Tuesday, December 24, 2019

Implications of Chinese Intellectual Property Violations on Developing Telecommunications Infrastructure


  • WHAT: On-the-Record Briefing
  • WHEN: Friday, November 15, 2019, at 2:00 p.m.
  • WHERE: New York Foreign Press Center 799 UN Plaza, 10th Floor (SW corner of East 45th Street and 1st Avenue)

MODERATOR:  So I’m Liz Detmeister, the director here, and with us today is Nicholas Eftimiades.  So to give you a little background before we start, Mr. Eftimiades is not a U.S. Government official, and he is a former intelligence officer and an expert on China.  So his views do not necessarily reflect those of the U.S. Government or the Department of State, nor of Penn State University where he is a professor, but we like to bring in people with interesting perspectives.
I met Mr. Eftimiades at a colloquium in New York recently and I heard him speak about China and his area of research and thought it was very interesting.  So I invited him here to speak to some of the journalists who are credentialed with the FPC, hoping that it would also be useful to you to get a better understanding of the background for U.S. policy vis-a-vis China and for some of our concerns around 5G in particular.
And with that, I’ll turn it over to Mr. Eftimiades.  He’s going to speak for about 20 minutes or so, maybe a little less, maybe a little more, go through some slides, then take all of your questions.  When you’re called on to speak, if you would just identify yourself and your media.  This is on the record and we will have a transcript afterward and video available should you like it.
Thank you.

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MR EFTIMIADES:  Thank you very much.  I think you all probably have a draft of a paper that should be coming out in the Brown Journal of World Affairs.  You can quote from it, obviously, but sort of don’t take entire pages, just the – be a little conservative in your quoting from it and obviously reference where it is coming out.
So I’ll give you a little background just on myself.  I’ve addressed this topic for 34 years.  I started in the early 1990s.  I wrote the book Chinese Intelligence Operations which dealt a lot on Chinese economic espionage efforts, theft of intellectual property rights.  I have been tracking this subject and working on it for around that period of time, testified before Congress numerous times on it, have to – had those discussions with foreign governments as well.  So I do have a fair background here.
The database, which offline I’m happy to show – happy to show you if anyone has interest – that I’ve compiled has about 475 cases.  So as I discuss this, what I’m sort of giving you is the rollup, the top level of what, when you analyze those cases, what it looks like, and those cases have multiple different layers to them.  And I’ll discuss that a bit, but within those cases, I look at things like everything from an individual’s age to what type of technology or intellectual property has been taken to the methods that that was done by, whether it was an insider activity, whether it was cyber, whether it was some combination and compile those and correlate them against strategic documents in China, and I’ll explain that in actually just a moment.
So —
MR EFTIMIADES:  Yeah, no, I figured that out.
MR EFTIMIADES:  So actually, in looking at this – and this might give you a little context for just thinking about the overall relationship, okay – the overall relationship, the Huawei issue, all those things that are nation-to-nation and economy-to-economy that we have been discussing, right?  In the United States you’ve seen it particularly strong in the press and things like the national – China’s national security laws, several of them actually that range from 2014 to 2017 which describe the responsibilities of companies and individuals in China.  So we’ll take a look at that.
Espionage is a very, very big category as used by the media.  When you’re in the intelligence world or the law enforcement world, it has very, very specific meanings in the United States, a specific code – 18 USC 790 series – it’s a specific code of criminal activity.  As used in the press, it covers a lot more.  And so just so everyone’s clear, I’ll give you a little definition of how that is seen vis-a-vis China when you’re considering China’s activities.
We’ll look at some of the targeted technologies and trade secrets.  We’re not going to have time for case reviews to go into individual cases, happy to do that offline.  But then we’ll look at some case summaries, as if – if we roll up that data, what it looks like in a large scale.  What percentage is economic espionage?  What is intellectual property theft?  And what does all that mean?
So let’s talk with what we call the bottom line up front, which is – it shouldn’t be a secret – technology is a high priority for China’s intelligence collectors.  The economic espionage and their illegal export collection efforts correlate to priority targets identified in the Chinese Government strategies Made in China 2025 – and the 10 technologies listed in that strategy – and the Space Science and Technology in China Roadmap to 2050.  So what I did is take 475 cases.  I listed the specific technologies in those two strategic documents and I did a correlation between the technologies stolen and those documents.  And you see extraordinary bunching of all those technologies within China’s grand strategic direction, this is what we’re going to do.  Okay, so the hundreds of cases line up really uniquely, and you’ll see some of that.
The aggressive nature of the espionage has expanded considerably over the last 20 years.  That much should be evident just by the number of arrests that you see in the course and particularly over the last 10 years.  Espionage as such, as practiced in China, I call this a whole-of-society approach, okay, because it is not just done by the Chinese Government, it is not just done by the Ministry of State Security, it’s not just done by the People’s Liberation Army.  You have state-owned enterprises in China where of currently 150,000 state-owned enterprises, 50,000 of those are actually centrally government-owned state-owned enterprises.  The top ones that engage in aerospace technology, development, and extraordinary materials development, ballistic missiles, weapons systems, et cetera, the 100 or so that engage in that are the primary ones that are engaged specifically in theft of technology.
