United Technologies Subsidiary Pleads Guilty to Criminal Charges for Helping China Develop New Attack Helicopter

United Technologies, Pratt & Whitney Canada and Hamilton Sundstrand Corporations Also Agree to Pay More than $75 Million to U.S. Government

BRIDGEPORT, CT—Pratt & Whitney Canada Corp. (PWC), a Canadian subsidiary of the Connecticut-based defense contractor United Technologies Corporation (UTC), today pleaded guilty to violating the Arms Export Control Act and making false statements in connection with its illegal export to China of U.S.-origin military software used in the development of China’s first modern military attack helicopter, the Z-10.

In addition, UTC, its U.S.-based subsidiary Hamilton Sundstrand Corporation (HSC) and PWC have all agreed to pay more than $75 million as part of a global settlement with the Justice Department and State Department in connection with the China arms export violations and for making false and belated disclosures to the U.S. government about these illegal exports. Roughly $20.7 million of this sum is to be paid to the Justice Department. The remaining $55 million is payable to the State Department as part of a separate consent agreement to resolve outstanding export issues, including those related to the Z-10. Up to $20 million of this penalty can be suspended if applied by UTC to remedial compliance measures. As part of the settlement, the companies admitted conduct set forth in a stipulated and publicly filed statement of facts.

Today’s actions were announced by David B. Fein, U.S. Attorney for the District of Connecticut; Lisa Monaco, Assistant Attorney General for National Security; John Morton, Director of U.S. Immigration and Customs Enforcement (ICE); Ed Bradley, Special Agent in Charge of the Northeast Field Office of the Defense Criminal Investigative Service (DCIS); Kimberly K. Mertz, Special Agent in Charge of the FBI New Haven Division; David Mills, Department of Commerce Assistant Secretary for Export Enforcement; and Andrew J. Shapiro, Assistant Secretary of State for Political-Military Affairs.

The Charges

Today in the District of Connecticut, the Justice Department filed a three-count criminal information charging UTC, PWC and HSC. Count One charges PWC with violating the Arms Export Control Act in connection with the illegal export of defense articles to China for the Z-10 helicopter. Count Two charges PWC, UTC and HSC with making false statements to the U.S. government in their belated disclosures relating to the illegal exports. Count Three charges PWC and HSC with failure to timely inform the U.S. government of exports of defense articles to China.

While PWC has pleaded guilty to Counts One and Two, the Justice Department has recommended that prosecution of UTC and HSC on Count Two, and PWC and HSC on Count Three be deferred for two years, provided the companies abide by the terms of a deferred prosecution agreement with the Justice Department. As part of the agreement, the companies must pay $75 million and retain an Independent Monitor to monitor and assess their compliance with export laws for the next two years.

The Export Scheme

Since 1989, the United States has imposed a prohibition upon the export to China of all U.S. defense articles and associated technical data as a result of the conduct in June 1989 at Tiananmen Square by the military of the People’s Republic of China. In February 1990, the U.S. Congress imposed a prohibition upon licenses or approvals for the export of defense articles to the People’s Republic of China. In codifying the embargo, Congress specifically named helicopters for inclusion in the ban.

Dating back to the 1980s, China sought to develop a military attack helicopter. Beginning in the 1990s, after Congress had imposed the prohibition on exports to China, China sought to develop its attack helicopter under the guise of a civilian medium helicopter program in order to secure Western assistance. The Z-10, developed with assistance from Western suppliers, is China’s first modern military attack helicopter.

During the development phases of China’s Z-10 program, each Z-10 helicopter was powered by engines supplied by PWC. PWC delivered 10 of these development engines to China in 2001 and 2002. Despite the military nature of the Z-10 helicopter, PWC determined on its own that these development engines for the Z-10 did not constitute “defense articles,” requiring a U.S. export license, because they were identical to those engines PWC was already supplying China for a commercial helicopter.

Because the Electronic Engine Control software, made by HSC in the United States to test and operate the PWC engines, was modified for a military helicopter application, it was a defense article and required a U.S. export license. Still, PWC knowingly and willfully caused this software to be exported to China for the Z-10 without any U.S. export license. In 2002 and 2003, PWC caused six versions of the military software to be illegally exported from HSC in the United States to PWC in Canada, and then to China, where it was used in the PWC engines for the Z-10.

