July 2009

China corporate spy David Yen Lee - case paints outside the numbers

He booked a one-way flight from Chicago to Shanghai, stashing in his carry-on bag a computer thumb drive with 214 documents from the company he had just quit.  Before he could leave for the airport, the FBI raided his Arlington Heights apartment, seizing a half-dozen computers, a dozen external hard drives, 13 additional thumb drives and a pair of PlayStations capable of storing data.  . . . . The 52-year-old Taiwan native faces a five-count indictment alleging theft of trade secrets from Valspar Corp., a publicly traded maker of household paint and other coating products. He has yet to enter a plea, and his attorney declined to comment.  The case highlights the growing problem of economic espionage, and the difficulties of protecting intellectual property from competitors in China. Hard times have ratcheted up the pressure to take all available shortcuts for obtaining new business, noted Anthony Dayrit, an equity analyst at Morningstar Inc. who follows Valspar . . . . These cases can have significant national security implications. In recent years, the FBI has boosted its counterintelligence efforts against scientists, students and front companies suspected of spying for the Chinese government.  In the Chicago area, explosive allegations have been leveled in a recent military- and industrial-espionage case against ex-Motorola Inc. software engineer Hanjuan Jin, who has said she is innocent . . . . Federal investigators allege that Lee parlayed those secrets into an executive job at the competing Nippon Paint, Asia's leading paint manufacturer.  His plans began taking shape at least five months earlier, the Feds allege. Working as the technical director for new-product development out of Valspar's office in suburban Wheeling, Lee asked the company in November to replace the puny 80-gigabyte laptop computer he had been issued with a 240-gigabyte model. Two days after he got it, the Feds say, he started downloading chemical formulas and other data.
The PhD chemist wasn't particularly careful about covering his tracks, court documents suggest. During a business trip to China in February just days before he took his new job, he "aggressively" questioned his counterparts at Valspar's Chinese subsidiary about Nippon Paint. A week before his start date, he set up a LinkedIn business-networking profile citing his new post at "a major paint company in Asia." He also tried to recruit a fellow Valspar scientist, the documents say.  (Chicago Tribune, 2 Jul 09)

Ex-University of Tennessee professor J. Reece Roth sentenced to prison seeking leniency

He asked for mercy Wednesday but not forgiveness.  University of Tennessee emeritus professor J. Reece Roth, 71, made an appeal before U.S. District Judge Tom Varlan for leniency as he faced sentencing for violating the Arms Export Control Act in his work on a U.S. Air Force research project.  "Your honor, I am nearly 72 years old, and this is the first time I have stood accused in a court of law," Roth said.  After summarizing what he said was a reputation for honesty and hard work, he noted his wife's health woes as well as his own heart-related medical problems.  "I would like to respectfully request the court to take these into account when passing sentence, and that's all I have to say," Roth said.  He did not, however, concede guilt or express remorse. He has steadfastly maintained his innocence since he was first confronted by federal authorities in May 2006 as he returned from China with reports that prosecutors contend contained military technological secrets that could have been used against the U.S.  Roth was convicted last year of more than a dozen crimes involving the arms control law.

Among those were allegations he plotted with Knoxville technology firm Atmospheric Glow Technologies Inc. to use two foreign national graduate students - one Chinese, the other Iranian - to carry out research while hiding their involvement from the government.    (Knoxville Sentinel, 2 Jul 09)

Retired UT professor J. Reece Roth gets 4 years for sharing military data

Retired University of Tennessee Professor Dr. John Reece Roth was sentenced Wednesday to 48 months in prison for passing secrets from a U.S. Air Force contract to two foreign research assistants.  The sentence is lower than the recommended sentencing guidelines of between 63 and 78 months in prison.  After he's released, Roth, 72, will serve two years of supervised release.  Roth, a plasma physics expert, was convicted in September 2008 of 18 counts of conspiracy, fraud and violating the Arms Export Control Act.  The act prohibits the export of defense-related materials, including technical data, to a foreign national or a foreign nation.   The jury found that Roth conspired with a Knoxville technology company called Atmospheric Glow Technology, Inc. to export 15 "defense articles" to a Chinese citizen in 2005 and 2006.  This happened while two graduate students researched a plasma-guidance system for unmanned aircraft.   Roth was also convicted of one count of wire fraud relating to defrauding UT by illegally exporting sensitive military information relating to an Air Force research and development contract.   Roth is currently out on bond, but he'll return to court at 2:00 p.m. to discuss whether he should remain on bond.   (WATE, 1 Jul 09)

Ex-UT professor J. Reece Roth gets 4 years for mishandling defense secrets

A federal judge today ordered a retired University of Tennessee professor to serve four years behind bars for his handling of restricted defense technology secrets.  U.S. District Judge Tom Varlan said UT professor emeritus J. Reece Roth could have caused "harm to the security of the United States" by allowing foreign national students, one from China and one from Iran, to work on a contract to produce technology to be used on unmanned Air Force drones.  Varlan noted that the Air Force was forced to scrap the research out of fear it had been compromised, although there was no testimony at Roth's trial last year that any foreign government actually had accessed the information or that Roth ever had tried to sell or give the information to foreign governments.

Roth repeatedly has said he did not believe that mere research and the results of that research violated the Arms Export Control Act. However, Varlan said testimony showed Roth continued to allow foreign national students access to restricted data and even took various reports to China with him after he was twice warned by UT officials about the law.  (Knoxville Sentinel, 1 Jul 09)

Ex-professor J. Reece Roth gets 4 years for passing military secrets

A retired University of Tennessee professor has been sentenced to four years in prison for passing sensitive information from a U.S. Air Force contract to two research assistants from China and Iran.  J. Reece Roth, a plasma physics expert at the school in Knoxville, Tenn., was found guilty in September on all 18 counts of conspiracy, fraud and violating the Arms Export Control Act.  Prosecutors said the case marked the first time the government used the export control act to crack down on the distribution of restricted data, not hardware, to foreigners in a university setting.  Roth allowed the graduate students to see sensitive information while they researched a plasma-guidance system for unmanned aircraft.   The 71-year-old is appealing his conviction.  (AP, 1 Jul 09)

June 2009

Oceanside man David A. Goldenberg gets probation in e-mail hacking

An Oceanside man who was a senior officer at a high-end audiovisual systems manufacturer was sentenced to 3 years' probation for illegally wiretapping a competing company, prosecutors said.  David. A. Goldenberg, 47, pleaded guilty to third-degree illegal wiretapping last month in a corporate espionage case in which prosecutors say he gained access to several e-mail accounts at the Woodcliff Lake, N.J.-based Sapphire Marketing Llc, the northeast sales and marketing firm for Crestron Electronics. Crestron Electronics, a Rockleigh, N.J., manufacturer of automated audiovisual and building systems for businesses and homes, is a competitor with the Richardson, Tex.-based AMX, where Goldenberg was employed as a vice president at the time.  Goldenberg apologized at Friday's sentencing hearing at the Bergen County Court House in Hackensack, N.J., said Brian Lynch, chief of the white collar crime unit at the Bergen County prosecutor's office.  Goldenberg's sentence also includes a $1,000 fine, a $155 payment for court costs, a special condition requiring that he have no contact with the victims and psychological evaluation and counseling.  A longtime customer of both Sapphire Marketing and Crestron Electronics, Goldenberg had developed strong business and personal relationships with executives at the two companies while working as a reseller of Crestron's products, Sapphire and Crestron senior officers said. He began working at AMX in June of 2007, they said.  Goldenberg was able to forward the victims' e-mails to a free account he had set up for himself, prosecutors said.   (Newsday, 27 Jun 09)

Exec David Goldenberg hacked friends for sales gets probation

A sales executive who used personal information to guess passwords, hack into e-mail accounts and listen in on conference calls at his friends' companies was sentenced to probation Friday - a punishment the victims said was too lenient.  David Goldenberg, 47, of Oceanside, N.Y., was fined $1,000 and sentenced to three years probation Friday for a single count of felony wiretapping. He initially faced five felony charges but was spared jail time under a plea agreement with New Jersey prosecutors.  The victims estimate he cost them more than $10 million in lost business and security-improvement expenses.  Marla Suttenberg, owner of Woodcliff Lake-based Sapphire Marketing, described the sentence as a slap on the wrist that wouldn't deter others. She said both companies continue to suffer.  (AP, 27 Jun 09)

Ex-Arlington Heights man David Yen Lee charged with economic espionage for China

A federal grand jury indicted former Arlington Heights resident David Yen Lee on charges he stole trade secrets to divulge to a competitor.  The indictment, which U.S. attorney Patrick Fitzgerald announced Friday, charges Lee with five counts of economic espionage.  According to the indictment, the 52-year-old Lee worked as technical director of new product development for the Wheeling branch of Valspar Corp., a Minneapolis-based paint company, from 2006 to March 2009.  According to the indictment, Lee downloaded documents and data from Valspar and its China subsidiary, Huarun Ltd., to an external thumb drive authorities found during a March search of Lee's home on the 400 block of West Rand Road in Arlington Heights.  Lee abruptly resigned from Valspar in mid-March, shortly after purchasing a one-way ticket to Shanghai, authorities say. He was arrested later that month - the day before he was scheduled to leave the United States for China, where he was to begin a new job developing paint products April 1. Free on bond since his arrest, Lee has been living in Great Neck, N.Y.

If convicted, he could face a maximum of 10 years in prison and a $250,000 fine on each count in the indictment. He is scheduled to appear in federal court for his arraignment on July 7.    (Daily Herald, 26 Jun 09)

Former Technical Director of Wheeling Paint Company David Yen Lee Indicted for Alleged Theft of Trade Secrets Before Joining Competitor  (DOJ Press Release, 26 Jun 09))

Director of Wheeling Paint Company David Yen Lee Indicted for Theft of Trade Secrets

A former northwest suburban man who was arrested in March was indicted this week on federal charges for stealing trade secrets from his former employer, Valspar Corp., in Wheeling, federal law enforcement officials announced today. The defendant, David Yen Lee, was charged with five counts of theft of trade secrets in violation of the federal Economic Espionage Act in an indictment returned by a federal grand jury on Tuesday, announced Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois, and Robert D. Grant, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation. Lee, 52, formerly of Arlington Heights and now of Great Neck, N.Y., has been free on bond since he was arrested on April 2 after being charged in a criminal complaint. He is scheduled to be arraigned on July 7 before U.S. District Judge Robert Gettleman.  According to the indictment, Lee began working as a technical director for Valspar in 2006, and received instruction regarding the protection of proprietary information in connection with his employment and duties at Valspar and Huarun, Ltd., a Valspar subsidiary in China. Between September 2008 and February, 2009, Lee allegedly discussed, negotiated and accepted employment with Nippon Paint, where he was to being working on April 1, 2009, in Shanghai, China, on developing paint products and technologies.

Between November 2008 and March 2009, Lee allegedly downloaded technical documents and materials, including trade secrets belonging to Valspar from Valspar’s secure internal computer network, and removed numerous documents and other materials from Valspar’s offices in Wheeling. On March 9, 2009, Lee purchased a ticket to Shanghai for a flight scheduled to leave on March 27, and on March 16, he resigned his employment at Valspar, the indictment states. It alleges that Lee downloaded Valspar and Huarun data an trade secrets to two external thumb drives on various dates in March.  (Press Release, 26 Jun 09)

Executive charged with stealing secrets

A former manager at a West Virginia paint company has been charged with stealing trade secrets after accepting a job with a Chinese competitor.   A grand jury in Chicago handed up an indictment Tuesday charging David Yen Lee with five counts of violating the Economic Espionage Act. Lee was arrested in April and is free on bail, the Justice Department said in a news release.  Federal prosecutors say Lee, who had been working for Valspar Corp., based in Wheeling, W. Va., since 2006, agreed last year to begin working for Nippon Paint, based in Shanghai, on April 1, 2009. He allegedly downloaded proprietary information to two thumb drives and removed confidential documents from Valspar's headquarters.  Lee, now living in Great Neck, N.Y., faces up to 10 years in prison if he is convicted, although the actual sentence is likely to be much shorter.  (UPI, 26 Jun 09)

Dongfan 'Greg' Chung - First US economic espionage trial winds down

The fate of a Chinese-born engineer accused of passing critical trade secrets on the U.S. space program to China for decades was in the hands of a federal judge Wednesday after closing arguments ended in the nation's first economic espionage trial.  Federal prosecutors said Dongfan "Greg" Chung used his 30-year career at Boeing Co. and Rockwell International to steal 300,000 pages of sensitive documents, including papers on the Delta IV booster rocket and a phased array antennae for the U.S. space shuttle.  Chung, 73, has pleaded not guilty to conspiracy, economic espionage, lying to federal agents, obstruction of justice and acting as a foreign agent. He is free on $250,000 bail.  U.S. District Judge Cormac J. Carney was expected to issue a written verdict at a hearing sometime in the next two weeks. Chung opted for a non-jury trial.  FBI investigators found the papers stacked throughout Chung's house and even in a crawl space beneath the dwelling, according to court papers and testimony . . . . The government case is being closely watched as a test for prosecutions under the Economic Espionage Act of 1996. The law was designed to help the government crack down on the theft of information from private companies that have contracts with the government to develop future U.S. space and military technologies.The legislation became a priority in the mid-1990s when the United States realized China and other countries were targeting private businesses as part of their spy strategy.  (AP, 25 Jun 09)

Defense in spy case: Engineer Dongfan ‘Greg’ Chung gave public documents to Chinese

A former Boeing engineer accused of economic espionage rejected overtures from Chinese officials to pass on technology trade secrets, and provided them only with information that was already public, a defense attorney said in closing statements today.  “Mr. Chung walked an interesting line, and a risky line, but not a line that was criminal,’’ said Thomas Bienert Jr., the attorney for Dongfan “Greg” Chung.  Authorities found more than 250,000 documents at Chung's home – information from Rockwell, Boeing and other aerospace companies, including correspondence with Chinese officials, authorities said. Many documents were found hidden in crawl spaces underneath the residence, authorities said. Briefings from Chinese officials also were found at the home, authorities said. Bienert explained that Chung has the briefing because he planned to one day write about his work.  “The (space) shuttle was a labor of love,’’ Bienert said. “He’s keeping information for his own use and one day wants to write a book.’’. . . . The trial, which began earlier this month, comes two years after the conviction of another former Orange County engineer, Chi Mak, on charges of exporting sensitive defense technology to China.  Mak, who was sentenced to 24½ years in prison, knew Chung. Federal agents began investigating Chung during the Mak probe. Chung was arrested February 2008.  U.S. District Judge Cormac Carney is not expected to issue an immediate verdict, but is expected to rule within the next several weeks, prosecutors said. (OC Register, 24 Jun 09)

Dongfan Chung Case - First US economic espionage trial winds down

Chinese-born, former engineer for Boeing Co. knowingly possessed critical trade secrets on the U.S. space program and intended to pass them to China, a federal prosecutor said Wednesday in her closing argument at the first economic espionage case to reach a U.S. courtroom.  Former Boeing Co. engineer Dongfan "Greg" Chung, 73, has pleaded not guilty to conspiracy, economic espionage, lying to federal agents, obstruction of justice and acting as a foreign agent.  Chung used his job as a stress analyst at Boeing and his previous employer, Rockwell International, to steal more than 250,000 pages of sensitive documents, including trade secrets on a phased array antenna for the U.S. space shuttle and on the Delta IV booster rocket, according to government allegations. "Your honor, I'm just going to cut to the chase. Defendant is guilty of all counts charged in the indictment," said Assistant U.S. Attorney Ivy Wang. "Defendant is guilty ... because defendant intended or knew his actions would benefit a foreign government, specifically the People's Republic of China."  Wang said the information on the booster rocket was so sensitive that Boeing employees were ordered to lock away hard copies of documents related to it before leaving work each day . . . . Chung's defense team argued in their June 2 opening statement before U.S. District Judge Cormac J. Carney that prosecutors could not prove that Chung actually delivered any materials to contacts in China.  Defense attorney Tom Bienert also downplayed the significance of the thousands of pages of documents found in his home, calling Chung a "pack rat" who simply brought his work home with him.  Six similar cases have settled before trial since the Economic Espionage Act was passed in 1996.  Chung worked for Rockwell International until it was bought by Boeing in 1996 and remained with the aerospace giant until he was laid off in 2002. He was brought back as a consultant on stress analysis after the Columbia space shuttle disaster in 2003 and was fired when the FBI began its probe in 2006.  The government believes Chung began spying for the Chinese in the late 1970s, just a few years after he became a U.S. citizen and was hired by Rockwell.  Prosecutors say they discovered Chung's activities while investigating the case of another suspected Chinese spy, Chi Mak. Searches of Mak's house turned up an address book and a letter containing Chung's name.  Mak was convicted in 2007 of conspiracy to export U.S. defense technology to China and sentenced to more than 24 years in prison.  (AP, 24 Jun 09)

Engineer's space secrets trial winds down in Calif

The fate of a Chinese-born engineer accused of stealing trade secrets critical to the U.S. space program will soon be in the hands of a federal judge.  Attorneys are expected to deliver closing arguments Wednesday in the non-jury trial of former Boeing Co. engineer Dongfan "Greg" Chung.  The case is the first economic espionage prosecution to reach court since the Economic Espionage Act passed in 1996.  The 73-year-old engineer has pleaded not guilty to charges of conspiracy, economic espionage, lying to federal agents, obstruction of justice and acting as a foreign agent.   Prosecutors have said he used his job as a stress analyst to steal more than 250,000 pages of sensitive documents on the U.S. space shuttle and a booster rocket.  (AP, 24 Jun 09)

California Man Robert Scott West Sentenced for Possession of Stolen Trade Secrets

Robert Scott West was sentenced last week to 10 months home confinement, ordered to pay $100,000 in restitution to Phillips Lumileds Light Company and $5,000 in fines, announced United States Attorney Joseph P. Russoniello.  West, 21, of Morgan Hill, Calif., pled guilty in federal court in San Jose on March 9 to one count of Possession of Stolen Trade Secrets in violation of 18 U.S.C. § 1832(a)(3).  In February 2008, several months after resigning from his position as a senior product manager at Phillips Lumileds to work for a competitor, West was found in possession of the architecture and product specifications for Phillips Lumileds’ next generation of Luxeon Rebel surface mountable power LED’s. According to the plea agreement, West had downloaded and copied the information before resigning from Phillips. He intended to use the information for the benefit of himself and knew that his possession and use of the information would harm Phillips.  Prior to pleading guilty, West met with representatives from Phillips Lumileds and the government and agreed to assist in providing an accounting of all the copies of the confidential and proprietary information that he had made.  Phillips Lumileds Lighting Company is a San Jose, company that designs and manufactures light emitting diodes, which may be used for computer displays, liquid crystal display televisions and general lighting. One of the company’s primary products was the Luxeon Rebel line of LED’s.  The maximum statutory penalty for each count of possession of stolen trade secrets in violation 18 U.S.C. § 1832(a)(3) is 10 years imprisonment, 3 years of supervised release and a fine of $250,000.  (Huliq, 23 Jun 09)

Sabotage and the Saboteur

Sabotage, like any other weapon, offers its user an amplification and extension of his own strength, both to harm others and defend himself. Sabotage has the additional appeal of destroying much evidence of itself, and is usually hard to prove.  Sabotage offers the indigenous malcontent or the alien subversive the widest selection of targets, the greatest opportunities for conversion, and the most efficient results of any weapon available to him. The saboteur need not be thought of as a wild-eyed, shabbily-dressed foreigner out to bomb buildings. The man who hesitates shooting a competitor might have no qualms about burning that man's place of business.

Moreover, sabotage motivated by political or military objectives is usually planned only after the target has been assessed through industrial espionage and a detailed picture of vulnerabilities is obtained.

A saboteur may be anyone in an organization of the target industry, from a janitor in the machine shop to an administrative assistant in the executive suite, or even a top executive himself. He may work alone or be part of a well-organized group. Money may be his motive -- money from a foreign power, from unscrupulous business competitors, even money from a rival union trying to break into the plant or industry, or to incite a strike.

