[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
                 ENFORCEMENT OF FEDERAL ESPIONAGE LAWS

=======================================================================

                                HEARING

                               BEFORE THE

                   SUBCOMMITTEE ON CRIME, TERRORISM,
                         AND HOMELAND SECURITY

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                            JANUARY 29, 2008

                               __________

                           Serial No. 110-133

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov


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                       COMMITTEE ON THE JUDICIARY

                 JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California         LAMAR SMITH, Texas
RICK BOUCHER, Virginia               F. JAMES SENSENBRENNER, Jr., 
JERROLD NADLER, New York                 Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia  HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina       ELTON GALLEGLY, California
ZOE LOFGREN, California              BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas            STEVE CHABOT, Ohio
MAXINE WATERS, California            DANIEL E. LUNGREN, California
WILLIAM D. DELAHUNT, Massachusetts   CHRIS CANNON, Utah
ROBERT WEXLER, Florida               RIC KELLER, Florida
LINDA T. SANCHEZ, California         DARRELL ISSA, California
STEVE COHEN, Tennessee               MIKE PENCE, Indiana
HANK JOHNSON, Georgia                J. RANDY FORBES, Virginia
BETTY SUTTON, Ohio                   STEVE KING, Iowa
LUIS V. GUTIERREZ, Illinois          TOM FEENEY, Florida
BRAD SHERMAN, California             TRENT FRANKS, Arizona
TAMMY BALDWIN, Wisconsin             LOUIE GOHMERT, Texas
ANTHONY D. WEINER, New York          JIM JORDAN, Ohio
ADAM B. SCHIFF, California
ARTUR DAVIS, Alabama
DEBBIE WASSERMAN SCHULTZ, Florida
KEITH ELLISON, Minnesota

            Perry Apelbaum, Staff Director and Chief Counsel
                                 ------                                

        Subcommittee on Crime, Terrorism, and Homeland Security

             ROBERT C. ``BOBBY'' SCOTT, Virginia, Chairman

MAXINE WATERS, California            LOUIE GOHMERT, Texas
WILLIAM D. DELAHUNT, Massachusetts   J. RANDY FORBES, Virginia
JERROLD NADLER, New York             F. JAMES SENSENBRENNER, Jr., 
HANK JOHNSON, Georgia                Wisconsin
ANTHONY D. WEINER, New York          HOWARD COBLE, North Carolina
SHEILA JACKSON LEE, Texas            STEVE CHABOT, Ohio
ARTUR DAVIS, Alabama                 DANIEL E. LUNGREN, California
TAMMY BALDWIN, Wisconsin
BETTY SUTTON, Ohio

                      Bobby Vassar, Chief Counsel

                    Michael Volkov, Minority Counsel


                            C O N T E N T S

                              ----------                              

                            JANUARY 29, 2008

                                                                   Page

                           OPENING STATEMENT

The Honorable Robert C. ``Bobby'' Scott, a Representative in 
  Congress from the State of Virginia, and Chairman, Subcommittee 
  on Crime, Terrorism, and Homeland Security.....................     1
The Honorable J. Randy Forbes, a Representative in Congress from 
  the State of Virginia, and Member, Subcommittee on Crime, 
  Terrorism, and Homeland Security...............................     2

                               WITNESSES

The Honorable J. Patrick Rowan, Principal Deputy Assistant 
  Attorney General, National Security Division, United States 
  Department of Justice, Washington, DC
  Oral Testimony.................................................     5
  Prepared Statement.............................................     8
Mr. David G. Major, President, The Centre for Counterintelligence 
  and Security Studies, Alexandria, VA
  Oral Testimony.................................................    13
  Prepared Statement.............................................    16
Mr. Larry M. Wortzel, Ph.D., Chairman, United States-China 
  Economic and Security Review Commission, Washington, DC
  Oral Testimony.................................................    21
  Prepared Statement.............................................    22

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Prepared Statement of the Honorable J. Randy Forbes, a 
  Representative in Congress from the State of Virginia, and 
  Member, Subcommittee on Crime, Terrorism, and Homeland Security     3

                                APPENDIX

Material Submitted for the Hearing Record........................    35


                            ENFORCEMENT OF 
                         FEDERAL ESPIONAGE LAWS

                              ----------                              


                       TUESDAY, JANUARY 29, 2008

              House of Representatives,    
              Subcommittee on Crime, Terrorism,    
                              and Homeland Security
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 2:06 p.m., in 
room 2237, Rayburn House Office Building, the Honorable Robert 
C. ``Bobby'' Scott (Chairman of the Subcommittee) presiding.
    Present: Representatives Scott, Sutton, Forbes, Gohmert and 
Coble.
    Staff Present: Bobby Vassar, Subcommittee Chief Counsel; 
Ameer Gopalani, Majority Counsel; Mario Dispenza (Fellow), ATF 
Detailee; Veronica Eligan, Majority Professional Staff Member; 
Kimani Little, Minority Counsel; and Kelsey Whitlock, Minority 
Staff Assistant.
    Mr. Scott. I would like to welcome my colleagues to the 
first hearing of the Subcommittee on Crime, Terrorism, and 
Homeland Security for the second session of the 110th Congress.
    I would also like to thank former Ranking Member Forbes for 
his initiative and foresight in helping to put this hearing 
together. Because of his initiative, he is going to be serving 
today as the Ranking Member pro tem at the request of the 
gentleman from Texas, Mr. Gohmert.
    The topic of today's hearing extends back to the 106th 
Congress, when espionage was one of the most crucial concerns 
of that time, as the Cox Committee had released its findings on 
U.S. technology transfers to China. I was on that select 
Committee, which found that China had acquired classified 
information on the most advanced U.S. thermonuclear weapons, 
giving them design information--significant design information.
    The report noted that information on the United States 
nuclear weapons was obtained through espionage, a rigorous 
review of unclassified technical and academic publications, and 
extensive interactions with United States scientists and 
Department of Energy laboratories. We found that much of this 
information was obtained due to lack of adequate safeguards and 
lack of security in our laboratories and inadequate controls of 
technology transfers, in addition to espionage.
    The Cox Committee report has enormous relevance today, as 
individuals here in the United States continue to export 
technology and secrets abroad. Today's technology targeting 
differs from classic Cold War era spying, which pitted American 
Cold War intelligence agents against their KGB counterparts and 
their surrogates. Along with using intelligence professionals, 
foreign countries now seek to capitalize on some of the 
thousands of foreign engineers, researchers, scientists, and 
students who fill key positions in United States industry and 
academia.
    One of the most prevalent forms of espionage in the United 
States is economic espionage, which is prohibited under the 
Economic Espionage Act of 1996. That Act prohibits the theft of 
trade secrets in which the perpetrator acts intending or 
knowing that the offense will benefit a foreign government.
    A number of countries have mounted aggressive economic 
espionage campaigns here that vacuum up advanced United States 
technology secrets from defense and civilian companies alike. 
The rationale is that if you can steal something rather than 
figure it out yourself you save years and gain a real 
advantage.
    The Department of Justice has had some success in fighting 
this type of espionage. I look forward to hearing their 
testimony today.
    But it would be a gross mistake to believe that the 
espionage problem lies only with China. This is an 
international problem.
    In sum, we need to make sure that we are doing everything 
we can to strengthen the Nation's national security. We want to 
make sure that we are not in a situation where our own 
government's lax security, indifference and incompetence 
results in damage to our national security. During the time of 
the Cox report, the loss of much of the nuclear weapons 
information to China was an embarrassment and an incredibly 
important loss.
    So we look forward to hearing from our witnesses today to 
see how we can improve the situation; and there are going to 
be, obviously, many things that we can do, many of which will 
be under the jurisdiction of the Committee on Foreign Affairs, 
some in Intelligence, some Armed Services, some Commerce and 
maybe Education. Our focus is what we can do on the Judiciary 
Committee.
    With that said, I now recognize my colleague from Virginia, 
the former Ranking Member of the Subcommittee, the gentleman 
from Virginia, Mr. Forbes.
    Mr. Forbes. Thank you, Mr. Chairman; and, Mr. Chairman, 
with your permission, I would like to put my statement in the 
record. But I would like to just say a couple of opening 
statements.
    First of all, I want to personally thank you for holding 
this hearing, and your leadership in this matter. And I want to 
echo what you said, and that is that our desire is to try to 
see how we can improve the situation. It is not designed to be 
a finger-pointing expedition. It is designed to say how can we 
come together, bring individuals and Congress together so that 
we can help protect the United States of America.
    I also want to thank my good friend from Texas, Congressman 
Gohmert, who is the Ranking Member of this Subcommittee, for 
his leadership and for allowing me to participate in this 
capacity today.
    And, to our witnesses, we particularly thank you for taking 
your time, your expertise and energy to be here with us. There 
are so many people that work in this area and do great jobs. We 
have the FBI, DOD, Homeland Security, Justice, U.S.-China 
Economic and Security Review Commission. All of them do 
wonderful work, and we just appreciate what you are doing.
    The one thing I would just encourage our witnesses at some 
point in time, whether it is in your presentation or your 
answers today, is if you could just kind of address also what 
you think the scope of this problem is. You know, if we try to 
fight today's wars with yesterday's strategies, we lose. If we 
try to deal with espionage today the way we did deal with it 
yesterday, sometimes we are not successful. So we would love 
for you to kind of give us an idea, your opinion from your 
experience what the scope of the problem is.
    And then the other thing is, just kind of for lack of being 
able to articulate it any other way, when you go to bed at 
night and you think about some of these issues, what is it that 
keeps you awake? What is the thing that you worry about that we 
need to be worried about? Because if you are worrying about it, 
we probably need to be worrying about it, too.
    The third thing is, what do you think the government is 
doing right today? But, also, what do you think they are doing 
wrong in terms of dealing with some of these problems?
    And the final thing is what the Chairman alluded to: How 
can we improve? What is the direction we need to go so that we 
are protecting the United States and making it a safer place 
for our citizens?
    With that, Mr. Chairman, I yield back, and once again thank 
you personally for holding this hearing today.
    Mr. Scott. Thank you very much.
    [The prepared statement of Mr. Forbes follows:]

