — obtained exclusively by NBC News — shows Bill Moo, an employee of a U.S. defense contractor, inspecting a military jet engine that he planned to secretly buy for China.

Unbeknownst to him, Moo had made the deal with undercover U.S. agents and was later arrested. He pleaded guilty to being an unregistered foreign agent for China.

"The Chinese are very good at using multiple redundant collection platforms," says former FBI Assistant Director Szady, "and by that I refer to students, delegations, visitors, researchers, development, partnerships, business deals and false front companies."

OAKLAND TRIBUNE

One day last June, FBI agents swooped into two affluent Silicon Valley homes and arrested two engineers. Lan Lee and Yuefei Ge stand accused of stealing proprietary chip designs and software

Lee and Ge allegedly set up a front company backed by a Beijing venture-capital firm with links to China's military, and planned to go into business with the Chinese government.

"Silicon Valley is a hotbed" of economic espionage, said Don Przybyla, who heads an FBI counterintelligence unit in San Jose. The valley is home to many of the estimated 3,000 Chinese front companies nationwide set up to steal secrets and acquire technology, according to the FBI.

March 17, 2006
Statement by
John J. Tkacik, Jr.
Senior Research Fellow in Asian Studies
The Heritage Foundation
Before the
The U.S.-China Economic and Security Review Commission
Hearing on Chinese Military Modernization and Export Control Regimes

It was and is my impression that Chinese security officials inform all Chinese science and technology workers visiting the U.S. that they could be given specific collection tasks while in the U.S. The case of two Chinese academics at American University, Ms.Gao Zhan and her husband, Xue Donghua, is instructive. Apparently, Ms. Gao and Mr. Xue had received such a tasking and reportedly managed to export as much as $1 million in radiation-hardened microchips to a military laboratory in Nanjing before being arrested in 2001.

Gao and Xue were emblematic of vast Chinese government effort to collect industrial and technical secrets. A year ago, in March 2005, FBI Assistant Director Dan Szady, commented on the existence of an estimated 3,000 Chinese front companies operating in the United States in order to facilitate illegal technology transfers to the Chinese government.

In September, Michelle Van Cleave, the national counterintelligence executive, told the House Judiciary subcommittee on immigration, border security and claims that Chinese "state-directed espionage remains the central threat to our most sensitive national security technology secrets." She said Chinese intelligence agents are "very aggressive" in business and "are adept at exploiting front companies."