Hatred or bitterness, arising from personal or business grievances may move the saboteur. As in the case of espionage, blackmail and threats (especially in the case of those with relatives in unfriendly foreign nations) can urge the saboteur on.   (Examiner, 23 Jun 09)

Morgan Hill Man Robert Scott West Sentenced for Possession of Stolen Trade Secrets 

Robert Scott West was sentenced last week to 10 months home confinement, ordered to pay $100,000 in restitution to Phillips Lumileds Light Company and $5,000 in fines, announced United States Attorney Joseph P. Russoniello.  West, 21, of Morgan Hill, Calif., pled guilty in federal court in San Jose on March 9 to one count of Possession of Stolen Trade Secrets in violation of 18 U.S.C. § 1832(a)(3).  In February 2008, several months after resigning from his position as a senior product manager at Phillips Lumileds to work for a competitor, West was found in possession of the architecture and product specifications for Phillips Lumileds’ next generation of Luxeon Rebel surface mountable power LED’s. According to the plea agreement, West had downloaded and copied the information before resigning from Phillips. He intended to use the information for the benefit of himself and knew that his possession and use of the information would harm Phillips.  Prior to pleading guilty, West met with representatives from Phillips Lumileds and the government and agreed to assist in providing an accounting of all the copies of the confidential and proprietary information that he had made(FBI Press Release, 22 Jun 09)

Foreign Spies Victimize US Businesses and Economy

In addition to an already weak economy in the US, foreign intelligence agencies and corporate spies are raping this nation's intellectual property and resources.  The foreign intelligence threat within the United States is far more complex than it has ever been historically. The threat is increasingly asymmetrical insofar as it comes not only from traditional foreign intelligence services but also from nontraditional, non-state actors who operate from decentralized organizations.   Intelligence collection is no longer limited to classified national defense information but now includes targeting of the elements of national power, including our national economic interests. Moreover, foreign intelligence tradecraft is increasingly sophisticated and takes full advantage of advances in communications security and the general openness of US society.  In short, the foreign intelligence threat is more challenging than ever. In the fall of 2003, the Foreign Counterintelligence Program had investigations involving dozens of countries that focused on hundreds of known or suspected intelligence officers who were assigned to enter or travel within the United States. These investigations spanned all 56 field offices. (Examiner, 22 Jun 09)

Top German spy says more Russian snooping on firms

Russian spies are targeting the German energy sector to help Russian firms gain commercial advantages, the head of Germany's domestic counter-espionage unit said Sunday . . . . The director of Counter-Intelligence at the Federal Office for the Protection of the Constitution, said the spying was aimed mostly at information on alternative and renewable energy and efforts to increase efficiency. European energy interests, diversification plans, and Germany's economic situation were also espionage targets.  Last month Interior Minister Wolfgang Schaeuble also noted, when presenting his ministry's 2008 security report, that Russia and China were stepping up espionage efforts and Internet attacks on German companies.  Last year a German court convicted a former employee of European aeronautic defense and space company EADS of selling information on civilian helicopters to Russian intelligence.  Moscow's Foreign Intelligence Service (SVR), smaller than its military intelligence service but successor to part of the Soviet KGB, is the body analysts say covers economic matters. (Reuters, 21 Jun 09)

GhostNet Cyber Espionage Probe Still Has Loose Ends

Nearly three months after a report detailed an extensive, worldwide cyber espionage operation, many countries that were hacked may not have been formally notified yet.  Legal barriers have hampered efforts to contact many countries whose computers in embassies and ministries of foreign affairs were infected with malicious software capable of stealing data, said Nart Villeneuve, one of the authors of a detailed 53-page report that shed new light on the extent of cyber spying.  The report was written by analysts with the Information Warfare Monitor, a research project of the SecDev Group, a think tank, and the Munk Center for International Studies at the University of Toronto.  The analysts uncovered an operation nicknamed "GhostNet" that infected computers belonging Tibetan nongovernmental organizations and the private office of the Dalai Lama.  Further investigation showed the computers of 103 countries were infected as well as organizations such as the ASEAN (Association of Southeast Asian Nations) secretariat and the Asian Development Bank. Data was shipped to remote servers, many of which were located in China.  The report was one of the first publicly revealed investigations that showed how easy it was for hackers to target organizations through social engineering and malware attacks.  (PC World, 18 Jun 09)

Tracking GhostNet: Investigating a Cyber Espionage Network  (SCRIBD, June 2009)

Industrial Espionage Up Amid Recession

The leakage of industry technologies is becoming a serious issue amid the economic downturn. Industrial espionage, once centered on the IT sector including phones and microchips, is now expanding to precision machinery and chemicals.  According to a report Thursday by the Samsung Economic Research Institute, 42 technology thefts were attempted last year, up 62 percent from 26 in 2004. The financial damage they would have caused is estimated at W80 trillion last year, up from W33 trillion in 2004 (US1$=W1,253).  Half of the attempted thefts between 2004 and 2008 were from Chinese companies.  The report points out that small- and medium-size companies, which accounted for 60 percent of potential victims, are vulnerable to technology leakage as they have little investment in security and poor rewards for research and development achievement.
Park Sung-bae, a senior researcher at SERI said, “As the downturn is hurting a growing number of SMEs that pursue technology innovation, their former and current employees are attempting technology theft.” He added some foreign companies attempt to get their hands on Korean technology via takeovers and joint projects.  (Chosun Ilbo, 12 Jun 09)

Traiain Bujduveanu sentenced 35 months for selling military parts to Iran

A US man of Romanian descent was sentenced to 35 months prison and three years probation for his role in a scheme to illegally export military and dual use aircraft parts to Iran, the US Justice Department said Thursday.

Traian Bujduveanu pled guilty on April 2 to charges of conspiracy to export and cause the export of goods from the United States to Iran, in violation of a US trade embargo.  Bujduveanu - a Romanian national and naturalized US citizen - admitted that he sold aircraft parts to a US man of Iranian descent, Hassan Keshari.  After receiving payment from Keshari, Bujduveanu then shipped the parts to a company in Dubai, which in turn shipped them on to the customers in Iran.  Aircraft parts that Bujduveanu illegally exported included "parts designed exclusively for the F-14 fighter Jet, the Cobra AH-1 attack helicopter, and the CH-53A military helicopter.  Keshari was sentenced to 17 months prison in mid-May for his part in the plot.  (AFP, 12 Jun 09)

Romanian-American sentenced in Iran jet parts plot

The Romanian-born owner of a U.S. aviation company was sentenced Thursday to nearly three years in prison for conspiring to ship parts for fighter jets and other military aircraft to Iran, prosecutors said.

Traian Bujduveanu pleaded guilty in April to one count of conspiracy to export goods in violation of the U.S. embargo against Iran. Bujduveanu and his company, Plantation, Florida-based Orion Aviation, were charged last year along with another aviation company owner, Hassan Keshari and his Kesh Air International, in a plot to help Iran build up its military. Prosecutors said Bujduveanu received e-mailed orders from Keshari requesting specific aircraft parts for buyers in Iran. The parts were shipped through a company in Dubai to the buyers using false shipping documents, they said.  (Reuters, 11 Jun 09)

US-Romanian citizen sentenced to 3 years for conspiring to export aircraft parts to Iran

A man with dual Romanian and U.S. citizenship has been sentenced in Miami to almost three years in prison for his role in a plot to sell prohibited aircraft parts to Iran.  Traian Bujduveanu (Tray-'ANN Booj-doo-'VAY-nu) was sentenced Thursday by U.S. District Judge Patricia Seitz. He pleaded guilty in April to a single to a single conspiracy count.  Also pleading guilty and sent to prison in the plot was Iranian-born Hassan Keshari.
Prosecutors say both men were illegally helping Iran obtain parts for such aircraft as the F-14 Tomcat fighter, C-130 cargo plane and AH-1 attack helicopter. The parts were shipped from South Florida to Dubai and on to Iran.  (AP, 11 Jun 09)

Greg Chung Economic Espionage Trial Begins

The first case of “economic espionage” has reached the trial phase in the United States.  The case is against Dongfan "Greg" Chung, a 73-year old Chinese-born engineer who worked with various American defense contractors.  The trial for Chung was scheduled to begin Tuesday June 2, 2009 in the U.S. District Court of Santa Ana, California.   Prosecutors claim that Chung, during his tenure at Boeing and Rockwell International, used his position as an analyst to steal roughly 250,000 pages of sensitive material.  According to the Washington Post these documents contained materials about the U.S. space shuttle, Delta IV rockets, and the C-17 military troop transport aircraft.  After accumulating this material Chung is alleged to have then sent the documents to contacts in China.  According to U.S. District Attorney Greg Staples the accumulated specifications amount to “the difference between getting into space and ending up with a plaything for children in a park.” 

The U.S. prosecution team believes it has evidence linking Chung to spying operations beginning in the late 1970s and continuing actively until as recently as 2003 – when he last worked with an affiliated defense contractor as part of the research team investigating the Columbia disaster.  During the intervening two decades Chung's illegally obtained materials would have been vital to the development of China’s space program and the eventual development of the China National Space Administration.   It is unclear how this particular case will turn out, Chung’s defense team believes that the charges will all be dropped due to a perceived statute of limitations ending in 2003.  Furthermore this is the first case under the Economic Espionage Act that has made it to trial – all prior cases were settled out of court.  Regardless of the outcome, this is certainly a wakeup call to members of the American defense, intelligence, and security infrastructure.  It is a reminder that unfriendly nations still exist around the world, and are willing to do what it takes to advance their own agendas, goals and policies.  (Op-Ed News, 4 Jun 09)

First economic espionage trial begins in US

Prosecutors say they discovered Chung's activities while investigating the case of another suspected Chinese spy, Chi Mak. Searches of Mak's house turned up an address book and a letter containing Chung's name.

Mak was convicted in 2007 of conspiracy to export U.S. defense technology to China and sentenced to more than 24 years in prison. Mak, however, was not charged under the Economic Espionage Act.  (AP 3 Jun 09)

Engineer Dongfan ‘Greg’ Chung provided shuttle secrets to China, prosecution says

A former Boeing engineer betrayed the United States by providing confidential information about the Space Shuttle program to the People's Republic of China, a federal prosecutor said in opening statements Tuesday.

"Information, security and betrayal," Assistant U.S. Attorney Greg Staples said in the trial of Dongfan "Greg" Chung. "These are the three pillars of the government's case."  The defense attorney for Chung – a 73-year-old grandfather who resides in Orange – countered that his client refused Chinese officials' overtures to reveal classified information on military and space technology secrets.  . . . . Chung was arrested in February 2008, after an unsealed indictment accused Chung of giving secrets to China since the late 1970s. He is charged with 10 counts, including six of economic espionage, as well as acting as an agent for the People's Republic of China.

May 2009

Dongfan ‘Greg’ Chung First economic espionage trial set in Calif.

Dongfan "Greg" Chung developed a reputation as an innovator during his three decades as an engineer for Boeing Co. and Rockwell International.  Federal prosecutors say he was also a hardworking spy.  On Tuesday, Chung is scheduled to become the first person to stand trial under the Economic Espionage Act, which was passed more than a decade ago.  Prosecutors say the Chinese-born Chung, 73, stole hundreds of thousands of pages of highly sensitive documents on the U.S. space shuttle, Delta IV rockets and the C-17 military troop transport, then relayed the secrets to contacts in China.  He is free on $250,000 bail after pleading not guilty to eight counts of economic espionage, three counts of lying to a federal agent and one count each of conspiracy, acting as a foreign agent and obstruction of justice.  Prosecutors filed a motion late last week asking the judge to drop two economic espionage charges related to the C-17 transport plane and two counts of lying to a federal agent.  U.S. District Judge Cormac J. Carney, who will hear the case in a non-jury trial, has yet to rule on the request.

Prosecutors declined to comment about the upcoming trial. Chung's defense lawyers did not return calls or e-mails seeking comment. Experts in trade secrets litigation and U.S.-China relations who have followed the case say the scope of the alleged spy work since the late 1970s likely led the government to prosecute Chung under the tougher statute to send a message to other spies and to China.  Richard Fisher, a senior fellow with the Virginia-based nonpartisan International Assessment and Strategy Center, said Chung's expertise and long tenure at Boeing would make him particularly dangerous.  . . . .The government believes Chung began spying for the Chinese in the late 1970s, just a few years after he became a U.S. citizen and was hired by Rockwell.

Russia and China spying on German firms

German businesses have become a popular target for industrial espionage by China and Russia that cost the country billions each year, head of the ASW association for economic security Berthold Stoppelkamp told daily Mitteldeutsche Zeitung on Wednesday.  His comments come after the Interior Ministry's 2008 domestic intelligence report was released this week in Berlin, revealing that science, engineering, renewable energy, materials research, pharmaceuticals and manufacturing businesses are becoming popular places to imbed foreign spies.  “The damages account for some €20 billion each year,” Stoppelkamp said, adding that it could be as high as €50 billion after the last two years when spying among international industrial competitors intensified.
“In part, classic spy techniques are employed. People with false records infiltrate firms,” he told the paper. “Or sensitive information is siphoned from trade shows and business meetings.”   According to news magazine Der Spiegel, the report revealed that China’s military intelligence agency, as well as state security forces, have been actively seeking information for the “support of individual companies” that compete with German firms.
Chinese secret services also profit from a close economic and educational partnership with Germany, the magazine said. Exchange students and scientists from China are often placed in German research institutes, from where they provide information out of “patriotism or gratitude” for the possibility to work in Germany.  Meanwhile Russian spies are focusing on renewable energy firms, though there is evidence they have spies within telecommunications and aerospace firms too.   (Local, 20 May 09)

Companies should monitor insider activity as former US Defense employee charged over espionage

. . . . Rick Howard, director of intelligence at iDefense, claimed that the case shows the need to be aware of the methods employees use to cause problems for their employers.

 James Wilbur Fondren Jr. has been charged in a Virginia federal court with conspiracy to communicate classified information and passing other sensitive documents to a spy for the Chinese government, who has been convicted of compromising another Pentagon employee. He could face up to five years in prison if convicted.

 Howard said: “This case is an interesting one. iDefense is currently monitoring increasingly complex and sophisticated methods of attack, but this case reminds us of the need to be mindful of the simple ways for criminals to cause trouble. Organizations should continue to be mindful of threats from inside.”

Pentagon spokesman Bryan Whitman told the Washington Post that the threat posed by insiders with access to sensitive information is real. “The department is reliant upon the trust and confidence it places on its employees. It is a sacred trust to protect information vital to the national security of the country,”   (SC Magazine, 18 May 09)

Corporate-Espionage, E-mail Break-in Case Zaps Electronics Industry

A corporate-espionage case in which an executive from electronics manufacturer, AMX Corp, broke into the e-mail system of the marketing firm working for a competitor Crestron Electronics to steal sensitive business information has rocked that industry.  David Goldenberg, a resident of Long Island and former vice president in the New York-area office of Richardson, Texas.-based AMX Corp., pled guilty this week in a New Jersey courtroom to felony wiretapping in connection with illegally accessing the internal e-mail at Crestron's sales and marketing firm, Sapphire Marketing, based in Woodcliff Hills, N.J.  As part of the plea deal with the Bergen Court Prosecutor's Office, which has spared Goldenberg from a criminal trial, the prosecutor there, Brian Lynch, is recommending probation.  That's in part because Goldenberg has been largely cooperative after being approached by the Paramus Police Department in February 2008 after Sapphire filed a complaint about suspicions that business e-mail concerning AMX was being intercepted and Goldenberg had something to do with it.  "It's a third-degree wiretapping charge," says prosecutor Lynch, noting Goldenberg has no prior convictions so he's eligible for probation, which he called "fair and just" in the case. Lynch noted his office, where most cases focus on nabbing online predators, gets few corporate espionage cases.   (PC World, 15 May 09)

Novato man Hassan Saied Keshari  gets 17-month term for exports to Iran

A Novato businessman was sentenced to 17 months in federal prison for conspiring to export aircraft parts to Iran in violation of a U.S. embargo.  Hassan Saied Keshari, 49, was sentenced Wednesday by U.S. District Judge Patricia Seitz in Miami, where he has been in custody since his arrest last year.  The judge placed Keshari at a federal prison in Herlong, a Lassen County town about 60 miles north of Lake Tahoe, so he could be closer to his young children. He has two daughters, 5 and 13 years old.  Keshari, owner of Kesh Air International in Bel Marin Keys, was arrested last June with Florida businessman Traian Bujduveanu. Keshari and Bujduveanu, who owns Orion Aviation Corp. near Fort Lauderdale, were charged with conspiring to violate the International Emergency Economic Powers Act, the United States Iran Embargo and the Arms Export Control Act.  Authorities said Keshari and Bujduveanu were arranging shipments of U.S.-made aircraft parts to Iran since 2006, working through an intermediary in Dubai, United Arab Emirates. The aircraft equipment allegedly included parts for the CH-53 military helicopter, the F-14 Tomcat fighter jet and the AH-1 attack helicopter.  Keshari was denied bail because authorities considered him a flight risk. Although he has been a naturalized U.S. citizen for 30 years and owns properties in Novato, he is a native of Tehran with an Iranian passport and family in that country. Keshari pleaded guilty in January to one count of conspiracy, and 10 other counts were dismissed. He could have faced 20 years in prison under the original charges.  Bujduveanu, 54, pleaded guilty to a conspiracy charge in April (to be sentenced June 11).  (Marin Independent Journal, 14 May 09)

Iranian-American sentenced in Iran smuggling plot

A U.S. judge has sentenced an aviation company owner to 17 months in prison for conspiring to ship parts for fighter jets and other military aircraft to Iran in violation of the U.S. embargo, according to court papers.
Hassan Saied Keshari, an Iranian national and naturalized American, was charged last June with a series of violations of the U.S. Arms Export Control Act, the Iran embargo and the International Emergency Powers Act. He pleaded guilty in January to one count of conspiracy. U.S. District Judge Patricia Seitz dismissed 10 other charges at a hearing on Wednesday and sentenced him to 17 months in jail on the conspiracy count, with three years of probation after his release. He had faced up to 20 years in prison on the original charges. U.S. authorities accused Keshari, the owner of Novato, California-based Kesh Air International, and Traian Bujduveanu, who owned Orion Aviation in Plantation, Florida, of helping the Iranian government build up its military.  The two men received e-mailed parts orders directly from Iran and then procured and illegally shipped the parts through Dubai to Iran, prosecutors said.  They shipped parts for the F-14 Tomcat fighter jet, the AH-1 Cobra attack helicopter and the CH-53 heavy-lift transport helicopter, prosecutors said . . . . Bujduveanu, a Romanian national and naturalized American, pleaded guilty in April to a single conspiracy count. His sentencing is scheduled for June 11.   (Reuters, 14 May 09)

Prosecutors, defense argue: Probation or prison for retired UT professor J. Reece Roth?

A retired University of Tennessee professor could learn in a few weeks whether he'll serve probation or prison time for sharing Air Force information with foreign students.  J. Reece Roth, 73, was convicted by a federal jury last year of plotting with Knoxville technology firm Atmospheric Glow Technologies Inc. to violate the Arms Export Control Act by repeatedly allowing two foreign national graduate students - one Chinese, the other Iranian - access to information on an Air Force project and taking data about it to China in May 2006.  U.S. District Judge Tom Varlan spent the afternoon listening to testimony about the nature of that information and to arguments from federal prosecutors Jeff Theodore and Will Mackie, who asked him to make an example of Roth, and to defense lawyer Tom Dundon, who called Roth a well-meaning scholar carried away by academic zeal.  The judge said he'll decide on a sentence after considering the evidence and letting Roth speak for himself if he wants to. The judge didn't set a date for the next hearing.  Roth insisted at trial the foreign students were only involved in the research behind the plasma actuators Roth and AGT were developing for use in Air Force drones. He testified that he believed the students' work didn't fall under the auspices of export control.  At trial, federal prosecutors used Roth's own handwritten notes to show he knew the law was being violated. In those notes, Roth outlined a division of labor between an American graduate student and a Chinese graduate student in the UT Plasma Research Laboratory as a way to get around export control laws.    (Knox News,  13 May 09)

Crestron Electronics Commentary on Corporate Spy David A. Goldenberg Pleading Guilty to Hacking and Wiretapping

David A. Goldenberg is charged with corporate espionage for intercepting thousands of proprietary e-mails from his company's chief competitor for nearly a year while working as a vice president for Richardson, TX, based AMX Corporation, a subsidiary of Duchossis Industries. On May 11, 2009, he pleaded guilty to felony wiretapping and the judge has scheduled a sentencing hearing for June 26, 2009, at 10:30 a.m.  Goldenberg, 48, of Oceanside, NY, was the vice president of AMX Corporation, a global audio/video manufacturer, when he was arrested in March of 2008. Following a six week investigation, he was charged with Unlawful Access of a Computer System / Network- 3rd Degree, Unlawful Access of a Computer Data / Theft of Data- 2nd Degree and Conducting an Illegal Wiretap- 3rd Degree by members of the Paramus Police Department (a member of the Computer Crimes Task Force) in New Jersey and was released on $50,000 bail.  Paramus-based Sapphire Marketing represents audio/video manufacturers including AMX Corporation's top competitor, Rockleigh, NJ-based Crestron Electronics. Sapphire filed a complaint to the Paramus Police Department on February 6, 2008, because they were suspicious of a "leak" and that they were frequently underbid for projects by Goldenberg and AMX. Confidential information disclosed to clients and partners led Sapphire to believe that their e-mail was being intercepted.  "While setting up an 'out of office' reply, one of our employees noticed her e-mail was being forwarded to an outside e-mail account," said owner of Sapphire Marketing Marla Suttenberg. "We immediately notified the authorities and took steps to both secure our system and allow law enforcement to garner the evidence they needed."  Allegedly, thousands of proprietary and confidential e-mails were stolen by Goldenberg. Utilizing "social engineering," he accessed Sapphire's secure Web mail account regularly over a seven month time span until he established a separate e-mail address to automatically forward Sapphire's e-mail to his personal account. Goldenberg also had access to weekly conference calls, during which Crestron Electronics sales and marketing strategies were discussed, by using the call-in information he had because of his illegal access to Sapphire's e-mail.  (Press Release, 13 May 09)

Judge to allow professor J. Reece Roth convicted of arms export violation to speak before sentencing him

A federal judge in Knoxville says he will let a retired professor, convicted of violating the arms control act, speak before sentencing him.  J. Reece Roth was found guilty last year for allowing two foreign students access to a U.S. Air Force project and taking information about it to China in 2006.  At a hearing Wednesday, U.S. District Court Judge Tom Varlan heard prosecutors recommend a prison sentence of at least five years, asking the court to make an example of Roth, who is 71.  The Knoxville News Sentinel reported defense attorney Tom Dundon said his client was a well-meaning scholar, carried away by academic zeal.  Varlan told attorneys he won't sentence Roth until the convicted man can address the court himself at a hearing that has not yet been scheduled.  (AP, 14 May 09)

Ex-UT professor J. Reece Roth faces sentence in arms control case

A retired University of Tennessee professor could learn in a few weeks whether he'll serve probation or prison time for sharing Air Force information with foreign students.  A federal jury found J. Reece Roth, 71, guilty last year of plotting with Knoxville technology firm Atmospheric Glow Technologies Inc. to violate the Arms Export Control Act by repeatedly granting two foreign national graduate students - one Chinese, the other Iranian - access to information on an Air Force project and taking data about it to China in May 2006.  U.S. District Judge Tom Varlan spent Wednesday afternoon listening to testimony about the nature of that information and to arguments from both sides. . . . Defense lawyer Tom Dundon called his client a well-meaning scholar carried away by academic zeal. He argued that prosecutors showed no proof that the technology Roth shared with his students posed a danger to the country or that any foreign government ever got its hands on the information . . . . Mackie said the law covers even the possibility of a threat. The information "was available to Chinese officials," he told the judge.

