TLP:WHITE. CROSS-SECTOR ACADEMIA 19 February 2020 LIR 200219006 Chinese Attempts to Illegally Transfer U.S. Technologies – Syntactic Foam Case Study The FBI Counterintelligence Division (CD) and Houston Field Office, in coordination with the Office of the Private Sector (OPS), prepared this LIR to provide the private sector and academic community a case example of the Chinese Government’s use of multiple vectors to illegally transfer U.S. technology. This case illustrates how China implements its policy of civil/military integration and incentivizes illicit technology transfer from U.S.-based companies and academic institutions. In 2012, China’s Government specifically identified syntactic foam as one of the technologies it needed to develop in its 12th Five Year Plan to make China a “marine power.” This material was later included in the Made in China 2025 list of technologies aimed to expand China’s global high-tech manufacturing capabilities. Syntactic foam is a strong, lightweight material with stealth properties, which can be utilized in submarines, surface warships, and offshore oil platforms. Given this material’s potential application as a dual-use technology, syntactic foam is export controlled for national security reasons at certain depths and densities. Additionally, this material is currently a multi-billion dollar industry in the oil and gas sectors. In order to develop the capability to make syntactic foam, Harbin Engineering University (HEU),a China Shipbuilding Industry Corporation (CSIC), and China National Offshore Oil Corporation (CNOOC) partnered to create a new manufacturing company called China Buoyancy Materials Future (CBMF). However, China remains unable to mass produce syntactic foam and there have recently been attempts to steal the manufacturing process from a U.S.-based company that spent decades and millions of dollars to develop the technology. a HEU serves as a main research facility for the Chinese Navy. Page 1 of 4 Disclosure is Not Limited TLP:WHITE TLP:WHITE. Non-Traditional Collectors: Although they do not operate on behalf of an intelligence service, these individuals collect information from the United States to support Chinese governmentdirected objectives. After failing to manufacture syntactic foam, in 2014, CBMF hired Shan Shi, an HEU professor formerly associated with Texas A&M University. Shi signed a contract to “actively bring in cutting-edge knowledge and high-level talented people” and to “raise the design ability of CBMF.” Academic Collaborations: China, which uses collaborations and relationships with universities to acquire specific research and gain access to high-end research equipment, has a stated policy to exploit the openness of academia to fill China’s strategic gaps. Shi helped HEU sign a memorandum of understanding with Texas A&M for joint research. Talent Recruitment Programs: China uses its talent recruitment programs to find foreign experts to return to China and work on key strategic programs, offering financial benefits and prestigious research positions as rewards. Shi’s contract with CBMF stated CBMF would be “responsible for coordination with local government and relevant departments to receive preferential policies from the government” and “actively work with Shi...related to the ‘Thousand Talents Program’ at the provincial level and at the national level.” Shi’s Thousand Talents application stated “in relation to our country’s current implementation of the ‘Ocean Power’ strategy, it is the right timing to return to the country for repaying with my services… …and digest/absorb the relevant, critical U.S. technology and build China’s first [syntactic foam] production line to satisfy the needs of our country.” Front Companies: China uses front companies to obscure the hand of the Chinese Government in acquiring U.S. technology. Shi incorporated a Houston-based front company owned and funded by CBMF in March 2014. The company’s name changed from China Buoyancy Materials Future (CBMF) to Create Better Materials International (CBMI). Between June 2014 and May 2017, CBMF wired approximately $3.1 million to Shi’s company. CBMI was ostensibly created to research syntactic foam, however Shi used these funds to systematically identify, recruit, and hire current and former employees of the victim company. These employees had access to the victim company’s trade secrets on syntactic foam, which they stole and sent to CBMF in China. Joint Ventures: China uses joint ventures to acquire technology from U.S. companies. Once CBMF gained the capability to manufacture macrospheres (a key raw material for syntactic foam), Shi offered a joint venture to the victim company