According to court documents, PWC knew from the start of the Z-10 project in 2000 that the Chinese were developing an attack helicopter and that supplying it with U.S.-origin components would be illegal. When the Chinese claimed that a civil version of the helicopter would be developed in parallel, PWC marketing personnel expressed skepticism internally about the “sudden appearance” of the civil program, the timing of which they questioned as “real or imagined.” PWC nevertheless saw an opening for PWC “to insist on exclusivity in [the] civil version of this helicopter,” and stated that the Chinese would “no longer make reference to the military program.” PWC failed to notify UTC or HSC about the attack helicopter until years later and purposely turned a blind eye to the helicopter’s military application.

HSC in the United States had believed it was providing its software to PWC for a civilian helicopter in China, based on claims from PWC. By early 2004, HSC learned there might an export problem and stopped working on the Z-10 project. UTC also began to ask PWC about the exports to China for the Z-10. Regardless, PWC on its own modified the software and continued to export it to China through June 2005.

According to court documents, PWC’s illegal conduct was driven by profit. PWC anticipated that its work on the Z-10 military attack helicopter in China would open the door to a far more lucrative civilian helicopter market in China, which according to PWC estimates, was potentially worth as much as $2 billion to PWC.

Belated and False Disclosures to U.S. Government

These companies failed to disclose to the U.S. government the illegal exports to China for several years and only did so after an investor group queried UTC in early 2006 about whether PWC’s role in China’s Z-10 attack helicopter might violate U.S. laws. The companies then made an initial disclosure to the State Department in July 2006, with follow-up submissions in August and September 2006.

The 2006 disclosures contained numerous false statements. Among other things, the companies falsely asserted that they were unaware until 2003 or 2004 that the Z-10 program involved a military helicopter. In fact, by the time of the disclosures, all three companies were aware that PWC officials knew at the project’s inception in 2000 that the Z-10 program involved an attack helicopter.

Today, the Z-10 helicopter is in production and initial batches were delivered to the People’s Liberation Army of China in 2009 and 2010. The primary mission of the Z-10 is anti-armor and battlefield interdiction. Weapons of the Z-10 have included 30 mm cannons, anti-tank guided missiles, air-to-air missiles and unguided rockets.

“PWC exported controlled U.S. technology to China, knowing it would be used in the development of a military attack helicopter in violation of the U.S. arms embargo with China,” said U.S. Attorney Fein. “PWC took what it described internally as a ‘calculated risk,’ because it wanted to become the exclusive supplier for a civil helicopter market in China with projected revenues of up to two billion dollars. Several years after the violations were known, UTC, HSC and PWC disclosed the violations to the government and made false statements in doing so. The guilty pleas by PWC and the agreement reached with all three companies should send a clear message that any corporation that willfully sends export controlled material to an embargoed nation will be prosecuted and punished, as will those who know about it and fail to make a timely and truthful disclosure.”

“Due in part to the efforts of these companies, China was able to develop its first modern military attack helicopter with restricted U.S. defense technology. As today’s case demonstrates, the Justice Department will spare no effort to hold accountable those who compromise U.S. national security for the sake of profits and then lie about it to the government,” said Assistant Attorney General Monaco. “I thank the agents, analysts and prosecutors who helped bring about this important case.”

“This case is a clear example of how the illegal export of sensitive technology reduces the advantages our military currently possesses,” said ICE Director Morton. “I am hopeful that the conviction of Pratt & Whitney Canada and the substantial penalty levied against United Technologies and its subsidiaries will deter other companies from considering similarly ill-conceived business practices in the future. American military prowess depends on lawful, controlled exports of sensitive technology by U.S. industries and their subsidiaries, which is why ICE will continue its present campaign to aggressively investigate and prosecute criminal violations of U.S. export laws relating to national security.”

“Today’s charges and settlement demonstrate the continued commitment of the Defense Criminal Investigative Service (DCIS) and fellow agencies to protect sensitive U.S. defense technology from being illegally exported,” said DCIS Special Agent in Charge Bradley. “Safeguarding our military technology is vital to our nation’s defense and the protection of our war fighters both home and abroad. We know that foreign governments are actively seeking U.S. defense technology for their own development. Thwarting these efforts is a top priority for DCIS. I applaud the agents and prosecutors who worked tirelessly to bring about this result.”