 Prepared Statement of the Honorable J. Randy Forbes, a Representative 
  in Congress from the State of Virginia, and Member, Subcommittee on 
                Crime, Terrorism, and Homeland Security

    I would first like to thank Chairman Scott for scheduling this 
hearing and Ranking Member Gohmert for his cooperation and interest. I 
would also like to thank the witnesses for being here today. I look 
forward to your testimony.
    As the former Ranking Member of this Subcommittee and the Chairman 
of the Congressional China Caucus, I look forward to hearing the 
witnesses discuss the methods by which espionage is conducted in the 
U.S., the role of the various departments and agencies in the U.S. 
Counterintelligence Community in identifying, investigating and 
prosecuting cases, and the adequacy of current federal espionage and 
export control laws. Furthermore, through this hearing and the 
classified briefing we just heard, the Subcommittee should gain a 
better understanding of the extent to which Chinese espionage and 
cyber-attacks threaten the security of the United States and what 
legislation and resources may be useful to aid law enforcement 
activities in this area.
    Chinese military doctrine considers computer network operations as 
a force multiplier in the event of a confrontation with the United 
States or any other potential adversary. We know that Chinese cyber-
warfare units are attacking computer systems in the United States 
today. In 2006, there were several attacks on U.S. government sites 
traced back to the People's Republic of China. In fact, the Department 
of Defense confirmed a cyber-attack on the offices of Defense Secretary 
Robert Gates in June of 2007.
    The Attorney General has testified before this Committee that China 
represents the number one espionage threat to the United States. It is 
estimated that there are between 2,000-3,000 Chinese front companies 
operating in the U.S. to gather secret or proprietary information. 
Foreign intelligence operations gather sensitive information through 
legal and illegal means, such as: business solicitations; circumvention 
of export controls; and university research and product development; 
attendance at seminars and conventions; and acquisition of American 
companies.
    Furthermore, in testimony before the House Judiciary Committee on 
September 18, 2007, Mike McConnell, the Director of National 
Intelligence, stated that ``China and Russia's foreign intelligence 
services are among the most aggressive in collecting against sensitive 
and protected U.S. systems, facilities and development projects, and 
their efforts are approaching Cold War levels.'' The most recent Annual 
Report to Congress on Foreign Economic Collection and Industrial 
Espionage (published August 2006) states that ``the Counterintelligence 
Community is unanimous in the view that this illegal outflow of 
technology imposed huge costs on the United States.''
    While our enemies have been developing new intelligence and 
techniques to spy against American interests, our criminal laws have 
not been changed to adapt to the new threat. Criminal penalties are 
negligible and criminal statutes are archaic and in need of reform. 
That is why Judiciary Committee Ranking Member Smith and I have 
introduced the ``Supporting Prosecutions of international Espionage 
Schemes Act of 2007'' or ``SPIES'' Act.
    The SPIES Act:
    (1) reforms existing espionage laws to respond to criticisms by 
courts and commentators concerning the outdated statutes and the need 
for reform; (2) increases criminal penalties for espionage crimes;
    (3) moves criminal prohibitions from title 22 and The Atomic Energy 
Act to the criminal code;
    (4) expands coverage of espionage laws to terrorist organizations 
not just foreign nations;
    (5) increases penalties for violations of the Arms Export Control 
Act and the Export Administration Act of 1979; and
    (6) improves coordination among the Justice Department, DHS, State 
and Commerce on enforcement of export controls.
    The recent recalls and safety concerns with products imported from 
China, including pet food, toothpaste, and toys, should remind us that 
the United States is ultimately responsible for protecting its citizens 
from any and all threats. In light of China's expansive military 
modernization and its tremendous economic growth, we cannot afford to 
ignore the threat that espionage and cyber-attacks directed by China 
towards the United States poses to our national security.
    I yield back the balance of my time.

    Mr. Scott. Mr. Gohmert, do you have a statement?
    Mr. Gohmert. Not other than to say how much I appreciate 
Chairman Scott having this hearing. It obviously is such an 
important issue. And for the continued diligence of my friend, 
former Ranking Member Randy Forbes, for pushing the matter 
forward. Thanks so much, Chairman.
    Mr. Scott. Thank you.
    Mr. Coble.
    Mr. Coble. Mr. Chairman, very briefly, I, too, thank you 
for holding the hearing. Mr. Chairman and Ranking Member, I 
know of no issue any more significant than the one we will 
discuss here today. Yield back.
    Mr. Scott. Thank you.
    We have a distinguished panel of witnesses here to help us 
consider the important issues currently before us.
    Our first witness will be J. Patrick Rowan, who is the 
Principal Deputy Assistant Attorney General in the National 
Security Division of the Department of Justice. As the 
Principal Deputy, Mr. Rowan leads the NSD's prosecutors in the 
counterterrorism and counterespionage sections and focuses on 
the Department's efforts to disrupt terrorists and other 
national security threats through investigation and 
prosecution. Prior to his current position, he served as the 
Associate Deputy Attorney General and assisted in the 
management of national security functions at the Department of 
Justice.
    Next witness will be David G. Major. He is the President of 
the Centre for Counterintelligence and Security Studies. Mr. 
Major is a retired senior FBI supervisory Special Agent who 
served in the Bureau from 1970 to 1994, where he specialized in 
working, supervising, and managing counterintelligence and 
counterterrorism cases. During the Reagan administration, he 
was appointed the first Director of Counterintelligence and 
Intelligence Programs to the National Security Council staff 
and briefed and advised President Reagan on counterintelligence 
policy and operations matters from 1985 to 1987.
    And our last witness will be Dr. Larry Wortzel, Chairman of 
the U.S.-China Economic and Security Review Commission. He is a 
leading authority on China and Asia, with more than 37 years of 
experience in intelligence, foreign policy, and national 
security matters. He had a distinguished 32-year military 
career, retiring as an Army colonel in 1999. He has previously 
served as an Army attache to the U.S. Embassy in China and has 
written numerous books on China's military.
    Each of the witnesses' written statements will be made part 
of the record in it's entirety. We would ask that the witnesses 
summarize your testimony in 5 minutes or less. And to help you 
stay within that time there is a timing device which will start 
green. With 1 minute left, it will turn to yellow and finally 
red when the 5 minutes are up. So we would ask you to stay 
within 5 minutes.
    We will begin with Mr. Rowan.

 TESTIMONY OF THE HONORABLE J. PATRICK ROWAN, PRINCIPAL DEPUTY 
ASSISTANT ATTORNEY GENERAL, NATIONAL SECURITY DIVISION, UNITED 
          STATES DEPARTMENT OF JUSTICE, WASHINGTON, DC

