Episode 4: Technology Espionage - Past, Present, and Future

Episode 4: Technology Espionage - Past, Present, and Future


The Company Man

Xiaoxing Xi at Google

Professor Xiaoxing Xi tells a harrowing story of government surveillance.

Xiaoxing Xi Legal Defense Fund

Sherry Chen Legal Defense Fund

Committee of 100



That’s a clip from a 2015 short film called The Company Man: Protecting America’s Secrets. The film was produced by the FBI to raise awareness about economic espionage, the subject of today’s show.

I’ve spent a few weeks now reading articles, books, court records, and watching congressional testimonies and videos like The Company Man trying to get an understanding of what espionage between the U.S. and China looks like today.

The more I learn, the more I feel like Alice in the Rabbit Hole. For every foot I dig, there are two more feet of depth at the bottom.

For this reason, I thought about just throwing the topic out. Perhaps I’d come back to it later once I had a few more episodes on under my belt––maybe on lighter subjects.

But I persisted. I realized that this episode should published as soon as possible. It is the first episode we’ve done that I feel is actually capable of doing some immediate good in the world.

Because researching technology espionage has lead to me believe that Silicon Valley will soon be in the throes of a crisis. By this I don’t mean that there will be massive-scale espionage in Silicon Valley, though there will be some.

Instead, the crisis I’m talking about will be borne by Silicon Valley’s legions of foreign engineers.


Modern history teaches us that the threat of technology espionage in the United States is a grave danger to the privacy and civil rights of American scientists and engineers, ethnic Chinese engineers in particular.




Part 1: Red Scare

Xi Xiaoxing Cultural Revolution False Accusation

You’re listening to Temple University physics professor Xiaoxing Xi describe his experiences during Chairman Mao’s Cultural Revolution. If you don’t know much about the Cultural Revolution, what he’s describing may sound innocent. But during the Cultural Revolution there were cases of people being beaten or made into social pariahs for saying less than “Mao Zedong three years.”

Innocent Chinese who faced false accusations at the time were sometimes forced to admit wrongdoing. Something like a motto of the times was “Leniency To Those Who Confess and Severity to those who resist.” A lot of people confessed.

After the cultural revolution ended, Professor Xi was admitted into Peking University. That’s a really impressive accomplishment, by the way.

Universities stopped admitting students during the cultural revolution, meaning there was a huge backlog of aspiring students when schools reopened in 1977. In December of that year 5.7 million Chinese between the ages of 13 and 37 took the college entrance exam vying for less than 300,000 spots. I don’t know when Professor Xi was admitted, but he got in to China’s number one university, which is impressive in any year. He went on to earn a PhD from Peking University as well, in the mid-1980s. He left China in 1989.

By 2015, Professor Xi was a US Citizen and the interim chair of the Physics Department at Temple University in Philadelphia. Out of nowhere, he received a reminder of the Cultural Revolution.

Xi’s quote of police showing up in the morning. 7:03... ‘An FBI agent asked my name and announced my arrest.’


The FBI was at Xi’s doorstep because they believed that he had defrauded an American company to get his hands on proprietary technology. According to the indictment, he then shared that technology with Chinese organizations in exchange for money.

Xi was arrested, had to post a 100,000 dollar bond, and was stripped of his passport. Apparently the court thought there was a risk that Xi, who had lived mostly in the United States since 1989, would flee the country. He was charged with four counts of wire fraud.

The most horrifying part of Xi’s case is not that the guns at his doorstep. It’s that he lived under heavy government surveillance for who-knows-how-long even though all of the charges against him were dropped less than five months after his arrest. The evidence for the prosecution fell apart on its own and the case was dismissed.

To those of us who aren’t lawyers, that doesn’t sound like that big of a deal. “Case dismissed” is something you hear from time to time on TV shows. Law and Order maybe, along with the sound of a gavel and some ominous piano.