“Preventing the loss of critical U.S. information and technologies is one of the most important investigative priorities of the FBI,” said FBI Special Agent in Charge Mertz. “Our adversaries routinely target sensitive research and development data and intellectual property from universities, government agencies, manufacturers, and defense contractors. While the thefts associated with economic espionage and illegal technology transfers may not capture the same level of attention as a terrorist incident, the costs to the U.S. economy and our national security are substantial. Violations of the Arms Export Control Act put our nation at risk and the FBI, along with all of our federal agency partners, are committed to ensuring that embargoed technologies do not fall into the wrong hands. Those who violate these laws should expect to be held accountable. An important part of the FBI’s strategy in this area involves the development of strategic partnerships. In that regard, the FBI looks forward to future coordination with UTC and its subsidiaries to strengthen information sharing and counterintelligence awareness.”

“Protecting national security is our top priority,” said Assistant Secretary of Commerce for Export Enforcement Mills. “Today’s action sends a clear signal that federal law enforcement agencies will work together diligently to prevent U.S. technology from falling into the wrong hands.”

Assistant Secretary Shapiro, of the State Department’s Bureau of Political and Military Affairs, said, “Today’s $75 million settlement with United Technologies Corporation sends a clear message: willful violators of U.S. arms export control regulations will be pursued and punished. The successful resolution of this case is the byproduct of the tireless work of our compliance officers and highlights the relentless commitment of the State Department to protect sensitive American technologies from being illegally transferred.”

U.S. Attorney Fein commended the many agencies involved in this investigation, including ICE’s Homeland Security Investigations (HSI) in New Haven; the DCIS in New Haven; the New Haven Division of the FBI; the Department of Commerce’s Boston Office of Export Enforcement. He also praised the Office of the HSI Attaché in Toronto, which was essential to the initiation and investigation of this matter, and the State Department’s Office of Defense Trade Controls Compliance in the Bureau of Political-Military Affairs, for its critical role in the global resolution of this matter.

The prosecution is being handled by Assistant U.S. Attorneys Stephen B. Reynolds and Michael J. Gustafson from the U.S. Attorney’s Office for the District of Connecticut, with assistance from Steven Pelak and Ryan Fayhee of the Counterespionage Section of the Justice Department’s National Security Division.

The Language of Justice

The following post appears courtesy of Deeana Jang, Chief of the Federal Coordination and Compliance Section of the Civil Rights Division.

“It seems obvious that the Chinese-speaking minority receive fewer benefits than the English-speaking majority from respondents’ school system, which denies them a meaningful opportunity to participate in the educational program — all earmarks of the discrimination banned by the regulations.” – U.S. Supreme Court Justice Douglas for the majority, Lau v. Nichols, 414 U.S. 563 (1974)

Though it’s been nearly 40 years since the Lau decision – a landmark ruling that expanded the rights of non-English speaking students in America, language access still remains a critical civil rights issue today for Asian Americans, Pacific Islanders, and other immigrant communities.  In 2010, over 25 million individuals – about 9% of the U.S. population over age 5 – reported having limited English proficiency.  And for over two-thirds of Asian Americans and nearly one-third of Native Hawaiians and Pacific Islanders, English is not spoken at  home. 

In an effort to address the persistent challenges facing limited English proficient (LEP) communities across the nation, the Federal Coordination and Compliance Section (FCS) in the Civil Rights Division of the U.S. Department of Justice (DOJ) has done remarkable work to improve language access in federal and federally-assisted programs and activities.  Under Title VI of the Civil Rights Act of 1964, it’s illegal for any federally-assisted program to discriminate based on race, color, or national origin.  These protections extend to individuals with limited English proficiency.  These protections also apply to the federal government’s own programs, under an Executive Order issued by President Clinton in 2000. The many and varied programs that the federal government runs – from disaster preparedness, response, and recovery to Medicare and Social Security, to naturalization and immigration proceedings, tax collection matters, and law enforcement action – must also ensure access for LEP individuals.

At the Department of Justice, FCS has jurisdiction to address allegations of discrimination along these lines.  Along with a component of the Office of Justice Programs – known as the Office for Civil Rights – FCS ensures that recipients of DOJ grants – including the vast majority of police departments, state courts, and state and local correctional facilities and jails – comply with all applicable protections.