Companies also do it just as a commercial venture, and individuals and select universities.  A number of universities – if you go through the – as I have, if you go through the indictments, the hundreds of indictments of – in U.S. cases, you will pull out lists of Chinese universities who either professors were involved or the university itself was involved.  So it happens frequently, all the time.  In fact, I have a list here of case – of universities that have been identified as such.
An interesting component of this is that the tradecraft actually done – tradecraft is a term that they use in espionage for how things are actually done and executed.  But that varies considerably when you’re dealing with China.  Even within the Ministry of State Security, we have extraordinary tradecraft that’s executed as you would think for professional spies.  We also have really, really poor espionage tradecraft that’s just the amateur hour.  So if you’re an analyst, if you think like an analyst, of course, this leads to a lot of questions.  Why within the same organization do you have different ways of doing things, some quite professional, some not?  What does that mean about their training?  What does that mean about standardization?
But what is clear on the apparent end, the part we can see, is that it’s all across the board on how professional and how well these things are done.  So it doesn’t lead you to believe that’s a very, very coordinated, well-orchestrated effort.  Okay?  Not like you would have in other societies and cultures.
The last component of this at a high-level findings are that the two motivating factors – actually, three motivating factors that you find for, whether it’s theft of IPR or economic espionage, are: business deals – and I say that distinctly separate from money, from cash payments – business deals; cash payments; and academic appointments.  So we find within the university community, particularly stealing research and economic espionage, a lot of that is done to secure academic appointments back in China.
One of the correlations I did with this was correlating people’s age.  And so the average age for economic espionage was looking like it was in the 50s, much older than I had thought going in.  So I call this the “retirement program.”  People get to a certain time working, and then they decide, okay, I’m going back to China; the theft comes; and they look for academic appointments back in China.
Okay, let’s quickly run through just some of the national security laws.  You may have heard about these.  Companies and individuals in China are required by law to support China’s intelligence activities.  Okay?  We’ve seen this come out in codified law in China in 2014, ’15, and ’17 that the CCP, Chinese Communist Party, laid down requirements for Chinese citizens and companies to collaborate in gathering intelligence.  There is no option.  There is no, “Oh, I don’t feel like it.”  There is no, “No, I would never do that.”  You really don’t have that option here.  I mean it’s laid down in law in China, and they are very, very serious about it.  As they say, “individuals must not refuse,” to quote their counterespionage law.
Article 7 of their National Intelligence Law says very specifically – talks about every organization and citizen having to comply and having to support national intelligence work.  To ensure there was clarity on it, China promulgated in 2017 November implementing regulations to be very, very clear about citizens’ responsibilities, companies’ responsibilities.
So what you’re having is companies in China in particular which are compelled to cooperate in intelligence gathering, and of course we certainly have a number of companies where people have been arrested in the United States or other legal action taken against them.  So we see a clear correlation between the law and the actual effects that happen.  And we see it impact the party system that says if you have over 50 people in a company, you have to have a party secretary within the company.  If you’re a larger company, you have to have a party committee.  And China in 2017 and 2019 has made this very, very clear in public statements, compelling companies – even foreign companies – to have CCP representation within them.
So it’s a control mechanism, which we understand – a control mechanism through not only the state-owned enterprises, which are state-owned, but also for private companies as well.  And very, very clear about the direction.
There are, of course, rules for doing business in China which are – which provide forced intellectual property transfer, which has been the subject of our current – one of the subjects of the current trade dispute with the United States.  So a very big thing.
Let’s talk a little about the categories of espionage, when I use that term.  Traditional espionage you’re all familiar with, the spies.  You’ve seen all the movies.  The Foreign Agents Registration Act – in my database, I called it covert action, because so many countries don’t have a Foreign Agents Registration Act.  I mean, the terminology’s different, but the intent is the same.  You’re a person acting on behalf of a foreign government in a covert manner, right.  So I’ll lump that under the category of espionage.  In the FBI, they call that espionage-lite, a person who’s acting on behalf of the foreign government who may be servicing a safehouse or mailing information back.  Are they technically conducting espionage?  Well, not really.  I mean, they’re not stealing secrets or anything like that, but they are covertly acting on behalf of the foreign government.
So frequently the espionage webs that you look at have some component of that, that law within.
So we have economic espionage that the United States has from the Economic Espionage Act of 1996, and we have categories of illegal exports, which are the Department of Commerce export administration regulations, and the international trafficking arms regulations, right.  So a category of export controls that the U.S. has in place.
China used what you’ll find as a – inside the government they use the term “nontraditional collectors,” right.  We talked a little about this.  The state-owned enterprises, which includes the State Assets Supervision and Administration Commission, which oversees many of the universities and also is the focal point for the military requirements, military technology development requirements, right – so they oversee – in addition to that, they oversee the development programs of the universities that fit that mold, okay.  So we have a university component with it.  Private companies, individual entrepreneurs, and students and scholars.