The judge said he'll decide on a sentence after giving Roth a chance to speak for himself at another hearing, not yet set.  (Knoxville News Sentinel, 14 May 09)

N.Y. man David Goldenberg pleads guilty to corporate espionage

A Long Island man has pleaded guilty to illegal wiretapping in a corporate espionage case that targeted two Bergen County companies.  David A. Goldenberg of Oceanside, N.Y., admitted to accessing internal e-mail at Sapphire Marketing LLC in Woodcliff Lake, a regional sales representative for Crestron Electronics in Rockleigh, which makes audiovisual equipment. He worked for Crestron's rival, Texas-based AMX Corp., at the time.

"He was able to figure out what their default passwords were, which they never changed," said Brian Lynch, chief of the white-collar crime unit in the Bergen County Prosecutor's Office.   Four related charges were dropped as part of a plea deal Monday, Lynch said.   Goldenberg was arrested in March 2008, accused of stealing e-mail and information over a nine-month period, allowing AMX to underbid Crestron on competitive contracts. Crestron has said it lost more than $10 million in business as a result.  Goldenberg's scheme began to unravel early last year after a Sapphire Marketing employee noticed that e-mail messages were being automatically forwarded to a strange e-mail address, and reported her suspicions to authorities.  Goldenberg, who for years had been a reseller of Crestron equipment before he went to work for AMX, could not be reached for comment Tuesday, and his lawyer, Dean Schneider, also was unavailable.   (Trading Markets, 13 May 09)

Alinghi reveals America's Cup spying case

bitter America's Cup spat between billionaires now includes a spy tale.  A French employee of American syndicate BMW Oracle Racing acknowledged gathering information about the boat being secretly built on Lake Geneva by America's Cup champion Alinghi, according to a police document included in papers the Swiss filed in a New York court.  Alinghi said French and Swiss police continue to investigate the actions of Jean Antoine Bonnaveau, who identified himself as a member of BMW Oracle Racing's design team and said he was part of a "recon cell."

Alinghi included the transcript of a hearing before a French regional judicial police department in an affidavit filed with the Supreme Court of the State of New York in an ongoing tussle over specifics of the next America's Cup.

Alinghi and BMW Oracle Racing are due in court Thursday. Alinghi must tell the court why it should not be held in contempt for refusing to comply with an order that its showdown against the American crew be held in February. The Swiss have asked the court to disqualify the Americans as Challenger of Record if they don't provide a measurement certificate for their 90-foot trimaran, which currently is being modified under cover at a San Diego boatyard. . . . Alinghi and BMW Oracle Racing are due in court Thursday. Alinghi must tell the court why it should not be held in contempt for refusing to comply with an order that its showdown against the American crew be held in February. The Swiss have asked the court to disqualify the Americans as Challenger of Record if they don't provide a measurement certificate for their 90-foot trimaran, which currently is being modified under cover at a San Diego boatyard. (AP, 12 May 09)

Swiss America’s Cup Team Says Oracle Employed a Spy in Europe

The tradition of spying in the America’s Cup is apparently alive and well. Jean Antoine Bonnaveau, an employee of the American team BMW Oracle Racing, is under investigation by the Swiss and French police for taking photographs last month at Alinghi’s base in Villeneuve, Switzerland.  The investigation became public when the Swiss yacht club that Alinghi represents, the Société Nautique de Genève, included a copy of a police report concerning Bonnaveau with an affidavit it filed this week. The affidavit was submitted for a hearing on Thursday at the Supreme Court of the State of New York related to the still-unresolved terms of the next Cup.  “A spy from BMW Oracle was spotted trying to gather illegal information from the Alinghi boatyard in Villeneuve,” Paco Latorre, a spokesman for Alinghi, said in a telephone interview.  The BMW Oracle spokesman Tom Ehman played down the incident and accused the Swiss team of engaging in diversionary tactics. . . . The Cup, the most visible event in sailing, has long generated controversy and legal fees. Spying and claims of nautical espionage are not new. During the 1992 Cup in San Diego, Bill Koch, the owner of the victorious America, employed scuba divers to examine competitors’ hull designs. During the 2003 edition, the American challenger OneWorld was penalized for being in possession of proprietary design information that belonged to rival syndicates.   (New York Times, 13 May 09)

German Hans-Josef H. convicted over violating export law with Iran

A court on Monday convicted a German businessman of violating export laws by setting up deals to sell Iran graphite that could have been used for its missile program. He was sentenced to six years in prison.

The state court in Koblenz found that between 2005 and early 2007 the 63-year-old from the Bonn area set up several deliveries of high-quality graphite to Iran - more than 15 tons in total - via an unidentified Turkish company of which he was a partner.  The planned recipient was "an Iranian citizen who is known worldwide as a buyer for Iran's missile program," a court statement said.  Court spokesman Tilman von Gumpert identified the suspect only as Hans-Josef H., in keeping with German privacy laws. He said the Iranian customer was a company, SHIG  (AP, 11 May 09)

Russian in TNK-BP conflict convicted of espionage

A former employee of BP's Russian venture was given a suspended sentence for attempted industrial espionage, Russia's state security service (FSB) said on Thursday.  The FSB said Ilya Zaslavsky, who used to work at TNK-BP, had been given a suspended sentence by a Moscow court. His brother, Alexander, was given the same sentence.  Both men, who have U.S. citizenship, were accused by the FSB of collecting confidential information on state-controlled gas giant, Gazprom. TNK-BP is a major Russian oil firm owned equally by BP and a quartet of Russia-connected billionaires.  (Reuters, 7 May 09)

2 Americans Convicted of Spying on Gazprom

A Moscow court has convicted an American who once worked at oil firm TNK-BP and his brother of spying on Gazprom and handed them suspended sentences, the Federal Security Service said Thursday.
Ilya Zaslavsky and his brother Alexander received one year suspended sentences and two years probation on charges of industrial espionage, filed last year during a high-profile power struggle between the Russian and British owners of TNK-BP. Moscow's Tverskoi District Court ruled that the brothers, who also have Russian citizenship, had collected classified information about state energy giant Gazprom, an unidentified FSB official told Interfax. The official said the FSB had been tipped off by the employee of an energy firm who said the Zaslavskys had tried to buy company secrets from him. "The court found that the evidence provided by the FSB about Ilya and Alexander Zaslavsky's criminal behavior fully confirmed their guilt," the official said. It was unclear Thursday when the ruling had been made. Calls to the court's press office were not immediately answered.  The brothers were arrested in March last year as TNK-BP's owners fought over their 50-50 ownership structure. Around the same time, the company came under scrutiny from law enforcement agencies — a development that some observers said suggested that one side was playing dirty by unfairly enlisting state assistance. But other observers linked the law enforcement scrutiny to a long-running dispute between Gazprom and TNK-BP over control of TNK-BP's flagship Kovykta gas field, saying Gazprom was trying to take over TNK-BP as well.
The Zaslavsky brothers both graduated from Oxford University, and Ilya still heads the Moscow Oxford Society.
 At the time of his arrest, Ilya Zaslavsky, then 29, worked as a manager in TNK-BP's international affairs office. Alexander Zaslavsky, who is three years older, worked as an independent energy consultant and headed the British Alumni Club, a graduate network run by the British Council.   (Moscow Times, 7 May 09)

Swedish Hacker Philip Gabriel Pettersson Indicted in Cisco, NASA Attacks

A Swedish computer hacker was indicted Tuesday for breaking into the networks of tech-gear maker Cisco Systems Inc. and high-end computing equipment at the National Aeronautics and Space Administration.

The attacks underscore the development of a vast underground economy that targets both the private sector and the government.  Hacking under the nom de guerre "Stakkato," Philip Gabriel Pettersson was a teenager when he penetrated the systems five years ago. He is now 21 years old and faces charges in a five-count indictment of illegally damaging computer networks and theft of trade secrets.  Mr. Pettersson broke into Cisco's networks around May 12, 2004, to steal trade secrets, according to the indictment. The data stolen were part of the playbook for its router systems, known as "source code" for the company's Internetwork Operating System. The operating system is a cornerstone technology for the San Jose, Calif.-based company that is a common thread through many of its products. Cisco "used reasonable measures" to protect its code, the indictment says.

A week later, according to the indictment, Mr. Pettersson compromised NASA's Advanced Supercomputing division and its Ames Research Center in Silicon Valley. Ames is NASA's computer-research nerve center, which plays a critical role in "virtually all NASA missions in support of America's space and aeronautics programs," according to the indictment.  After the incident, "Cisco reported that it did not believe that any customer information, partner information or financial systems were affected," according to the indictment. Both Cisco and NASA have been cooperating with the investigation, the Justice Department said in a statement accompanying the indictment.  (Wall Street Journal, 6 May 2009)

Swedish Man Philip Gabriel Pettersson Indicted for Allegedly Hacking NASA, Cisco

Swedish man with a record of hacking has been indicted in the U.S.  The man accused of hacking computer networks used by Cisco Systems and NASA has been indicted by a federal grand jury.   Philip Gabriel Pettersson, a 21-year-old Swedish man, has been blamed by the U.S. government of stealing programming information from the U.S. space agency and Cisco, with five counts of intrusion and trade secret theft charges pending.  The incidents, which both occurred in 2004, led to Pettersson being interviewed by the FBI in 2004, though he denied any involvement in the network intrusions.  Specifically, he allegedly compromised computer code related to internet traffic from the NASA Ames Research Center and NASA Advanced Supercomputing Division's networks while operating under the hacking name "Stakkato."  When he was just 19 years old, Pettersson was convicted and fined $25,000 after being found guilty of breaching the computer networks of three different Swedish universities.  The Swedish government has a policy of not extraditing its citizens to face charges in other nations, but the Swedish courts can prosecute suspects based on foreign courts.  Unless he ventures outside of Sweden and is captured, the U.S. government will never officially get their hands on him.  (Daily Tech, 6 May 09)

Bail Mahmoud Yadegari denied in nuclear technology case

A Toronto man charged with allegedly trying to send devices to Iran that could be used for nuclear technology was denied bail in a Toronto court this morning.  Mahmoud Yadegari, 35, was arrested last month at his North York home following a joint investigation conducted by the RCMP and the U.S. Department of Homeland Security. He is charged with attempting to procure and export to Iran 10 pressure transducers.  Judge Sheila Ray presided over Yadegari's bail hearing and denied his bid for release. Her reasons and the evidence heard during the hearing cannot be reported under the standard publication ban imposed on bail hearings. . . . Shortly after Yadegari was taken into custody, George Webb, of the Canada Border Services Agency's counter-proliferation unit, told the Star's Mike Funston that the arrest was extremely significant.  When asked to rank it on a scale of 1 to 10, he replied: "It's a 10."  Yadegari was charged after U.S. agents received a tip from a Boston-area company that sold the $1,100 devices to a Canadian.  The devices can be legally purchased and shipped throughout Canada, but exporting to other countries requires a permit. Exporting the devices to Iran is prohibited outright.

RCMP Insp. Greg Johnson told Funston that pressure transducers have legitimate commercial uses, but can also be used in centrifuges to produce enriched uranium for military purposes.  Johnson said the pressure transducers Yadegari allegedly purchased were shipped to Toronto by truck and were bound for Dubai in the United Arab Emirates and then to Iran.  (Toronto Star, 5 May 09)

No bail for alleged nuclear-parts shipper

Bail was denied in Toronto for an Iranian-Canadian man accused of trying to ship uranium enriching components to Iran.   Mahmoud Yadegari, 35, was arrested April 16 after 10 pressure transducers purchased from a Boston-area company were seized at Toronto's international airport, The Toronto Sun reported Tuesday. The manufacturer tipped off the U.S. Department of Homeland Security, which in turn worked with the Royal Canadian Mounted Police on the investigation for eight weeks, police said. Yadegari has been in jail since. The devices are about the size of a man's hand, and also have non-military applications. However, Yadegari was charged with trying to ship them without the necessary export documents, the Sun said. Judge Sheila Ray imposed a publication ban on Monday's bail hearing that included a court-provided Farsi translator, and ruled Yadegari must remain behind bars until his trial begins next Monday.   (UPI, 5 May 09)

Judge denies bail for suspect in nuke export case

A Toronto man believed to be the only Canadian ever charged under the United Nations Act will remain in custody as he awaits trial for allegedly trying to send nuclear technology to Iran, a judge ruled Monday.  Mahmoud Yadegari, 35, was arrested last month after a joint eight-week investigation by the RCMP and the U.S. Department of Homeland Security. He spent the last two-and-a-half weeks in jail awaiting a decision on his application for bail . . . . Authorities allege Yadegari tried to procure and export pressure transducers. The devices, which are hand-sized, have a myriad of legitimate commercial uses but can also be used in the production of enriched uranium for military purposes.  At a press conference following his arrest, police said Yadegari allegedly purchased 10 of the transducers from a Boston-area company for about $1,100 each. Police said the company alerted authorities after learning the transducers would be shipped to Yadegari in Toronto, and then on to Dubai in the United Arab Emirates before being sent to Iran.  Yadegari allegedly took steps to conceal the purpose of the transducers when he tried to ship them out so they could be sent without the requisite export permits.  Evidence heard during his court hearing and Ray's reasons for denying Yadegari's release cannot be reported under the standard publication ban imposed on bail hearings. . . . Yadegari is charged under the Customs Act and Export and Import Permits Act, and is also accused of violating United Nations sanctions on Iran.

The UN Security Council banned exports of nuclear-related technology to Iran in 2006 because of alleged efforts to build nuclear weapons.  Yadegari is a Canadian citizen who emigrated from Iran in 1998.  Iran insists it is enriching uranium to produce nuclear energy for civilian purposes, but the United States and some European countries accuse Tehran of secretly seeking to build nuclear weapons.    (Canadian Press, 4 May 09)

Over a Third of Employees Willing to Sell Company Data

A survey commissioned by Infosecurity Europe has revealed that 37 percent of the questioned employees would consider handing over business records to third-parties for the right incentive. This comes to strengthen the claim that insider threats are on the rise, which has also been amongst the conclusions outlined in other recent reports.  This study was performed with the help of London commuters. Over 85 percent of the people participating to the survey considered that the information they could obtain from work was valuable. It was revealed that 83 percent had access to customer databases, while 51 percent to human resource databases, information generally targeted by spammers and identity thieves.  But companies don't only risk damaging their public image and losing customers in case of a data leak incident of this sort, but are also exposed to corporate espionage, as 72 percent of workers had access to business plans, 53 percent to accounting systems, and 37 percent to administrative passwords for the IT systems.  While it's comforting to see that almost two thirds of employees would not be willing to become insider spies for less than £1 million, which is a rather high and improbable sum of money for a bribe, the remaining ones still represent a significant threat.  Therefore, 10 percent of workers would turn against their employer if their mortgage was paid off and 5 percent would agree to such actions if their credit card debt was dealt with. Offering a holiday would corrupt 5 percent of employees with access to sensitive data, while another 5 percent would do it in exchange for a better job.  (Softpedia, 1 May 09)

April 2009

U.S. Treasury Throwing the Book at Tehran

On April 7, 2009, the U.S. Treasury Department designated as a proliferator Li Fangwei, the commercial manager for the Chinese company Limmt, for providing support for Iran's missile program. Treasury also blacklisted eight aliases of Limmt, which was originally designated in 2006, in addition to six other Iranian entities. The same day, the Manhattan district attorney's office, acting in coordination with Treasury, unsealed a 118-count indictment against Li and his company for attempting to conceal transactions that transited the U.S. financial system. While the Treasury action was hardly surprising -- given the number of Iran-related designations over the past several years -- the role of other law enforcement agencies in the Iran effort is a fairly recent trend, one that the Obama administration should encourage as negotiations with Tehran move forward. . . . U.S. federal law enforcement agencies have also been stepping up efforts over the past year. On April 3, Baktash Fattahi, an Iranian national residing in the United States, was indicted for attempting to export restricted military aircraft parts to Iran. Ten others were also charged, including a number of Iranian businessmen operating out of Dubai. The investigation was a team effort involving agents from various agencies, including Immigration and Customs Enforcement, and the Departments of Defense, Commerce, and State . . . . Treasury and Justice also coordinated closely in a December 2008 joint action that targeted the Assa Corporation, a U.S.-based company acting as a front for Bank Melli. In addition to designating Assa for its ties to Bank Melli, the Justice Department also moved to forfeit a building on Fifth Avenue in New York, in which Assa had an ownership stake. The infamous Alavi Foundation also owned a portion of this building, and the organization's president, Farshid Jahedi, was charged with obstructing the investigation into the ties between Alavi and Bank Melli . . . . In addition, although the newly stepped-up U.S. enforcement efforts are a positive step, there are limits to what the United States can accomplish on its own in this area. To make a broader impact, the Obama administration must persuade other key countries involved in trade with Iran to adopt a similarly aggressive approach.   (Washington Institute, Policy Watch #1510, 28 Apr 09)

Growing Demand for Corporate Security Experts

The recession may lead to a surge in e-crime. Recent research conducted by KPMG shows that fraud committed by managers, employees, and customers tripled last year compared to the year before. KPMG also found that companies foresee an increase in the number of employees and IT professionals who are willing to steal data or sell insider knowledge due to the poor economy. The growing government “economic stimulus” and “bailout” programs are also seen as breeding ground for fraud, waste and abuse. Now as the financial crisis continues to unfold, new suspicions of fraud are emerging along with demand for experts who can find evidence of wrongdoing.

Executive search firm, A.E. Feldman, says demand is poised to surge for senior level managers and executives with expertise in corporate security. Firms are increasingly tapping into specialists who fit seamlessly into the corporate world… but look at it in an entirely different light. One veteran corporate security expert working with A.E. Feldman warns, “Whether they are monitoring accounting practices, combating corporate espionage or taking steps to protect staffers and information overseas, multinational and domestic corporations must be keenly aware of what is out there to protect their people and their assets– especially during times of economic turmoil.”   (AE Feldman, 27 Apr 09)

FBI warns exporters to be wary of 'bad actors'

The overseas business world can be a tricky, deceptive place where technology and trade secrets are stolen as smoothly as pickpockets working the Via Veneto in Rome, participants in the West Texas Global Compliance and Strategic Export Marking Seminar learned Thursday.  FBI Supervisory Agent Matt Espenshade of Midland told 30 businessmen and women at the CEED building between Midland and Odessa many pitfalls could await them. "You run into all kinds when you start trying to do business overseas," Espenshade said on the seminar's final day.  "There are some bad actors out there. They want our technology and we don't need to be dealing with them. I'm interested in keeping you out of hot water and getting the guy in jail who deserves to be there so he doesn't hurt anyone else."  Referring to the Foreign Corrupt Practices Act of 1996, Espenshade said, "Just because you're dealing with a country doesn't mean you should become native to that country." Quoting a French government official, he said, "The conquest of markets and technologies has replaced territorial and colonial conquests. We're living in a state of world economic war."  Espenshade said China needs sophisticated software algorithms, 3-D seismic data, deep water oil drilling technology, downhole technology and drillbits, ocean floor production fastening systems and perforating and horizontal drilling technology.  He said Russia's SVR spy agency "is increasingly driven by the interests of Russian oil and gas and defense companies.  "Energy sales require scientific-technical espionage networks that the SVR has been actively developing since the 1990s," the agent said.  He said al-Qaida is targeting energy supplies in the U.S., Canada, Mexico and Venezuela and has studied American agriculture because it is a "soft target," or poorly guarded. Espenshade said field crops, farm animals, food items, distribution chains and research facilities could be attacked with biological, chemical or radiological agents.  (My West Texas, 24 Apr 09)

Grand jury seeks Hilton papers in case alleging spying on Starwood

Federal prosecutors are investigating allegations that Hilton Hotels spied on Starwood Hotels & Resorts and used the information to launch a luxury hotel chain.  Hilton on Tuesday disclosed that it received a federal grand jury subpoena for documents related to allegations that Hilton and two employees, Ross Klein and Amar Lalvani, stole documents from Starwood (HOT) to develop a luxury hotel brand, Denizen.  Klein and Lalvani spearheaded Hilton's attempts to launch Denizen Hotels, a line intended to be Hilton's answer to Starwood's W Hotels chain. Klein was head of luxury and lifestyle brands, and Lalvani was head of development for the segment.  Hilton, the Beverly Hills-based hotel giant, said it has temporarily grounded Denizen's development. It also placed on paid administrative leave the employees in question, "pending Hilton's review of the situation," Hilton said in a release.