This means ensuring that law enforcement officials don’t permit race, color, or national origin to influence or affect their investigative work – and that LEP individuals don’t receive fewer protections than their English-speaking counterparts.  It means working to guarantee that courts don’t discriminate or allow legal proceedings to move forward without a qualified interpreter for LEP individuals.  And in our nation’s correctional system, it means lowering communication barriers between staff and LEP inmates, while prohibiting a broad range of discriminatory practices.  After all, as Tom Perez, Assistant Attorney General for the Civil Rights Division, recently said: “[i]t is essential as a safety matter and as a civil rights matter for officials who administer a jail to ensure that employees can effectively communicate with prisoners who have limited English skills.” 

In each of these areas, I am proud of the strong track record that the Justice Department has established – and continues to build upon – in the vital work of improving access for the LEP community in police departments, courthouses, and correctional facilities all across the country.  I am confident that we will continue to raise awareness, while vigorously and consistently enforcing our civil rights laws whenever and wherever appropriate.

I’m particularly grateful for the leadership that Attorney General Holder has shown in translating this commitment into action.   In 2010, the Attorney General called for the creation of a Departmental Language Access Working Group to develop, implement, and monitor the Department’s LEP plan.  This past March, we posted our language access plan, and nearly 30 Department components – including the Civil Rights Division – have developed and are currently in the process of implementing plans and procedures to ensure our ability to communicate clearly and effectively with LEP persons.  Perhaps most importantly, the Attorney General has also taken the bold step of calling upon all federal agencies to do the same, and has charged FCS with leading these efforts across federal agencies.

As Chief of FCS, I am proud to help lead this critical work for LEP communities in America.  But helping the LEP community is not just my professional mission – it’s also a personal one.  From my experience volunteering and working with a variety of nonprofits that serve Asian and Pacific Islander immigrant communities, I understand the importance of our racial and ethnic diversity, and I will strive to foster even greater inclusion for everybody living in America.

Two Taiwanese Nationals Charged in New Jersey with Conspiring to Export Sensitive U.S. Military Technology to China

Alleged Conspiracy Uncovered Through Investigations into Large-Scale, International Schemes to Import Counterfeit Goods and Drugs Through Port Newark

NEWARK—Two Taiwanese nationals are charged for allegedly seeking to export sensitive U.S. military technology to China after federal agents investigating counterfeit goods smuggling uncovered plots to smuggle drugs into and sensitive defense articles out of the United States, Paul J. Fishman, U.S. Attorney for the District of New Jersey; and Michael B. Ward, Special Agent in Charge for the FBI Newark Division, announced today.

Hui Sheng Shen, aka “Charlie,” 45; and Huan Ling Chang, aka “Alice,” 41, were previously charged in connection with an alleged scheme to import 50 kilograms of crystal methamphetamine, or “meth,” from Taiwan into the United States. Those charges arose as a result of parallel international investigations that also disrupted conspiracies to import hundreds of millions of dollars in counterfeit goods from China.

Federal agents arrested Shen and Chang on February 25, 2012 in New York. The pair was charged in a criminal complaint unsealed March 2, 2012, with one count of conspiracy to import and one count of importation of meth. The amended complaint unsealed today also charges Shen and Chang with conspiracy to violate the Arms Export Control Act.

According to the amended complaint, approximately one kilogram of nearly pure crystal meth was purchased from Shen and Chang as part of an undercover law enforcement operation, which stopped the importation of dozens of additional kilograms of the drug. Based on relationships undercover law enforcement agents built with Shen and Chang, the two defendants allegedly provided a list of sensitive defense articles they sought to buy and planned to return to connections in China. The articles included unmanned aerial vehicles (commonly known as drones), E-2C Hawkeye surveillance airplanes, and stealth technology relating to F-22 fighter planes.

Shen and Chang are scheduled to appear before U.S. Magistrate Judge Cathy L. Waldor this afternoon in Newark federal court.

