At a time of heightened tensions between the U.S. and China, federal officials are warning Hawaii business and academic leaders to beware: what might seem like a minor security breach could be something bigger.

“Overall, Hawaii is of great interest to China,” said John Demers, Assistant Attorney General for National Security, who is in Honolulu this week meeting with government and military leaders.

As the federal government’s top lawyer overseeing foreign threats, Demers is in charge of implementing something known as The China Initiative, an effort to fight industrial espionage conducted by China.

Assistant U.S. Attorney for National Security John Demers says Hawaii firms may be a target of economic espionage. Stewart Yerton/Civil Beat

Roughly a decade ago, the department’s national security division focused on threats from terrorists, said Demers, who also served in the division from 2006 to 2009. Now, he said, the focus is on threats from foreign states. And the theft of trade secrets and other intellectual property is a major risk, he said.

Although the much-discussed tit-for-tat imposition of tariffs by the U.S. and China gets most of the headlines, the more critical issues are much broader, especially for U.S. firms doing business in China.

“For the American business community, tariffs aren’t the issue,” said Brenda Foster, the former president of the U.S. Chamber of Commerce in Shanghai, who now lives in Kailua. “It’s intellectual property rights, market access and transfer of technology.”

In simple terms that means foreign companies wanting to set up shop in China have to pay a steep price, often having to share their technology with local business people who can then use it to manufacture competing products. The White House documents these broader concerns in a 2018 paper titled “How China’s Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World.”

China’s goal, the White House says, is “to acquire the intellectual property and technologies of the world and to capture the emerging high-technology industries that will drive future economic growth.”

Less questionable practices to achieve the goal include policies that require foreign companies doing business in China to form joint ventures with Chinese firms – a policy that’s not uncommon in developing countries with fledgling economies. The problem, according to the paper, is that China then uses the joint venture partners to steal trade secrets and other intellectual property from the U.S. firms.

And China is engaging in such nefarious activities outside of China.

“China appears to be conducting a campaign of commercial espionage against U.S. companies involving … human infiltration to systematically penetrate the information systems of U.S. companies to steal their intellectual property, devalue them, and acquire them at dramatically reduced prices,” the paper said.

LinkedIn Is a Popular Tool For Industrial Spies

Often the recruiting comes out of the blue, Demers said.

“These are typically cold calls,” he said. “They’re not necessarily a friend of a friend.”

Specifically, recruitment often starts with Chinese intelligence agents reaching out to a worker at a U.S. company or university online, often using LinkedIn and appealing to the person with flattery about the person’s work. The next step might be a phone call and ultimately the offer of a trip to China for an academic or business conference.

That’s where the more overt proposals are often made, Demers said. Generally, the employees are asked to help steal specific intellectual property, he said, usually just a key needed component.

“What they’re stealing is very specific,” Demers said.

The most vulnerable to accept the overtures are people who need money or who are unhappy with their employers.

Other cases involve stealing trade secrets through hacking.

In one instance, an employee of Monsanto in St. Louis stole computer software with key growing information for company seeds. The FBI was able to intercept the employee at the airport before he left the country.

Other cases don’t end so well. A case in point involved the Chinese firm Sinovel Wind Group. The wind turbine maker was convicted of stealing software from its U.S. partner and was forced to pay $57.5 million in restitution to its U.S. partner, American Superconductor Inc. But that didn’t cover the roughly $1 billion in equity lost by shareholders and 700 lost jobs, Demers said.

“The harm wasn’t prevented,” Demers said. “It was vindicated, but it wasn’t prevented.”

Kenji Price, U.S. Attorney for the District of Hawaii, said it’s important for Hawaii leaders to be on guard and not hesitate to call the FBI.

“It’s something you need to be aware of,” he said. “You should consider yourself a potential target of theft.”

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