The subpoena, served by the U.S. Attorney's Office for the Southern District of New York, requests documents about Klein and Lalvani's hiring, as well as documents related to materials that Hilton returned to Starwood last February.  (USA Today, 22 Apr 09)

Hilton Hotels Is Subpoenaed in Espionage Case

The Hilton Hotels Corporation said on Tuesday it had received a federal grand jury subpoena for documents related to accusations that the company and two of its executives stole documents from Starwood Hotels and Resorts concerning the development of a luxury brand.  Hilton received a subpoena from the United States attorney’s office for the Southern District of New York requesting documents related to the two executives, Ross Klein and Amar Lalvani.  Mr. Klein and Mr. Lalvani led efforts to start Denizen Hotels, a Hilton luxury line intended to be Hilton’s answer Starwood’s W Hotels chain. Mr. Klein served as head of luxury and lifestyle brands, and Mr. Lalvani was head of development for the segment. Both were involved in the branding of Starwood’s W hotels, but left for Hilton in June 2008.  Last week, Starwood sued the two executives and Hilton, accusing the company of corporate espionage and its ex-employees of stealing trade secrets to expedite Hilton’s plans for Denizen Hotels.  (Reuters, 21 Apr 09)

Espionage and Property Theft Triggers Call to Suspend Israeli Access to U.S. Market

A major legal filing urges the United States Trade Representative (USTR) to suspend preferential Israeli access to the U.S. market.  In 1983 the Israeli Prime Minister and American Israel Public Affairs Committee (AIPAC) lobbied the Reagan administration for preferential Israeli access to the U.S. market. In spite of overwhelming opposition from U.S. agricultural, industrial and citizens groups over Israel's weak protection for intellectual property rights, the U.S.-Israel Free Trade Area was signed into law in 1985.  Intellectual property violations tainted negotiations of the agreement in 1984 when the FBI discovered that AIPAC obtained a copy of the secret report "Probable Economic Effect of Providing Duty Free Treatment for U.S. Imports from Israel, Investigation No. 332-180." The still classified 300 page report was compiled from business confidential market share, cost, and other closely held information solicited by the International Trade Commission for USTR use in negotiations.  Throughout the 1980s and 1990s U.S. counterintelligence agencies uncovered Israeli networks illicitly acquiring and transferring intellectual property on U.S. weapons systems. Purloined intellectual property for missiles, imaging technology and other weapons was subsequently incorporated into Israeli manufactured systems. Some Israeli systems were exported to rogue regimes and rivals American manufacturers avoided under U.S. arms export prohibitions.

For each of the past three years the Israeli Ministry of Health and pharmaceutical manufacturers have been placed on USTR watch lists for practices that cost U.S. manufacturers billions of dollars. But calls for warranted enforcement of trade rules have generated no results. Worse, proceeds from ballooning Israeli cut diamond exports to the U.S. have been used to finance illegal West Bank settlements in contravention of Obama administration policy.  A downloadable copy of the 92 page the USTR filing to suspend the U.S.-Israel trade agreement under Section 301 of the Trade Act of 1974 is now available at http://www.IRmep.org .    (Press Release, 20 Apr 09)

Email: A Prosecutor’s Best Friend

According to a Department of Justice press release, a federal grand jury indicted a California man and two of his companies — Fushine Technology, Inc., a California corporation, and Everjet Science and Technology Company, which is based in the PRC — for unlicensed exports of controlled microwave equipment to China.  Export prosecutions require proof that the defendant understood that the exports in question were illegal. Since there is often little dispute as to whether the exported item required a license or that a license was not obtained, this makes this scienter element the most important and interesting element of each case. . . . It seems to me that recent press releases, instead of merely focusing on the allegedly grave impact of the particular export on national security, have begun to provide much more information revealing the prosecution’s case for its claims that the exporter knew the export was illegal. And often the case revolves around emails sent to and from the exporter. Back in the days when exporters and their foreign customers communicated mostly by telex finding such proof was no doubt more difficult. But now the evidence may come, as allegedly it did in this case, wrapped up in a little gift package with a nice decorative bow on top and a subject line reading “Don’t tell anybody this chip is going to China.”  (Export Law Blog, 10 Apr 09)

Trout's trial may offer jury a lesson in high-tech spying

This week's trial of former County Councilman Tony Trout on charges of computer spying and destroying records could include a demonstration of the spy software that federal investigators say they found on computers used by County Administrator Joe Kernell and Trout's wife, according to court documents.   The trial, which began this morning in Spartanburg, will be a rare federal prosecution on illegal computer access charges that will likely last three days and include testimony from prominent county officials and complicated technical explanations by FBI computer analysts, according to attorneys for both sides and court records.  Trout could face a maximum of 36 years in prison and $1.1 million in fines if he is convicted on all charges in a federal indictment, which alleges that Trout unlawfully accessed computers used by Kernell and Yahoo, destroyed records, intercepted electronic communication and disclosed electronic communication with the knowledge that it had been illegally obtained.

Trout has said he was authorized to monitor the activities of a county employee as a council member, and that he wants to reveal in court what he obtained from computers.  (Greenville, 20 Apr 09)

Canadian Mahmoud Yadegari Charged With Attempting Illicit Nuclear Export to Iran

Authorities in Canada announced Friday that they had charged a Toronto businessman with attempting to illicitly ship nuclear technology to his native Iran, the Associated Press reported (see GSN, March 23, 2006).

The 10 pressure transducers involved in the case could be used in enrichment of uranium, a potential nuclear-weapon material. The United States and other nations worry that Iran intends to use its uranium enrichment capability for military purposes, though Tehran said its work is strictly civilian in nature (see GSN, April 17).

Mahmoud Yadegari allegedly bought the devices from a U.S. firm and then tried to avoid obtaining required export permits by obscuring the contents of his shipment.  Yadegari provided an incorrect description of the items, played down their actual value and stripped some labels and packaging from the shipment, according to Royal Canadian Mounted Police Sgt. Marc Laporte.  "The declared point of destination was Dubai, in the United Arab Emirates. However, we have evidence to support the fact that its ultimate destination was Iran," RCMP Inspector Greg Johnson told reporters on Friday.

Authorities seized the shipment after receiving information from the U.S. Homeland Security Department, AP reported.  Yadegari faces charges for violating the Canadian Customs Act and Export Import Permits Act, along with U.N. sanctions on Iran. If convicted solely for the Export Act, he could be sentenced to 10 years in prison and fined $825,700 (Charmaine Noronha, Associated Press/Yahoo!News, April 17).

It is "too early to say" if Yadegari, 35, had made previous nuclear exports, Johnson said. The suspect is not believed to be an Iranian agent.  (Global Security, 20 Apr 09)

Canadian Mahmoud Yadegari charged with nuclear weapons technology to Iran

In a case that police say is without precedent, an Iranian-Canadian has been charged with trying to export technology that could have helped Tehran get the nuclear bomb it so desperately seeks.

Mahmoud Yadegari, a 35-year-old Torontonian, appeared bewildered yesterday during a bail hearing. As he listened to proceedings through a Farsi interpreter, he stood accused of buying devices destined to help centrifuges spin out highly enriched uranium, the material needed to make nuclear weapons.  Police, who seized the 10 devices - high-end gas-pressure gauges, essentially, worth about $1,100 apiece - say the suspect broke United Nations Security Council regulations by planning to export the sensitive technology to Iran. . . . The case against Mr. Yadegari, who also stands accused of breaking Canadian export-control laws, yields an insight into the shadowy world of trade in "dual-use" devices that are at once commercial and illicit.

The prospect of Iran getting the bomb is now ranked as a top-tier global security threat. This week, the United States, Russia, China, France, Germany and Britain all asked Iran to reconsider its nuclear ambitions - fearing that a Shia theocracy with nukes would spark a regional arms race and enhance the possibility of terrorists getting weapons of mass destruction.   So far, Iran's impediment has been weapons-grade uranium. Counter-proliferation officials say Tehran's engineers are capable of building core centrifuges - thousands are spinning away in subterranean bunkers. Yet the scientists often lack expertise to come up with peripheral gadgetry and replacement parts, meaning they turn to emissaries to hunt around in the West.  The case at hand involves shipments of pressure transducers, which are legally used by pharmaceutical and food-processing companies. They are freely traded between Canada and the United States, but controlled globally.  (Globe & Mail, 18 Apr 09)

Canadian Arrested for Attempting to Ship Nuke. Technology to Iran
A joint investigation with U.S. authorities, the RCMP announced the arrest of Toronto resident Mahmoud Yadegari for attempting "to procure and export items known as 'pressure transducers.' This device, which is used in the production of enriched uranium, has a legitimate commercial use but can also be used for military applications. The police investigation shows that steps to conceal the identification specifications of these transducers were taken in order to export the items without the required export permits." Yadegari is a Canadian citizen.  (NEFA, 19 Apr 09)

Starwood sues Hilton Hotels over alleged corporate espionage

Hotel giant Starwood Hotels late tonight filed suit against rival Hilton Hotels, accusing it of stealing trade secrets to help it launch a rival luxury chain quickly and cheaply. The Wall Street Journal was the first news outlet to run a story about the filing.  Filed in federal court in New York, Starwood's suit alleges that Hilton stole more than 100,000 electronic and hard copy files containing trade secrets to help it expand its luxury hotel offerings. "The large volume of confidential information taken is extraordinary," the filing says.  Hilton last month announced the launch of Denizen, a chic, upscale chain that would rival Starwood's offerings. The brains behind Denizen include two executives who until last year ran Starwood's luxury hotels unit. Among other things, Starwood asks the court to prevent Hilton from launching Denizen. . . . Starwood's suit names Hilton Hotels, as well as executives Ross Klein and Amar Lalavani, the former Starwood executives who last year went to work for Hilton. They knew Starwood's strategy for the St. Regis, W Hotels and Luxury Collection brands, the filing alleges.  (USA Today, 16 Apr 09)

Starwood Sues Hilton and Two Former Starwood Executives for Corporate Espionage, Theft of Trade Secrets, Unfair Competition

Starwood Hotels & Resorts Worldwide, Inc. today announced it has filed a lawsuit against Hilton Hotels Corporation and its senior executives Ross Klein, Global Head of Hilton Luxury & Lifestyle Brands, and Amar Lalvani, Global Head of Hilton Luxury & Lifestyle Brand Development, in the United States District Court for the Southern District of New York. The lawsuit alleges that Klein, former President, Starwood Luxury Brands Group, and Lalvani, former Senior Vice President, Starwood Luxury Brands Group, aided and abetted by Hilton, stole massive amounts of proprietary and highly confidential Starwood information which was used to expedite Hilton's entry into the lifestyle hotel market, reposition its luxury brands and substantially reduce its costs and risks of doing so.  Klein and Lalvani were recruited to Hilton in June 2008 following its highly leveraged $20+ billion acquisition by Blackstone Group.  The lawsuit alleges that Klein and Lalvani, directly and through other Starwood luxury brands employees they recruited to Hilton, stole more than 100,000 electronic files - truckloads of documents when printed - before and after they joined Hilton, in violation of both their contractual and fiduciary duties. The lawsuit also alleges that among the stolen materials was confidential information about Starwood's W(R) hotel brand which Hilton used in the development of its Denizen brand.  Kenneth Siegel, Starwood's Chief Administrative Officer and General Counsel, said: "Starwood seeks to avoid litigation, but the egregiousness of the conduct and the volume of highly confidential documents taken left us no choice but to take this strong action to protect our brands and intellectual property for the benefit of our investors, associates, owners and customers. The wholesale looting of proprietary Starwood information, including a step-by-step playbook for creating a lifestyle luxury hotel brand, unfairly enabled Hilton to launch a new brand in only nine months instead of the usual three to five years."   (Market Watch, 16 Apr 08)

Dudley engineering firm Wyko Tire Technology at centre of industrial espionage case

A Midlands company is at the centre of an industrial espionage row after two engineers were charged with stealing photographs of a rival’s products.  Two workers from Wyko Tire Technology are alleged to have emailed photographs taken at a Goodyear tyre plant in the United States to the firm’s headquarters in Peartree Lane, Dudley.  Alan Roberts, aged 46, and Sean Edward Howley, 38, who work at Wyko’s Tennessee base, face up to 150 years in prison and a £1.8 million fine if found guilty of conspiring to steal trade secrets and scheming to defraud Goodyear.  According to the indictment, Wyko used the information to create tyre manufacturing machinery for a contract with a Chinese company.  Industrial espionage experts say court cases based on stolen data and technology are becoming more common as businesses invest in more computer technology.  Roberts and Howley were arrested last month by federal authorities in the US and will stand trial charged with a total of 12 offences. Wyko secured a contract in 2007 with the Haohau South China Guilin Rubber Company, a Chinese tyre manufacturer, to supply “off the road” tyre production equipment, according to the indictment.

Roberts and Howley are accused of travelling to Goodyear’s Kansas plant in May 2007 and using mobile phones to photograph tyre manufacturing equipment. The defendants later emailed the photographs, which contained valuable trade secret information, to employees in Dudley who later created similar machinery for the contract with HHSC, prosecutors allege. . . . Wyko, which makes tools for tyre-makers, was taken over by the Eriks Group in November 2006 and became part of Eriks UK, which has its headquarters on Amber Way, Halesowen, in April 2008. The group employs more than 6,000 workers. A spokesman for the group declined to comment.   (Birmingham Post, 16 Apr 09)

Chinese Company Supplied Nuke. Technology to Iran
Manhattan District Attorney Robert M. Morgenthau announced an 118-count indictment of Li Fang Wei, a Chinese citizen, "and his company for charges relating to the misuse of Manhattan banks and the proliferation of illicit missile and nuclear technology to the Government of Iran. The Chinese company, known as LIMMT, is a major supplier of banned weapons material to the Iranian military." According to the Manhattan DA's office, after Treasury banned LIMMT in 2006 from engaging in transactions with or through the U.S. financial system, "Li Fang Wei and LIMMT used alias names and shell companies to continue LIMMT’s international business. Li Fang Wei and LIMMT’s purpose in doing so was to use fraud and deception to gain access to the U.S. financial system, to deceive U.S. and international authorities, and to continue the proliferation of banned weapons material to the Iranian military."   (NEFA, 14 Apr 09)

Chinese National Yan Zhu Arrested For Source Code Theft

The information was taken from a New Jersey company that develops, implements, and supports software for environmental applications.   A Chinese citizen on a work visa in the United States was arrested by the FBI last week for allegedly revealing proprietary software code owned by his unidentified U.S. employer to a Chinese government agency.  Yan Zhu, 31, of Lodi, N.J. -- also known as "Westerly Zhu" -- was arrested on charges of theft of trade secrets, conspiracy, wire fraud, and theft of honest services fraud. . . . Zhu, who holds a Ph.D. from Columbia University in geo-environmental engineering, was hired by the U.S. company around April 2006 as a senior environmental engineer and signed a confidentiality agreement.  In July 2007, the U.S. company signed a contract with Shanxi Province, China, to provide its software to the local Environmental Protection Administration ("Shanxi EPA"). The contract called for four payments totaling about $1.5 million - a down payment and three subsequent payments following the installation of module 1, modules 2 and 3, and module 4.  In November 2007, the Shanxi EPA made the down payment of about $3 million. By March 2008, all four modules were installed, but the U.S. company never received further payment.  The U.S. company subsequently recognized the software it had provided to Shanxi Province had been altered, which would require access to the company's source code. The company also noticed that a Chinese company set up to serve as a payment conduit for the deal was now listed on a Shanxi Web site as a vendor of environmental software. . . . The complaint alleges that Zhu e-mailed his company's database and more than 2,000 pages of source code to co-conspirators in China and that the individuals have been selling the U.S. company's software to Chinese government agencies without authorization.

In its 2008 report to Congress, the U.S.-China Economic and Security Review Commission warned that "China is targeting U.S. government and commercial computers for espionage."  In 2007, the group said, "Chinese espionage activities in the United States are so extensive that they comprise the single greatest risk to the security of American technologies."  China, however, is not alone in seeking to obtain U.S. technology through espionage. Many nationals of other countries and U.S. citizens have been involved in technology theft or illegal technology exports.  (Information Week, 14 Apr 09)

Chinese national Yan Zhu arrested in Lodi by feds for theft of trade secrets

. . . . Yan Zhu, a Chinese citizen in the United States on a work visa, was arrested by FBI agents at his Lodi residence on Thursday, April 9 on charges of theft of trade secrets, conspiracy, wire fraud, and theft of honest services fraud. . . . According to the criminal complaint filed in federal district court in Trenton, Zhu, 31, was employed at the victim company as a senior environmental engineer from May of 2006 until his termination last July. The company is a comprehensive multi-media environmental information management portal that developed a proprietary software program for the Chinese market which allows users to manage air emissions, ambient water quality, and ground water quality.  The program's source code was protected through encryption as well as restricted security access within the company, in an effort to protect its commercial value and future revenue derived from software sales and upgrades.  Zhu had signed employment, confidentiality, and non-disclosure agreements as part of the company's hiring process, as well as an agreement to return all confidential and proprietary information, including source codes, upon his termination. Additionally, Zhu signed a notarized affidavit stating that he had not provided the company's source codes to anyone and had returned all copies of confidential company information in his possession.  The criminal complaint alleges that Zhu had two co-conspirators, both Chinese nationals residing in China, who were associated with another environmental software company in China, "Company X".  (Bergen Now, 13 Apr 09)

ClearOne Granted Permanent Injunction Order in Federal Trade Secret Misappropriation Case

Prohibits Use, Sale, or Marketing of WideBand Solutions, Inc.'s Infringing Products; and Prohibiting Biamp Systems Corporation's Use of the Code Previously Licensed to It by WideBand Solutions, Inc. SALT LAKE CITY, April 13 /PRNewswire-FirstCall/ -- ClearOne (Nasdaq: CLRO). Two orders, including a permanent injunction order prohibiting, among other things, the use of infringing computer code and products by Biamp Systems Corporation ("Biamp") and WideBand Solutions, Inc. ("WideBand"), were issued by the federal court on Thursday, April 9, 2009, in favor of ClearOne Communications Inc. ("ClearOne").  These orders come in the case which was presented to a jury in October and November 2008. The case is pending in federal court in Utah (the "Intellectual Property Case") initiated by ClearOne against Biamp and a group of defendants sometimes termed the "WideBand Defendants," which group consists of WideBand; three of WideBand's principals - Dr. Jun Yang, who was a former ClearOne employee, Andrew Chiang, who was previously affiliated with an entity that sold certain assets to ClearOne, and Lonny Bowers; and Versatile DSP, Inc. (collectively, "Defendants"). On November 5, 2008, the jury returned a unanimous verdict in the Intellectual Property Case in favor of ClearOne and against all of the Defendants, finding that all of the Defendants willfully and maliciously misappropriated ClearOne's trade secrets.  (Sun Herald, 13 Apr 09)

Exxon Outfits CEO With ‘Secure’ Phone

The whole country is now worried about the specter of cyber attacks that will bring down the electricity grid. Big Oil is worried about another kind of cybersecurity: eavesdropping.  Exxon spent $222,985 last year on security for chairman and chief executive Rex Tillerson. The bulk of that went for standard-issue stuff: a car and driver, and residential security. But just over $9,000 apparently went for his phones, listed in Exxon’s proxy statement as security expenses “for mobile phones and other communications equipment for conducting business in a secure manner.”  Securing high-level conversations in an age where everybody has a cellphone has become something of a national obsession. After he won the election, President Obama warned handlers would have to “pry” his Blackberry out of his hands; he eventually was equipped with a special secure phone rigged up by the National Security Agency.  But corporate chieftains—especially globe-trotting oil execs–can’t live in a communications-free bubble, which would explain Exxon’s expenditure on Mr. Tillerson’s secure mobile phones. . . . Espionage in the oil business dates back to the industry’s earliest days and hasn’t remitted. Two hard drives belonging to Brazilian oil company Petrobras and containing vital data on giant offshore oil deposits were stolen last year. Brazilian authorities called it “industrial espionage.”   (Wall Street Journal, 13 Apr 09)

FBI Arrests Chinese National Yan Zhu on Charges of Theft of Trade Secrets

Yan Zhu, also known as “Westerly Zhu”, age 31, a Chinese citizen in the U.S. on a work visa, was arrested this morning by FBI agents at his residence, 9 Victor Street, Apt 26, Lodi, New Jersey, on charges of theft of trade secrets, conspiracy, wire fraud, and theft of honest services fraud announced Weysan Dun, Special Agent In Charge. The investigation, code named “Westerly Winds”, began in November of 2008 based on a complaint from the victim company.  According to the criminal complaint filed in Federal District Court in Trenton, Zhu was employed at “Company A” as a senior environmental engineer from May of 2006 until his termination in July of 2008. Company A is a comprehensive multi-media environmental information management portal that developed a proprietary software program for the Chinese market which allows users to manage air emissions, ambient water quality, and ground water quality. This program source code was protected through encryption as well as restricted security access within Company A in an effort to protect its commercial value and future revenue derived from software sales and upgrades. Research to develop this source code was a costly process.  Zhu had signed employment, confidentiality, and non-disclosure agreements as part of his hiring process with Company A, as well as an agreement to return all confidential and proprietary information, including source codes upon his termination in July of 2008. Additionally, Zhu also signed a notarized affidavit alleging he had not provided Company A source codes to anyone and had returned all copies of confidential Company A information in his possession.  The criminal complaint alleges that Zhu had two co-conspirators, identified only as Co-conspirators 1 (CC-1) and 2 (CC-2), both Chinese nationals residing in China. CC-1 had been introduced to Company A through Zhu and hired as Company A’s sales representative in the Science and Technology High-Tech Zone in Xian City, Shanxi Province, China. CC-2, together with Zhu and CC-1, were associated with “Company X”, an environmental software company in China.  (Australia, 10 Apr 09)

Chinese man Yan Zhu in US accused of trade secret theft

A Chinese national living in the United States has been accused of stealing a software program from his former U.S. employer and selling a modified version to the Chinese government after being fired.  Yan Zhu, 31, a resident of Lodi, was arrested Thursday for stealing programming-source code needed to modify the encrypted program as well as internal sales materials from the company, the FBI said. Authorities would not name the company or identify its corporate headquarters, saying only that it is located in Mercer County, New Jersey.  He and two conspirators sold the program to environmental protection agencies in China's Hebei and Shanxi provinces for about 10 percent of its $1.5 million value, according to the FBI.  The incident is the latest episode in the ongoing battle over intellectual property rights between the two countries. Weysan Dun, special agent in charge of the FBI's Newark field office, estimates that the number of federal investigations into Chinese economic espionage has increased 10 percent since 2001.