“Initial investigations into counterfeit goods importation led federal law enforcement to a meth trafficking operation and an alleged plot to export some of America’s most sensitive weapons and related technology to China,” said U.S. Attorney Fishman. “The charges against Shen and Chang illustrate starkly why we do this work, and what is at stake when the security of our ports is breached for any reason. National security isn’t an a la carte enterprise. The same conduits that bring knockoff sneakers flood our communities with illegal drugs and establish dangerous criminal relationships.”

According to documents filed in this and related cases and the amended criminal complaint unsealed today:

Soon Ah Kow, 72, of Hong Kong, was charged by indictment with drug importation, smuggling, and counterfeit goods trafficking offenses by a Newark federal grand jury on January 6, 2012 and arrested on February 25, 2012 in Manila, the Philippines. Ah Kow was in the business of brokering international transactions of illegal goods. Operating out of Southeast Asia, he met with and introduced his co-conspirators to undercover federal agents (FBI UCs) for the purpose of importing counterfeit goods and narcotics from Asia to the United States.

In late 2010, Ah Kow began discussions with FBI UCs about narcotics importation, meeting in February 2011 with FBI UCs in Manila where he introduced them to his associates, Shen and Chang. In Manila, Ah Kow told the FBI UCs that Shen and Chang represented the interests of Ah Kow’s associates, wealthy narcotics dealers who had been trafficking drugs for more than 25 years. Ah Kow and Shen arranged for the delivery of a sample of crystal meth to the FBI UCs’ hotel lobby, which arrived within hours of a call Ah Kow placed to an associate.

Following negotiations over recorded telephone calls and intercepted e-mails, the FBI UCs arranged payment to cover the price of one kilogram of crystal meth, shipping costs, and a broker’s fee for Ah Kow. In July 2011, the FBI UCs received a bill of lading for the container that included the meth, which arrived at the port on August 9, 2011. The drugs were discovered secreted within the container in the exact location described by Shen and Chang.

During negotiations for the one kilogram meth deal, Shen and Chang made clear they usually did larger transactions, but agreed to do a smaller transaction to establish trust among the parties. They discussed shipping more than 50 kilograms of meth to the United States.

In September 2011, Shen and Chang asked whether the FBI UCs could obtain and pass along highly sensitive military technology, specifically, a Hawkeye reconnaissance aircraft, which the defendants instructed should be referred to as the “big toy.”

During other recorded conversations, the defendants indicated their clients were interested in a range of American military technology. Shen, Chang, and an FBI UC met in October 2011 in Las Vegas, where they discussed narcotics and the export of the technology. Chang provided the FBI UC with a list of specific military technology items they sought.

At a Las Vegas meeting, FBI UCs asked what purposes Shen and Chang had for any military technology they were seeking to obtain. When an FBI UC stated, “I would prefer not to make money on something that would hurt the United States,” Shen replied, “I think that all items would hurt America.”

During a series of recorded phone conversations and in-person meetings, the defendants told FBI UCs that their associates were connected to the Chinese government, worked for a Chinese intelligence company like the CIA, and would be using government money to make the purchases.

Describing their associates in one call, Chang said, “Their status is a bit special, so in order to travel to U.K. or United States, all developed countries, for them it’s hard for them to...” Shen interrupted, “They are spies. They, they, they are very hard to get a visa. They cannot go to U.S. or U.K.”

Shen and Chang returned to the United States in February 2012 to finalize negotiations for a series of larger drug transactions and to look at and photograph certain military technology that the FBI UCs said they had acquired. Shen and Chang met with FBI UCs in New York to see a small drone, used by the U.S. military, as well as manuals associated with other drones. Shen and Chang had purchased cameras for the explicit purpose of taking photographs of the defense technology. The pair planned to avoid law enforcement detection by taking photographs, deleting those photographs, and bringing the memory cards back to China, where a contact had the ability to recover deleted items. The defendants took the photos, but FBI agents were there to arrest them before the photos could be deleted.

The conspiracy to violate the Arms Export Control Act charge carries a maximum potential penalty of five years in prison and a $250,000 fine. The meth importation conspiracy and meth importation charges each carry a mandatory minimum penalty of 10 years in prison and a maximum penalty of life in prison and a $4 million fine.