But this is what Xi’s lawyer, Peter Zeidenberg said about the dismissal: “Cases simply do not get dismissed. That’s what’s so remarkable about this. I mean, if you’ve got one of those in your career you talk about it ‘til your grave: ‘Gather around, let me tell you about the time I convinced them to dismiss the case.”

But there’s something even more remarkable: Peter Zeidenberg had two cases dismissed in a span of just a few months.

And guess what: The other case was also a Chinese American accused of sharing secrets with China. Zeidenberg’s other client was Sherry Chen, who worked as a hydrologist for the US government in Ohio. In Chen’s case she was accused of using a stolen password to download information about America’s dams.

Yes, somebody in law enforcement believed that Chinese intelligence officials––along with all of their other priorities––had tasked Sherry Chen with discovering dam information.

As Zeidenberg said, “Getting two cases dismissed within [a few months], you know, it’s like winning the lottery twice.” Well, unless you’re the accused, in which case it’s much less like winning the lottery.

Part 2: Some History

These are not the first cases of Chinese American scientists facing dubious or exaggerated criminal espionage accusations.

Since the normalization of US-China relations in the 1970s, PhD scientists have been at the center of espionage between the two countries. The earliest meetings between American and Chinese officials included exchanges between nuclear scientists––with some very conspicuous intelligence officers tagging along.

As former counterintelligence officer Robert Vrooman said on the topic, “You can spot an intelligence officer in a group of scientists very easily. His socks match.”

The late 70s and 80s were kind of an innocent time for intelligence gathering between the US and China: Chinese scientists would bombard American scientists with questions, mixing in the occasional not-so-innocent request for classified information, hoping to get lucky with a loose-tongued American.

On the other side, Chinese scientists were quite open with Americans about their capability. Though China had nuclear technology, it was backward compared to America’s. As a consequence, there wasn’t much to lose by showing it to the Americans.

Basically, both countries were just more concerned about Russia.

It wasn’t until the 1990s that Americans started to become seriously concerned about China as an espionage threat.

“He pled guilty to one one charge of mishandling information... After 278 days in solitary confinement.”

That’s Alberta Lee speaking about her father Wen Ho Lee in 2005. In 1999 Wen Ho Lee was indicted on 59 counts of violating the Federal Atomic Energy Act and the Federal Espionage Act. Yes, he was indicted on 59 counts and pled guilty to one. He spent nearly a full year in solitary confinement before his trial was even held.

Wen Ho Lee grew up in Taiwan but his family sent him to the United States to study. After being let go from his first two jobs out of school, he landed a job as a software engineer at Los Alamos National Lab in New Mexico, which is home to much of America’s nuclear weapons research. Lee’s job was to develop nuclear weapon simulation software.

On March 6th 1999, the New York Times published an article alleging that a Chinese-American had shared confidential  nuclear technology with China. All of a sudden, everyone in America was looking at Los Alamos.

The FBI was looking specifically at ethnic Chinese at Los Alamos. The logic went like this: Since Chinese are more likely to have family in China or to have loyalty to the Chinese government, therefore, ethnic Chinese are more likely to spy for China.

Here’s FBI Director James Comey on the mechanics of spying:

With this much information––and seriously not that much more––the FBI had whittled their list of suspects down to Wen Ho Lee. Now they just had to find the proof.

Investigations are not supposed to work this way. You don’t start with an individual suspect. You start with hard evidence, which the FBI didn’t have. And they would never have it.

What they did find was that Wen Ho Lee had made hard tape copies of a bunch of classified and unclassified software. He stored the tapes in his garage. The FBI found the tapes after they searched every nook of Wen Ho Lee’s house. These tapes are what lead to Lee’s eventual conviction on that one count of mishandling classified information.

Again, convicted of ONE count, indicted for 59.

And by the way, it was discovered that in 1995 CIA Director John Deutch accessed classified information from a home computer with an internet connection––which is much riskier than storing tapes in a garage. He was never charged.

Part 3: Actual Espionage

By now I hope you’re convinced that the privacy and civil rights of Chinese American scientists are in jeopardy. So I want to talk about some actual guilty-as-charged espionage. I think you’ll that espionage looks a little different from what you thought.


