DOJ to Charge Chinese Army Hacked U.S. Firms

  • photo courtesy of Wonderlane https://www.flickr.com/photos/wonderlane/2318269286
    May 19, 2014

    The lack of consequences helps explain why cybercrime and cyber espionage are rampant.  If you don’t hold countries accountable for bad actions, they see no reason to stop. China has been engaged in a massive campaign of economic espionage against the United States for years, and in the last decade, much of the spying has moved into cyberspace. An internal U.S. review (not made public) found that China’s economic espionage activities were greater than all others combined, including Russia. In 2013, the FBI privately notified 3000 U.S. companies that they had been hacked. The espionage problem is growing and can only be controlled if there is a response.

    The Department of Justice has been working on this for more than a year. Prosecutors in the DOJ’s National Security Division had two criteria: cases where there was strong, specific evidence and companies that were willing to go public against China. This eliminated big multinationals, which rightly fear that China would retaliate against them in an important market. 

    The issue of Chinese economic espionage was a major topic at the first President Summit. This was not the first time that the U.S. raised economic espionage; the topic came up in Ministerial level meetings and working groups as early as 2010. The United States was frank. It accepted that great powers engage in espionage, including the United States against China, and that China had the right to spy for national security reasons, as did the United States. What the U.S. objected to was espionage that had no national security rationale and was done only for commercial purposes, to give Chinese companies an unfair advantage in the market. 

    The Chinese response was that building China’s economy and strengthening its technological base were national security issues. One People’s Liberation Army officer put it this way: “In the U.S., military espionage is heroic and economic espionage is a crime, but in China, the line is not as clear.” 

    China will of course deny the charges and assert that Snowden’s leaks show the United States does the same. This isn’t true. If there was evidence that NSA was engaged in economic espionage against Chinese companies, stealing paint formulas or shale gas technology, for example, why hasn’t it been leaked? Some Americans, with their usual hubris, would also say there is little Chinese technology worth stealing. 

    The director of an allied intelligence service once described the theft of sensitive business negotiation is as a “normal business practice” in China.  The Chinese government uses it to give Chinese companies an immediate advantage.  The director of an allied intelligence service once described the theft of sensitive business negotiation is as a “normal business practice” in China.  The Chinese government uses it to give Chinese companies an immediate advantage.  China agreed to protect intellectual property when it joined the World Trade Organization (WTO) and has never really done so. The United States has in effect been asking them to play by the rules of both global trade and espionage, and the Chinese have ignored these requests. There are rules in espionage, implicit and unstated, but understood. One rule is to not overdo it; Snowden’s leaks showed that U.S. ignored this rule to its cost. Now China has been called out as well. The most likely Chinese reaction will be denial, a recitation of Snowdon leaks, and threats to take action against U.S. companies. 

    China will be tempted to retaliate. They could punish U.S. companies in China (another violation of WTO rules, not that this would bother them), they could indicate U.S. officials based on the Snowden leaks, but tit-for-tat indictments risk leading back to China’s own corruption problems.  Fears of Chinese currency manipulation are wildly overstated – the Chinese economy is in bad financial shape (given the huge local debts) and can’t risk destabilizing the global economy – it would be the first victim. It would be in neither country’s interest to start a trade war. The United States could manage retaliation by letting the Chinese government know that it would take appropriate countermeasures in response. The United States is less vulnerable to Chinese pressure (even if individual U.S. companies are vulnerable). This is a case where the public good may outweigh the good of individual companies.

    This sort of legal action is a standard tactic in espionage. It sends a clear signal to the other side that their actions have become intolerable. Other steps can include the expulsion of diplomatic, restrictions on trade, travel (including visa restrictions and financial operations), and even sanctions, and today’s action is best seen as a first step in a process that will take several years.  Getting economic espionage under control will be difficult for Beijing, given how espionage is linked to private economic interests and to China’s economic strategies.  The best outcome would be a serious commitment, most likely private, by China to scale back its economic espionage program. The United States needs China to grow, but not at the expense of flouting trade rules and international law and practice.  The next step depends on the Chinese.

    James Andrew Lewis is a senior fellow and director of the Strategic Technologies Program at the Center for Strategic and International Studies in Washington, D.C.

    Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
    © 2014 by the Center for Strategic and International Studies. All rights reserved.

     

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