When I lecture, I try and bring the point even to universities or to businesses:  When you think of the issue of scholars and students, Chinese scholars and students, it’s an issue of numbers.  And that’s all it is.  I mean, in the United States there are 363,000 Chinese scholars and students.  If only 1 percent are bad – 1 percent – and I would say 1 percent of any population is probably bad, 1 or 2 – university professors, police, pick your population, and you’ll probably get a 1 or 2 percent that’s bad.  But if it’s 1 percent, it’s 3,600 active cases of intellectual property theft, theft of research, economic espionage.  So I mean, the FBI says that they have a thousand cases that they are investigating, which I sort of doubt, because that would be a lot of work.  But as it is, that’s – it’s just an unmanageable number even if it’s just 1 percent.  So that’s the issue, I say.  It’s always a needle in the haystack.  It’s a 1 percent type of issue.
Just for your information, under the State Administration for Science and Technology and Industry for National Defense administers these universities.  Every one of these universities has been identified in criminal complaints or charging documents, indictments in the United States for having had some role or professors from those universities having had some role in conducting economic espionage against the U.S.  Some of them multiple times – Northwest Polytechnical University, several times actually, conducting in Australia, and influence activities in Australia.
Nanjing Aeronautics and Astronautics University multiple times has been caught collecting information illegally from the United States, or in fact even helping to provide cover for MSS officers collecting against the United States, so very, very much involved with that.  Tsinghua University has a cyber group called the Blue Lotus Group, which is students, and – but they’ve also – we’ve had millions of hits out at Tsinghua in – cyber hits through Africa, the state of Alaska, against the Alaska government, multiple countries coming out of Tsinghua.  So their cyber component is pretty aggressive in collection, and there’s a clear connection between them and the state administration for technology and industry in discussions on what we can do to help the national security.  So it’s pretty evident that they’re very, very aggressive in the cyber component.
All right.  Do we have five minutes?
MR EFTIMIADES:  Is everyone still awake?  You okay – okay with that?  All right, let’s just – we’ll jump to this and one more slide.  This is just the priority technologies that you’re looking at that were actually announced by the director of national intelligence, the priority technologies that were threatened with – from collection.  The ones in bold are the ones I clustered to China’s collection efforts on.  So multiple, multiple cases on biopharmaceuticals, genetically modified organisms, about half their cases directed against military technologies.  So it shows – start to show you clustering where the collection effort is directed towards.
Okay, so I’m going to skip those and just go to one or two of these summary charts, which, as you look at the distribution of cases in the United States, this is pretty well what you have.  So a lot in California, have our fair share in Pennsylvania as well.
MODERATOR:  And we can share this with you after, yeah.
MR EFTIMIADES:  Right, right, right.  The customer base – I’ll just explain this.  When you get these charts, you can actually understand.  You’ll see how it’s split, the percentages of cases, whether the back-end customer was the Ministry of State Security, the PLA, a state-owned enterprise, or in some case, if I couldn’t identify it, some other element in the Chinese system, in the Chinese Government.  Espionage categories, same thing, just percentages of their collection efforts and what they’re specifically targeted at globally: economic espionage, EAR violations, international trafficking and arms regulations, et cetera.
The tradecraft, as I mentioned before, you have such a variance in how espionage is practiced throughout this whole-of-society approach, and here it just shows you, yeah, it is approached considerably across cases, and here it is across cases and agencies.  So you get to see how Ministry of State Security is practicing, and why do they even have things that are no-tradecraft.  Sort of crazy for an intelligence agency.  But it gives you some explanation as you get to look in there for there.  Okay, so sorry about rushing at the end, but you have the material and you can look through it, and if anyone wants to ask me any specific questions, I am happy to answer afterwards or in the meantime.  Are we —
MODERATOR:  Thank you so much.  It seems like no one fell asleep, so I think that we have the right crowd.
MR EFTIMIADES:  Success one.
MODERATOR:  So the floor is open.  You don’t need to pass a mic, just – yeah.
QUESTION:  Arnaud Leparmentier, French daily Le Monde.  I had read that after the Xi Jinping-Obama meeting in Washington, D.C. – I think it was September 2015 – there was a real decrease in spying, economic spying and cyber spying.  Is it true?  Is it not true?  What do you have on this?
MR EFTIMIADES:  Here are the facts:  There was no decrease in economic espionage.  There was a seven-month decrease in cyber activity, but that picked up – started again to pick up seven months.  By nine months to a year, it was back in full swing.
QUESTION:  Okay.  And how do you argue about reciprocity, because America has a reputation of spying.  We had the iPhone of Mrs. Merkel spied by a U.S. administration.  So well, then we say, okay, who – why shouldn’t you be spied, as it’s well noted that you are the best spiers in the world?
MR EFTIMIADES:  Okay.  I’m going to say thank you on behalf of a long career.  Actually, no, but – (laughter) – sorry.  (Laughter.)  That’s probably not going to get me invited back.
But no, there are some stark differences.  And the one thing that the U.S. system is very, very serious about is the United States, like all other countries, protects its security, right?  I mean, there’s not a country pretty much in the world that doesn’t have some element of spycraft, of intelligence activity.  But the question is if you’re giving it to industries, if you’re using it for your economic betterment, if you’re literally destroying another country’s industries through the use of that – in the case of China, just the intellectual property theft, right – just that thing, 82 percent of the intellectual property coming into Europe seized, 82 percent of it is fake stuff from China, okay; 80 percent in Canada, 87 percent in the United States.  That type of theft is responsible for 8 percent of the Chinese GDP.  I got it.