U.S. Attorney Fishman praised special agents of the FBI, under the direction of Special Agent in Charge Ward in Newark, for the investigation leading to the export violation conspiracy charge, as well as ICE Homeland Security Investigations, under the direction of Special Agent in Charge Andrew M. McLees, for its work in the parallel investigation. He also thanked Customs and Border Protection, under the direction of Robert E. Perez, Director, New York Field Operations, for its important role. U.S. Attorney Fishman also credited the U.S. Air Force Office of Investigations; FBI special agents in Manila, Beijing, Hong Kong, and Taiwan; the Philippine authorities; and the Department of Justice’s Organized Crime and Gangs Section, National Security Division, Office of Enforcement Operation, and Office of International Affairs for their contributions.

The government is represented by Assistant U.S. Attorney Zach Intrater and Chief Erez Liebermann of the Computer Hacking and Intellectual Property Section of the U.S. Attorney’s Office Economic Crimes Unit and Assistant U.S. Attorney Andrew Pak of the Office’s General Crimes Unit in Newark.

The charges and allegations contained in the amended complaint charging Shen and Chang and the indictment charging Ah Kow are merely accusations, and the defendants are considered innocent unless and until proven guilty.

U.S. and Chinese Defendants Charged with Economic Espionage and Theft of Trade Secrets in Connection with Conspiracy to Sell Trade Secrets to Chinese Companies

U.S. Citizens Alleged to Have Conveyed Valuable DuPont Technology to Companies Controlled by the Government of the People’s Republic of China

SAN FRANCISCO – A federal grand jury in San Francisco has charged five individuals and five companies with economic espionage and theft of trade secrets for their roles in a long-running effort to obtain U.S. trade secrets for the benefit of companies controlled by the government of the People’s Republic of China (PRC), announced U.S. Attorney Melinda Haag; Lisa Monaco, Assistant Attorney General for National Security at the Department of Justice; and Stephanie Douglas, Special Agent in Charge of the FBI San Francisco Division.

 According to the superseding indictment, the government of the PRC identified as a priority the development of chloride-route titanium dioxide (TiO2) production capabilities.  TiO2 is a commercially valuable white pigment with numerous uses, including coloring paint, plastics and paper.  To achieve that goal, companies controlled by the PRC government, specifically the Pangang Group companies named in the superseding indictment, and employees of those companies conspired and attempted to illegally obtain TiO2 technology that had been developed over many years of research and development by E.I. du Pont de Nemours & Company (DuPont).

 According to the superseding indictment, the Pangang Group companies were aided in their efforts by individuals in the United States who had obtained TiO2 trade secrets and were willing to sell those secrets for significant sums of money.  Defendants Walter Liew, Christina Liew, Robert Maegerle and Tze Chao obtained and possessed TiO2 trade secrets belonging to DuPont.  Each of these individuals allegedly sold information containing DuPont TiO2 trade secrets to the Pangang Group companies for the purpose of helping those companies develop large-scale chloride route TiO2 production capability in the PRC, including a planned 100,000 ton TiO2 factory at Chongqing, PRC.

 According to the superseding indictment, the Liews, USA Performance Technology Inc. (USAPTI), and one of its predecessor companies, Performance Group, entered into contracts worth in excess of $20 million to convey TiO2 trade secret technology to Pangang Group companies.  The Liews allegedly received millions of dollars of proceeds from these contracts.  The proceeds were wired through the United States, Singapore and ultimately back into several bank accounts in the PRC in the names of relatives of Christina Liew.

 The five individuals charged in the indictment are:

 •Walter Lian-Heen Liew, aka “Liu Yuanxuan,” 54, of Orinda, Calif.  Mr. Liew is a naturalized U.S. citizen and co-owner of USAPTI.  Mr. Liew is charged with conspiracy to commit economic espionage, conspiracy to commit theft of trade secrets, attempted economic espionage, attempted theft of trade secrets, possession of trade secrets, conveying trade secrets, conspiracy to obstruct justice, witness tampering, conspiracy to tamper with evidence and false statements.  Mr. Liew was charged in August 2011 with obstruction of justice and making false statements to the FBI.  He was arrested at that time and has been ordered detained pending trial based on a finding by Magistrate Judge Nathanael Cousins that he is a flight risk.  Mr. Liew’s next scheduled court appearance is before the Honorable Jeffrey S. White on Feb. 9, 2012, at 2:00 pm.

