ANALYSIS: DOJ China Initiative Thrust Into Diplomatic Spotlight

The closure of China’s consulate in Houston and the announcements of the criminal indictments of six citizens of China in late July have thrust the Department of Justice’s China Initiative to the forefront of the growing U.S. diplomatic dispute with China. Having proceeded relatively quietly since 2018, with its impacts mainly domestic, the China Initiative has escalated rapidly in both legal and diplomatic significance.

Understanding the initiative’s purposes and the Chinese actions that it targets will be important to any organization affected by U.S.-Chinese competition in technology.

Houston Consulate Intellectual Property Espionage

The Department of State ordered China to close the consulate in Houston because of its espionage and influence activities, and the predominant espionage activity stated by U.S. officials was intellectual property theft. The Department of State briefing stated that the Houston consulate was a center of a network of People’s Liberation Army (PLA) associates who concealed their military affiliations when applying for student visas; was involved with grant fraud at a Texas research institution, with consulate officials directing researchers regarding information to collect; and promoted Chinese “talent plans” used to create incentives to steal intellectual property.

These intellectual property theft issues came first, and were followed by others such as consulate support for “Fox Hunt” teams that coerce fugitives to return to China, involvement in lobbying of state and local officials and business people, and public criticism of pro-Hong Kong democracy activists.

A Department of Justice official delivered these points in the opening segment of the Department of State briefing, illustrating the key role of the DOJ and its domestic law enforcement mission in this foreign affairs action. The briefing did not mention by name the DOJ’s China Initiative, which addresses China’s efforts to steal U.S. intellectual property, but it is obvious that the China Initiative and the main reasons for the closure of the consulate are closely related.

Visa Fraud and Computer Hacking for IP Theft

The criminal charges announced by the DOJ during the same week as the closure of the Houston consulate, four for visa fraud and two for computer hacking, were China Initiative actions against intellectual property theft threats.

The four indictments for visa fraud announced on July 23 charged citizens of China living in the U.S. as graduate students under student visas who had not declared their affiliations with the PLA in their visa applications. They were allegedly part of the network of PLA associates with student visas referenced first in the announcement of the closure of the consulate in Houston. Each was allegedly an officer in the PLA or the PLA Air Force while at U.S. universities doing medical research (Wang Xin, University of California, San Francisco; Tang Juan, University of California at Davis; Song Chen, Stanford University) or studying machine learning and artificial intelligence (Zhao Kaikai, Indiana University).

The indictment for computer hacking announced on July 21 charged two Chinese individuals with conducting a 10-year campaign of intruding into the computer systems of hundreds of U.S. and foreign companies, government organizations, and individual democratic and human rights activists, working at times for the Guangdong State Security Department of China’s Ministry of State Security.

Their alleged targets included technology companies in numerous industries, recently including companies developing Covid-19 vaccine, testing, and treatment technologies.

Illegally Resident PLA Officers Targeting U.S. Universities

These DOJ and Department of State actions are further manifestations of emerging China Initiative findings on China’s actions to steal U.S. intellectual property.

As noted in my previous Bloomberg Law analysis, China Initiative indictments involving Chinese government activities at U.S. universities and laboratories rose significantly in 2020. Less numerous than indictments for theft of trade secrets from U.S. companies during the first 12 months of the China Initiative (Nov. 2018 through Oct. 2019), university and laboratory cases have predominated since then. The four visa fraud cases announced in July have further accelerated the rise in university and laboratory cases.

The four visa fraud cases are early results of a larger federal investigation into China sending its military personnel to the U.S. as university students, with their military affiliations undeclared, to steal U.S. scientific research and intellectual property. This situation was part of one of the three China Initiative cases announced in January (USA v. Ye), which included the arrest of Harvard professor Dr. Charles Lieber.

When the DOJ announced these four visa fraud cases, it stated, “In addition to these arrests, the FBI has recently conducted additional interviews of visa holders suspected of having undeclared affiliation with the Chinese military in more than 25 American cities.”

“These members of China’s People’s Liberation Army applied for research visas while hiding their true affiliating with the PLA,” Assistant Attorney General for National Security John C. Demers said in the DOJ announcement. “This is another part of the Chinese Communist Party’s plan to take advantage of our open society and exploit academic institutions. We will continue to conduct this investigation together with the FBI.”

These official statements make it clear that these four visa fraud cases are only the first products of a larger investigation by the DOJ and FBI. Moreover, it should be clear to U.S. universities and laboratories that a widespread problem exists, and that they will need to take it into account in their dealings with foreign students from China.

How to address this problem—e.g., cooperation with the DOJ and FBI, elevated scrutiny of future applications from China, new due diligence of current Chinese students—is a concern of immediate importance that affected organizations should examine and resolve as soon as possible.

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