Everyone conducts espionage, but they do so for the security of their own nation, right, they don’t do it to advance some – their commercial enterprise economically, and they don’t do it to destroy the commerce of another country, which China aggressively does.  And I’ll tell you, we’re completely unprepared for it.  The United States and Western Europe just doesn’t have this as a history and doesn’t deal with that.
QUESTION:  Francesco Semprini, Italian daily La Stampa.  Thank you for the briefing.  As you know, Italy is deciding how to develop its 5G network and Huawei is one of the candidates to do that.  The U.S. Government have been pushing back a lot, saying this is a trap for your nation’s security, our nation’s security, also the security of NATO.  The answer by the Italian official that I have been speaking to is that – give us the proof.  What are you talking about?  What are the threat for our national security?  Can you address this issue and tell us – give us some example of why it is so dangerous for Italian security to have the 5G?
MR EFTIMIADES:  Sure.  So, I mean, even in the United States you probably have four active criminal investigations against Huawei, okay.  I’ll give you a personal note, I know a number of other companies that have come forth and said:  Nick, we can’t publish this, but A, B, C, D, E, F, G happened with Huawei.  So that’s just a personal perspective.
But you have active criminal investigations that are clearly showing to espionage.  You have it in Poland as well, active criminal investigation that clearly shows to espionage.  You have a national security law that compels Huawei to comply with providing information, whatever its personal feelings are in the matter, okay.  You have an opaqueness of a system which doesn’t even allow you to know who owns Huawei, which happens to be the China Federated Trade Council, a trade union council which is under the CCP.  So you have an entirely opaque system.  You have multiple cases of theft of technology or economic espionage, and you have a national security law that compels that country – that company to cooperate with the government in providing information.  I – I – what – where is the tipping point where a person says okay, that’s probably enough to say at least I should be cautious and understanding, or at least I should know that that information that Huawei has access to is going to be provided to the Chinese Government regardless of Huawei’s feelings in the matter.  Huawei doesn’t have the option, even if it did say, “No, we don’t think we should do this.”  It’s not an option for them.
So if you don’t think any of the information is worth it, I got it, decision’s easy then.  But if you’re talking about – as the United States, we look at issues like critical infrastructure.  If you’re comfortable, I’d – the United States is not comfortable with having its dams and the information coming in and out of its electronic – electrical grid and dams and other critical infrastructure being shared with China, not comfortable at all.  So particularly the levels of theft, sorry, that we’ve seen.  Does that answer it?
QUESTION:  I’m Claudio Pagliara from RAI Italian television.  I’ve been five years a foreign correspondent in China before moving three months ago here.  As I follow (inaudible) on the other side, Huawei’s story, I have a question.  Why – I would say U.S. intelligence has not provide yet what we call the smoking gun.  I mean, I understand fully and I’m agreeing with you that Huawei is complied to give to the Government of China and the Communist Party data.  But we are talking about a network, so a network that you can investigate the intelligence – U.S. intelligence can investigate.  If there is a backdoor, it’s so hard to find it, is my question.
MR EFTIMIADES:  Well, I would – I’d say a lot of things to that.  Number one, the issue isn’t necessarily about what’s happening now; the issue is about the updates that you’re going to have in five years from now, right.  So if I were Huawei and doing this, I would say, yeah, no, I’m not doing anything for the next five years until my networks settle in, and then the software updates that I do for those systems will be the ones that provide backdoors and provide me information.  So it’s not just an issue of – I mean, as I’ve said, there are half a dozen cases, criminal cases that the FBI has investigated where Huawei was caught – I mean, very, very directly.  Number one.
Number two, the problem is in the future of the network; 5G is going to be with us for a time, and it’s not just an investment that you’re going to make today and forget about it.  I mean, you have – this regular process of upgrading with software updates that you can’t control are the real critical issues for building that infrastructure into the future.  Okay, so that’s the problem.  The problem is you can’t decide, you can’t know what’s going to happen three years from now.
As you look currently, you see a pretty aggressive program and you can clearly tack it to some theft of technology and probing networks and critical infrastructure and things like that.  But given that baseline that you have to work with, you can’t predict.  I mean, the only thing is you can’t trust.  How would you trust what’s going to happen the next three to five years?
Okay, so those are two components of it: previous, current activities that we see; trust factor in what you’re going to have three to five years from now; and then the last factor is the U.S. intelligence, its sources and methods.  I think it’s going to share the most minimal amount possible outside of the U.S. policy apparatus not to expose its own intelligence sources and methods.  So I think those three factors are what we’re dealing with in making a decision.
QUESTION:  My name is Hisashi Yamada from Japanese television, TV Asahi.  I’m not sure if you’re familiar with the company named CCRC, which is a subway car manufacturers from China, which is a China —
MR EFTIMIADES:  Oh, subway car manufacturers, yeah, yeah.
QUESTION:  — yeah, state-owned company.
MR EFTIMIADES:  Mm-hmm, yeah.
QUESTION:  And they won the contracts from the several – the big cities, including Washington D.C. recently.