. . . . Zhu has been charged with eight counts of fraud and one count each of conspiracy and theft of trade secrets. He faces 20 years in prison on each fraud count and 10 years in prison for the theft and conspiracy charges.  Zhu, who is in the U.S. on a work visa, was a senior environmental engineer for the company from April 2006 to July 2008. The FBI said he played a key role in its efforts to sell the program, which allows users to manage air emissions and water quality, in China.  The FBI said he was fired after his employer learned he had sent source-code and promotional materials to his personal e-mail address and was attending business meetings in China with his two suspected conspirators, who were not named. Court filings indicate Zhu, a Columbia University graduate, said he needed the documents to work from home.  The Shanxi agency signed a contract with the company to purchase the program in July 2007, but switched to Zhu's modified version after paying only about $300,000 of the $1.5 million it owed. The Hebei agency contacted the company about the same product in November of 2007, but wound up purchasing Zhu's version 11 months later.  Zhu is being held in federal custody pending a detention hearing in Trenton on Monday, when a decision on bond may be made.  David Schafer, the assistant federal public defender representing Zhu, did not immediately return a telephone call seeking comment Friday.  A woman identifying herself as Zhu's girlfriend answered the phone at his Lodi apartment. The woman, who only gave her first name as Anne, declined to comment on the allegations.  (AP, 10 Apr 09)

Silicon Valley businessman Fu-Tain Lu arrested over exports

A Silicon Valley businessman has been indicted on charges he illegally sold microwave amplifiers to China in violation of U.S. export laws.  Sixty-one-year-old Fu-Tain Lu is accused of shipping the sensitive technology to China without Commerce Department licenses. The U.S. government restricts the sale of some technologies if they are of military use.  The Justice Department says Lu instructed employees to lie about where the products were going.  Lu, who is being held without bail after a court appearance this morning in San Jose, is charged with export violations, conspiracy, and lying to federal agents.

His next hearing is April 13.  (AP, 9 Apr 09)

Exporter Fu-Tain Lu Charged With Sale of Sensitive Technology to China   (DOJ Press Release, 9 Apr 09)

Fu-Tain Lu  Indicted Today for Sending Restricted Items to China

A 61-year-old Cupertino man and two companies he founded were indicted in federal court today on charges of conspiring to violate U.S. export regulations by sending sensitive microwave amplifier technology to China, according to the U.S. Department of Justice.  Fu-Tain Lu, who founded the Cupertino-based Fushine Technology and China-based Everjet Science and Technology Corporation, was also charged with lying to federal agents, U.S. Attorney Joseph P. Russoniello announced today. Lu allegedly conspired to export the microwave amplifier technology to China without obtaining the required licenses and approvals from the U.S. Department of Commerce.  The items he shipped and attempted to ship were restricted for export to China for national security reasons, according to the Department of Justice.  Lu, as well as the corporate defendants, allegedly knew about the restrictions and sought to circumvent them, according to internal company emails obtained by the Department of Justice.  Lu was arrested at San Francisco International Airport on Tuesday evening, and made his initial appearance in federal court in San Jose today, where he was ordered to be held without bail until his detention hearing on Monday at 1:15 p.m.   (CBS5, 9 Apr 09)

China Hits Out At US For Sanctioning Trader In Iran Case

China hit out at the United States on Thursday for slapping sanctions on a Chinese businessman accused of aiding Iran's nuclear and ballistic missile programs. . . . "Any individual or company engaged in illegal export activities will be seriously dealt with according to law.  However, she said, China is firmly opposed to the U.S. invoking its domestic laws to place sanctions on Chinese companies.  The US Treasury on Tuesday slapped sanctions on Chinese businessman Li Fangwei and six Iranian firms for allegedly supporting Iran's nuclear programs.  The Treasury said it had identified eight aliases or front companies used by Li's Limmt Economic and Trade Company to circumvent sanctions imposed on it in 2006 for "providing material support to Iran's missile program."  Federal prosecutors also charged Li with conspiracy to conceal bank transactions related to those activities.  (Easy Bourse, 9 Apr 09)

Tehran and the US Dollar?

There's good news, and some really bad news, about Iran's efforts to evade U.S. sanctions and infiltrate the U.S. financial system.  The good news is that Manhattan District Attorney Robert Morgenthau's indictment this week of the Chinese firm LIMMT and its principal Li Fang Wei exposed some of Iran's illicit transactions. The bad news is that Tehran wasn't seeking U.S. currency simply as a safe haven in a turbulent market. The mullahs wanted dollars to buy critical ingredients in the production of long-range missiles and atomic warheads. And Mr. Morgenthau says they got them. . . .We told you in January about Tehran's use of British banks to conduct "stripping" transactions. Barred from the United States, Iranian banks paid U.K. firms like Lloyds TSB Group to transfer money to correspondent banks in New York while concealing that Iran was the true source of the funds. Lloyds employees had stopped the practice in 2004, though it was not discovered by U.S. law enforcers until 2007. In January, Lloyds agreed to a $350 million fine and promised to cooperate with Mr. Morgenthau's office and the U.S. Justice Department in exchange for a deferred prosecution agreement. The bank could otherwise be charged for violating the 1977 International Emergency Economic Powers Act, under which the U.S. has sanctioned Iran.  The big remaining question has been what Tehran was doing with the money it was converting into dollars in U.S. banks. As Mr. Morgenthau continued his investigation, gaining cooperation from banks in the U.S. and around the world, the discovery of the alleged LIMMT transactions showed another pathway into the U.S. banking system apart from the stripping transactions.  And Mr. Morgenthau says his investigation confirmed suspicions that Iran was shopping for missile parts - such as high-strength aluminum alloys and tungsten copper plates. Many of the items were manufactured in China, none in the U.S. The indictment says LIMMT, which has been under U.S. Treasury sanctions since 2006 for its role in the spread of WMD, set up a series of front companies to sell weapons to subsidiaries of the Iranian Ministry of Defense, with payments routed through U.S. banks.  (Wall Street Journal, 9 Apr 09)

US launches attack on Iran arms imports

In New York on Tuesday, a grand jury indicted LIMMT Economic and Trade Co Ltd and Li Fang Wei, its manager, on 118 counts, including suspicion of shipping 15,000 tons of specialized aluminum alloy from China to Iran for use in long-range missile production.  In Washington, the US Treasury department also designated six Iranian companies as proliferators of weapons of mass destruction and sought to freeze any of their assets under US jurisdiction and prohibit US citizens from doing business with them.  “Materials may be dual-use, but when they are sent to front companies set up by the Iranian military, and the defendants use false end-user certificates and dummy names, there’s not much doubt that the use is for weapons,” Robert Morgenthau, the Manhattan district attorney, told reporters.  He also said he would request the extradition of Mr. Li, who was believed to be in China. The treasury also added Mr. Li and eight aliases for LIMMT to its weapons proliferation blacklist. The company was put under treasury sanctions in 2006.  (National, 9 Apr 09)

Chinese Firm LIMMT Economic and Trade Co. Indicted in Sales to Iran

A Manhattan grand jury on Tuesday indicted a Chinese executive and his company on charges of covertly using New York banks to finance the sale of tons of restricted materials to Iran, potentially supporting Tehran's ballistic missile and nuclear programs in violation of U.N. sanctions.  The indictment, announced by Manhattan District Attorney Robert M. Morgenthau, accused Li Fang Wei and his company, LIMMT Economic and Trade Co., of selling high-strength metals with military applications to subsidiaries of an Iranian military agency. Many of the items are on international control lists designed to restrict the export to select countries of technologies that can be used for military programs.  The case exposed a major gap in China's enforcement of a web of international export controls and U.N. resolutions designed to prevent Iran from acquiring raw materials for its nuclear and ballistic missile programs, according to arms-control experts.  The indictment charged Li and his company with 118 criminal counts of falsifying business records, saying the company "engaged in deception and fraud" and used "alias names and shell companies to deceive U.S. financial institutions into processing its international payments."

. . . . The Treasury Department sanctioned LIMMT in June 2006 for its alleged role in selling prohibited weapons parts and banned it from carrying out transactions within the U.S. financial system. Li's customers included a number of subsidiaries of the Iranian Defense Industries Organization. The indictment describes several Iranian transactions involving those firms, including a June 2008 deal to sell 27 tons of extremely high-strength "maraging" steel rods to Amin Industrial Group for about $1.8 million. Li secretly channeled payments to customers through several American banks, including Bank of America, Citibank and J.P. Morgan Chase, according to the indictment.  David Albright, a nuclear weapons expert who assisted in the prosecution, said that it is impossible to say how Iran used the raw materials it acquired. But he said the steel can be used to fortify missile bodies, and another acquisition, tungsten copper plates, can be used in the manufacture of engine nozzles that shield a missile body from the intense heat of flames. (Washington Post, 8 Apr 09)

US moves against Iran nuclear trade

New York prosecutors joined the Obama administration yesterday in shutting down a China-based network that allegedly supplied Iran's nuclear and missile programs with the unwitting aid of some of Wall Street's biggest banks.  The move comes as Washington seeks to slow down Tehran's progress towards nuclear arms capability, and President Barack Obama tries to win time for possible negotiations with Iran. It may also prove a test of the administration's relationship with Beijing, which has so far been unenthusiastic about sanctions on Tehran.

Robert Morgenthau, the Manhattan district attorney, unsealed an 118-count indictment, accusing Li Fang Wei, a Chinese national, of setting up front companies to disguise the illegal sales.  The indictment claims that Mr Li, also known as Karl Lee, used different names and the front companies to access the US bank system, using at least six big banks, including Citigroup, JPMorgan and Bank of America. The US Treasury banned individuals and companies from doing business with Mr Li, eight front companies and six alleged connected Iranian groups.

New York banks were allegedly used to provide dollar financing for sales of components to Iran in a complex chain that involved payments by Iranian banks in euros and dollar transactions by Chinese institutions. Under changes instituted by the Bush administration, Iranian banks are themselves no longer able to access dollar financing.

"Our banks have high standards and sophisticated systems to stop these transactions, but this conduct was specifically designed to defeat their systems," said Mr Morgenthau. "We may not be able to shut down Mr Li's factories, but we can shine a spotlight on his conduct. We want the public and the [US] leadership to understand the extent of the efforts by Iran to buy these banned materials."  He said he would seek Mr Li's extradition and did not know whether China's government was aware of the alleged scheme. The Chinese embassy in Washington did not immediately respond to a request for comment.  At the heart of the case is Mr Li's company, LIMMT Economic and Trade Company. The administration has banned US groups from dealing with LIMMT since June 2006 on the grounds that it provides material support to Iran's missile program, which analysts see as one of the three components of nuclear weapons capability, together with building warheads and uranium enrichment.

Mr Morgenthau said Mr Li's companies acquired financing to ship large quantities of components to Iran's missile and nuclear programs between November 2006 and September 2008.  These included 24,500kg of steel rods, which could be used for both missiles and centrifuges for enrichment; 15,000kg of specialized aluminum alloy, used almost exclusively for long-range missiles; and tons of other substances. Mr. Morgenthau's office said "dozens" of illegal payments had financed such transactions.  (Financial Times, 8 Apr 09)

Iran 'using Chinese companies to buy nuclear equipment'

Iran has dramatically stepped up covert attempts to buy nuclear equipment over the last six months, often by using Chinese companies as fronts, according to a senior German industrialist.  Ralf Wirtz, whose company, Oerlikon Leybold Vacuum, makes pumps that can be used in uranium enrichment centrifuges, said that more than five years after the AQ Khan nuclear smuggling network was exposed by US and British intelligence the black market trade was on the rise again.  "In the last six months I have seen a considerable increase of procurement attempts which - as we are told by government authorities - are for a nuclear program," Wirtz told the world's leading nuclear experts gathered yesterday at a Washington conference organized by the Carnegie Endowment for International Peace.  He said Iran was seeking to buy equipment for its nuclear program using increasingly sophisticated methods. Instead of using trading companies as fronts, Wirtz said Iran had recently placed orders for sensitive equipment through engineering companies that have legitimate uses for it. He gave the example of a recent attempt to buy his company's pumps through a Chinese engineering firm.  "European government authorities were notified, one of which learned from the Chinese government that the pumps did indeed go to Iran," Wirtz said. "Although they did not learn the exact end user, they believed Iran's centrifuge program was the likely customer."  He said the Iranian use of Chinese companies was a growing trend.  Wirtz added that the firm in this case was probably not aware it was being used to further Iran's nuclear program. However, another Chinese company was charged in a New York court yesterday with knowingly selling missile and nuclear technology to Iran . . . . David Albright, the head of the Institute for Science and International Security, said: "China is a huge hole in the system. It needs help to implement its own controls."  Abdul Qadeer Khan, a Pakistani nuclear scientist who helped mastermind that country's covert weapons program, admitted in 2004 running a smuggling scheme selling technology to rogue regimes. He was freed from house arrest by a Pakistani court in February.   Only a handful of the other members of his international network, which supplied enrichment and other nuclear technology to Libya, Iran and North Korea, were ever tried, and none are currently in jail.

Wirtz likened the nuclear smuggling network to a chain store. "If you close a few stores, if you shut down some affiliates, the remaining ones continue to operate. Even if you close the corporate headquarters, the shops may be able to survive."  (Guardian, 8 Apr 09)

Chinese Businessman Denies Wrongdoing in Iran Nuclear Case

Chinese businessman accused by a New York prosecutor of aiding Iran's nuclear-weapons program on Wednesday denied any wrongdoing, saying that he sells graphite electrodes and other materials used in steelmaking to customers in Iran, Brazil, South Africa, the U.S. and elsewhere.  The man, Li Fangwei, manager of Limmt Economic & Trade Co., said in a telephone interview that, "It's totally a misunderstanding caused by false intelligence information." Mr. Li, who lives in the northeastern Chinese city of Dalian, said the products he sells "are sold everywhere in the world" and aren't used "to make weapons."  A New York grand jury indicted Mr. Li and his company on 118 counts, ranging from falsifying business records to conspiracy, in connection with what prosecutors said was an effort to use illegal financial transactions to help Iran import materials, including various metal alloys, for use in its weapons programs.  Manhattan District Attorney Robert Morgenthau, who won the indictment, said he would seek the Chinese government's assistance in extraditing Mr. Li. Mr. Li said that no one from Mr. Morganthau's office had contacted him. He said the first he heard about the indictment was when a reporter called him seeking comment.  Mr. Li said he believes the accusations against him stem from an incident in 2004, when a shipment from his company, bound for Iran, was intercepted by U.S. authorities at a South Korean port. He said the U.S. at the time said his shipment of graphite was for use in Iran's nuclear program and confiscated it. Two years later, he says, his company was placed on a U.S. sanctions list, and payments made via U.S. banks from his Iranian clients were seized.  Since 2004, Mr. Li said, he has been approached by Chinese government officials who questioned him about his business. He declined to identify the officials or which government agency they worked for. He said the government told him it would raise the issue of his company's sanctions designation with the U.S. through diplomatic channels.  Mr. Morgenthau alleges that since 2006, when Mr. Li's company was barred from engaging in financial transactions in the U.S., Limmt began using aliases and front companies to send and receive dozens of payments through the U.S. from November 2006 and September 2008. Mr. Li said that the companies identified by Mr. Morgenthau as fronts for his business are not connected to him or his company. (Wall Street Journal, 8 Apr 09)

Chinese company, exec indicted in Iran missile case

A New York grand jury also indicted the Chinese metals company, LIMMT Economic and Trade Co Ltd, and its manager, Lee Fangwei, on 118 counts including suspicion of shipping 33,000 pounds (15,000 kg) of specialized aluminum alloy used for long-range missile production from China to Iran.  Lee was charged with the suspected misuse of Manhattan banks employed to transfer money between China and Iran by way of Europe and the United States. . . China is bound by three U.N. Security Council sanctions resolutions forbidding support for or contact with individuals or companies linked to Iran's missile and nuclear programs.  China and Russia reluctantly backed all three resolutions and say they are complying with sanctions. But U.N. diplomats say a number of Chinese, Russian and Western firms have continued to try to skirt the restrictions on selling sensitive technology to Iran.

. . . . Morgenthau also said he would request the arrest and extradition of Lee, also known as Karl Lee and by several other aliases, from the Chinese government. He is believed to be at large in China. . . . The Treasury said it added Lee and eight aliases for LIMMT to its weapons proliferation blacklist. The company itself was put under Treasury sanctions in 2006.  The Treasury named the Iranian firms Khorasan Metallurgy Industries, Kaveh Cutting Tools Co, the Amin Industrial Complex, Yazd Metallurgy Industries and Shahid Sayyade Shirazi Industries for their connection to Iran's Defense Industries Organization (DIO).  The Niru Battery Manufacturing Co was named because of its connection to Iran's Ministry of Defense and Armed Forces Logistics (MODAFL).   The U.S. State Department has named DIO and MODAFL for having engaged in activities that materially contributed to the development of Iran's nuclear and missile programs.  The U.S. banks employed by Lee were innocent of any wrongdoing because Lee and other suspects had concealed their identities, Morgenthau said.  Morgenthau identified the U.S. banks as Citibank, JPMorgan Chase, Wachovia Bank/Wells Fargo Standard Centered Bank, Bank of America and The Bank of New York Mellon but he declined to identify the European banks.   (Reuters, 7 Apr 09)

US slaps sanctions on six Iranian firms, Chinese individual

The Treasury also identified eight aliases used by a sanctioned Chinese company, LIMMT Economic and Trade Company, Ltd., that it said were used to circumvent sanctions.  The Treasury Department said it was taking the actions under an executive order "aimed at freezing the assets of weapons of mass destruction proliferators and those who support them."  Five companies were sanctioned for allegedly being tied to Iran's Defense Industries Organization (DIO): Khorasan Metallurgy Industries, Kaveh Cutting Tools Company, the Amin Industrial Complex, Yazd Metallurgy Industries, and Shahid Sayyade Shirazi Industries.  Another Iranian entity, the Niru Battery Manufacturing Company, was targeted for its links to the Iranian Ministry of Defense and Armed Forces Logistics (MODAFL).  Both DIO and MODAFL had been blacklisted by the State Department for having engaged in "activities that materially contributed to the development of Iran?s nuclear and missile programs," the Treasury said.  The Treasury said it had imposed a sanction against a Chinese individual, Li Fangwei, also known as Karl Lee, the commercial manager of LIMMT, a Chinese firm that had been blacklisted in 2006 "for providing material support to Iran?s missile program."  To circumvent the 2006 sanction, Lee allegedly created front companies to access the global financial system.  The Treasury added the names of eight such LIMMT front companies as aliases to its list of "specially designated nationals."  The companies were named as Ansi Metallurgy Industry Co. Ltd.; Blue Sky Industry Corporation; Dalian Carbon Co., Ltd.; Dalian Sunny Industry & Trade Co., Ltd.; Liaoning Industry and Trade Co., Ltd; SC (Dalian) Industry & Trade Co., Ltd.; Sino Metallurgy & Minmetals Industry Co., Ltd; and Wealthy Ocean Enterprises Ltd.  (AFP, 7 Apr 09)

U.S. Treasury designates Chinese businessman and six Iranian firms

The U.S. Department of the Treasury on Tuesday designated the manager of a Chinese company that misused New York banks and sold illicit missile and nuclear technology to Iran. Six Iranian companies were also enlisted for aiding the Islamic regime's alleged pursuit of nuclear weapons.  Li Fang Wei, a commercial manager of LIMMT Economic and Trade Co., which is banned from engaging in financial transactions in the U.S. due to its role in assisting Iran's nuclear program, was indicted by Manhattan District Attorney earlier in the day.  The Dalian, China-based company and its employee are facing a 118-count indictment related to the misuse of New York banks and the sale of illicit missile and nuclear technology to Iran, Manhattan District Attorney Robert M. Morgenthau revealed Tuesday.   They were indicted on charges of falsifying business records and conspiracy.
Stuart Levey, the Treasury's undersecretary for terrorism and financial intelligence, said Li created a series of separate front companies in order to continue the illegal sales. Eight of those firms were also added to the Treasury's sanctions list.   "We are acting under our Security Council and other international obligations to prevent these entities from abusing the financial system to pursue centrifuge and missile technology for Iran," he added.  As a result of Treasury's action, any assets of the individuals and entities designated today that are within U.S. jurisdiction must be frozen. Additionally, U.S. persons are prohibited from conducting any transactions with these individuals and entities.  Announcing the indictment at a press conference Tuesday, Morgenthau said, "This is a case about selling banned materials and contraband by a Chinese company to Iran by using the U.S. financial system."  He said the New York banks were not aware of the true nature of the illegal transactions involving dozens of payments through the U.S. between November 2006 and September 2008.  LIMMT sold sensitive nuclear raw materials that can be used for developing weapons as well as civilian purposes to the Defense Industries Organization, an arm of the Iranian military.  A statement from Morgenthau's office said transfers in the name of the Chinese company would be banned because it has no right to deal with U.S. banks under the 2006 embargo imposed by the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC).  Listed by the Japanese government in 2007 as an entity of concern for proliferation relating to missiles, LIMMT was added to the Specially Designated National (SDN) list maintained by the OFAC in 2006 June, freezing its assets under U.S. jurisdiction.  "Our banks have high standards and sophisticated systems to stop these transactions, but this conduct was specifically designed to defeat their systems," Morgenthau told reporters.
U.S. banks, including Bank of New York Mellon Corp., Bank of America Corp. and JPMorgan Chase & Co., were deceived during more than two years of clandestine operations, he revealed.  The LIMMT fraudulence emerged during an investigation in January into Lloyds and other banks that allowed Iran and other sanctioned countries illegal access to the U.S. financial system.  (RTT, 7 Apr 09)

Scientist Quan-Sheng Shu sentenced in rocket technology case

A Virginia scientist who sold U.S. rocket technology to China and bribed Chinese officials to obtain a lucrative contract for his company was sentenced Tuesday to more than four years in federal prison.