    Mr. Rowan. Thank you, Mr. Chairman.
    Chairman Scott, Ranking Member Gohmert, Congressman Forbes, 
Congressman Coble, thank you for having me here today.
    I am testifying on behalf of the Department of Justice and, 
specifically, the National Security Division, which, as you 
well know, was created by the Congress as part of the Patriot 
Act reauthorization in 2006; and I, at the outset, want to 
thank you for your role in creating the new division.
    As you know, the National Security Division is comprised of 
the counterterrorism and counterespionage prosecutors in the 
Department of Justice, as well as our Office of Intelligence 
and Policy Review attorneys. Those are the attorneys that work 
on FISA matters. We are the Department's liaison to the 
intelligence community, as well as being the prosecutors who 
are supervising or actually engaging in the terrorism and 
counterespionage prosecutions across the country. It is my 
pleasure to appear before you today to discuss the Department's 
enforcement of Federal espionage laws.
    As you know, the clandestine intelligence collection 
activities of foreign nations include not only traditional Cold 
War-style efforts to obtain military secrets but increasingly 
sophisticated operations to obtain trade secrets, intellectual 
property, and technologies controlled for export for national 
security reasons. Accordingly, these activities and others 
implicate a wide array of Federal criminal statutes. But no 
matter what form of espionage is being used or which statutes 
are implicated, there is one common denominator: Our national 
security is always at stake.
    The Federal Criminal Code gives the government a variety of 
different tools to prosecute different types of espionage, and 
I thought I would just briefly summarize for you sort of the 
different sets of statutes that we are primarily using to 
attack this problem.
    The first set of statutes are those for the traditional 
espionage involving national defense information or classified 
information. The primary two statutes in that area are 18 
U.S.C. Section 793 and section 794.
    18 U.S.C. Section 793 generally prohibits anyone from 
willfully communicating information relating to the national 
defense to any person not entitled to receive it. The term 
``information relating to the national defense'' has been 
defined by case law to mean information that is closely held by 
the government, usually through proof that the information was 
classified. Section 794 is more narrow. It criminalizes the 
communication of national defense information to foreign 
governments.
    Now, in addition to those two statutes, which are the 
traditional statutes, obviously, that most people think about 
when they talk about espionage, we have a number in different 
parts of the Code that we often use. In particular, in 
instances where we identify individuals or groups that are 
engaged in activities in the U.S. on behalf of a foreign 
government, but we cannot actually show that they are 
collecting classified or national defense information, we use 
18 U.S.C. Section 951, which prohibits anyone from acting in 
the U.S. as an agent of a foreign government without first 
notifying the Attorney General.
    18 U.S.C. Section 951 has been used successfully a great 
deal recently, including to prosecute individuals who had been 
affiliated with the Iraqi Intelligence Service under Saddam 
Hussein and who had been sent to the United States to conduct 
activities on behalf of Hussein's government.
    One example of this is Khaled Abdul-Latif Dumeisi, who was 
convicted in Chicago of violating section 951 for his 
activities spying on Iraqi dissidents in the United States for 
Saddam Hussein. We have had access to some Iraqi intelligence 
files and have used those files to help us in making these 
cases. Dumeisi is a good example of how we can use 18 U.S.C. 
Section 951 against somebody who wasn't involved in collecting 
classified information but was nonetheless working in this 
country on behalf of a foreign government.
    Of great concern recently is the substantial and growing 
national security threat posed by illegal foreign acquisition 
of restricted U.S. military technology. The National Security 
Division launched a new initiative this past October to bolster 
our enforcement efforts on that front.
    In a general sense, the technology at the heart of the 
initiative includes U.S. military items, dual-use equipment, 
and other technical expertise or know-how, some of which have 
applications in the weapons of mass destruction. These 
materials are generally restricted and may not be exported 
without a license.
    China and Iran pose particular U.S. export control 
concerns; and recent prosecutions have highlighted illegal 
exports of stealth missile technology, military aircraft 
components, naval warship data, night vision equipment, and 
other restricted technology destined for those countries.
    In one recent case, a former engineer with a U.S. Navy 
contractor in California was convicted by a jury in May of 2007 
for exporting sensitive defense technology to China. The 
individual, Chi Mak, had been given lists from co-conspirators 
in China that requested U.S. naval research related to nuclear 
submarines and other information. Mak gathered technical data 
about the Navy's current and future warship technology and 
conspired to export this data to China. His four codefendants 
also pled guilty. He is scheduled to be sentenced in March of 
this year.
    The export control laws are the third set of laws that we 
use as a critical tool for addressing national security 
threats. These include the Arms Export Control Act, which 
prohibits the export of defense articles and services without 
first obtaining a license from the Department of State; the 
Export Administration Act, which has lapsed but is currently 
enforced through IEEPA. That prohibits the export of certain 
dual-use technology without first obtaining a license from the 
Department of Commerce. And then the International Emergency 
Economic Powers Act, or IEEPA, which authorizes restrictions or 
prohibitions on transactions involving particular countries 
such as Iran.
    The National Security Division in October of last year 
launched an export enforcement initiative to ensure that 
prosecutors around the country have the training, tools, and 
support from other agencies that they need to bring cases under 
these statutes. This effort involves expanding our training of 
prosecutors around the country, the creation of multi-agency 
counterproliferation task forces in U.S. attorneys' offices 
around the country, the designation of an 18-year veteran 
Federal prosecutor to be a coordinator, our National Export 
Control Coordinator, to ensure that we are working hard and 
moving this effort forward across the country, and then greater 
coordination between our prosecutors, export licensing 
officials at the State Department and the Commerce Department 
and the enforcement agencies, to include the Department of 
Homeland Security, the FBI, the Commerce Department and DCIS.
    That effort has already begun to pay off. We are very happy 
with the success we have had so far, although we believe there 
are more cases to be had out there, and we expect to see 
additional prosecutions in the near future.
    I appreciate the opportunity to appear before you today and 
testify on behalf of the Department of Justice regarding 
enforcement of Federal espionage laws. We look forward to 
working with the Committee to improve our enforcement 
capabilities in this area.
    Mr. Scott. Thank you, Mr. Rowan.
    [The prepared statement of Mr. Rowan follows:]

          Prepared Statement of the Honorable J. Patrick Rowan











    Mr. Scott. Mr. Major.

    TESTIMONY OF DAVID G. MAJOR, PRESIDENT, THE CENTRE FOR 
    COUNTERINTELLIGENCE AND SECURITY STUDIES, ALEXANDRIA, VA

    Mr. Major. Mr. Scott, Mr. Forbes, Members of the 
Subcommittee, I already submitted my testimony. I would like to 
make some general comments, if I could, about this, the bigger 
issue of espionage.
    It is one of these things that we have had a tough time in 
our Nation to put our hands around and taking serious; and so 
we have periods historically of being very serious about it, 
other times kind of ignoring the reality of this problem. When 
you ask the question what is the scope of the problem, that is 
another example of difficulty we have had as a Nation trying to 
come to grips with it.
    The CI Centre was established in 1997 as a center of 
excellence, and we primarily do counterintelligence training 
for people in the intelligence community. And we do about 8,000 
people a year and trained about 67,000 people in the last 11 
years. These people are from everywhere within the intelligence 
community.
    And one of the things we learned is that our understanding 
of both this discipline and counterintelligence is about as 
deep as a puddle. Most people do not have a deep, rich 
understanding of this, nor where it came from, nor how to 
address it. One of the greatest things you can do to try to 
address it is truly educate people, and this is one of the 
great challenges we continue to have.
    Counterintelligence historically in the United States is a 
problem that we have tried to buy on the cheap. We spend a lot 
of money on other issues, but counterintelligence is one that 
we have never made--we vary in our ability to make a serious 
commitment to make sure our personnel are fully trained and 
fully capable of dealing with the problem.
    If I go back historically and give you a sense of the 
problem, there are 28 nations that have been involved in 
legally identified espionage prosecutions in the United States. 
These are members of NATO. These are adversaries. These are 
friends. When you look at how big the problem is, since 1945 to 
today there are 247 people who have been prosecuted or charged 
with espionage in the United States. In the 21st century, since 
2000 to this time, there have been 37 people who have been 
charged with espionage or espionage-related crimes; and that 
includes 794, 793, and 951, which was actually passed in 1938, 
the agent of foreign powers legislation, which is very 
effective today and one of the techniques that has been used to 
try to deal with the reality of this issue.
    Forty-nine percent of the 247 people who have been charged 
with espionage since 1945 are, in fact, Russian cases. So we 
learned our craft of counterintelligence by dealing with the 
KGB and the GRU, who have run operations against us. One 
hundred and twenty-one cases actually of the 247 are Russian-
based cases.
    In 1992, the FBI changed its whole strategy of dealing with 
counterintelligence and went to an issue called national 
security threat list. The result of that is they begin to look 
at many other countries and have publicly stated there are now 
over a hundred nations that use part of their GNP to target the 
United States to conduct intelligence operations leading toward 
what we would call espionage in the generic context. And the 
result of that is we have identified many nations, including 
allies, who in fact run intelligence operations against the 
United States because it is in their national interests to do 
so. This is not an adversarial issue. This is one that a nation 
finds in their interest to collect against us, and they do.
    It was interesting that the law that we talked about today 
actually is traced back to 1917, when the espionage law of 1917 
was passed as a result of a terrorist attack against the United 
States. The terrorist attack was Black Tom Island. It took 
place in New York City. Over $20 million worth of damage, three 
people killed, and it really mimicked the 9/11, except, instead 
of killing people, it had a huge explosion, destroyed a huge 
munitionary dump, and the result was we had no law to respond 
to that.
    Actually, there were calls to court-martial citizens in the 
United States. Cooler heads prevailed, and they passed the 
espionage law of 1917, which is, just as 793 and 794, a very 
restrictive law. You have to do two things: to prove that 
national defense, which means military defense of the United 
States, has to be proven. That has to be proven in a courtroom. 
And, number two, based on the Heine espionage case of 1940, it 
has to be protected information. It doesn't have to be 
classified information, but if it meets the standard of being 
defense information and it is protected, it also meets the 
standard of being classified.
    The result is that it is a very narrow, restricted aspect 
of espionage that you have to prove in a courtroom to get what 
I call ``big'' espionage, 793. That is why these other statutes 
such as 951 and 794, preparatory acts, are also important to do 
that.
    But when you say, how do we deal with this problem and what 
is the scope of this, we struggle with that issue, how big is 
the problem. I remember when I was in the government and we 
started a study on that and we realized there were many nations 
that found it in their interests to do it.
    As you certainly know, in other hearings, the Bureau is 
always having hundreds of actual investigative cases but to 
actually bring it to prosecution is very difficult to do; and 
there are very few cases where you find somebody actually 
conducting espionage. So almost always these are conspiratorial 
cases. It is a very rare case that has actually been caught 
with someone committing espionage. Bob Hanssen is an exception, 
when they allowed him to actually commit espionage to do it.
    So it is a very complex issue and one that we have had a 
tough time sometimes putting our arms around.
    To show you the breadth of the scope of the problem, 
remember during World War II when the Soviet Union was our ally 
and between 1942 and 1945 there were over 250 Americans who 
were agents of the foreign power in that one period. In fact, 
if you could break that down to the year 1944, every element of 
the U.S. Government was penetrated by our ally, the Soviet 
Union; and the only exceptions to that were the FBI and ONI, 
which the FBI made up with with the Hanssen case in the modern 
era. But that shows when we did not have an effective 
counterintelligence program in World War II that didn't mean 
that you won't be targeted.
    But the one thing I have learned in my 38 years of studying 
this is you can never stop it, like you can't stop any crime, 
but you can address it. And you need to address it through 
education, you need to address it by taking it serious. And 
sometimes we have and sometimes we have not as a Nation.
    Mr. Scott. Thank you very much.
    [The prepared statement of Mr. Major follows:]