QUESTION:  What kind of threat can we think – can we possibly think of if they actually put in their subway cars in the —
MR EFTIMIADES:  So I’ll tell you what the discussion that – yeah, I’ve actually talked to some lawmakers about this.  And the concern is more for things like – from their perspective, not necessarily in the cities, but for things like transport for military systems and stuff like that.  Because as you’re looking from a national scale, you can start to figure out logistics, movements of equipment, military equipment, locations, GPSes, this is going in this area and moving here, and you can start to put patterns of transfers.  So things like that are sort of the first level of concerns that they have.
I’d have to look into it to a little more depth and see exactly what data is being kicked out of the cars to start to determine what type of population data that they can actually determine, and if it’s a threat based on that.  But I know the first one has been one of military infrastructure and transport.
QUESTION:  My name is Sora Takahashi from Nikkei newspaper in Japan.  My question is – I have two questions and one is about the Huawei case, because Huawei insisted that there’s no backdoors in (inaudible) business and they don’t do anything about spying, but do you have actually the truth that Huawei has been conducting this (inaudible) to U.S. companies?
And second question is: Who is exact – who – what’s the identity of the spying people from China, if they’re American Chinese, or they have the Chinese nationality?
MR EFTIMIADES:  Good.  So to answer your first question, I think if you see the suits with T-Mobile, Motorola —
MR EFTIMIADES:  – which also – around criminal investigations – are two, and there’s a third one that just came out recently on Huawei as well.  So we clearly have those, and physical theft of technology that happens.  I’m – cyber is very, very difficult to pin down.  I mean, even – even our best intelligence are working – they lose a trail when it goes to China or to NSA.  I mean, they’ll lose a trail when it goes through three countries and goes back to China.  None of this is perfect by any means, right.  And if it does get perfect, if you say, “Yes, we conclude that they’re the absolute ones that did it,” and they say, “Well, that’s not true,” what – so it becomes my word versus yours in a sense.
So other than what we physically see about Huawei – and you know there was a congressional report that was done in 2012 where they actually interviewed Huawei officials and – when the concern first started, and there were a lot of questions.  “Well, what’s your relationship with the PLA?”  “Well, we can’t tell you that.”  Okay.  So there were a lot of difficulties in being able to try and get enough information to understand it.  Still, we’ve seen research publications that have come jointly between Huawei and the PLA as well as some intelligence people.  So, answers to your first.
I’m sorry, your second one was what type of people are conducting —
MR EFTIMIADES:  So if I look at my data, which I have, I will tell you that probably there is a combination.  Most are Chinese nationals, by far.  Many of them – I’d say about 20 percent or so – are U.S. citizens.  So there’s a variance.  Eighty-five percent or so are male.  And depending on the particular crime – ITAR violation, EAR, economic espionage – the age group varies.  But the median age of all is probably in the early 40s.
QUESTION:  Hi.  My name is Kevin Pinner.  I work for a Japanese newspaper called Sankei Shimbun, and I was a journalist in China for three years.  So I went to a briefing with the chief security officer of Huawei and one of the executives of Eurasia Group and to – basically to follow up on her question, they’re saying yes, there has been proof of IP theft, but a back door to a 5G network is an entirely different thing.  They said if they were ever requested to put a back door in, they would never do it.  So I guess when – they’re – basically, what they’re arguing is that America’s making all these accusations about Huawei’s 5G network because America wants to buy time for – to develop their own 5G competitor.  So what’s your response to that?
MR EFTIMIADES:  Okay.  Well, I think you were here when I discussed Chinese law?
QUESTION:  Yeah.  I’m sorry.  I came late.
MR EFTIMIADES:  Okay.  So, I mean, China’s national security law and their national intelligence law – three iterations of counter-espionage law as well as national intelligence law say in very specific terms Chinese citizens and companies have no option but to cooperate with China’s intelligence collection program.
QUESTION:  Yeah, I read the law.
MR EFTIMIADES:  Okay.  All right.  So as far as the Chinese Government is concerned, they are complying with that, right?  So regardless of – people say, “Oh, no, we wouldn’t provide it.”  Really?  You – so what you’re saying is you’d violate your own law?  I have a hard time buying that, and you know what?  Knowing the Chinese system and – as a background in my schooling in Asia and stuff, no one is going to tell the CCP “no” as a reality when they’re asked to provide or to do something.  It’s pretty authoritarian state.  I’m sorry, but it is, and we’ve seen that evolution come around, so companies are not really in a position to say, “No, we’re not going to do that.”  So that’s one component of this.  So I discount the argument that says “If asked, we wouldn’t do it,” because the law says you will, right?  And even the Confucius Institutes in the United States, when they operate, say, “Look, we’re following Chinese law, which we’re compelled to do.”
MR EFTIMIADES:  So – I mean, so that argument is – I don’t get that.  And to say, “Well, yes, you’re right, we’re guilty of intellectual property theft but we’re not going to do it on – in the cyber realm” —
QUESTION:  They’re saying that —
MR EFTIMIADES:  — which is basically what you’re saying or —
QUESTION:  What they’re saying.
MR EFTIMIADES:  — what they’re saying, okay.  “Yeah, we’ve done it here, but we’re not going to do it there.”