Quan-Sheng Shu, 68, pleaded guilty in November to two counts of violating the federal Arms Control Act and one count of bribery. U.S. District Judge Henry Coke Morgan Jr. sentenced Shu to 51 months on each count, to be served concurrently.   Prosecutors argued that the information and equipment Shu sold to China put U.S. national security at risk, saying it could have enhanced that country's military or intelligence capabilities. Shu's attorney countered that most of the information was available to anyone with online access and the equipment could have been purchased from other companies worldwide.   "America has provided me with such a wonderful working environment and opportunity, I would never deliberately harm the country I love," Shu told the judge through an interpreter before he was sentenced.   A naturalized citizen born in Shanghai, Shu is president of AMAC International Inc. of Newport News. He has acknowledged selling technology to China for the development of hydrogen-propelled rockets and bribing officials to award a $4 million hydrogen liquefier contract to a French company acting as an AMAC intermediary. Shu had faced more than seven years in prison. He already paid nearly $387,000 in restitution.  He has been free on $100,000 bond. Because of Shu's age and some minor health problems, the judge allowed him to remain free until it is determined where he will serve his sentence. If a prison hasn't been found by May 22, Shu must surrender to federal marshals, the judge said.  An expert in cryogenics, Shu has worked with the U.S. Department of Energy and NASA on several research and development projects. In 1998 he started AMAC, marketing cryogenic products from U.S. and international manufacturers.  Shu's attorney, James Broccoletti, argued that his sentence should be reduced because most of the deals Shu attempted to negotiate between the French supplier and institutions working with the Chinese government fell through.  The Chinese government is developing a space launch facility in the southern island province of Hainan that will house liquid-propelled launch vehicles designed to send space stations and satellites into orbit. The project is overseen by an arm of the People's Liberation Army.  (Washington Post, 7 Apr 09)

Credit Crunch Drives Industrial Espionage Close To Home

When the press and the security industry weren't obsessed with the non-event of the Conficker.C worm, warnings went out about laid-off employee sabotage and theft, spam targeting the financially concerned and technological clueless. Today's stern warning is about industrial espionage.  But it's not Giant Company A spying on Giant Company B. Today's bad apples come from a small town in North Carolina, where rival hacking has unexpectedly come to roost.   One thing missing (among many facts) from this Richmond County Daily Journal report is exactly how local police knew three RE/MAX realtors had hacked into a rival realtor's Hotmail account. The target, Exit Realty's Nicole Hayden, didn't say it was the police who informed her-only that they did their job. We'll assume the local police weren't monitoring accounts under Patriot Act orders and give credit to an anonymous tipster.  The police served three arrest warrants to RE/MAX employees accused of accessing Hayden's computer illegally between March 1 and March 20. Usually when one thinks of hackers, domestic and foreign teenagers hired by shadowy entities come to mind immediately-not three small town realtors trying to get an edge on the local competition.   (Security Pro, 7 Apr 09)

Three Re/Max Agents charged with computer crime

Three Rockingham Realtors have been arrested by the Rockingham Police Department on charges they allegedly gained access computer information of another Realtor without authorization.  Arrested were three agents of RE/MAX Tri City Realty, Rockingham:
Wendy Robson Massagee, 43, Rice Street, Hamlet. Kim Dawn Whitley, 40, Hollow Trail, Rockingham.  Jamie Moss-Godfrey, 41, Foushee Street, Rockingham.   The charge for all three was misdemeanor accessing computers.
All three were released on written promises to appear in Richmond County District Court on April 23. Moss-Godfrey and Whitley are listed as owners of the business on the RE/MAX Web site.
Police seized 13 electronic machines from the RE/MAX office at 1227 Rockingham Road based on a search warrant signed by Richmond County Magistrate Robert Bristow.   The warrants for the women said they “unlawfully and willfully did without authorization access a computer program, a paid Hotmail account, and viewed private and personal business E-mail belonging to Nicole Hayden of Exit Realty by using Hayden’s username and password without permission to do so.”  (Your Daily Journal, 4 Apr 09)

China embroiled in global cyber-espionage

Australia and Britain are tightening their communication systems safeguards after they were alerted to a cyber espionage network traced to China.   Intelligence researchers warn, China has the capability of disrupting Britains vital services because Britain’s new billion dollar communication network is being developed by BT using equipment supplied by China’s Huawei.   Britain had accused Beijing of carrying out cyber espionage against banks. But with China’s growing influence and acquisitions across the globe, no one wants to directly point the finger.   In Australia, intelligence sources revealed spies targeted Prime Minister Kevin Rudd and staff on a visit to China last August by repeatedly attempting to hack into his email and mobile phones. Sources said attempts were also made to break into government and business IT networks and foreign embassies in Canberra.   Chinese owned Minmetals was blocked from acquiring the Prominent Hill mine because its proximity to a defense range would seriously compromise National security.  (Cairns, 7 Apr 09)

Six Individuals and Five Firms Indicted in Military Export to Iran Conspiracy

. . . . The Justice Department identified the six individuals as Baktash Fattahi, an Iranian national living in Lancaster, Calif.; Amir Hosein Atabaki, an Iranian national; Mohammad Javad Mohammad Esmaeil, an Iranian national; Abbas Haider, an Indian citizen residing in Dubai; Mohammed Javid Yahya Saboni, an Iranian national residing in Dubai; and Reza Zahedi Pour, an Iranian national.

The five businesses named were: Mahdi Electronic Trading Co. of Iran; Planet Commercial Brokerage of Dubai; Raht Aseman Co. of Iran; Sahab Phase of Iran; and Sea Speed UAE of Dubai.

They were indicted Thursday on charges of conspiring to violate the International Emergency Economic Powers Act, the U.S. Iran Embargo and the Arms Export Control Act.

They are accused of trying to ship 13 types of aircraft parts to Iran by way of Dubai, United Arab Emirates. The parts were for the F-5 Tiger fighter jet, the Bell AH-1 Cobra attack helicopter, the CH-53 military helicopter, the F-14 Tomcat fighter jet, and the UH-1 Huey military helicopter, prosecutors said.  (UPI, 6 Apr 09)

Six Individuals and Five Firms Indicted in Conspiracy to Export Military Aircraft Parts to Iran  (DOJ Press Release)

Welcome to Cold War II

Last weekend, a report by researchers at the Munk Center of the University of Toronto revealed "GhostNet," a computer espionage virus that had infected around 1,300 computers worldwide--including many "high value" targets where diplomatic and national security information was stored. The attack focused on computers in Southern Asia and offices belonging to the Dalai Lama, exiled leader of China-occupied Tibet. GhostNet-infected machines were controlled by computers located in the People's Republic. Experts disagree on whether the evidence proves China's guilt or merely suggests it overwhelmingly. Either way, the most important message goes far beyond computer espionage.  The attack had real-world implications, although what's emerged so far is apt to be a small fraction of the actual damage. After the Dalai Lama's office sent an e-mail invitation to a foreign diplomat, Beijing diplomats happened to phone the same diplomat and discourage the visit. A China-bound traveler who had used the Internet to help put Tibetan exiles in contact with Chinese dissidents was stopped at the Chinese border, shown transcripts of the online exchanges, and warned to cut it out. . . . GhostNet evidently invaded its victim computers when users opened a toxic e-mail attachment or followed a link to a poisoned Web site. A GhostNet-infected machine would then bide its time like a mole behind enemy lines, awaiting an electronic signal from headquarters, at which point it would betray its host on command.  (AEI, 6 Apr 09)

Chinese information warfare capabilities

The Annual Report to Congress on the Military Power of the People’s Republic of China from the U.S. Department of Defense has been issued every year since 2002:

"The FY2000 National Defense Authorization Act (Section 1202) directs the Secretary of Defense to submit a report '…on the current and future military strategy of the People’s Republic of China [PRC]. The report shall address the current and probable future course of military-technological development on the People’s Liberation Army [PLA] and the tenets and probable development of Chinese grand strategy, security strategy, and military strategy, and of the military organizations and operational concepts, through the next 20 years.'

"This report, submitted in response to the FY2000 National Defense Authorization Act, addresses (1) China’s grand strategy, security strategy, and military strategy; (2) developments in China’s military doctrine and force structure, to include developments in advanced technologies which would enhance China’s military capabilities; and, (3) the security situation in the Taiwan Strait."

. . . . The summary of extracts, “US DoD Annual Estimates of Information Warfare Capabilities and Commitment of the PRC 2002-2009,” is freely available online. China’s propensity for gaining significant short-cuts in its industrial and military development processes through industrial espionage are well documented in this compilation and elsewhere. Interestingly, the same information-warfare techniques seem to be applied to political espionage in the persecution of Tibetan nationalists.

The recently published report by researcher Shishir Nagaraja of the University of Illinois at Urbana-Champaign and Prof. Ross Anderson of Cambridge University on “malware-based electronic surveillance of a political organization by the agents of a nation state” is entitled “The snooping dragon: social-malware surveillance of the Tibetan movement.” [Technical Report Number 746 from the University of Cambridge Computer Laboratory (UCAM-CL-TR-746, ISSN 1476-2986)] The scientists’ research reveals systematic espionage carried out through malware. (Network World, 6 Apr 09)

DOD Report to Congress:  Military Power of the People’s Republic of China – 2009

Extract: DoD Annual Estimates of Information Warfare Capabilities and Commitment of the PRC 2002-2009

Slideshow:  10 ways the Chinese Internet is different from yours

Previous DOD Reports: Military Power of the People's Republic of China 2002-2008

China denies spies targeted Australia PM, Rio Tinto

China denied on Friday that its spies attempted to hack into the phone and computer of Australian Prime Minister Kevin Rudd during a visit to Beijing, amid growing unease in Canberra over Chinese investment. The Australian newspaper said on Friday China directly targeted Rudd during a visit to China last August. It said Rudd and his staff were under constant cyber attack from authorities trying to access communications gear. . . . The newspaper, citing intelligence sources, said Beijing's blatant electronic espionage had alarmed Rudd's center-left government and led to a tightening of communications security for senior government figures traveling to China.

Rudd, speaking in London after the G20 meeting of leading economies, said had not been advised of a specific attack, but the government was wary of cyber espionage. . . . Rio Tinto may also have been the target of a Chinese cyber attack in the early stages of Chinalco's bid for the Anglo-Australian miner, the Australian said, citing government figures, who called the attacks "incessant and enduring." The Chinalco deal with Anglo-Australian mining giant Rio is being considered by Australia's foreign investment watchdog, with some politicians from both the center-left ruling party and the conservative opposition calling for it to be rejected.  (Reuters, 3 Apr 09)

China spies target Australia PM, Rio Tinto: report

Chinese spies have directly targeted Australian Prime Minister Kevin Rudd, attempting to hack into his phone and computer on a visit to China, and prompting a tightening of security, a newspaper report said on Friday.

The Australian said China had directly targeted Rudd during his visit last August, with he and his staff under constant cyber attack from authorities trying to access communications gear, adding to growing suspicion in Canberra about Chinese investment. . . . The daily, citing unnamed intelligence sources, said the blatant nature of Beijing's electronic espionage had alarmed the centre-left government and led to a tightening of communications security for senior government figures travelling to China.  Rudd, speaking in London after the G20 meeting of leading economies, said had not been advised of a specific attack, but the government was wary of cyber-espionage.  (Reuters, 3 Apr 09)

Traian Bujduveanu guilty in sales to Iran

A Plantation man pleaded guilty on Thursday to charges that he illegally provided U.S.-made military aircraft parts to Iranian buyers.  Traian Bujduveanu, a Romanian native, represented himself in federal court in Miami. He pleaded guilty to a single conspiracy count.  If convicted, Bujduveanu faces up to five years in federal prison. He is scheduled to be sentenced on June 11.  Bujduveanu and an accomplice, Hassan Saied Keshari, of California, were charged last year with violating arms export laws and circumventing the U.S. embargo against Iran. The men bought and sold the parts in the United States and then illegally shipped them to Iran through the United Arab Emirates.  Keshari, an Iranian national, pleaded guilty in January.  (Sun-Sentinel, 3 Apr 09)

Plantation Man Trajan Bujduveanu Pleads Guilty To Shipping Military Aircraft Parts to Iran

. . . . Traian Bujduveanu, a Romanian citizen living in Plantation, learned that the hard way, pleading guilty in downtown Miami federal court today of plotting to ship sensitive military parts to Iran, the U.S. Attorney's Office tells Riptide.  It's the latest in a bizarre South Florida-Iran illicit arms connection. Shahrzad Mir Gholikhan, whose story we brought you a few months ago, earned a 29-month sentence for her part in a deal to send night-vision goggles to the Islamic Republic.  Bujduveanu, 53, ran a company called Orion Aviation in Plantation. In 2007, he hooked up with a California man named Hassan Saied Keshari, who had connections in Tehran. Keshari, who plead guilty for his role in the scheme in January, took orders from Iranian officials for parts for the F-14 Fighter Jet, Cobra AH-1 Attack Helicopter and CH-53A Military Helicopter and forwarded them to Bujduveanu. . . . Both Bujduveanu and Keshari are awaiting sentencing.    (Miami New Times, 2 Apr 09)

Cyber espionage from state governments? Don't be surprised

. . . . Murray Jennex, associate professor in the Information and Decision Systems Department at San Diego State University, who says he spent time in Eastern Europe working on utilities projects, directly experienced cyber-espionage incidents when his e-mail was intercepted and fed to newspapers.  The point, he says, is that cyber-espionage is real and governments do it, and the kind of things that China is accused of in the GhostNet report might also be something that other countries, including the United States, might stand accused of one day, too.  "Our own people may be doing the same thing," Jennex says. He says cyber-espionage, far from being an aberration, is in some respects "a normal thing that will happen and continue to happen."  The GhostNet report -- which claims there's a vast espionage network of compromised government and industry computers around the world linked back to China -- is the collaborative effort of investigators associated with SecDev Group and the University of Toronto's Munk Centre for International Studies. . . .  While circumstantial evidence points to the Chinese government, the GhostNet report concludes there could be other explanations, such as a criminal network, "patriotic hackers" acting on their own, or an entirely different government doing reconnaissance and surveillance hiding behind the smokescreen of appearing to look like China.  "It's difficult to prove, so they won't say exactly who is doing it," Jennex says. "You don't want to say anything without absolute proof."  (Network World, 2 Apr 09)

Computer Code – A Tool for Espionage

. . . . Malicious computer code is now a tool of espionage. It threatens not only the privacy, but also the civil rights of people all over the world, including in Canada. When a government can intercept your e-mails and use that information to intimidate you or the people you're communicating with, cyber-espionage becomes the first step in a human-rights violation.  Governments have always engaged in espionage, and they always will. When our side is doing it, we call it intelligence-gathering; when someone else is doing it, we call it spying. Governments are within their rights to use covert means of finding security threats, within certain limits. But citizens do have rights against unwarranted or illegal intrusions, whether in hotel rooms, in their phone conversations, or in cyberspace. And when governments or hackers use information obtained through cyber-espionage to harass, steal or intimidate, citizens have every right to use the courts and technology to protect themselves.  The office of the Dalai Lama recently asked researchers at the University of Toronto's Munk Centre for International Studies, and Ottawa's SecDev Group. to investigate its computers. Sure enough, the office's computers in India, and those of other global Tibetan organizations, were compromised by malicious software that originated in China. One bit of malware was being used to steal a document about the Dalai Lama's negotiating position with the People's Republic of China.   (Ottawa Citizen, 1 Apr 09)

MARCH 2009

FBI: Arlington Heights Man David Yen Lee Charged With Theft of Trade Secrets

. . . .David Yen Lee, age 52, of 400 West Rand Road in Arlington Heights, Illinois, was arrested yesterday morning at his residence, without incident, by FBI Special Agents.  LEE was charged in a criminal complaint filed in U.S. District Court in Chicago with one count of Theft of a Trade Secret, which is a felony offense.  According to the complaint, LEE was employed by the Valspar Corporation, a leading manufacturer of paints and industrial coatings, as the Technical Director of New Product Development for their Architectural Group, located at 1191 Wheeling Road in northwest suburban Wheeling.  LEE began working for Valspar in May of 2006 and was responsible for new paint coloring and manufacturing technologies.  LEE, who is a naturalized U.S. Citizen of Chinese descent, abruptly resigned his employment with Valspar on March 16th of this year, just two weeks after returning from a business trip to the People’s Republic of China.  At the time of his resignation, LEE relinquished both his company issued laptop computer and AT&T Blackberry wireless device.  A subsequent examination of the laptop computer by Valspar network analysts discovered that all of the temporary files had been deleted, suggesting that LEE had taken steps to “clean” the computer’s history. Additional examination of the laptop discovered a hidden file, which contained unauthorized software programs, including a data copying program.  It was also discovered that approximately 44 gigabytes of data, including Valspar trade secret information, had been downloaded to LEE’s computer without authorization.  Upon discovering these irregularities, the Valspar Corporation contacted the Chicago FBI, which immediately began a criminal investigation. This investigation, which included a court-authorized search of LEE’s residence, developed additional evidence linking LEE to the theft of trade secrets from the Valspar Corporation and the filing of the charge announced today. (E-News Park Forest, 29 Mar 09)

Khoshnevisrad Smuggling Network

The U.S. is prosecuting an Iranian businessman, Hossein Ali Khoshnevisrad, and three Irish citizens, for illegally smuggling aircraft parts to Iran. For the last three decades, Iran has had to deal with embargoes that prevent it from getting spare parts for its large inventory of elderly Western weapons. Spare parts have been obtained via a smuggling network, with some of the less complex parts manufactured inside Iran. The network is under increasing assault, as the U.S., and other Western nations uncover parts of this network, and prosecute those running it.

The Khoshnevisrad network was typical, in finding a legitimate parts dealer (Mac Aviation of Ireland) that was willing, for a large fee, to falsify sales and shipping documents to hide the fact that the parts were going to end up in Iran. This was usually done by shipping the goods to Persian Gulf ports (in this case Dubai) that had a large (mostly legitimate) trade with Iran.  (Strategy Page, 29 Mar 09)

Arlington Heights man David Yen Lee accused of stealing Valspar trade secrets

An Arlington Heights man was charged Friday with the theft of trade secrets from the Wheeling company where he worked, authorities said.  David Yen Lee, 52, of the 400 block of West Rand Road, was arrested at his home Thursday and ordered held without bail Friday in federal court in Chicago, the FBI said. He faces up to 10 years in prison if convicted of the felony offense.  Lee, a naturalized U.S. citizen, worked for Minneapolis-based Valspar Corp., a maker of paints and industrial coatings. Lee, former technical director of new product development for Valspar's architectural group, quit March 16 - two weeks after returning from a business trip to China, the FBI said.  When Valspar workers examined the company laptop computer and BlackBerry device he turned in when he resigned, they found that all temporary files had been deleted, suggesting he had "taken steps to clean his computer user history," a criminal complaint stated.  “Valspar found a hidden file containing unauthorized software programs including a data copying program," the complaint said.  Also, data including Valspar trade secrets had been downloaded to the computer without authorization, the complaint stated.  Lee had booked a one-way airline ticket from Chicago to Shanghai scheduled to depart Friday, authorities said.   (Chicago Tribune, 28 Mar 09)

Arlington Heights man David Yen Lee charged with economic espionage

An Arlington Heights man originally from Taiwan was charged with economic espionage Friday, accused of stealing paint formulas from his employer and planning to carry them to China to a competitor, prosecutors said.