Imagine, for a moment, you fly to Shanghai for a business trip. You’ve told your colleagues and family about the trip, and you yourself have prepared for something you perceive to be about as innocuous as a job interview with a Shanghai tech startup.

After the interview, you are arrested, handcuffed, and hauled into jail. You are unable to contact friends or family back in the United States. Chinese authorities appoint you a lawyer, but your lawyer does not speak English very well, and you struggle to communicate with him in your own broken Chinese.

Your family, meanwhile, is caught completely off guard. They thought you were traveling to China for a job interview. Your court-appointed lawyer contacts them through a translator. This is your parents first exposure to China and unfortunately also to the Chinese legal system.

That’s basically my worst nightmare. It was close to reality for Xu Jiaqiang.

You’ve probably never heard of Xu. His case didn’t blow up in the news. Most espionage cases don’t. There were a few news stories after his conviction in January 2018, when he pled guilty to stealing high tech trade secrets from IBM.

Maybe Xu’s case didn’t make news because it’s so familiar to Silicon Valley culture.

Up until his arrest, Xu looked like your average tech entrepreneur. After completing his master’s degree in computer science at the University of Delaware, he worked as a software developer at IBM in Beijing from 2010 to 2014. I learned these details from his Linkedin profile––that’s how much he looked like your average entrepreneur.

His trouble started a few months after his resignation, when the FBI received a tip that someone––later identified to be Xu––was trying to sell some of IBM’s proprietary code. The FBI began an investigation. Two undercover law enforcement agents posing as an American tech investor and a technical project manager, contacted Xu.

The fake tech investor wrote an email to Xu,

“I am currently investing in and working with a new technology company which is seeking to develop improved and more secure data storage systems. As you may be aware, there is exciting new development in this area and the opportunities to be involved with cutting edge start up companies are excellent."

Anyone in Silicon Valley can tell you that the FBI nailed the tone of a vacuous tech investor.

Xu was taken in by the operation and expressed his interest to work with the Americans. He eventually sent them a code sample. I’ll just add now, that sending a code sample is a common recruiting practice.

Unfortunately for Xu, when an FBI expert examined Xu’s code sample, they found that it was proprietary. It belonged to IBM. Using it would be a violation of intellectual property rights. And on Skype calls with the undercover agents, Xu admitted to knowing that the software was IBM’s.

When an FBI agent asked Xu what he thought would happen if IBM found out that he was using the code,

Xu responded, “I think in China it’s kind of different. They don’t care about that.”

The FBI coaxed even more details out of him.

A transcript of a conversation between the FBI and Xu reveals that after leaving IBM, Xu founded a startup company called Zettakit, which had grown to 30 employees. They had raised three million dollars of venture capital.

Zettakit used the IBM code to develop a data storage product, which it had in turn, used to secure contracts with a number of clients in China. According to Xu, clients included both Chinese government and military organizations.

Once the FBI had enough evidence to charge Xu, the fake tech investor convinced him to fly to New York. Xu had a morning meeting with one of the undercover agents and then was arrested in the afternoon.

Today Xu is in federal prison. In early 2018 he was sentenced to 5 years, two of which he had already served. It took the government two years after his arrest to convict him.


There seem to me to be some structural difficulties that we have dealing with espionage.

While Xu Jiaqiang is in federal prison today, his startup Zettakit seems to be doing ok. The same month that Xu Jiaqiang was sentenced, Zettakit announced its Series B fundraising. They didn’t disclose the amount raised, but before the Series B, the team had already raised around $10 million dollars. Today they have over a hundred employees and Zettakit’s executive team has done a number of interviews with Chinese technology media.

This seems to me to be a serious flaw in how things work. Xu is paying a heavy price, but his collaborators, the company and its investors, are off scot-free. According to Zettakit’s website, they’re up to around 70 clients. And who knows what role IBM’s software is playing in their business. Maybe they stopped using it after Xu’s arrest. But maybe not.