                Prepared Statement of the David G. Major











    Mr. Scott. Dr. Wortzel.

 TESTIMONY OF LARRY M. WORTZEL, Ph.D., CHAIRMAN, UNITED STATES-
 CHINA ECONOMIC AND SECURITY REVIEW COMMISSION, WASHINGTON, DC

    Mr. Wortzel. Chairman Scott, Mr. Forbes, Members of the 
Subcommittee, thank you for inviting me to address this hearing 
on Federal espionage laws.
    I will address the issues raised about Chinese espionage in 
the convention of the U.S.-China Economic Security Review 
Commission's annual report to Congress. I also have some 25 
years of personal experience as an intelligence officer, so I 
will add a few of my own views.
    The Commission concluded that China's defense industry is 
producing new generations of weapon platforms with impressive 
speed and quality. We believe that some of these advancements 
are due to a very effective manner in which Chinese companies 
are integrating commercial technologies into military systems. 
However, we note that espionage provides Chinese companies an 
added source of new technology, and it leaps them ahead, while 
saving them time and money.
    My own view is that it is often very difficult to 
distinguish between what we define as espionage related to the 
national security under the espionage act and economic 
espionage, or the theft of proprietary information and trade 
secrets. And even if we can make the distinction, we may not be 
able to prove it in court.
    For American companies, however, for the defense of the 
United States, the impact of this espionage is the same. It 
robs companies of the cost of their research. It gives 
technology to China's armed forces. It undermines the security 
of American military personnel and our national security.
    Mr. Rowan mentioned the Chi Mak case in California. I want 
to talk a little bit more about it, because I think it is a 
great example of the difficulties our intelligence and law 
enforcement agencies face in pursuing these cases.
    You have five members of a California family who are 
charged with conspiring to export defense articles to China, 
which was a violation of the Arms Export Control Act. Yet they 
focused on corporate proprietary information and embargoed 
defense technology as related to propulsion weapons and 
electrical systems in U.S. warships.
    Agents of the FBI and the Naval Criminal Investigative 
Service found direct tasking documents with Chi Mak, and it 
looks like the espionage effort was directed by a Chinese 
academic out at Zhongshan University in Guangzhou. The 
information that was going back to China was embedded in 
computer disks, CDs that seemed to be television broadcasts 
with pictures and sound.
    It has a lot of the earmarks of traditional espionage 
tradecraft and state-directed espionage, but I will tell you 
that this practice is so widespread in China that it could have 
been an effort by some Chinese company, through a research 
institute at a university, to leap themselves ahead, or the 
university itself to market itself and get money from the 
government.
    The Gowadia case out in Hawaii, where stealth missile 
technology was acquired by the Chinese, is another very 
important case.
    Now we also noted in our report our concerns that computer 
or cyber penetrations of U.S. companies and government agencies 
represents another spectrum of the serious espionage threat 
from China that our Nation faces. Our Commission concluded 
that, as Chinese espionage against the U.S. military and 
American business continues to outpace the overwhelmed U.S. 
counterintelligence community, critical American secrets and 
proprietary technologies are being transferred to the People's 
Liberation Army and Chinese state-owned companies.
    Now, among our recommendations were that Congress address 
the adequacy of funding for export control enforcement and 
counterintelligence efforts, that you also look at the adequacy 
of and the funding for specific military intelligence and 
homeland security programs that protect critical American 
computer networks. We felt that the Director of National 
Intelligence should run a capabilities assessment and identify 
specific strategies for addressing U.S. weaknesses.
    In closing, Mr. Chairman, the law enforcement and the 
intelligence communities have been effective in meeting this 
challenge; and I think we all have to remember that there are a 
lot of other national security issues, like terrorism, that 
they face. So they have done a good job.
    I should also note for you that our Commission prepared a 
classified report to the Congress. It is available to read in 
the Office of Senate Security.
    I want to thank you again for the opportunity to appear 
before you and for holding this hearing, and I would be happy 
to respond to any questions you may have.
    Mr. Scott. Thank you very much.
    [The prepared statement of Mr. Wortzel follows:]

                 Prepared Statement of Larry M. Wortzel

    Chairman Conyers, Chairman Scott, Ranking Members Smith and Forbes, 
and Members of the Subcommittee, thank you for inviting me to address 
this hearing on the enforcement of federal espionage laws.
    My name is Larry Wortzel and I presently serve as the chairman of 
the twelve member, bipartisan, bicameral United States-China Economic 
and Security Review Commission. As you know, the Commission members are 
appointed by the Congressional leadership. I have served on the 
Commission since 2001 and I also served as chairman for the 2006 
reporting year. By mutual agreement, the twelve commissioners elect a 
chairman and a vice-chairman each year, rotating the positions between 
a Republican and a Democratic appointee. I was appointed to the 
Commission by Speaker Hastert.
    I will address the issues raised about espionage by China by the 
Commission in its yearly report to the Congress, issued in November 
2007. I also bring some personal experience on the matter to bear. 
During my 32 year military career, I spent 25 years in military 
intelligence with the United States Army. This experience involved 
gathering signals intelligence and human source foreign intelligence, 
primarily about China. For about five years I was a military attache at 
the American Embassy in China. I was also trained as a 
counterintelligence officer and spent a number of years conducting 
counterintelligence investigations and developing programs to protect 
emerging defense technology from foreign espionage.
    I should note that when I refer to the Report to Congress by the 
US-China Economic and Security Review Commission, I will summarize the 
views and consensus of the commissioners, as outlined in the report. 
You could have read that yourselves, however; therefore, given my 
background and experience, I will also express my own views. When I do, 
I will identify them as such.
    The Commission concluded in 2007 that China's defense industry is 
producing new generations of weapon platforms with impressive speed and 
quality. We believe that some of these advancements are due to the 
highly effective manner in which Chinese defense companies are 
integrating commercial technologies into military systems. However, we 
note that espionage provides Chinese companies an added source of new 
technology without the necessity of investing time or money to perform 
research. After a year of hearings, research, and classified briefings 
from agencies of the U.S. intelligence community, the Commission 
concluded that China's espionage activities are the single greatest 
threat to U.S. technology and strain the U.S. counterintelligence 
establishment. This illicit activity significantly contributes to 
China's military modernization and acquisition of new capabilities.
    There is a long record in China going back over two centuries of 
sending government directed missions overseas to buy or shamelessly 
steal the best civil and military technology available, reverse 
engineer it, and build an industrial complex that supports the growth 
of China as a commercial and military power. Indeed, my own view is 
that today it is often difficult to distinguish between what we define 
as espionage related to the national defense under the Espionage Act 
(18 USC 792-9), and economic espionage or the theft of proprietary 
information and trade secrets covered by the Economic Espionage Act (18 
USC 1831-9). Indeed, for American companies and for the national 
defense of the United States, the impact of espionage can be the same, 
robbing U.S. companies of the costs of their research, giving 
technology with military application to China's armed forces, and 
undermining the security of American military personnel and our nation.
    One reason that China's industries have been so effective at 
espionage is the centralized approach they have taken. In March 1986, 
the PRC launched a national high technology research and development 
program with the specific goal of benefiting China's long-term high 
technology development. This centralized program is known as the ``863 
Program'' (or Torch Program). China's state council allocates money to 
acquire and develop biotechnology, space technology, information 
technology, laser technology, automation technology, energy technology 
and advanced materials.\1\
---------------------------------------------------------------------------
    \1\ The 863 name comes from the month and the year that the program 
was proposed.
---------------------------------------------------------------------------
    Our Commission recognizes that part of China's defense industrial 
base modernization strategy is to acquire advanced foreign equipment 
and technologies. While in some cases Chinese planners have chosen to 
purchase entire weapon systems directly, some Chinese and Western 
analysts do not see this as beneficial for the long-term modernization 
of China's defense industry.\2\ Direct purchases are generally used as 
a temporary measure to fill critical gaps that China's indigenous 
defense companies are unable to fill. Some items purchased from foreign 
companies are dual-use components--those that can be used in military 
as well as civilian applications such as computers, semiconductors, 
software, telecommunications devices, and integrated circuits.\3\
---------------------------------------------------------------------------
    \2\ U.S.-China Economic and Security Review Commission, Hearing on 
China's Proliferation and the Impact of Trade Policy on Defense 
Industries in the United States and China, testimony of James Mulvenon, 
July 13, 2007. Mulvenon sees this as a ``scathing indictment of the 
failures of the PRC defense-industrial base to fulfill its long-
standing promises to the PLA.''
    \3\ U.S. Department of Defense, Annual Report to Congress on the 
Military Power of the People's Republic of China, (Washington, DC: July 
2007), p. 29.
---------------------------------------------------------------------------
    The report also notes that partnerships forged between foreign 
companies and Chinese civilian companies also offer Chinese defense 
industries access to advanced foreign technologies. The nature of the 
regulatory and commercial environment in China places enormous pressure 
on foreign companies, including those of the United States, to transfer 
technology to Chinese companies as a part of doing business in China 
and to remain competitive globally.\4\ Foreign companies are willing to 
provide not only technology but capital and manufacturing expertise in 
order to secure market access in China.\5\ Indeed, many are, in fact, 
creating R&D facilities in China.
---------------------------------------------------------------------------
    \4\ Medeiros et al., A New Direction for China's Defense Industry, 
(RAND Corporation, Santa Monica, CA: 2005) p. 241.
    \5\ Medeiros et al., A New Direction for China's Defense Industry, 
(RAND Corporation, Santa Monica, CA: 2005) p. 241.
---------------------------------------------------------------------------
    Still, we note in the report that access to restricted foreign 
technology is obtained by China through industrial espionage. We have 
heard from experts who advise us that China operates an aggressive 
clandestine effort to acquire additional technologies.\6\ In recent 
years, this has become such a problem in the United States that U.S. 
Immigration and Customs Enforcement officials have rated China's 
espionage and industrial theft activities as the leading threat to the 
security of U.S. technology.\7\
---------------------------------------------------------------------------
    \6\ U.S.-China Economic and Security Review Commission, Hearing on 
China's Military Modernization and Its Impact on the United States and 
the Asia-Pacific, testimony of William Schneider, Jr., March 29, 2007.
    \7\ U.S. Department of Defense, Annual Report to Congress on the 
Military Power of the People's Republic of China, (Washington, DC: July 
2007), p. 29.
---------------------------------------------------------------------------
    Our law enforcement agencies, our intelligence community, and our 
corporate security professionals must contend with seven or more 
Chinese state-controlled intelligence and security services that can 
gather information for the state-owned industrial sector inside China 
or overseas. These include

