DOJ’s “China Initiative” – Five Things to Know
White Collar Crime and Internal Investigations Alert 07/31/19 Stephen J. Gardner, Nikia L. Gray, Christian G. Stahl
Economic Espionage, Trade Secret & Export
Control Cases on the Rise
Since the Department of Justice ("DOJ") announced its "China Initiative" last year, it has filed over 20 criminal cases pertaining to economic espionage, trade secret, and export controls. According to the DOJ's Assistant Attorney General for National Security, "The Department's China Initiative is focused on preventing and prosecuting thefts of American technology and intellectual property for the benefit of China." An FBI Assistant Director added that, "The FBI is committed to protecting institutions from adversaries who seek to steal sensitive American technology under the guise of research."
Economic sanctions have been a foreign policy tool since as early as 1917 with the passage of the Trading with the Enemy Act. However, today the primary criminal statutory enforcement tool is the International Emergency Economic Powers Act ("IEEPA"), which grants the President broad emergency powers to impose restrictions on property in international trade. 50 U.S.C. § 1702(a)(1)(B).
Export controls apply to a broad range of technological products, including physical shipments, cross-border electronic transmissions — such as by email or downloading from a remote computer server — and the disclosure of controlled technology to a non-U.S. citizen or permanent resident even if such transfers occur entirely outside of the United States. For those products that are implicated by the controls, a labyrinth of regulations exist that must be expertly navigated to avoid sanctions, including the Arms Export Control Act, the International Traffic in Arms Regulations ("ITAR") administered by the Department of State’s Directorate of Defense Trade Controls; the Export Administration Regulations ("EAR") administered by the Department of Commerce’s Bureau of Industry and Security; and the trade and economic sanctions programs and regulations administered by the Department of the Treasury’s Office of Foreign Assets Control. Certain restrictions are also country specific due to national security, foreign policy, nonproliferation, or other concerns. Violations of U.S. export control laws and regulations can result in variable civil penalties, including up to $500,000 per violation under the ITAR and up to $250,000 per violation under the EAR. Some also carry criminal penalties. For example, it is unlawful for a person to violate, attempt to violate, conspire, or cause a violation under the IEEPA and willful violations are criminal punishable by up to twenty years of imprisonment. 50 U.S.C. § 1705(a), (c).
The Counterintelligence and Export Control Section of the National Security Division is responsible for investigating and prosecuting economic espionage matters and criminal export violations of military and strategic commodities and technology. The DOJ's "China Initiative" also formed a Working Group of United States Attorneys to provide guidance and advice.
Many universities and other research institutions have been contacted by the DOJ/FBI to bolster their export control review procedures. Several have recently been involved in issues of foreign students or visiting researchers attempting to abscond with export-controlled materials. Simply resting on the likelihood that the "fundamental research exemption" applies for university research activities may no longer be sufficient for such institutions. For higher education and research institutions, or industries that do business with China or otherwise involve intellectual property, or technology transfer, here are five important takeaways for how the DOJ's "China Initiative" may impact future business:
- DOJ will continue to identify priority economic espionage, trade secret theft, and criminal export control cases. A recent case from Los Angeles involved the conviction of an electrical engineer after a six-week trial for conspiring to illegally export semiconductor chips with missile guidance applications to China. Expect similar cases to be brought in the near future, especially in districts with representation on the DOJ China Initiative's U.S. Attorney Working Group, such as the Northern District of Alabama (Birmingham), Northern District of California (San Francisco), Eastern District of New York (Brooklyn), District of Massachusetts, and Northern District of Texas (Dallas).
- Development of a strategy that addresses identification and compliance while taking into account non-traditional actors will be important in the future. Unlike in the past, non-traditional actors have invaded this space and DOJ has given several examples such as "researchers in labs, universities, and the defense industrial base" that are being coopted into transferring technology for foreign use. Having robust corporate policies, procedures, and compliance programs in place may lower risks.
- Colleges, universities, and research institution personnel must be educated about potential threats and "influence efforts on campus," according to the DOJ. Information sessions and internal investigations, when necessary, can help identify vulnerable areas, threats, and breaches.
- Private industry must identify potential supply chain threats. The telecommunications sector remains particularly vulnerable with the looming transition to 5G networks. The Chinese telecom giant, Huawei, has been charged in Brooklyn, New York with IEEPA violations for allegedly skirting U.S. sanctions on Iran and in Seattle, Washington for its alleged theft of trade secrets of T-Mobile robotic technology.
- Measures to safeguard trade secret or proprietary information in this environment has never been more important.
For more information on economic espionage, trade secrets, and export controls, please contact your Quarles & Brady attorney, or