David Yen Lee, 52, worked for Valspar, a Wheeling paint manufacturer, as its technical director of new product development, and had been to China at least four times in 2008, to work on projects with a Valspar subsidiary in China, Huarun Limited.  During one of those trips, a co-worker told authorities, Lee seemed particularly interested in the company's research on a Chinese competitor, Nippon Paint, according to a criminal complaint signed by FBI Agent Eric Shiffman.  "On March 16, 2009, approximately two weeks after returning from a business trip to the People's Republic of China, Lee abruptly resigned his employment at Valspar effective immediately," the complaint said.  Company authorities apparently grew suspicious and checked Lee's laptop, finding prohibited copying software and evidence of recent downloads of information. A federal search warrant was obtained, and agents found a packed carry-on bag with a thumb drive that contained trade secret information for paint formulas, according to the complaint. The formulas were not ones that Lee had worked on, and so he would have no reason to have them at his home, the complaint added.  Additionally, Lee had purchased a one-way ticket to China, scheduled to depart today at 10 a.m. Instead, Lee sat in U.S. Magistrate Judge Sidney Schenkier's courtroom in an orange jumpsuit, awaiting a bond hearing.  Assistant U.S. Attorney Michelle Nasser asked that Lee be held in jail until his Thursday detention hearing, citing his packed bag and travel plans as evidence of a risk of flight. Additionally, she said, Lee had told a co-worker that he planned to move to China and start a new life there.  Schenkier granted the request. Lee is seeking a private attorney who will represent him at that hearing, said his temporary attorney, Sergio Rodriguez of the Federal Defender's office.  In addition to the thumb drive found, authorities said, Lee's profile on LinkedIn, a professional networking site, proclaimed that he had quit Valspar and was now employed at "a major paint company in Asia."   (Daily Herald, 27 Mar 09)

Illinois chemist charged with stealing trade secrets

A suburban Chicago chemist is charged with stealing trade secrets from a Minneapolis-based paint manufacturer where he worked and planning to take them to a job with a foreign rival.   David Yen Lee of Arlington Heights was arrested Thursday after FBI agents found trade secrets on a thumb drive in his luggage as he prepared to catch a flight to Shanghai.   Authorities say the 52-year-old quit his job with Minneapolis-based Valspar Corp. and planned to start next week with rival Nippon Paints.   Lee made a brief federal court appearance Friday. His case was continued to April 2. (AP, 27 Mar 09)

Ex-Valspar chemist charged with stealing company secrets

David Yen Lee, 52, appeared Friday before U.S. Magistrate Judge Sidney Schenkier in Chicago, one day after FBI agents said they arrested him in possession of a pocket-sized computer “thumb drive” containing Valspar data.
Lee poses a “serious risk of flight,” Assistant U.S. Attorney Michelle Nasser told Schenkier in court. A native of Taiwan, Lee is charged with a single count of theft of trade secrets, punishable by as long as 10 years in prison and a $250,000 fine if he’s convicted.  Valspar, based in Minneapolis, makes paints, varnishes, floor coatings and polymers. Lee, of Arlington Heights, Ill., worked as technical director of new products for the company’s architectural group in Wheeling, Ill.  He quit his job at the company on March 16, according to a Federal Bureau of Investigation statement announcing the arrest. Lee appeared in court with a federal public defender. Schenkier ordered him held in custody until an April 2 bond hearing.  Valspar’s spokesman, Michael Dougherty, declined to identify Lee by name when asked about him in a phone interview. He said only that after an employee resigned “some irregularities were discovered” in a company-issued laptop that led Valspar to contact the FBI. The employee was found to be in possession of “proprietary Valspar information” and was arrested, Dougherty said.

Officials say Valspar is North America's fifth-largest paint manufacturer.  (Bloomberg, 27 Mar 09)

NW Uburban Man David Yen Lee Accused Of Stealing Trade Secrets

David Yen Lee, 52, of 400 W. Rand Rd. in Arlington Heights was arrested by FBI agents Thursday morning at his home without incident, according to an FBI release. Lee is charged in a criminal complaint with one felony count of theft of a trade secret. . . . According to the complaint, Lee was employed by the Valspar Corp. in Wheeling, a leading manufacturer of paints and industrial coatings. He served as technical director of new product development for the Architectural Group at the plant, located at 1191 Wheeling Rd., the release said.  Lee began working for Valspar in May 2006 and was responsible for new paint coloring and manufacturing technologies. Lee, a naturalized U.S. citizen of Chinese descent, abruptly resigned on March 16, two weeks after returning from a business trip to China, the release said.  At the time of his resignation, he relinquished both his company-issued laptop and Blackberry wireless device, the release said. But subsequent examination of the laptop by Valspar network analysts discovered all temporary files had been deleted, suggesting Lee had taken steps to "clean" the computer's history.  Additional examination discovered a hidden file -- which contained unauthorized software programs, including a data copying program, and about 44 gigabytes of data, including Valspar trade secret information -- had been downloaded to Lee's computer without authorization, the release said. (Chicago Sun-Times, 27 Mar 09)

Swiss court: Czech man guilty over exports to Iran

A Swiss court on Thursday found a Czech man guilty of breaking export laws by selling technology to Iran that could be used for missile-building. The Federal Criminal Court in Bellinzona sentenced the unidentified 61-year-old man to pay a fine and court costs totaling 5,000 Swiss francs ($4,440). It also ordered some 26,500 francs in profits seized. Prosecutors said the man exported electronic components in 2004-06 to companies in Malaysia and Hong Kong that are known to procure goods for Iran's armament program.  The man failed to declare the exports to Swiss authorities as he had been ordered to do in August 2004.  (AP, 27 Mar 09)

Laura Wang-Woodford Pleads Guilty for Illegal Export of Controlled Aircraft Components to Iran

Laura Wang-Woodford, a U.S. citizen who served as a director of Monarch Aviation Pte, Ltd. ("Monarch"), a Singapore company that imported and exported military and commercial aircraft components for more than 20 years, pled guilty today in federal court in Brooklyn to conspiring to violate the U.S. trade embargo by exporting controlled aircraft components to Iran (see also U.S. Department of Justice).  The guilty plea was announced by Benton J. Campbell, United States Attorney for the Eastern District of New York, Matthew G. Olsen, Acting Assistant Attorney General for National Security, Kevin Delli-Colli, Acting Assistant Secretary of Commerce for Export Enforcement, and John Torres, Acting Assistant Secretary of Homeland Security for U.S. Immigration and Customs Enforcement.  Wang-Woodford was arrested on Dec. 23, 2007, at San Francisco International Airport after arriving on a flight from Hong Kong, and has remained incarcerated since then. She and her husband, Brian D. Woodford, a U.K. citizen who served as chairman and managing director of Monarch, were originally charged in a 20-count indictment returned in the Eastern District of New York on Jan. 15, 2003. Brian Woodford remains a fugitive. A superseding indictment charging Wang-Woodford with operating Jungda International Pte. Ltd ("Jungda"), a Singapore-based successor to Monarch, was returned on May 22, 2008.  According to the superseding indictment, between January 1998 and December 2007, the defendants exported controlled U.S. aircraft parts from the United States to Monarch and Jungda in Singapore and Malaysia and then re-exported those items to companies in Tehran, Iran, without obtaining the required U.S. government licenses. As part of the charged conspiracy, the defendants falsely listed Monarch and Jungda as the ultimate recipients of the parts on export documents filed with the U.S. government. The aircraft parts illegally exported to Iran include aircraft shields, shears, "o" rings, and switch assemblies. The superseding indictment further charged that the defendants arranged for the illegal export of U.S. military aircraft components, designed for use in Chinook military helicopters, to Monarch in Singapore.  At the time of her arrest in San Francisco, Wang-Woodford possessed catalogues from a Chinese company, the China National Precision Machinery Import and Export Corporation ("CPMIEC"), containing advertisements for military technology and weaponry. The products advertised included surface-to-air missile systems and rocket launchers. CPMIEC has been sanctioned by the United States Treasury Department, Office of Foreign Assets Control, based, in part, on CPMIEC's history of selling military hardware to Iran. All United States persons and entities are prohibited from engaging in business with CPMIEC.  (Bioterrorism Week, 27 Mar 09)

Swiss court: Czech man guilty over exports to Iran

A Swiss court on Thursday found a Czech man guilty of breaking export laws by selling technology to Iran that could be used for missile-building.   The Federal Criminal Court in Bellinzona sentenced the unidentified 61-year-old man to pay a fine and court costs totaling 5,000 Swiss francs ($4,440). It also ordered some 26,500 francs in profits seized.  Prosecutors said the man exported electronic components in 2004-06 to companies in Malaysia and Hong Kong that are known to procure goods for Iran's armament program.   The man failed to declare the exports to Swiss authorities as he had been ordered to do in August 2004.  (AP, 27 Mar 09)

Guilty Plea for Illegal Export of Controlled Aircraft Components to Iran

Laura Wang-Woodford, a U.S. citizen who served as a director of Monarch Aviation Pte, Ltd. ("Monarch"), a Singapore company that imported and exported military and commercial aircraft components for more than 20 years, pled guilty today in federal court in Brooklyn to conspiring to violate the U.S. trade embargo by exporting controlled aircraft components to Iran (see also U.S. Department of Justice).  The guilty plea was announced by Benton J. Campbell, United States Attorney for the Eastern District of New York, Matthew G. Olsen, Acting Assistant Attorney General for National Security, Kevin Delli-Colli, Acting Assistant Secretary of Commerce for Export Enforcement, and John Torres, Acting Assistant Secretary of Homeland Security for U.S. Immigration and Customs Enforcement.  Wang-Woodford was arrested on Dec. 23, 2007, at San Francisco International Airport after arriving on a flight from Hong Kong, and has remained incarcerated since then. She and her husband, Brian D. Woodford, a U.K. citizen who served as chairman and managing director of Monarch, were originally charged in a 20-count indictment returned in the Eastern District of New York on Jan. 15, 2003. Brian Woodford remains a fugitive. A superseding indictment charging Wang-Woodford with operating Jungda International Pte. Ltd ("Jungda"), a Singapore-based successor to Monarch, was returned on May 22, 2008.  According to the superseding indictment, between January 1998 and December 2007, the defendants exported controlled U.S. aircraft parts from the United States to Monarch and Jungda in Singapore and Malaysia and then re-exported those items to companies in Tehran, Iran, without obtaining the required U.S. government licenses. As part of the charged conspiracy, the defendants falsely listed Monarch and Jungda as the ultimate recipients of the parts on export documents filed with the U.S. government. The aircraft parts illegally exported to Iran include aircraft shields, shears, "o" rings, and switch assemblies. The superseding indictment further charged that the defendants arranged for the illegal export of U.S. military aircraft components, designed for use in Chinook military helicopters, to Monarch in Singapore.  At the time of her arrest in San Francisco, Wang-Woodford possessed catalogues from a Chinese company, the China National Precision Machinery Import and Export Corporation ("CPMIEC"), containing advertisements for military technology and weaponry. The products advertised included surface-to-air missile systems and rocket launchers. CPMIEC has been sanctioned by the United States Treasury Department, Office of Foreign Assets Control, based, in part, on CPMIEC's history of selling military hardware to Iran. All United States persons and entities are prohibited from engaging in business with CPMIEC.  (Bioterrorism Week, 27 Mar 09)

Beijing's army of spies casts wide net

No nation makes a greater espionage effort directed at Australian military and commercial technology than does China.  It was because of China's massively increased espionage activities in recent years that in 2004 the Australian Security Intelligence Organization set up a new counter-espionage unit.   But the problems China poses for a country such as Australia in the security and espionage field extend far beyond what might be regarded as traditional espionage.   Beijing has the most unified and coordinated sense of national power of any big nation on Earth. Modern China is not a democracy, but it is a very effectively functioning modern state.   It has a highly competent bureaucracy that seeks to penetrate all sectors of Chinese society and serve what the ruling Communist Party regards as the broader national interest. This includes monitoring, and where possible influencing, Chinese business people and students in their activities overseas.  This is a highly elusive matter, extremely difficult to quantify.  The overwhelming majority of people of Chinese ethnic background living in Western societies such as Australia or the US have no relationship with the Chinese state.  And most of those who do have any relationship with the Chinese state have an entirely wholesome one, such as doing business with the Government or promoting cultural exchange.  But the Chinese Government seeks to use every resource it can to gain information and to exercise power. That includes, on the testimony of Chinese defectors and Western intelligence agencies, often using business people and students as agents where it can recruit them.  (Australian, 27 Mar 09)

Indictment Unsealed: Irish Firm Sent Sensitive Tech. to Iran
In an indictment that was originally filed under seal in the District of Columbia in July 2008, DOJ charged Mac Aviation Group, an Irish trading company, and "three of its officers with purchasing helicopter engines and other aircraft components from U.S. firms and illegally exporting them to Iran using companies in Malaysia and the United Arab Emirates. Among the alleged recipients of these U.S. goods was an Iranian military firm that has since been designated by the United States for being owned.  (NEFA, 26 Mar 09)

Irish Firm Mac Aviation Accused of Illegal Aircraft Exports to Iran

. . . .The charges allege that Mac Aviation bought 17 helicopter engines from Rolls-Royce's North American headquarters in Indiana for $4.27 million in July and exported them to Iran through companies in Malaysia and the United Arab Emirates. The engines allegedly went to the Iranian Aircraft Manufacturing Co., which the State Department has linked to Iran's nuclear and ballistic missiles program.  Thomas McGuinn, 72, an Irish national and owner of Mac Aviation; his son Sean McGuinn, 40, the company's sales director; and Sean Byrne, its commercial manager, were charged with 19 counts of violating the embargo, the Justice Department said. Each count carries a maximum prison sentence of 10 to 20 years.  The men also were charged with conspiracy and making false statements.  The purchases were allegedly made on behalf Hossein Ali Khoshnevisrad, a businessman from Tehran whom U.S. officials described as a key figure in Iran's vast network of businesses and front companies seeking Western technology for weapons including ballistic missiles and improvised explosive devices.  Khoshnevisrad was arrested March 14 in San Francisco and has been charged with illegally exporting and conspiracy to export U.S. goods to Iran, charges that carry up to 65 years in prison, the department said.  Mac Aviation also is accused of diverting aircraft parts to Iran Aircraft Industries and to a trading company in Dubai that appears to have sent them to Kish Island, Iran.  (AFP, 25 Mar 09)

Irish trio wanted in US for Iran dealings

The United States government has accused an Irish trading company of illegally exporting US aircraft parts to Iran using indirect shipment.  The US Justice Department charges that the three top managers at Mac Aviation of County Sligo bought aircraft engines and components from US firms and sent them to Iran through Malaysia and the United Arab Emirates.  US authorities say they will ask Dublin to extradite the three to the United States for prosecution.  The 25-count indictment alleges that Thomas McGuinn, his son Sean McGuinn and Sean Byrne bought parts from Rolls Royce Corp. in Indiana, Pratt & Whitney in Connecticut and other US suppliers and sold them to Iran between 2005 and 2008.  Each of the three defendants are charged with two counts of conspiracy, 19 counts of violating US law restricting aircraft component exports to Iran, and four counts of false statement.
. . . . The Tuesday indictment follows last week's arrest of Iranian businessman Hossein Ali Khoshnevisrad in San Francisco.  Khoshnevisrad was detained on charges of illegally shipping American helicopter engines and aerial cameras to Iran.  (Press TV, 25 Mar 09)

3 Irish men charged with exporting military equipment to Iran

Three Irish men and their arms trading company have been charged with illegally exporting U.S.-made aircraft equipment through other countries to avoid sanctions against selling aircraft parts and equipment to Iran, the Justice Department announced Tuesday.  The 25-count indictment unsealed Tuesday in federal court in Washington says three top corporate officials of Mac Aviation of Ireland had trans-shipped millions of dollars worth of helicopter engines, aircraft components and other military parts through Malaysia and the United Arab Emirates to Iran. . . .According to the indictment Thomas McGuinn, his son Sean McGuinn and Sean Byrne conspired from 2005 to 2008 to buy parts from Rolls Royce Corp. in Indiana, Pratt & Whitney in Connecticut and other U.S. suppliers and secretly sell them to Iranian entities controlled by Iran’s Ministry of Defense.  U.S. investigators say the equipment was routed through third countries, including Malaysia and the United Arab Emirates, to Iranian companies.  Iranian companies - including the Iran Aircraft Manufacturing Industrial Company, known by its Iranian acronym HESA - received 17 Rolls Royce helicopter engines worth $4.27 million, according to the indictment.  The U.S. Treasury Department designated HESA as a proliferator of weapons of mass destruction last year, saying it was controlled by Iran’s Ministry of Defense and Armed Forces Logistics. The Treasury Department said HESA also has provided support to the Revolutionary Guard Corps.  The engine in question - called the “model 250″ by Rolls Royce - was originally designed for a U.S. Army light observation helicopter, but has since been installed in other helicopters, both civilian and military.  The indictment also alleges that 50 components called “5th stage vanes” - part of an aircraft’s aerodynamic function - were shipped from Pratt & Whitney to Mac Aviation, and from there routed to Iran Aircraft Industries in Tehran. Mac Aviation had claimed that the parts’ final destination was Belgium, the indictment says. The parts were valued at about $140,000.

Finally, the indictment alleges that Mac Aviation had 32 aircraft bolts worth about $2,200 shipped from Texas to Dubai and then on to Kish Island, Iran.   U.S. officials say the indictments are an outgrowth of the ongoing investigation of a larger Iranian procurement network run by Hossein Khoshnevisrad, an Iranian citizen arrested March 14 in San Francisco.  Khoshnevisrad allegedly used Mac Aviation and other firms around the globe to help obtain sensitive U.S. technology destined for Iranian militaries entities.  (CNN, 24 Mar 09)

US Government Renews Iranian Sanctions

The U.S. government has renewed its sanctions on Iran which were first put in place in 1995. The sanctions were extended in response to Iran's continued support for international terrorism and its failure to comply with its UN Security Council, International Atomic Energy Agency, and Nuclear Non-Proliferation Treaty obligations.
These sanctions have been renewed annually since they were first implemented and will continue to bar virtually all trade and investment relations between U.S. companies and Iran.  The extension of the sanctions comes at a time when President Barack Obama has signaled his intention to support tough and direct diplomacy with Iran.  He has said if Iran unclenches its fist, the U.S. will present it with a welcoming hand.  (VOA, 23 Mar 09)

Spy Case Involving Software Engineer Hanjuan Jin Closer to Trial

Did software engineer Hanjuan Jin, who worked at Motorola for about eight years, steal thousands of confidential and proprietary technical documents to share with competitor Lemko and the People’s Republic of China?

Jin, in her late 30s, says she didn’t. But U.S. federal prosecutors are going after her for allegedly sharing technical and highly-sensitive trade secrets to benefit a “foreign government, namely the People’s Republic of China, specifically its military,” according to the Dec. 9, 2008, indictment filed by federal prosecutors in Chicago.

While the U.S. government’s legal paperwork seeks to shield identity by referring to the victim firm as simply “Company A,” it’s a safe bet that it’s Motorola, which has its own civil lawsuit pending against Jin and cellular-equipment maker Lemko with many identical details -- though it doesn’t accuse her of sharing secrets with the Chinese government. The shroud of secrecy will officially drop once a public trial begins; federal prosecutors and Jin’s attorneys are due to meet in a Chicago court next week with the expectation of setting a trial date.  (Network World, 19 Mar 09)

Iranian Arrested for Supplying Iran w. Sensitive U.S. Technology
Iranian citizen Hossein Ali Khoshnevisrad and his Tehran business, Ariasa, were "charged with purchasing helicopter engines and advanced aerial cameras for fighter bombers from U.S. firms and illegally exporting them to Iran using companies in Malaysia, Ireland and the Netherlands. Among the alleged recipients of these U.S. goods was an Iranian military firm.  (NEFA, 16 Mar 09)

Iranian Khoshnevisrad Visitor to U.S. Arraigned on Export Charges

When an Iranian businessman based in Tehran arrived in the United States on Saturday, he was probably not expecting that his welcome wagon would be a contingent of special agents from the Bureau of Industry and Security (”BIS”), who promptly whisked him away and charged him with violating U.S. export laws restricting trade with Iran. The businessman, Hossein Ali Khoshnevisrad, was arraigned today in a United States District Court in San Francisco.  An affidavit filed by a BIS special agent provides a great deal of detail on the circumstances surrounding Khoshnevisrad’s business operations and his ultimate arrest. Not surprisingly to regular readers of this blog, Khoshnevisrad’s modus operandi was to interject front companies into the transactions to hide the ultimate end-user and destination of the exported goods.  Two series of transactions were detailed by the affidavit. The first involved the sale of Rolls Royce Model 250 helicopter engines. According to intercepted emails and correspondence described in the affidavit an un-named “Irish Trading Company,” which had purchased 17 of the engines, responded to a request from Khoshnevisrad’s company Ariasa AG with a proforma invoice for 8 of the engines. Thereafter, a number of these engines were shipped from New York by the “Irish Trading Company” to Khoshnevisrad’s designated consignee, Penerbit Kemas Sdn. Bhd, in Malaysia. Penerbit is apparently a Malaysian book publisher and distributor with a side business in “auto accessories” but with no apparent need for helicopter engines. The affidavit traces the journey of the engines to Malaysia, but stops there. No description is provided as to when, how or whether the engines went to Iran.

The second transaction involved two aerial panorama carriers which Khoshnevisrad’s company obtained through a “Dutch aviation parts supply company.” (I’ll bet that the Dutch company is Aviation Services International B.V., which was indicted in 2007 for selling U.S.-origin aircraft parts to Iran.). When the Dutch company, in response to an inquiry from the U.S. freight forwarder for the goods, inquired as to who was the end-user, Khoshnevisrad replied:

Regarding the end user as you know USA will not deliver to Iran in any case. You should give an end user by yourself.

The cameras are needed for the students at Geographical university to lern them how to film from the air.

Trust you can manage to get the cameras free.

Best regards,
HOSSEIN.