          the Ministry of State Security and its local or 
        regional state security bureaus;

          the Public Security Bureau;

          the intelligence department of the People's 
        Liberation Army (PLA), or Second Department;

          the PLA's Third, or Electronic Warfare Department;

          a PLA Fourth Department that focuses on information 
        warfare;

          trained technical collectors from the General 
        Armaments Department and the General Logistics Department of 
        the PLA;

          the technical intelligence collectors of the military 
        industrial sector and the Commission of Science Technology and 
        Industry for National Defense;

          and the Communist Party Liaison Department r PLA 
        General Political Department.

    Frankly, I don't know if the Chinese government is funneling 
information or technology back into some of the now-privatized 
companies that engage in industrial or economic espionage in China. 
Also, I believe that the various science and research parks that 
operate under municipal control actively seek out new technology and so 
do the newer companies that operate outside government control in 
China.
    The nature of the Chinese state also compounds the security 
problems. China is a totalitarian state, even if today there is far 
greater economic freedom there. The legal system in China still 
responds to the direction of the Chinese Communist Party. Thus the 
state has great power to compel citizens to cooperate and a far reach 
to retaliate if citizens in China refuse to do the state's bidding. I 
think that reach is decreasing as the economy offers more opportunity 
for Chinese citizens and there are more opportunities for private 
employment there. But it is still difficult to avoid the pressure that 
a one-party, Leninist-structured state can bring to bear on its 
citizens.
    I would like to discuss one case brought to trial by the United 
States Attorney's office in the Central District of California as an 
example of how hard it is to know for certain whether our intelligence 
and law enforcement agencies face economic espionage or more 
traditional espionage designed to injure the national security of the 
United States. In the Chi Mak case, in California, five members of a 
southern California family were charged with acting as agents of the 
People's Republic of China in 2005 and in 2006 with conspiring with 
each other to export United States defense articles to the People's 
Republic of China (a violation of the Arms Export Control Act, 22 USC 
2778). This technology theft ring focused on acquiring corporate 
proprietary information and embargoed defense technology related to the 
propulsion, weapons and electrical systems of U.S. warships. Going 
through Chi's residence, agents of the Federal Bureau of Investigation 
and the Naval Criminal Investigative Service found instructions tasking 
Chi to join ``more professional associations and participate in more 
seminars with `special subject matters' and to compile special 
conference materials on disk.'' \8\
---------------------------------------------------------------------------
    \8\ CI Centre, http://www.cicentre.com/Documents/DOC_Chi_Mak.html
---------------------------------------------------------------------------
    Chi Mak was a support engineer at L-3 Communications working on 
navy quiet drive propulsion technology. In two documents instructing 
Chi, one hand printed in Chinese and the other machine printed, the 
military technologies Chi was to seek involved:

          Space-based electromagnetic intercept systems

          Space-launched magnetic levitation platforms

          Electromagnetic gun or artillery systems

          Submarine torpedoes

          Electromagnetic launch systems

          Aircraft carrier electronic systems

          Water jet propulsion

          Ship submarine propulsion

          Power system configuration technology

          Weapons system modularization

          Technologies to defend against nuclear attack

          Shipboard electromagnetic motor systems

          Shipboard internal and external communications 
        systems

          Information on the next generation of US destroyers 
        (DDX).

    The espionage effort appears to have been directed by a Chinese 
academic at a research institute for Southeast Asian affairs at 
Zhongshan University in Guangzhou, China. The Chi family encrypted the 
information it was passing back to China into a computer disk that 
appeared to contain television and sound broadcasts. It was literally 
embedded in the other data in encrypted form.
    This effort has all of the earmarks of professional espionage 
tradecraft and state-directed espionage, with sophisticated control and 
sophisticated clandestine communications means. The government 
university in Guangzhou could have been cover for a state-directed 
espionage effort. However, Chi Mak and his alleged co-conspirators 
could just as well have been part of a sophisticated economic espionage 
operation run out of a university research institute.
    Mr. Chairman, I could go on for a long time. The Computer and 
Intellectual Property Section of the Department of Justice web site 
lists 33 cases of alleged violations of the Economic Espionage Act 
between 2000 and 2005, many of which seem to have involved China. 
Immigration and Customs Enforcement has a large number of arrests and 
indictments, as does the FBI. In the US-China Economic and Security 
Review Commission's annual report, we note that ``Mr. Joel Brenner, the 
top counterintelligence official in the Office of the Director of 
National Intelligence, has noted that of the 140 foreign intelligence 
agencies continuously attempting to penetrate U.S. agencies, China is 
the most aggressive.\9\ The FBI stepped up counterintelligence efforts 
against Chinese intelligence operations in the United States in July 
2007, because of what FBI Director Robert Mueller called a 
``substantial concern'' about those operations.'' \10\ An American 
engineer living in Hawaii was indicted for working with a Chinese 
government agent and supplying stealth missile technology over the 
course of six visits to China. A Defense Intelligence Agency employee 
was convicted on lesser charges but was indicted for leaking classified 
information to China's military intelligence service and hoarding 
classified U.S. documents in his home.
---------------------------------------------------------------------------
    \9\ Jeff Bliss, ``China's Spying Overwhelms U.S. 
Counterintelligence,'' Bloomberg, April 2, 2007.
    \10\ Bill Gertz, ``FBI calls Chinese espionage `substantial,' '' 
The Washington Times, July 27, 2007.
---------------------------------------------------------------------------
    We also noted in our report concerns that computer, or ``cyber'' 
penetrations of United States companies and government agencies 
represent another spectrum of the espionage threat from China with 
which our law enforcement and intelligence community must contend. In 
England, the head of one of Britain's intelligence agencies warned of 
cyber-penetrations by China. The attacks allegedly targeted Royal Dutch 
Shell and Rolls Royce. So China's espionage activities target advanced 
technology, economic data and military secrets in many countries.
    Our Commission unanimously concluded that ``as Chinese espionage 
against the U.S. military and American businesses continues to outpace 
the overwhelmed U.S. counterintelligence community, critical American 
secrets and proprietary technologies are being transferred to the PLA 
and Chinese state-owned companies.'' \11\ In response to this 
espionage, the Commission recommended the following steps:
---------------------------------------------------------------------------
    \11\ U.S. Department of Justice Press Release, ``Former Chinese 
National Convicted of Economic Espionage to Benefit China Navy Research 
Center,'' August 2, 2007; U.S. Department of Justice Press Release, 
``Two Men Plead Guilty to Stealing Trade Secrets from Silicon Valley 
Companies to Benefit China: First Conviction in the Country for Foreign 
Economic Espionage,'' December 14, 2006; Jeff Bliss, ``China's Spying 
Overwhelms U.S. Counterintelligence,'' Bloomberg, April 2, 2007; Amy 
Argetsinger, ``Spy Case Dismissed for Misconduct,'' Washington Post, 
January 7, 2005; Bill Gertz, ``FBI calls Chinese espionage 
`substantial,' '' The Washington Times, July 27, 2007; U.S. Department 
of Justice Press Release, ``Guilty Plea in Trade Secrets Case,'' 
February 15, 2007; U.S. Department of Justice Press Release, ``Fifth 
Family Member Pleads Guilty in Scheme to Export U.S. Defense Articles 
to China,'' June 6, 2007.

