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Chinese National Arrested For Source Code Theft

The information was taken from a New Jersey company that develops, implements, and supports software for environmental applications.

Thomas Claburn

April 14, 2009

3 Min Read

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.

"Crimes of this nature do not get much public attention," FBI Special Agent in Charge Weysan Dun said in a statement. "No one is shot, there is no crime scene, no prominent public figures are involved. However, this is an act of economic violence -- a paper crime that robs the victim company of the resources they expended to develop a product."

Dun said that white-collar crimes of this sort are clearly dangerous to America's economic infrastructure. "If American dollars are spent on research and development of a product, and then that product or research is taken without any compensation to American companies, the value of American companies and American products is significantly reduced in the global marketplace," he said.

David Schafer, the assistant federal public defender representing Zhu, declined to comment or to identify Zhu's former U.S. employer.

According to the criminal complaint, Zhu's former employer is an unnamed company based in Mercer County, N.J., that develops, implements, and supports software for environmental applications. One of its applications is an environmental information management portal for the Chinese market.

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 $440,000. 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.


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The article was edited on 4/15 to correct the amount Shanxi EPA paid in Nov. 2007.

About the Author(s)

Thomas Claburn

Editor at Large, Enterprise Mobility

Thomas Claburn has been writing about business and technology since 1996, for publications such as New Architect, PC Computing, InformationWeek, Salon, Wired, and Ziff Davis Smart Business. Before that, he worked in film and television, having earned a not particularly useful master's degree in film production. He wrote the original treatment for 3DO's Killing Time, a short story that appeared in On Spec, and the screenplay for an independent film called The Hanged Man, which he would later direct. He's the author of a science fiction novel, Reflecting Fires, and a sadly neglected blog, Lot 49. His iPhone game, Blocfall, is available through the iTunes App Store. His wife is a talented jazz singer; he does not sing, which is for the best.

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