Ultimately the Dutch company shipped the cameras from the Netherlands to Khoshnevisrad in Tehran.

One puzzling issue in this case is why Khoshnevisrad, who knew that he was breaking U.S. law by arranging the export of U.S.-origin goods to Iran, would travel to the United States in the first place.  (Export Law Blog, 16 Mar 09)

Iranian Suspected of Smuggling Weapons for Tehran Jailed in U.S.

A Tehran businessman who allegedly helped run a major weapons-smuggling ring for Iran was charged yesterday with multiple export-related crimes, two days after he was arrested in San Francisco after stepping off a flight from Europe.

Hossein Ali Khoshnevisrad, 55, was described by U.S. officials as a key figure in Iran's vast network of businesses and front companies seeking Western technology for weapons ranging from ballistic missiles to improvised explosive devices. Documents and officials from the Justice and Commerce departments linked Khoshnevisrad's firm to a scheme to acquire millions of dollars worth of parts for military helicopters and jet fighters, using Malaysian and European companies as middlemen.

At least some of the parts were intended for an Iranian company that the State Department has linked to Iran's nuclear and ballistic missiles program, according to documents first obtained by the nonprofit Center for Investigative Reporting. The case was the latest in a series of attempts by the U.S. government to crack down on illicit procurement networks that feed Tehran's pursuit of high-tech weapons systems.

The arrest of Khoshnevisrad was an unexpected bonus in those efforts, U.S. officials said. After tracking the businessman and his import company, Ariasa, for months, investigators with U.S. Customs and Border Protection discovered that the entrepreneur was traveling from Iran to the United States for what was believed to be his first visit to this country.

A party of federal officers was waiting for him early Saturday as he arrived at San Francisco International Airport with his wife and son after a stopover flight from Europe. Khoshnevisrad was confronted in the airport's customs area and detained without incident.

. . . . The aircraft parts, valued at more than $4 million, were purchased from U.S. firms and routed through a network of front companies, according to documents obtained by the Berkeley, Calif.-based CIR.

Among the purchases were 17 Rolls-Royce helicopter engines, manufactured at a factory in Indiana and allegedly destined for Iran Aircraft Manufacturing Industrial Co., and 11 aerial-surveillance cameras sold by a Pennsylvania distributor and allegedly intended for mounting on Iran's F-4 fighter jets, according to an affidavit by investigators for Commerce's Office of Export Enforcement. The U.S. firms apparently were unaware that the parts were intended for Iran.  (Washington Post, 17 Mar 09)

U.S. Citizen Pleads Guilty - Iran Export Violations
Laura Wang-Woodford, a U.S. citizen who served as the director of Monarch Aviation Pte, Ltd., a Singapore company that imported and exported military and commercial aircraft components, pled guilty in Brooklyn federal court to conspiring to violate the U.S. trade embargo by exporting controlled aircraft components to Iran.   (NEFA, 15 Mar 09)

Singapore firm exec Laura pleads guilty to Iran exports

A US citizen who was a director at a Singapore company pleaded guilty Friday to conspiring to export aircraft parts to Iran in violation of a US trade embargo, prosecutors said.  Laura Wang-Woodford faces a maximum prison term of five years and a fine of up to 250,000 dollars, New York prosecutors said in a statement. She has also agreed to forfeit half a million dollars.  A director at Singapore-based Monarch Aviation Pte, she was charged with exporting restricted US aviation parts for a decade to Singapore and Malaysia, where they were illegally re-exported to Iran.  Wang-Woodford was arrested in December 2007 at the San Francisco airport after arriving from Hong Kong. Her husband, British citizen Brian Woodford, the chairman and managing director of Monarch, was also charged but is on the run.   "By illegally shipping US military components to Iran, Laura Wang-Woodford pursued profits at the expense of the security of her country and her fellow citizens," said US Attorney Benton Campbell. (AFP, 13 Mar 09)

Female Arms Trader Laura Wang-Woodford Pleads Guilty to Iran Sales - Fugitive Husband on the Run

An American woman who became a rogue weapons trader pleaded guilty in federal court today to illegally helping Iran arm itself during the last 20 years.  Laura Wang-Woodford and her fugitive husband amassed a large fortune by illegally selling embargoed weapons, technology and equipment to Iran.  Wang-Woodford, 64, entered her plea today before a federal judge in Brooklyn. She pleaded guilty to charges of violating U.S. trade embargoes by sending munitions and controlled information, including technology for American Chinook military helicopters and other aircraft.  American citizens have been banned from trading with Iran since 1979 when Iranian militants took U.S. embassy employees hostage in Tehran.  Her husband, Brian Woodford, is currently a fugitive who is believed to be in Southeast Asia, possibly Singapore . . . . Despite the embargo, the couple used its Singapore-based company, Monarch Aviation, as well as aviation companies in Connecticut, Massachusetts and Texas to buy aircraft parts and sensitive munitions technology from the West and then illegally send the material and information to Iran.  She later changed the name of the company to try to elude U.S. authorities. . . . Wang-Woodford was indicted in 2003, but the indictment was kept sealed until she was arrested at San Francisco International Airport as she entered the United States to visit her elderly mother for the holidays in December 2007. U.S. Customs and Border Protection agents were waiting for her upon her arrival from Hong Kong. Wang-Woodford is also suspected by some U.S. officials briefed on the case to have been engaged in providing munitions and banned technology to China.  (ABC, 13 Mar 09)

Director of Singapore Firm Laura Wang-Woodford Pleads Guilty to Illegally Exporting Controlled Aircraft Components to Iran   (DOJ Press Release)

Director of Singapore Firm Laura Wang-Woodford Pleads Guilty to Illegally Exporting Controlled Aircraft Components to Iran

Laura Wang-Woodford, a U.S. citizen who served as a director of Monarch Aviation Pte, Ltd. ("Monarch"), a Singapore company that imported and exported military and commercial aircraft components for more than 20 years, pled guilty today in federal court in Brooklyn to conspiring to violate the U.S. trade embargo by exporting controlled aircraft components to Iran.  The guilty plea was announced by Benton J. Campbell, United States Attorney for the Eastern District of New York, Matthew G. Olsen, Acting Assistant Attorney General for National Security, Kevin Delli-Colli, Acting Assistant Secretary of Commerce for Export Enforcement, and John Torres, Acting Assistant Secretary of Homeland Security for U.S. Immigration and Customs Enforcement.

Wang-Woodford was arrested on Dec. 23, 2007, at San Francisco International Airport after arriving on a flight from Hong Kong, and has remained incarcerated since then. She and her husband, Brian D. Woodford, a U.K. citizen who served as chairman and managing director of Monarch, were originally charged in a 20-count indictment returned in the Eastern District of New York on Jan. 15, 2003. Brian Woodford remains a fugitive. A superseding indictment charging Wang-Woodford with operating Jungda International Pte. Ltd ("Jungda"), a Singapore-based successor to Monarch, was returned on May 22, 2008.  According to the superseding indictment, between January 1998 and December 2007, the defendants exported controlled U.S. aircraft parts from the United States to Monarch and Jungda in Singapore and Malaysia and then re-exported those items to companies in Tehran, Iran, without obtaining the required U.S. government licenses. As part of the charged conspiracy, the defendants falsely listed Monarch and Jungda as the ultimate recipients of the parts on export documents filed with the U.S. government. The aircraft parts illegally exported to Iran include aircraft shields, shears, "o" rings, and switch assemblies. The superseding indictment further charged that the defendants arranged for the illegal export of U.S. military aircraft components, designed for use in Chinook military helicopters, to Monarch in Singapore.  At the time of her arrest in San Francisco, Wang-Woodford possessed catalogues from a Chinese company, the China National Precision Machinery Import and Export Corporation ("CPMIEC"), containing advertisements for military technology and weaponry. The products advertised included surface-to-air missile systems and rocket launchers. CPMIEC has been sanctioned by the United States Treasury Department, Office of Foreign Assets Control, based, in part, on CPMIEC’s history of selling military hardware to Iran. All United States persons and entities are prohibited from engaging in business with CPMIEC.  As a result of her guilty plea, Wang-Woodford faces a maximum sentence of five years incarceration and a fine of up to $250,000. In addition, in conjunction with her guilty plea Wang-Woodford agreed to forfeit $500,000 to the United States Treasury Department.  (DOJ Press Release, 13 Mar 09)

Feds say husband Harold Hanson and wife Yaming Nina Qi Hanson sold tech to China

A Walter Reed Army Medical Center worker and his wife were charged Thursday with conspiring to sell sensitive technology to China.  A Washington grand jury indicted Harold Hanson, a former Army lieutenant colonel, and his wife, Yaming Nina Qi Hanson, for conspiracy and violating export laws.  The wife was charged last month in a criminal complaint. Her husband was working at Walter Reed as a civilian handling patient safety issues.

Authorities allege that the Silver Spring, Md., couple exported miniature controls for unmanned aircraft. The controls involve technology that cannot be shared with China because of national security concerns. The devices are used to fly small military reconnaissance planes.  Qi Hanson is accused of taking the controls to China last August without an export license.  Prosecutors say her husband arranged over e-mail to buy the controls from a Canadian company, MicroPilot of Manitoba. Company officials told the couple they could ship the controls to the United States but the couple would have to get an export permit to send the controls to another country. (AP, 12 Mar 09)

Feds say husband Harold Hanson and wife Yaming Nina Qi Hanson sold tech to China

Federal authorities have charged a Walter Reed Medical Center worker and his wife with conspiring to sell sensitive technology to China.  A Washington grand jury indicted a former lieutenant colonel in the Army, Harold Hanson, and his wife, Yaming Nina Qi Hanson, for conspiracy and violating export laws.  The wife was charged last month in a criminal complaint. Her husband was working at Walter Reed as a civilian handling patient safety issues.  Authorities allege that the Silver Spring, Md., couple exported miniature controls for unmanned aircraft. The controls involve technology that cannot be shared with China because of national security concerns.  (AP, 12 Mar 09)

Clark Roberts and Sean Howley - Wyko Tire workers face charges for allegedly conspiring to steal Goodyear trade secrets

Two engineers with Wyko Tire Technology, Inc. of Greenback, Tenn. are under indictment on federal industrial espionage charges, accused of “conspiring to steal trade secrets from the Goodyear Tire & Rubber Co. and scheming to defraud Goodyear of confidential and proprietary information,” according to the U.S. Department of Justice.  Clark Alan Roberts, 46, and Sean Edward Howley, 38, were arrested March 6 and arraigned before U.S. Magistrate Judge Clifford Shirley.  Prosecutors say Wyko had obtained a contract in early 2007 with the Haohau South China Guilin Rubber Co. Ltd. (HHSC) of Guilin in the Peoples Republic of China to supply tire manufacturing equipment for producing large off-the-road (OTR) tires.  The indictment alleges that in late May of 2007, Roberts and Howley traveled to a Goodyear tire plant in Topeka, Kan. “After allegedly making material misrepresentations to Goodyear employees concerning the purpose of their visit, the defendants used a cell phone to surreptitiously photograph proprietary OTR tire manufacturing equipment.”  The two later emailed the unauthorized photographs, which contained valuable trade secrets, to employees at a Wyko subsidiary in Dudley, England, who then used the photographs to complete a similar piece of tire manufacturing machinery for the HHSC contract, according to Rita M. Glavin, acting assistant attorney general of the Criminal Division and James R. Dedrick, U.S. Attorney for the Eastern District of Tennessee.  The case is being investigated by the FBI’s Knoxville, Tenn. field office.  (Motor Age, 10 Mar 09)

British duo Clark Roberts and Sean Howley deny industrial espionage

A leading British manufacturer has been caught up in an industrial espionage row after two engineers used a mobile telephone to photograph a secret piece of equipment at an American factory. The photographs are alleged to have been used by Wyko Tire Technology in Dudley, West Midlands, to manufacturer a specialist tire machine for a Chinese company. Engineers Clark Roberts and Sean Howley are alleged to have tricked their way into the Goodyear factory in Kansas to take seven photographs of machinery used make large “off the road” tires for earth moving equipment, it is claimed.  The pictures were emailed to two Wyko employees at the factory in Britain and were used to manufacturer a similar piece of equipment for the Haohau South China Guilin Rubber Company based in north east China. The contract with the Chinese company was worth $1.2million. . . . Mr Roberts, 46, and Mr Howley, 38 - both employees of Wyko Tire Technology Inc in Greenback, Tennessee - have been charged with 12 offences relating to the theft of trade secrets and wire fraud. They face a maximum sentence of 150 years in prison and a fine of $2.75million (£2million).  The US Department of Justice claims the two engineers tricked their way into the Goodyear factory in Topeka in May 2007. Mr Howley is alleged to have taken the pictures while his colleague acted as “look out for Goodyear employees”.  The US Department of Justice said that both men have denied the charges and are due to stand trial in May in Knoxville, Tennessee, following the investigation by the FBI.   (Times Online, 9 Mar 09)

The Modern Mata Hari Speaks Mandarin

Two Chinese women are being prosecuted for stealing American technology for China. A Maryland resident, Yaming Nina Qi Hanson, was caught exporting miniaturized autopilots for UAVs. An Illinois resident, Hanjuan Jin, was caught trying to get electronics design data (from her former employer, Motorola) to China. In both cases, the women were motivated by cash, and appeals to "help the motherland." Both these cases are part of a Chinese plan for using industrial espionage to turn their country into the mightiest industrial and military power on the planet. For over two decades, China has been attempting to do what the Soviet Union never accomplished; steal Western technology, then use it to move ahead of the West.  The Soviets lacked the many essential supporting industries found in the West (most founded and run by entrepreneurs), and was never able to get all the many pieces needed to match Western technical accomplishments. Soviet copies of American computers, for example, were crude, less reliable and less powerful. Same with their jet fighters, tanks and warships. China believes they can avoid the Soviet error by making it profitable for Western firms to set up factories in China, where Chinese managers and workers can be taught how to make things right. . . . Like the Russians, the Chinese are also using the traditional methods, using people with diplomatic immunity to recruit spies, and offering cash, or whatever, to get people to sell them information. This is still effective, and when combined with the "thousand grains of sand" methods, brings in lots of secrets. The final ingredient is a shadowy venture capital operations, sometimes called Project 863, that offers money for Chinese entrepreneurs who will turn the stolen technology into something real. No questions asked. If you can get back to China with the secrets, you are home free and potentially very rich.  But there are some legal problems. When the Chinese steal some technology, and produce something that the Western victims can prove was stolen (via patents and prior use of the technology), legal action can make it impossible, or very difficult, to sell anything using the stolen tech, outside of China. For that reason, the Chinese like to steal military technology. This kind of stuff rarely leaves China. And in some cases, like manufacturing technology, there's an advantage to not selling it outside of China. Because China is still a communist dictatorship, the courts do as they are told, and they are rarely told to honor foreign patent claims.  (Strategy Page, 8 Mar 09)

Iranian Sentenced for Attempt to Ship Night Vision Goggles
In December 2008, Shahrazad Mir Gholikhan was convicted in Florida on three charges, including attempting to facilitate the shipment of 3,500 pairs of Generation III night goggles to Iran. Gholikhan, who was arrested after a DHS/ICE undercover investigation, was subsequently sentenced.....(NEFA, 7 Mar 09)

Iranian Shahrazad Nur Gholikhan gets 5-plus years in night goggle case

An Iranian woman who surrendered to U.S. authorities hoping to get probation was instead sentenced Friday to more than five years in federal prison for her role in a scheme to smuggle military night-vision goggles to Iran.

U.S. District Judge James I. Cohn imposed the sentence on 31-year-old Shahrazad Mir Gholikhan, a mother of twin daughters who insisted during her trial in December that she was innocent. She has already spent more than a year behind bars, which will count toward her sentence of five years and three months.   Gholikhan previously said she would appeal.   With an indictment hanging over her head, Gholikhan came to the U.S. voluntarily in late 2007 to plead guilty in a deal she expected would allow her to quickly return home. But her plea deal collapsed because of an error in the estimated sentence _ leaving her with a likely two years in prison _ so Gholikhan decided to go to trial, choosing to act as her own attorney.  Gholikhan was convicted Dec. 18 of illegally trying to broker a deal involving 3,500 pairs of sophisticated Generation III night goggles _ used exclusively by U.S. special forces and the Israeli military _ and of attempting to violate the U.S. embargo against Iran. Her ex-husband, Mahmoud Seif, was also charged in the case, but he is a fugitive living in Iran, prosecutors said.  (AP, 6 Mar 09)

Security Implications of the Global Financial Crisis

 . . . . A security department typically has a pretty substantial budget (it costs a lot for all those guards, access-control devices, cameras and alarms), and security is usually viewed as detracting from, rather than contributing to, the company's bottom line. The "fat" security budget is seen as an easy place to quickly reduce costs in an effort to balance the profit-and-loss statement . . . . Espionage is always a problem corporations must face. Competitors, criminals and even foreign governments often seek ways to gather proprietary information from companies, sometimes to boost their own operational capacities (e.g., to apply critical or emerging technologies to their weapons programs) and sometimes to sell on the open market.  Once a company has been identified as having the information sought, the first thing the human-intelligence practitioner will do is look for weak links in the targeted company's operations. If the required information is readily available, there is no need to undertake a time-intensive and costly operation to retrieve it. Indeed, it is shocking to see the amount of sensitive and critical information that is openly available on the Internet and in research libraries, or that is freely given out at technical conferences.   When open source collection efforts fail, more invasive measures must be employed. Sometimes the required information can be obtained via technical surveillance. A faulty information technology system, for example, can expose the company's secrets via remote electronic intrusion conducted from a continent away. Other times, information can be obtained by eavesdropping on telephone calls made by corporate leaders or by using other technical surveillance measures.   However, technical surveillance has its limitations, and sometimes critical information must be obtained through human intelligence, which means obtaining the required data from an employee working within the targeted company.   (Stratfor, 5 Mar 09)

New Indictment Against Hanjuan Jin

When the I-Team first reported on Hanjuan Jin about a year ago, she had been charged with stealing technical secrets from her employer, Motorola, for the purpose of selling them to a competitor in her native China.

This has become even more serious. It's a case of 'code red' as federal authorities have now essentially accused Jin of spying for the Chinese military. . . . According to a superseding indictment, Jin engaged in economic espionage intended to benefit the People's Republic of China.  In the new charges, Jin is accused of possessing Motorola engineering information that would benefit the Chinese military and that in 2006 after stealing top secret Motorola files, schematics and military communication plans she made a bee-line for Beijing.  Federal prosecutors believe she was coming to Beijing to deliver the goods to the Chinese; because they now say, she also had in her possession, "Chinese military documents containing military telephone communications technology" and "combat use requirements for major tactical technology."  Just steps from boarding a United 747 non-stop to China, a routine check by U.S. customs agents revealed she was carrying $30,000 in cash after declaring she had only $10,000. . . . According to the feds, she also had a laptop computer and data storage devices, more than 1,000 electronic and paper documents.  Jin had worked at Motorola for ten years, mostly as a software engineer.  (ABC, 4 Mar 09)

Threatened from all sides

Information security is no longer merely a technical problem – ­ it has become a business imperative. Organizations that have failed to grasp this fact can find their reputations shredded as quickly as sensitive data can be smuggled out of their networks.  Those responsible for information security management must therefore have a deep understanding of the technology and business processes within the company, and ensure that all information users follow best practice.  “Companies need to bring together IT, security, business, legal, HR and other professional groups to agree levels of acceptable risk and put in place the policies and controls needed to meet these targets,” says Professor Howard Schmidt, president of user group the Information Security Forum.

However, good data security is not just about good housekeeping, it is also a legal requirement. In the UK, the Financial Services Authority has imposed significant fines on organizations that have suffered data breaches as a result of their own negligence. Meanwhile, the Information Commissioner is seeking tougher powers to enforce data protection laws.  IT security chiefs should use the guidance from these regulators to shape their policies, says Chris Coulter, commercial lawyer and partner at law firm Morrison & Foerster. “The Information Commissioner is now very clear that encryption on mobile devices is a good thing and that failure to encrypt is going to be an obvious breach of the law if the data is subsequently lost,” he says.  “Clearly, the increasing prevalence of mobile devices is placing pressure on IT leaders to ensure that out-of-the-office data is properly protected and that users understand the basics of security – ­ lock doors, password protect devices and don’t leave laptops on trains.”   (Computing, 3 Mar 09)

Independent Film Development Discharges George Ivakhnik, Files Suit

Independent Film Development Corp., a business development company, announced today that it has discharged its former Vice President, George Ivakhnik, and has filed suit for injunctive relief to obtain the return of company property, including investor lists and contact information, and damages.   In a lawsuit filed with the Los Angeles Superior Court in Santa Monica, California, Independent Film Development Corp. v. Ivakhnik, Case No. SC101941, the company alleged that Ivakhnik, whose contract with the company prohibited him from using company work product and information, whether provided to him or produced by him, was discharged for using that information to contact company investors to induce them to invest in other companies, including Big Screen Entertainment Group, Inc., and Hollywood Intermediate, Inc., which is a party to a letter of intent with the company.   The letter of intent contemplated a contract between the company and Hollywood Intermediate, whereby the company would purchase certain ownership of Hollywood Intermediate and provide certain financial investments. Ivakhnik, the suit alleges, continued to work for the company, using company offices and company email, but instead of furthering the company's interests, secured himself a position with Hollywood Intermediate and diverted company investment opportunities directly to Hollywood Intermediate and himself for his own personal gain.  (Digital 50, 2 Mar 09)

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