where CBMF would produce macrospheres in China with cheaper labor costs. Shi then patented the stolen macrosphere technology in China as CBMF intellectual property. Shi’s business plan projected CBMF would become a leader in the multi-billion dollar syntactic foam industry. In communications with CBMF, Shi and his co-conspirators discussed the victim company going out of business. Page 2 of 4 Disclosure is Not Limited TLP:WHITE TLP:WHITE. On 23 May, 2017, Shi and his co-conspirators were arrested and charged with Theft of Trade Secrets. On 14 May, 2019, CBMF was placed on the Department of Commerce Entity List.b On 29 July, 2019, a federal jury convicted Shi of conspiracy to commit theft of trade secrets. Four of Shi’s co-conspirators pleaded guilty earlier and two remain fugitives. Shi was later sentenced on 10 February, 2020 to 16 months in prison. As a result of this investigation and other factors, on 12 February, 2018, Texas A&M College of Engineering ceased all collaborative projects with HEU and canceled more than $1 million in research agreements. In 2018, with support from the FBI and Department of Defense, Texas A&M created the Academic Security and Counter Exploitation Program (ASCE) to replicate this outcome nationwide and assist other universities dealing with the same problem. The ASCE enhances academia’s awareness of threats to critical research through quarterly conferences, threat briefings, and unclassified materials. The ASCE currently has more than 150 universities as members and has created helpful guides for universities on multiple subjects, such as vetting foreign researchers. The ASCE maintains a website with all of these materials at the following link: https://rso.tamus.edu/home/asce This LIR was disseminated from OPS’s Information Sharing and Analysis Unit. Direct any requests and questions to your FBI Private Sector Coordinator at your local FBI Field Office: https://www.fbi.gov/contactus/field-offices. U.S. Navy stealth destroyer that utilizes syntactic foam b Macrosphere syntactic foam According to the U.S. Department of Commerce, Bureau of Industry and Security, the Entity List identifies foreign parties that are prohibited from receiving some or all items subject to the Export Administration Regulations (EAR) unless the exporter secures a license. These parties may present greater risk of diversion to weapons of mass destruction (WMD) programs, terrorism, or other activities contrary to U.S. national security and/or foreign policy interests. Page 3 of 4 Disclosure is Not Limited TLP:WHITE TLP:WHITE. Traffic Light Protocol (TLP) Definitions Color TLP:RED Not for disclosure, restricted to participants only. TLP:AMBER Limited disclosure, restricted to participants’ organizations. TLP:GREEN Limited disclosure, restricted to the community. TLP:WHITE Disclosure is not limited. When should it be used? Sources may use TLP:RED when information cannot be effectively acted upon by additional parties, and could lead to impacts on a party's privacy, reputation, or operations if misused. Sources may use TLP:AMBER when information requires support to be effectively acted upon, yet carries risks to privacy, reputation, or operations if shared outside of the organizations involved. Sources may use TLP:GREEN when information is useful for the awareness of all participating organizations as well as with peers within the broader community or sector. Sources may use TLP:WHITE when information carries minimal or no foreseeable risk of misuse, in accordance with applicable rules and procedures for public release. How may it be shared? Recipients may not share TLP:RED information with any parties outside of the specific exchange, meeting, or conversation in which it was originally disclosed. In the context of a meeting, for example, TLP:RED information is limited to those present at the meeting. In most circumstances, TLP:RED should be exchanged verbally or in person. Recipients may only share TLP:AMBER information with members of their own organization, and with clients or customers who need to know the information to protect themselves or prevent further harm. Sources are at liberty to specify additional intended limits of the sharing: these must be adhered to. Recipients may share TLP:GREEN information with peers and partner organizations within their sector or community, but not via publicly accessible channels. Information in this category can be circulated widely within a particular community. TLP:GREEN information may not be released outside of the community. Subject to standard copyright rules, TLP:WHITE information may be distributed without restriction. Page 4 of 4 Disclosure is Not Limited TLP:WHITE