          In order to slow or stop the outflow of protected 
        U.S. technologies and manufacturing expertise to China, the 
        Commission recommends that Congress assess the adequacy of and, 
        if needed, provide additional funding for U.S. export control 
        enforcement and counterintelligence efforts, specifically those 
        tasked with detecting and preventing illicit technology 
        transfers to China and Chinese state-sponsored industrial 
---------------------------------------------------------------------------
        espionage operations.

          The Commission recommends that Congress assess the 
        adequacy of and, if needed, provide additional funding for 
        military, intelligence, and homeland security programs that 
        monitor and protect critical American computer networks and 
        sensitive information, specifically those tasked with 
        protecting networks from damage caused by cyber attacks.

          The Commission recommends that Congress instruct the 
        director of national intelligence to conduct a full assessment 
        of U.S. intelligence capabilities vis-a-vis the military of the 
        People's Republic of China, and identify strategies for 
        addressing any U.S. weaknesses that may be discovered as part 
        of the assessment

          The Commission recommends that Congress urge the 
        Administration to engage China in a military dialogue on its 
        actions and programs in cyber and space warfare to include 
        threat reduction mechanisms, the laws of warfare, and 
        specifically how the laws of warfare apply to the cyber and 
        space domains.

    In closing Mr. Chairman, I want to thank you and the Members of the 
subcommittee for holding this hearing. The law enforcement and 
intelligence communities have been effective in meeting this challenge, 
even if overwhelmed by other national security challenges. In my view, 
the Economic Espionage Act is a very helpful tool, especially since the 
elements of proof of the Espionage Acts are often more difficult to 
prove, as I tried to illustrate in my description of the Chi Mak case. 
In other indictments the law enforcement community has relied on the 
Arms Export Control Act and the Export Administration Act.
    I should also note that the United States-China Economic and 
Security Review Commission also prepared a classified report to 
Congress. This report is available for Members and their appropriately 
cleared staff to read in the Office of Senate Security.
    Thank you again for the opportunity to appear before you and I 
would be happy to respond to any questions you may have.