MR EFTIMIADES:  This comes back to phase two, I said trust.  Okay.  Here, you’ve admitted – we know you’ve done it here.  We’ve seen in multiple countries now where you’ve done that type of espionage.  Le Monde, actually you came out with something a while ago if I recall on China’s cyber espionage in the – in Africa, if I remember.  So, I mean, we’ve seen multiple cases of this, and that person “No, we’re not doing it,” or “We’re not going to do it” – ultimately, folks, it’s just – it’s an issue of trust and what you put your national security in, period.
MODERATOR:  And if I could jump in, actually.  In August, we had the Deputy Assistant Secretary of State Robert Strayer for Economic and Business Affairs, and he was very clear, saying that the United States has no economic benefit to gain at this point at all, and we think other countries should be investing in safe 5G technology, and Nokia, Ericsson, just as Verizon has done with launching 5G here in New York.  So I’m happy to provide that transcript later if you’d like.
MODERATOR:  But we’ve been very forthcoming about pushing back against that narrative.
QUESTION:  They were saying that you – maybe the United States should take the lead in creating a group like the IAEA, but for 5G technology.  So is there anything in the works for that, like an international set of regulations for 5G technology that could safeguard against some of the concerns of the U.S. Government and other governments?
MR EFTIMIADES:  I don’t know about the —
MODERATOR:  I’ll be happy to see what I can find out.
MR EFTIMIADES:  Yeah, I think you’d have to explore that one.
QUESTION:  Thank you.
MR EFTIMIADES:  I’m sure there’s something there, but that’s also a really, really tough thing to do.
MR EFTIMIADES:  I mean, when you consider the amount of – all the systems that go into place and all the lines of code that have to be done, I mean, millions and millions and millions, and one errors, either intentionally or not, and subjects an entire system to vulnerability.  So I love it, great, but it’s a tough thing.  Let’s not – it’s going to be a tough thing to do.
QUESTION:  Thank you.
QUESTION:  I’m a journalist from a radio station in Portugal.  There’s a certain ambivalence towards China in the West.  I mean, you mentioned, for example, the threat that can be giving up the Chinese some infrastructures, essential infrastructures, right?  But in Europe nowadays, some infrastructure, like, for example, electro grid in my – grid in my country is owned by a Chinese company and so is the port – the main port in Athens – in Greece in Athens, and there are many other infrastructures that are – now belong just to Chinese companies, state-owned companies, Chinese – like the Three Gorges, for example, are the guys who own all – owning the electricity company, they also own the dams of the country.
QUESTION:  So how do – this was a consequence of the crisis of the recession because the country needed money, as the Greeks did, so they just were there at the door providing the money to buy these things.  So how do we contradict this?  I mean, this threat exists already.  They own some of those infrastructures.  And so what can the West do in international terms?  Not just, let’s say, international regulations because they say they comply with them; they don’t comply.  Is there, in your view, a kind of international – like this Obama initiative for example, five years ago.  Is there something that can stop this or – well, you never stop espionage, of course, it’s like crime or drugs or whatever – but at least refrain these kind of initiatives?  Like, for example – like, for example, this trade war with China, is it useful to refrain them?
MR EFTIMIADES:  So this is a really, really interesting question, one that I’ve discussed in policy circles.  So the question is:  Okay, what do you do about it?  And given the fact that China is global – and from my perspective, a very aggressive, authoritarian state.  You might not agree with that, but that’s just from what I – you take a look at Xinjiang, you take a look at Zhejiang, Tibet, you take a look at the domestic state and the surveillance state that is – not just now, but the direction it’s going with AI, artificial intelligence, and the investments put into it.  From my perspective, I’m going to call that a pretty aggressive digital authoritarian state.  Okay?
So the question then becomes is:  How do you contend with that?  And the answer is in your global alliances.  And I’m going to turn – I fault the U.S. Government.  I’m going to say that this is an area we have not pursued aggressively enough, and I’ll say that this administration has not pursued aggressively enough.  We have to really, really work with our allies too in not only – I mean, we already established liberal democracies post-World War II, evolved and established a global rule of order – right – which everyone has benefited from.  I mean, we just have.
It’s not perfect by any means.  There are lax – there are people who don’t pay attention.  There are winners and there are losers in this.  It is not perfect.  However, it has allowed civilization to flourish and to grow and to bring freedom largely across the planet.  We have to enforce that mechanism.
We have to work together.  Our diplomats have to work as hard as they’ve ever worked to ensure that, hey, if Chinese company XYZ is stealing from us, it affects you as well, and the same thing has to – a reciprocity has to exist.
And we have to put in the mechanisms in place for the information sharing and even the legal mechanisms in place so that we all approach this – and welcome China into a world, but understand that that type of behavior – stealing from us, stealing from other countries to the point where you’re devastating sections of their economies – is just not acceptable.
So we have to bring them into the world fold, and the only way we’re going to do that is united.  So I am a real big believer that we have to work our alliances to contend with and to shape the world that we want to have.
QUESTION:  The trade war helps on that, or – in your opinion – or not?
MR EFTIMIADES:  Actually, you know what, if you take a look at the last – and I argued this when the Clinton administration came in, and I was told by White House officials then, “You know, Nick, after years from now when the middle class starts to develop, and we’ve seen it in every society and every civilization, that sooner or later people start developing political – wanting political freedom.  It’ll happen.”  Well, decades later, it hasn’t happened.  It didn’t happen under the Clinton administration, didn’t happen under either of the Bushes’ administration, and didn’t happen under the Obama administration.  And we – and this is the United States – are suffering.  I mean, period.  We’re suffering.  We’re losing generations of our intellectual property, we’re losing jobs, we’re losing industries – we’re losing.