The fact of the matter is, in the age of software, there’s not much recourse for this kind of international industrial espionage. If I take your software to a different country, with a different legal system, and give it to someone else. Well, you’re out of luck. Even if you arrest me––too bad. Somebody is already making money with your software in a different country with a different court system.

It’s like Xu Jiaqiang said: “I think in China it’s kind of different. They don’t care about that.”

To me the most remarkable part of Xu Jiaqiang’s case is that Xu Jiaqiang was even caught. If you remember, the FBI investigation only started because the agency received a tip that someone was selling IBM’s software.

But where did that tip come from? In one interview, Xu’s father speculated that it came from a disgruntled ex-colleague. But who knows? And had that the tip never come, there is zero chance that Xu would have been caught. Zettakit would look like a normal venture-backed startup. Nobody would have any clue that they had used IBM’s technology.

I mean think about it, if you’re an agent in the FBI, how are you going to investigate software theft in China? It’s one thing to investigate stolen money––I’ll give you a hint, your first job is to find the money. But when it comes to software, it’s not nearly so simple. There’s just no good way to do it, except for, perhaps, getting lucky with tips.

It’s pretty clear that the tools for investigating and punishing this kind of industrial espionage are inadequate.

But at the same time, it seems that the protections for individuals that are being investigated for espionage are also inadequate.

In the case Xiaoxing Xi, it was a matter of good fortune that he had the means to post his $100,000 bail. Both Xi and Sherry Chen, from Part 1 both set up legal defense funds with websites with donation links. Someone indicted with espionage charges can expect hundreds of thousands of dollars of legal expenses.

In an interview the month after Xu Jiaqiang’s arrest, his father lamented the cost of retaining an American law firm, which is even more frightening when your salary is in Renminbi. I will add that Xu ended up with top-tier representation. Earlier this year Xu’s lawyer was appointed as a Federal Judge by president Trump.

Perhaps even more sinister than the financial burden is that being accused of espionage is incredibly lonely. Here’s Professor Xiaoxing Xi again.


It can be very difficult to publicly support someone who is being investigated for espionage. After all, what if he’s really a spy? And even if he doesn’t end up found guilty, publicly supporting someone accused of being a spy seems like a good way to end up on an FBI watch list.

One organization that is thinking about these problems is the Committee of 100, an non-profit organization of influential Chinese Americans. After the cases of Xiaoxing Xi and Sherry Chen, the Committee launched a legal defense fund to support individuals facing civil rights violations and to promote due process. Brian Sun, a Partner at Jones Day who defended Wen Ho Lee, is a member of the Committee of 100.

I think that one reason the Committee of 100 is thinking about espionage in the United States is that they realize that China is not far from technological parity. As China develops more advanced technology, it is absolutely certain that more Americans will end up incarcerated in China for espionage offenses.

Of course, it’s already happened. And I’ll conclude with a brief introduction of the case of Xue Feng.

Dr. Xue is a Chinese-born American with a Ph.D. in geology from the University of Chicago. While working in China for the American energy consulting firm IHS in 2007, Dr. Xue was detained for sharing an oil industry database with his employer. Xue believed it was a public database. Officers of the United States Embassy were unable to see Xue for several weeks after his detention. Remember that nightmare scenario?

Xue spent nearly 8 years in a Chinese state security detention center and returned to the United States in 2015.


Thanks for listening.

For anyone interested to get involved with these issues, you can check out the Sherry Chen Legal Defense Fund, the Xiaoxing Xi Legal Defense Fund, and the Committee of 100.


Committee of 100 Espionage Transcript

Dui Hua Welcomes Release of American Geologist Xue Feng

Feature: Chinese-American scientists in the crosshairs

A Convenient Spy: Wen Ho Lee and the Politics of Nuclear Espionage

Rep. Chu Questions FBI Director Comey on Wrongful Investigations of Chinese Americans

Episode 5: Gaming and eSports

Episode 5: Gaming and eSports

Episode 3: Failure

Episode 3: Failure