    Mr. Scott. We will now ask you to respond to questions. I 
will first recognize myself for 5 minutes.
    As I indicated in my opening statement, this is the 
Judiciary Committee. There are many other Committees that would 
have jurisdiction on some of the solutions to the problem.
    But let me just begin by looking at the acquisition of 
technology. Mr. Rowan, you mentioned the dual-use technology 
that may be an issue and that that statute had lapsed. Did I 
understand that right?
    Mr. Rowan. That's right.
    Mr. Scott. What problems occur by virtue of the fact that 
that statute has lapsed?
    Mr. Rowan. Well, some of the penalties that would otherwise 
be available under the Export Administration Act are not 
available.
    What has occurred is that the regulations that were imposed 
and support the Export Administration Act have been adopted 
through IEEPA. So we are able to reach a lot of the conduct, 
but we have to reach it through IEEPA, and so the sort of 
statutory regimen that exists under the Export Administration 
Act is not available to us. And that means that penalties and 
everything else that sort of was thought up to directly target 
dual-use technologies is not available to us.
    We, you know, obviously prosecuted cases using that 
statutory or regulatory fix, but it is a statute that we 
would--we could certainly use more effectively if it was in 
effect.
    Mr. Scott. In terms of commercial activities and export 
controls, do we need to do anything from the Judiciary 
Committee point of view with universities or businesses in 
terms of protecting the information?
    Mr. Rowan. Well, Mr. Chairman, we certainly would be 
pleased to work with you on any proposals in that area, but I 
don't come to you today with any proposals for how this 
Committee might be able to target that specific problem.
    Mr. Scott. Mr. Major or Dr. Wortzel, do you have any 
recommendations as to what this Committee could do to protect 
our military and commercial secrets?
    Mr. Wortzel. Mr. Chairman, dual-use technologies are a real 
problem; and it has been very difficult to get the Export 
Administration Act passed through Congress. I would encourage 
you to work on that.
    I think that the problem of universities and contracts and 
research laboratories is a huge one; and it is very difficult 
to know, when a contract is given to a university or 
corporation, who some of the subresearchers are, who is 
actually working on it. That is an area I think that would be 
useful to address.
    A second area that we have explored with the Commission is 
the problem that many corporations are beginning to move both 
manufacturing and research overseas into other countries, 
specifically into China. In order to get in there, they 
increasingly have to provide access to manufacturing techniques 
and proprietary information; and they lose that.
    So those are areas I believe that we could tighten up and 
that with the help of the Justice Department there might be 
improved legislation.
    Mr. Major. A couple general comments.
    In front of you we have provided you a chart, if you have a 
chance to look at it, that will illustrate the extent of this 
problem. Because when you open it up you realize what we try to 
make is a list of every single espionage case publicly 
identified in the last hundred years, starting from 1900 to 
2006. And if you look at that and you realize how long this 
problem has been with us and how we deal with it.
    Now, to respond to this problem, it is interesting that it 
is not--first of all, the most difficult thing in an espionage 
case is finding out who might be the betrayer, who might be the 
agent; and you either have to target who the collector is and 
the methodologies they use or you have to try to find other 
mechanisms to say who that person is. That is the first, very 
important step.
    If you notice when you look at that chart, you can see that 
by year we have listed both congressional actions over the 
years, FBI reorganizations, CIA reorganizations, world events, 
and then the number of individual cases by year. And the one 
thing it does indicate, this problem is not going to go away, 
no matter how much we want it not to be the case.
    China represents a very unique problem because China 
doesn't spy the way God intended people to spy. You do not have 
an intelligence officer filling a dead drop. China's location 
for espionage is a couch in Beijing. It is very difficult to 
fashion or put a case together like this.
    And one of the other issues you have is exactly as you just 
heard, that when Americans are trying to expand their business, 
as they go to China, since they do not have copyright laws to 
the same degree in Asia that you do in the United States, is 
you say to many corporations color it gone, and soon you will 
be talking about your competitor that is there. So the real 
issue is it is an education one to make sure people know what 
they are walking into and how they are doing it.
    One of the things that has worked in an espionage case is 
that you find out who the agent is, but then what do you do 
about it? And a good example is on the list I gave you. Of the 
37 people arrested for espionage this year, one was a North 
Korean espionage agent by the name of John Yai, who they 
investigated for some time, but they couldn't prove he had 
passed national defense information. So it turned out to be 
that 951 was the only way that you could go after him, which is 
the agent of a foreign power.
    And if someone examined beefing that law up, expanding the 
amount of penalties you would have for that particular crime--
because it is the one thing that you can prove. I can prove 
that you are an agent, but I can't prove that you have actually 
passed national defense information, which really limits the 
kind of response you can have to deal with it.
    Mr. Scott. If you are an agent of a foreign government, is 
that a crime?
    Mr. Major. If you are an unregistered agent of a foreign 
power. Whether you are a lobbyist or a spy, if you come to the 
United States, you have a requirement to go down to the 
Department of Justice and say I am a trained spy. And if you 
don't do that, you are in violation of the law.
    Well, most spies don't do that. Lobbyists do it, lawyers 
do, but spies don't. And it is like spitting on the sidewalk 
for espionage. There is the 1-year sentence and then you can 
get a bigger one. And it is the one that has been used against 
the Iraqis recently. We went through a period of time that we 
didn't want to use that, but now in the last--this century we 
have been using it more. But, still, the penalty for it is 
significantly lower than it is for what you and I would define 
as big espionage.
    Mr. Scott. Mr. Forbes.
    Mr. Forbes. Thank you, Mr. Chairman; and thank you, 
witnesses, for being here.
    This is both impressive and frightening as we look at this. 
But there is one major sea change that has taken place 
throughout all of this that isn't totally reflected on here. 
And that is, based on testimony that we have received in this 
Committee before, would any of you disagree that today the 
number one espionage threat in the United States is China?
    Mr. Major. I am not sure it is the largest. I would expand 
on that that the size of the Soviet intelligence service, which 
has always been large, one of the ways to look at it is it is 
coming back, the size of their intelligence service--the Soviet 
Union in 1991, when it collapsed, had about 296 million people, 
and the size of their intelligence service was 496,000 people. 
Now we roll the camera forward to 2007, there are about 141 
million people in Russia today, which is half the population, 
and their intelligence service is down to about 400,000 people. 
Which means they have 400,000 people as members of their 
intelligence service, which means the population is half the 
size, but the size of the intelligence service is 20 percent 
less, which means there are more intelligence officers per 
capita than during the Cold War. And there are as many Russian 
intelligence officers in the United States as there were Soviet 
intelligence officers during the Cold War, and we have had a 
tougher problem coming to deal with that.
    If you read policy papers today, it is interesting that we 
seem to have an awakening to China. You can look at it, a 
number of strategic papers that are made, some of the cases 
made, I think there is a slow awakening, starting with the Cox 
report, which is a very significant one, to wake up to China.
    For a long time, we did not recognize China, because China 
is a very difficult country to penetrate their intelligence 
collection. Because they don't do it the way you are supposed 
to do it. They don't use intelligence services to do it. So it 
was for a very long time we were not very successful against 
China. And I would suggest in the last 7 to 8 years we are 
getting better at dealing with China.
    During the same time, the Soviet Union is coming back, and 
we now find that there are as many intelligence officers here. 
And, as you well know, FSB has the authority, that is the 
counterintelligence service, to go around the world and conduct 
assassinations. It is like Stalinism is back.
    The one other thing you do see happening, which is a real 
transition in espionage, is the marriage between Islamic 
terrorism and espionage, like the case with Yemen and other 
cases that we are seeing that you didn't used to see any 
connection between terrorism and espionage. You do like the 
China case, Paul Hall, who in fact was providing classified 
information from the Navy, but he was doing it to support 
terrorism. And I think that is a new trend that we are seeing 
in just the last few years here in the United States.
    Mr. Forbes. Mr. Wortzel?
    Mr. Wortzel. Mr. Forbes, one of the unique things about 
China obviously is the population, 1.3 or 1.4 billion people. 
But the nature of the state and its ability as a totalitarian 
Leninist state allows seven or eight intelligence services and 
technology collection organizations to literally target and 
train people or compel people during their routine activities 
of travel and work to gather information.
    I doubt that everybody complies that is told by the Chinese 
Government to do something. There are more opportunities in 
China today to avoid that repressive state and get another job. 
But it really does, as a state, have the capability to say you 
are not traveling unless you go here and you do such and such.
    Mr. Forbes. Your Commission concluded or at least indicated 
that China's espionage and industrial theft activities were a 
leading threat to the security of U.S. technology. Is that an 
accurate statement?
    Mr. Wortzel. Yes, sir. That is the unanimous consensus of a 
bipartisan Commission of 12 people.
    Mr. Forbes. And do any of you have any information that we 
have had any cyber penetrations, as you talk about, or 
invasions of elected officials in the United States or 
government officers or American corporate executives by Chinese 
espionage?
    Mr. Wortzel. Mr. Chairman or Mr. Ranking Member, we would 
have to address that--it is addressed in our classified report. 
I can't address that here.
    Mr. Forbes. Okay. The other thing I would ask is, we had 
testimony, I think that there are a number of companies here 
that are front companies in China or Chinese companies that are 
doing espionage activities. The question I would ask you is 
what is the extent of that? If you have any information on that 
that you can share with us.
    And, also, Mr. Rowan, how do we identify those companies? 
Or do we have a capacity to do it so that we can stop them from 
those activities? Or is there just no opportunity to do it?
    So either of the three of you.
    Mr. Major. Well, the first thing you have is to even 
identify which companies, because the numbers are 
breathtakingly large, to even look at which companies to be 
looked at.
    As you well know from talking to the counterintelligence 
community in China, the numbers are so large, how many of the 
companies there are. And then the point is, what are their 
activities and how do I investigate them? Are they in fact 
doing it is the biggest problem.
    Because there is no magic bullet to say, well, these five 
companies are involved in doing it. You make a very good point 
when you say you don't have to be a front company to do it if 
the company finds itself, its methodology of collecting, and 
you are going to have a company that will use that area. It is 
a problem. It is probably a resource problem more than a law 
problem.
    Mr. Forbes. And my time has expired, so I ask you if you 
all could submit those for the record for us.
    [The information referred to can be found in the Appendix.]
    Mr. Forbes. And also, Mr. Wortzel, I would like for you to 
comment in your written statement, just because my time is out, 
about the Commission's recommendation that Congress instruct 
the Director of National Intelligence to conduct a full 
assessment of this and give us a report back. If you could 
comment on that.
    [The information referred to can be found in the Appendix.]
    Mr. Forbes. And I want to stop so we can have the other 
Members ask their questions before we go to vote.
    Mr. Scott. Thank you.
    Ms. Sutton?
    Ms. Sutton. Thank you, Mr. Chairman. Thank you for having 
this hearing today. It is an extraordinarily important subject, 
and I appreciate the distinguished witnesses who have 
testified.
    You know, it is fascinating to hear you talk about sort of 
the unique nature of the challenge we are dealing with with 
China. And I think it is crucial that this body, that Congress 
and our government as a whole get a good grasp of what exactly 
we are facing. Because, as you say, it is not traditional.
    Now, I have more of a bent toward the commercial, you know, 
the stealing of trade secrets. One of my colleagues recently 
told me about a situation in his district where an employee 
working for a company in his district, an employee who came in, 
worked for this company, stole trade secrets, fled to England. 
When it was discovered, the Chinese government brought him out 
of England, took him back to China and is shielding him from 
prosecution by the U.S. Now, how common is that?
    Mr. Wortzel. It is pretty common, Ms. Sutton. One of the 
points I make in my written testimony is that, in 1986, the 
central leadership of the People's Republic of China and the 
Communist Party made a decision to create a nationwide program 
to target about 16 technologies across the world that 
specifically had dual-use in military applications and send 
people out to gather these technologies and ensure that as they 
began to put them into industrial production for state-
controlled defense industries that they would at the same time 
be able to spin them off into civil production. Almost the 
opposite of what we have done.
    They have been very successful at it, and it is not like 
the program ended. In July of last year, the Second Artillery 
Corps, the strategic missile forces of the People's Republic of 
China, ran a national strategy commission, and they brought in 
the intelligence departments, they brought in the operations 
departments of the People's Liberation Army, they brought in 
the Navy and the Air Force and the defense industry, and 
central at the table was the 863 Program Office of the Division 
of Science and Technology for National Defense.
    So this hasn't gone away. It is centrally orchestrated. I 
don't think that every person that comes out has a specific 
task, but I think that they are able to draw on their own 
ability to monitor people and know who has access and to touch 
them and get what they can.
    Ms. Sutton. And I guess the question and one of the 
purposes of this hearing is, what do we do about that? What do 
we do about dealing with the country that is now shielding this 
person from prosecution? How do we fight back on this?
    Mr. Wortzel. Well, first of all, I wouldn't look at every 
Chinese student or worker and think you are dealing with a spy.
    Ms. Sutton. Right.
    Mr. Wortzel. I would be very careful about that. I don't 
think everybody necessarily complies, and I doubt that 
everybody is touched. But I think that in these cases it is 
very important to have a strong counterintelligence and 
industrial security education program. The Defense Criminal 
Investigative Service runs one.
    At the time I dealt with Mr. Major, the FBI had a very good 
defensive program out in industry. I have been away from it. I 
don't know what they are doing today.
    But, out in industry, industrial security and corporate 
security have to be enhanced; and there has to be a partnership 
between corporations and the government.
    Mr. Major. You can't ride in from Washington to solve the 
problem to say these are the five companies you have to worry 
about.
    Probably one of the greatest assets you have, if you can 
make a commitment to educate your employees and to educate 
these corporations, one of the things that the CI Centre does 
is we are in the education business, and so we do a lot of 
these kinds of trainings today. We go into large corporations, 
and we try to give them a feel exactly of the problem that you 
are talking about.
    One of the things we do also is to try to say how big is 
this problem? Which was what the Chairman's question was, also. 
That is in our Web site that we update every single day. We 
list all of these cases about China on a daily basis. And if 
you actually study that, you can spend all day just reading 
them.
    Because it is not just an American problem. It is a 
European problem, also. Because, remember, as I said, China has 
a copy culture. It is honorable. They don't have copyright 
laws. It is perfectly acceptable to do that.
    So my point is that if you are going to stop the problem, 
the people being victimized sometimes are the best ones to come 
forward and say I have a problem with you doing this.
    But is it a serious problem? Yes, it is. Is it growing? I 
would suggest more so than I have seen in a long time for 
China.
    Ms. Sutton. Yeah. And I would just say it is not really--my 
concern is perhaps even less in dealing with the individuals 
than dealing with the country. Okay. And so what kind of 
leverage do we have to deal with a country who is acting in 
concert to get every advantage they can gaining this 
technology? That is just--I know my time is up.
    Mr. Major. The one comment that often happens is you find a 
case like this, you bring it up in the political sense to the 
leadership of the government, and China's leadership says we 
don't do that, and then it moves away.
    And we have multiple examples, of ``we don't do that,'' 
``we are not involved with that,'' and ``we never do that.'' 
And there is a flat denial, and there is no political price to 
pay for that.
    And that is a much bigger issue to talk about, because 
there are economic connections with it. But China does not pay 
any kind of price for finding it to have an open door ability 
to collect intelligence against us. And their big attitude is, 
so what? In essence, you can take the next line, so what are 
you going to do about it? Because we really do not do much 
about it. So down at the prosecutable individual level we try 
to deal with it.
    Ms. Sutton. Well, I have a problem with that. Thank you.
    Mr. Scott. Thank you.
    I think we have about 5 minutes for the gentleman from 
Texas.
    Mr. Gohmert. Okay. Well, I realize our time is very 
limited, and I need the witnesses to really contemplate this 
more than 4 or 5 minutes. So what I am going to do is lay my 
predicate very briefly and then give you the questions and, if 
it is all right with the Chairman, ask them to submit 
thoughtful responses in writing back to this Committee.
    Because you pointed out--first of all, let me say it has 
been mentioned they don't have copyright laws like ours. I met 
with some of their officials who were supposed to enforce their 
copyright laws. They do have copyright laws. They just don't 
enforce them. And therein lies a huge problem. And it is 
actually against their pecuniary interest at this point to 
enforce them, because they make so doggone much money off of 
them. And so one of the things is we have got to make it--I 
think, as Ms. Sutton alluded to, we have got to get their 
attention by making it worth their interests to enforce them.
    But it was mentioned earlier we need to beef up 951 to 
allow more penalties, if I understood it. Is 951, that is the 
section that is applicable?
    So here is my question to you. What penalties should we 
have? As a former judge, it is nice to say we should have 
different penalties, but there is only one way to get those, 
and that is if you have different levels of the offense. And if 
you have different levels of the offense, then you are creating 
additional burdens of proof for a prosecutor to have to jump 
over.
    So, question one, what penalties should we have?
    And then the next question, number two, is what different 
categories or levels of the crime can we have so that we don't 
make it unprovable?
    And then, number three, since China doesn't do espionage 
like they are supposed to, how do you prove they are trained 
intelligence officers and not just a regular person that has 
been asked to pick up some piece of information?
    Because it seems to me that is a real problem for the 
Chinese espionage, whether it is a student, whether it is a 
corporate officer or somebody saying we are not training you, 
but we do need this piece of information, just get it however 
you can. So that is my third question. How do we get to those 
people who maybe really aren't trained intelligence officers? 
Maybe we can't get them through the means you are suggesting. 
How do we get to them?
    And, really, I see that as just follow-up to what Ms. 
Sutton is saying. How do we get the leverage we need to enforce 
this stuff?
    And I appreciate the chart. That is terribly helpful. As an 
old history major, I think we can't do very well in the future 
if we don't know where we have been in the past. But just 
because espionage has always been and will always be doesn't 
mean that we throw up our hands and say, well, just get what 
you want. We have got to make an effort to defend this country.
    Mr. Scott. Thank you, and I would like to thank the 
witnesses for their testimony today. As the gentleman from 
Texas indicated, we have additional questions for our witnesses 
which we will forward to you and ask that you answer as 
promptly as you can so the answers can be made part of the 
record. Without objection, the hearing record will remain open 
for 1 week for submission of additional materials.
    And, again, I would like to thank my colleague from 
Virginia for his leadership on this issue.
    Without objection, the Committee stands adjourned.
    [Whereupon, at 2:59 p.m., the Subcommittee was adjourned.]


