China Keeps Espionage in Family of Businesses

0 Comments | Insight on the News, June 28, 1999 | by Kenneth R. Timmerman

The Cox committee report states on p. 34 that the Chinese government operates more than 3,000 front companies in the United States, "some with links to the PLA [People's Liberation Army], a State intelligence service or with technology targeting and acquisition roles." The report goes on to describe a variety of missions these companies have been tasked to carry out, ranging from the acquisition of high technology, intelligence gathering, money laundering and even the funding of Chinese intelligence operations.

While that description is extraordinary in itself, details of Chinese commercial and intelligence networks currently operating in the United States were deleted from the report. Again and again, as one reads on p. 44, "the Clinton administration has determined that further information on this case cannot be made public."

Often, these deletions mask political embarrassment: the failure of the administration to crack down on Chinese-government spying in this country. This has occurred despite repeated pleas from law-enforcement agencies to devote more resources to the task. The FBI field office in Los Angeles, which remains the center of Chinese commercial and intelligence operations in this country, only has one Chinese-speaking agent; requests for more have been denied by the political leadership in Washington. Neither the U.S. Customs in Los Angeles nor the Commerce Department's Office of Export Enforcement in nearby Newport Beach has a single Chinese speaker, despite their responsibility for ensuring that no illegal high-technology exports to China occur from the nation's two largest ports, at Long Beach and the adjoining Los Angeles harbor. "We are way behind the curve" said one Commerce Department agent in California, "and we know it."

Since 1993 there has been an explosion of California companies owned and operated by the PLA or exploited by Chinese intelligence that have been used to steal U.S. high technology and to fund Chinese intelligence operations. This commingling of the legitimate with the illicit, the benign with the dangerous, now poses a serious threat to U.S. national security and was highlighted in the Cox report.

The most avid perpetrators, U.S. officials believe, are transplanted Chinese from the People's Republic of China, or PRC, as well as from Hong Kong and Taiwan. These are the ones committing the fraud, said Mark Waultney, a Customs agent in Los Angeles. In one case sketched out by Waultney's boss, John Hensley, before a Senate hearing in July 1997, a Chinese front company managed to purchase 37 guidance kits for F-117A stealth fighters from a Defense Department depot and ship them to China as "scrap." In another case, brokers working for the Communist Chinese government snatched up an astonishing 26,000 fully operational encryption devices, including computer disk drives loaded up with top-secret technical documents all considered U.S.-government scrap.

And these are cases where Customs got lucky, since they had been tipped off by a former Pentagon employee-turned-whistle-blower. "The People's Republic of China is all over this state," one California-based U.S. government investigator said. They have their own procurement fronts, their own shipping companies and freight forwarders; they even have their own banks. They can carry out every aspect of an illegal transaction without ever having to use an American, and this is what makes it so hard to penetrate their networks.

A high concentration of Chinese-government front companies continues to operate out of El Monte, a modest working-class suburb located some 10 miles due east of downtown Los Angeles. El Monte has few distinguishing characteristics: a municipal bus station, a small strip mail and terrific access to the L.A. freeway system. Its mainland Chinese companies are clustered in a light-industrial area on either side of the San Bernardino-Santa Monica freeway stretching from Alhambra, Monterey Park and El Monte to Arcadia, Rosemead, San Gabriel, Baldwin Park and La Puenta.

Primary among them is the China National Aero Technology Import Export Co., or CATIC. CATIC has its own neat, well-landscaped building at 9645 Telstar Ave. in El Monte, just a few minutes from the freeway. As part of Aviation Industries Corporation of China, CATIC is owned by the Chinese state and takes orders from Communist China's highest governing body, the State Council. Back in China, CATIC owns factories that develop fighter aircraft and remotely piloted vehicles and contributes to cruise-missile development. In El Monte, CATIC buys paper pulp to be shipped to China for recycling and imports bicycles, electrical parts and hardware for sale in the United States. But it also purchases aerospace systems, which it ships back to China clandestinely for use in military projects.

Late one Friday afternoon in June 1997, a Chinese national named Quang Li called a friend at Morrison Express, a freight forwarder based near the headquarters of Hughes Aircraft Corp. in El Segundo, Calif. Li had an unusual request: He needed to book space on a flight leaving Los Angeles International Airport for Beijing at 1 p.m. the next day. The cargo was a single crate containing five TNL 2100 I/O Global Positioning Satellite navigation systems built by Trimble Navigation of Sunnyvale, Calif. Their destination: the China National Aero-Technology Corp. in Beijing -- CATIC's state-owned parent corporation.