 •Christina Hong Qiao Liew, aka “Qiao Hong,” 49, of Orinda.  Mrs. Liew is a naturalized U.S. citizen and co-owner with her husband, Walter Liew, of USAPTI. Mrs. Liew is charged with conspiracy to commit economic espionage, conspiracy to commit theft of trade secrets, attempted economic espionage, attempted theft of trade secrets, witness tampering, conspiracy to tamper with evidence and false statements.  Mrs. Liew also was charged in August 2011 with obstruction of justice and making false statements to the FBI.  She was released by the court on conditions that include travel restrictions and electronic monitoring.   Mrs. Liew’s next scheduled court appearance is before the Honorable Jeffrey S. White on Feb. 9, 2012, at 2:00 pm.
 •Hou Shengdong, 42, a citizen of the PRC.  Hou was the vice director of the Chloride Process TiO2 Project Department for the Pangang Group Titanium Industry Company Ltd.  According to the superseding indictment, Hou and other Pangang Group employees requested DuPont blueprints as a condition of working on the Pangang Group project.  Hou is charged with conspiracy to commit economic espionage, conspiracy to commit theft of trade secrets and attempted economic espionage.  A warrant has been issued for Hou’s arrest.
 •Robert Maegerle, 76, of Harbeson, Del.  Maegerle was employed by DuPont as an engineer from 1956 to 1991.  According to the superseding indictment, Maegerle had access to DuPont TiO2 trade secrets, including specific information regarding DuPont’s TiO2 facility at Kwan Yin, Taiwan.  Maegerle is charged with conspiracy to commit theft of trade secrets, attempted theft of trade secrets, conveying trade secrets and conspiracy to obstruct justice.  Maegerle was arrested this morning in Harbeson.
 •Tze Chao, 77, of Newark, Del.  Chao was employed by DuPont from 1966 to 2002.  Chao is charged with conspiracy to commit economic espionage.  Chao was served with a summons to appear in court in San Francisco on March 1, 2012, at 9:30 a.m. for arraignment on the superseding indictment.

The superseding indictment also names five companies as defendants:

 •Pangang Group Company Ltd.  Pangang Group is a state-owned enterprise controlled by the State-Owned Assets Supervision and Administration Commission of the PRC State Council and located in Sichuan Province, PRC.

 •Pangang Group Steel Vanadium & Titanium Company Ltd. (PGSVTC).  PGSVTC is a subsidiary of the Pangang Group.
 •Pangang Group Titanium Industry Company Ltd.  Pangang Group Titanium is a subsidiary of PGSVTC and was the entity directly responsible for constructing the 100,000 ton chloride-route TiO2 factory at Chongqing, PRC.  Pangang Group Titanium entered into an agreement with USAPTI in 2009 under which USAPTI conveyed DuPont TiO2 technology to Pangang Group Titanium and its employees.
 •Pangang Group International Economic & Trading Co. (PIETC).  PIETC is a subsidiary of PGSVTC and is responsible for financial matters related to the construction of the Chongqing TiO2 factory.  PIETC signed a 2009 agreement with USAPTI under which DuPont technology was transferred.
 •USA Performance Technology Inc. (USAPTI).  USAPTI is an Oakland, Calif.-based engineering consulting company owned and operated by Walter and Christina Liew.  According to the superseding indictment, USAPTI succeeded two other companies owned by the Liews – Performance Group USA and LH Performance – which also were used in the conspiracy to convey DuPont trade secrets to PRC-based companies.

Each of the five corporate defendants named in the superseding indictment are charged with conspiracy to commit economic espionage, conspiracy to commit theft of trade secrets and attempted economic espionage.  Summonses were issued to each corporate defendant requiring them to appear in court in San Francisco on March 1, 2012, at 9:30 a.m. for arraignment on the superseding indictment.

DuPont is a company based in Wilmington, Del., that manufactures a wide variety of products, including TiO2.  DuPont invented the chloride-route process for manufacturing TiO2 in the late-1940s and since then has invested heavily in research and development to improve that production process.  The global titanium dioxide market has been valued at roughly $12 billion, and DuPont has the largest share of that market.