                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

 Prepared Statement of the Honorable Betty Sutton, a Representative in 
  Congress from the State of Ohio, and Member, Subcommittee on Crime, 
                    Terrorism, and Homeland Security









                                




                                








                                

 Supplemental Prepared Statement of Larry M. Wortzel, Ph.D., Chairman, 
     United States-China Economic and Security Review Commission, 
                             Washington, DC

    Chairman Conyers, Chairman Scott, Ranking Members Smith, Gohmert 
and Forbes, this supplemental testimony addresses questions posed in 
the January 29th, 2008 hearing on ``Enforcement of Federal Espionage 
Laws.'' With respect to Chinese front companies, several years ago, 
officials of the Federal Bureau of Investigation gave rough estimates 
of the number of Chinese front companies operating in the United 
States. My discussions with FBI officials more recently suggest that 
the Bureau is not confident that it can provide such an estimate. I 
believe that the reticence of FBI officials to provide a number for 
Chinese government front companies in the U.S. is reasonable. Beginning 
in 1998, the Chinese military began to divest from its front companies, 
spinning some off to other government agencies, privatizing some, and 
creating conglomerates from others. That process has continued to date. 
My opinion is that absent a concerted effort by the intelligence 
community to penetrate the network of state, provincial, and locally 
owned businesses of the People's Republic of China, we will not be able 
to identify front companies.
    I suggest, instead, that the law enforcement and intelligence 
communities would be more productive and effective if they focused on 
any illegal activities conducted on behalf of the Chinese government or 
PRC companies, public or private.
    2) With respect to the US-China Economic and Security Review 
Commission's recommendations about a Director of National Intelligence 
assessment of U.S. intelligence capabilities vis-a-vis China, the 
Commissioners generally believe that there are some weaknesses in our 
intelligence on the PRC. We note in our annual report that the speed 
with which China is fielding new or improved weapons systems is 
increasing. In the case of new submarines and new missiles, our 
impression is that the U.S. government was surprised by the numbers and 
timing of the fielding of new systems in China. We note that the U.S. 
national security advisor opined that in the case of China's January 
11th, 2007 satellite shoot-down, the President and Communist Party 
Chairman of China, Hu Jintao, may have been taken by surprise. Yet 
officials of the PRC Foreign Ministry and People's Liberation Army were 
firm when we questioned them on this point in April 2007, that as 
Chairman of the Communist Party Central Military Commission, China's 
President was aware that the test would take place. This suggests that 
at the highest levels of the U.S. government, our understanding of 
decision-making processes in China could be improved. Commissioners 
also think that better language capabilities in the intelligence 
community may lead to improved intelligence collection and analysis as 
well as better counterintelligence. We therefore recommended a broad 
assessment of all U.S. intelligence capabilities vis-a-vis China and 
that the DNI identify strategies to address any weaknesses such as 
assessment may discover.
    3) With respect to espionage cases and the burden of proof, I noted 
in my testimony that prosecution often relies on lesser charges or on 
violations of the Arms Export Control Act, the Export Administration 
Act (and related Executive Orders) or on 18 USC 951, or acting as an 
agent of a foreign government. My own experience in counterintelligence 
investigations and my observations of other prosecutions tells me that 
in many cases we are able to establish that an individual illegally 
obtained, removed, or collected and hoarded classified information or 
information respecting the national defense, but we can't prove 
espionage. In some cases investigations have lead to charges that an 
individual acted as an agent of a foreign power, and in at least one 
case a polygraph examination led to an individual admitting that he 
communicated classified information to a foreign power. Hoarding or 
removing classified documents illegally, however, does not prove intent 
or espionage. Some individuals do this because they want to write 
memoirs, while some have such egos that they think they are smarter 
than classification authorities and can ignore security 
classifications. I investigated one case where a U.S. Army officer was 
hoarding classified U.S. documents and probably giving them to Chinese 
military officers in trade for research materials for his own academic 
efforts; however, we could not prove espionage. That officer was 
punished for improper handing of classified documents. I am convinced 
he was guilty of espionage. Therefore, I suggest that the Committee 
examine 18 U.S.C. 793 (e) and (f) with a view toward strengthening the 
language, specifying a large fine, and increasing the maximum penalty 
beyond 10 years. With respect to 18 U.S.C. 798, I recommend that the 
Committee increase the penalties for violations concerning 
communications intelligence and cryptographic activities. Finally, I 
note that there is no specific mention of imagery intelligence or other 
electronically gathered forms of intelligence. I recommend that the 
Committee consult with the DNI and other relevant agencies of the 
intelligence community to examine whether other mediums of U.S. 
intelligence should be addressed in the law.
    4) With respect to identifying trained intelligence officers or the 
recruited assets of trained intelligence officers, success really 
depends on good counterintelligence, careful investigation, and good 
surveillance on the part of U.S. intelligence and law enforcement 
personnel. Our intelligence professionals need the tools of electronic 
surveillance and must be able to conduct offensive counterintelligence 
operations to penetrate a foreign intelligence service and learn its 
methods of operation. Investigations may take some time however; there 
is always the danger of allowing damaging vital information to be 
conveyed to a foreign power while trying to gather more information on 
espionage methods or to broaden a case. There is no formula here, but 
good cooperation among the law enforcement community, the intelligence 
community and the Department of Justice is key to success.

                                 
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