So at what point do you expect the nation-state to stop and say, “Hey, wait a minute, this isn’t acceptable anymore”?  And this has been the U.S. – in the U.S.’s history, it behaves a lot like this.  If you follow this country, it doesn’t do anything, it doesn’t do anything, then it turns around like a ferocious bear – which is what you’re seeing the United States play out.  It hasn’t done anything for decades; now it’s turning around, saying it has got to stop.
Now, hopefully we don’t just do this by ourselves.  But it’s a necessity at this point.
QUESTION:  How do you assess the collaboration between information agencies and the U.S. justice, which is many of the cases go to trial?  I followed the Sinovel trial in Massachusetts.  And at the end, you expose – well, so ministry of justice expose the case, but the condemnation, for example, in the Sinovel case – I don’t know if you follow this case – is not so high.  So what is – how efficient is it?  Does —
MR EFTIMIADES:  I’m not sure if I get the – the question is the information that comes out after these cases?
QUESTION:  Yeah.  No, how you fight against the – when the firm is robbed its property, you sue the Chinese company or sue the spy, but – well, it’s just a –
MR EFTIMIADES:  Well, we actually did have a change in legislation in 2016 that allowed for that, that took the penalties – and it was part of the Defense Authorization Act.  I can actually get you the specific law that was signed, the act that was signed into law, or the bill that was signed into law.  And it did allow for U.S. to – for U.S. companies to make civil cases against – for having their intellectual property theft stolen.  So – and that was due to just the continued drumbeat of cases, particularly the steel industry and the solar panel industry, that finally that pushed to a point where the U.S. political apparatus reacted and said, okay, we’re going to put law into being.
So there are some responses that are given into that.  By and large it’s a difficult situation even for U.S. companies because many of them are doing business in China, as the ones that I’ve spoken to who have had specific issues with Huawei and stealing things.  And Nick, don’t tell anyone, but this happened, this happened, this happened.  And why not telling anyone?  Because we have a quarter of a billion dollars invested into working with China.
So it’s difficult for all of us.  Every country is in the same situation, right, when they’re dealing with China.  Not easy.  It’s tough policy decisions, and strong action has to be taken on the part of the government, because you’re probably not going to get too much from industry.
QUESTION:  I am Takashi Ebuchi for Asahi newspaper of Japan.  I’m interested in the effectiveness of the so-called China Initiative announced a year ago.  So how do – what’s your assessment about the effectiveness of the —
MR EFTIMIADES:  The November 2018 China Initiative, Department of Justice?
QUESTION:  So after that, Huawei executive was arrested.  And I found that there is a prosecutor who conducted the investigation, and he is also involved in the initiative.  So –
MR EFTIMIADES:  Right.  Well, again, this is – so it’s affecting this to date.  I’d like to tell you there’s a major steep uptick in cases, but I can’t tell you that at this point, and largely because a case isn’t just something that is done in a week or a month, right?
Typically they take months and months and months, so there’s a time lag that goes on before we start to see these cases come in.  Certainly there have been a number of cases.
There’s a focused investigative initiative, which is the important part, that we have some level of focus going towards this.  And how efficient and effective it’s been in stopping or deterring, I would say not at all.  It – and just by the number of cases that are happening and by the dollar amounts involved, some of which over a billion dollars, I’m going to tell you it’s not been effective in that regard.  So we’ll see as it plays out another year or two and see what the results are.
QUESTION:  Has engagement been a total failure?
MR EFTIMIADES:  No, not a total failure.  I mean, what – every relationship is part engagement and in some levels part conflict.
QUESTION:  So what are some of the improvements?
MR EFTIMIADES:  Well, the improvements is we do have a robust trade relationship with China.  We have not – we understand their expansion and their growth.  We are working together to accommodate that, to work together to realize that growth.  I think we’ve had extraordinary cross-cultural relations.  We’ve had fantastic scientific exchanges.  So there are a lot of cultural dynamics, economic benefit on the part of the United States and China that has – as well as other countries, right, that have benefited from the engagement.  So it’s overall a very positive thing.
There are – we’re getting to a point where there’s going to be friction in the future if we can’t address these issues.  And I want to tell you this was inevitable because we’ve had this discussion for 20 years and saying this – at some point, there was going to be a wall of lawyers and accountant that said, “No, you can’t do business like that in the world,” and we’re at that point.  I think over the next 10 years we’re going to work through it – I think, but in order to get through this in an expeditious fashion, in a fashion that benefits – and I personally am more concerned with free speech and freedoms globally than I am, really specifically, with the economic stuff.  That’s a really bothersome part, but – and that really requires us working together, but so long as we approach it in that way, it’ll be a decade or so, but we’ll move through it.
MODERATOR:  You had a question?