 The chloride-route process is more efficient and cleaner than the sulfate-route process prevalent in the PRC.  The superseding indictment alleges that the object of the defendants’ conspiracy was to convey DuPont’s secret chloride-route technology to the PRC companies for the purpose of building modern TiO2 production facilities in the PRC without investing in time-consuming and expensive research and development.

 DuPont reported information to the FBI that its TiO2 trade secrets had been misappropriated.  The FBI opened an investigation in March 2011.

 “As today’s case demonstrates, technology developed by U.S. companies is vulnerable to concerted efforts by competitors – both at home and abroad – to steal that technology,” said U.S. Attorney Haag.  “Fighting economic espionage and trade secret theft is one of the top priorities of this Office and we will aggressively pursue anyone, anywhere who attempts to steal valuable information from the United States.”

 Assistant Attorney General Monaco said, “The theft of America’s trade secrets for the benefit of China and other nations poses a substantial and continuing threat to our economic and national security, and we are committed to holding accountable anyone who robs American businesses of their hard-earned research.  I thank the agents and prosecutors who helped bring about this important case.”

 FBI Special Agent-in-Charge Stephanie Douglas stated, “The conduct alleged in the superseding indictment reveals a methodical effort by foreign interests to misappropriate valuable U.S. technology by using individuals operating within our borders.  The goal of this scheme was to obtain the benefit of research and development investments by U.S. companies, without making the same investment of time and money.  This is not only unfair, but it does great damage to the U.S. economy and as a result undercuts on national security.  The FBI is committed to rooting out commercial espionage that puts U.S. companies at a disadvantage in the global market.”

 The maximum statutory penalty for each of the charges alleged in the superseding indictment is as follows:

 •Count One, conspiracy to commit economic espionage: 15 years in prison, $500,000 fine and restitution.  The fine for an organizational defendant is not more than the greatest of $10,000,000 or twice the pecuniary gain or loss.

•Count Two, conspiracy to commit theft of trade secrets: 10 years in prison, $250,000 fine or twice the gross gain or loss, and restitution.   The fine for an organizational defendant is not more than the greatest of $5,000,000 or twice the pecuniary gain or loss.

 •Count Three, attempted economic espionage: 15 years in prison, $500,000 fine and restitution.   The fine for an organizational defendant is not more than the greatest of $10,000,000 or twice the pecuniary gain or loss.
 •Count Four, attempted economic espionage: 15 years in prison, $500,000 fine and restitution.  The fine for an organizational defendant is not more than the greatest of $10,000,000 or twice the pecuniary gain or loss.
 •Count Five, attempted theft of trade secrets: 10 years in prison, $250,000 fine or twice the gross gain or loss, and restitution.  The fine for an organizational defendant is not more than the greatest of $5,000,000 or twice the pecuniary gain or loss.
 •Counts Six and Seven, possession of trade secrets: 10 years in prison, $250,000 fine or twice the gross gain or loss, and restitution.  The fine for an organizational defendant is not more than the greatest of $5,000,000 or twice the pecuniary gain or loss.
•Count Eight, conveying trade secrets: 10 years in prison, $250,000 fine or twice the gross gain or loss, and restitution.  The fine for an organizational defendant is not more than the greatest of $5,000,000 or twice the pecuniary gain or loss.
•Count Nine, possession of trade secrets: 10 years in prison, $250,000 fine or twice the gross gain or loss, and restitution.  The fine for an organizational defendant is not more than the greatest of $5,000,000 or twice the pecuniary gain or loss.
•Count 10, conspiracy to tamper with witnesses and evidence: 20 years in prison, $250,000 fine or twice the gross gain or loss, and restitution.
•Counts 11 and 12, witness tampering: 20 years in prison, $250,000 fine or twice the gross gain or loss, and restitution.
 •Count 13, conspiracy to tamper with evidence: 20 years in prison, $250,000 fine or twice the gross gain or loss, and restitution.
 •Count 14, false statements in a matter within the jurisdiction of the executive branch:  five years in prison, $250,000 fine, and restitution.

The case is being prosecuted by the Special Prosecutions and National Security Unit of the U.S. Attorney’s Office in San Francisco, and the Counterespionage Section of the U.S. Department of Justice.  The investigation, which is ongoing, is being conducted by the FBI.

 Please note, an indictment contains only allegations and, as in all cases, the defendants must be presumed innocent unless and until proven guilty.