Policy: Technology

Cyberespionage case spotlights Chinese state-owned enterprises publicly traded in America

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Watchdog,Richard Pollock,SEC,National Security,China,Accountability,Justice Department,Cybersecurity,Law,Technology,Frank Wolf

Allegations that Chinese military hackers mounted cyberespionage attacks against American corporations are shining light in the dark digital corner populated by China's state-owned enterprises.

Indictments in the case, made public Monday, could result in a new push for the U.S. Securities and Exchange Commission to require more transparency from the 12 Chinese SOEs currently traded on the New York Stock Exchange.

At least one of the 12 firms, Aluminum Corp. of China, commonly known as Chinalco, was involved in espionage against Alcoa, America's largest aluminum company, according to an informed federal official who spoke to the Washington Examiner.

Rep. Frank Wolf, R-Va., who has often warned in recent years of Chinese cybersecurity threats, told the Examiner that greater SEC scrutiny of SOEs is “an important issue to explore.”

Wolf's congressional office was hit in 2006 by a Chinese cyber attack. He is chairman of an appropriations subcommittee that oversees funding for the Justice and Commerce departments, and serves on the State, Foreign Operations, and Related Programs subcommittee.

“This is bigger than just a little trade issue. These people are thugs,” Wolf said. “Probably every U.S. company is being hit.”

Michael R. Wessel, who serves on the congressionally established U.S. China Economic & Security Review Commission, agreed that the SEC should increase scrutiny of Chinese firms in the wake of the indictments.

“Clearly, the indictments issued [Monday] and the tasking orders that appear to have been delivered by SOEs to the government officials engaged in the cyberespionage shows they are actively engaged in this,” Wessel said.

“That is another area that the SEC should be looking at in addition to activities of other law enforcement officers and actors in the U.S.,” he said.

The indictments against the five military hackers say three Chinese SOEs used a secret espionage team of the People's Liberation Army known simply as "Unit 61398," based in Shanghai.

Prosecutors allege that one of the Chinese firms, identified in court documents only as "SEO-3," announced a partnership with Alcoa in February 2008. News accounts and press statements from Alcoa that month reported that the company, the world's third-largest aluminum producer, had begun a partnership with Chinalco.

Court papers say “SOE-3” hired the secret army unit that year to hack into Alcoa's computers. About three weeks after the partnership deal was announced, the Justice Department says Sun Kailiang, an officer in Unit 61398, sent a "spearphishing" email to someone at Alcoa, used it to hack into Alcoa's systems and stole “at least 2,900 email messages along with 863 attachments from Alcoa’s computers.”

Among the materials stolen were messages "including internal discussions concerning" Alcoa's partnership with its Chinese partner, indictment paperwork alleges.

"Phishing," a practice known to nearly every person with an email address, is an attempt by someone to trick the recipient out of sensitive information such as account passwords or credit card numbers, employing an email that purports to originate from, for instance, the recipient's bank or email provider. ("Spearphishing" is a phishing attack on a specific target.)

But Unit 61398's activities didn't end there, federal prosecutors say.

“Chinese firms hired the same PLA unit where the defendants worked to provide information technology services,” according to the 31-count federal indictment filed in the federal courts' western district of Pennsylvania. (Allegheny Technologies or ATI, another victim of the hacking, is based in Pittsburgh, and Alcoa's operational base is also there.)

“For example, one SOE involved in trade litigation against some of the American victims hired the unit, and one of the co-conspirators charged herein, to build a ‘secret’ database to hold corporate intelligence,” the indictment claims.

The indictment “raises concerns about the relationship between state-owned enterprises and the Chinese government,” said Elizabeth J. Drake, a trade attorney with the law firm of Stewart and Stewart.

Drake, who formerly served on an official advisory committee of the U.S. Trade Representative, said officials in the Chinese government might publicly claim their SOE’s are strictly commercial enterprises.

“But I think this is an example clearly where those relationships are far from the kinds of relationships we would expect from a market-oriented, commercially oriented private firm,” Drake said.

A spokesman for the SEC declined to comment. A spokesman for Chinalco could not be reached at its Beijing headquarters, but the Chinese Foreign Ministry has called the federal indictment “purely fictitious, extremely absurd.”

The New York Times and some other major Western media outlets have identified the other two SOEs in the case as likely being China National Nuclear Corp. and Baosteel. Another American firm targeted by the hackers, Westinghouse, had been hired by CNNC to build four nuclear reactors, and ATI had a joint venture with Baosteel.

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