QUESTION:  Yeah.  Again, my name is Sora from Nikkei.  Are there any connection between (inaudible) for Meng Wanzhou, who was arrested in Vancouver last year, and Chinese Communist Party?  Because she was accused by the U.S. prosecutor.  She’s – the – on the – guilty of fraud between Iran, some – if there’s – on the illegal financial transaction —
QUESTION:  — that many of the other journalists that you’re suspicious about, there is any spying – does she – is conducting spying so that the U.S. prosecutors were (inaudible) going to accuse her to —
QUESTION:  — (inaudible) it’s hard to the —
MR EFTIMIADES:  Yeah.  Actually – and I don’t want to give you a hundred percent on this because I’m not —
QUESTION:  Yeah, yeah.
MR EFTIMIADES:  That’s actually not really an espionage case for me, so I’ve sort of put it off to the side.  But my understanding is her – the accusation, anyway, is money laundering through the United States and trade embargo to Iran.  So that makes it a U.S. jurisdiction thing when you start laundering through U.S. banks to violate a trade embargo to Iran.  So those are the issues that have been up in the indictment, and these things take time to play out and there’s global politics at hand, I’m sure, and the justice system is trying to move forward to bring this into a conclusion, I guess.  But I – but we’ll see what happens with it.  It’s a tough one, very complex.
MODERATOR:  Do we have any more questions?
QUESTION:  I – just a really quick follow-up.  You said the FBI says there’s a thousand cases they’re investigating.
QUESTION:  Was that a hypothetical?
MR EFTIMIADES:  No, that was a quote from Director Wray.
QUESTION:  Okay.  And that’s a thousand cases currently being investigated of Chinese espionage?
MR EFTIMIADES:  That’s what he said, and I’ll tell you what else on that:  I said, “Well, wait a minute.  You have 56 field offices.  That means you have roughly 20 cases a field office, which means you’re doing nothing else.”
MR EFTIMIADES:  So, I mean, that was – Arkansas field office is not that big.
MR EFTIMIADES:  So, I mean, that was my perspective on it, so somebody explain that to me.  And I’m sure there’s a whole bunch sitting back at headquarters that they haven’t gotten to.  I’m sure it was not exactly a thousand, but a rough estimate of something like that.  And even if it is a thousand cases, that’s a little more than 25 percent of 1 percent of the number of Chinese scholars and students that are in the United States.  So it’s a really miniscule number when you think of it in those terms.
QUESTION:  Okay.  Yeah.
QUESTION:  Last question.  I would like to understand one thing about the 5G.  I remember that there was a first time in the Xinjiang campus of five years and half ago and they were already very openly proud about the research on 5G.  So why United States allow China to develop – not to compete?  Why the United States didn’t compete on this field developing 5G technology?  Your security service didn’t know that they are developing very fast this —
MR EFTIMIADES:  My security service didn’t care.  I mean, it’s a – no, I – in our system, I got to tell you, there’s such a wall between commercial and governance.  I mean, commercial industry, go have at it, have fun, and that’s the perspective.  So where even if the intelligence system did know and was aware and was looking at it, and I’m sure they did, they – it’s not even a thought in their mind to where the U.S. is on it. They have no knowledge of where the U.S. is on it.  I mean, they completely don’t know anything about the U.S. development and infrastructure and that, because there’s such a wall within the U.S. system between government and particularly the intelligence securities and the commercial world.  I mean, they really – really, we have a brick wall between the two.  So I don’t think that intelligence apparatus knew anything about the U.S. developments in the area or even cared to be honest.
This is actually a very new thing for the U.S. where so many economic targets are being attacked, research and economics.  I mean, we’ve seen this over the past few years, but the system as it’s developed is wholly unprepared to contend with this.
QUESTION:  But going back to the thousand cases that are being investigated roughly, so some of these guys will go to court, they will be condemned, et cetera, et cetera.  What after?  What are the consequences?  Do you think this is a deterrence movement?
MR EFTIMIAES:  No, and I’ve said that.  I don’t find it to be much of a deterrence.  And if you look at the way China has orchestrated things, at the high level we have a strategic plan:  Made in China 2025, several other plans, right, which say we want one, two, three, four, five technologies, and then you have basically a very entrepreneurial effort within the state-owned enterprises, within the Chinese Government agencies, and within private companies to go get that technology and that information.
I don’t – the little that we’re doing in hitting things at a low level, I don’t know how – I mean, there’s no evidence one way or the other, right, to say how much of a deterrence is this actually providing.  There’s no analytical way of judging that, so I don’t know.  Personally, I don’t think it’s a very strong deterrent, and I base that on the number of cases that are actively going.  But I have no way of knowing, and neither does anyone else actually.  There are other things, policies that need to be put in place to contend with that.
QUESTION:  At the highest level, right?
QUESTION:  At the highest level?
MR EFTIMIADES:  Yeah.  I mean, in my particular – and our Congress needs to really take a very, very assertive role in sort of changing – I mean, many of our laws – the Foreign Agents Registration Act dates back to 1938 when they were worried about Nazi propaganda in the United States.  Totally doesn’t consider internet and things like that, so a lot of our legal structure has to be updated to contend with the 21st century.
MODERATOR:  Well, I want to thank you, Nick, for coming in, and I thank you all for coming.  I hope this was useful.  The questions were great.  We’ll post the transcript and the video when we get the transcript back.  So this is the end of the briefing.

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