Chinese National Arrested For Source Code Theft

Via InformationWeek.com -

A Chinese citizen on a work visa in the United States was arrested by the FBI last week for allegedly revealing proprietary software code owned by his unidentified U.S. employer to a Chinese government agency.

Yan Zhu, 31, of Lodi, N.J. -- also known as "Westerly Zhu" -- was arrested on charges of theft of trade secrets, conspiracy, wire fraud, and theft of honest services fraud.

"Crimes of this nature do not get much public attention," FBI Special Agent in Charge Weysan Dun said in a statement. "No one is shot, there is no crime scene, no prominent public figures are involved. However, this is an act of economic violence -- a paper crime that robs the victim company of the resources they expended to develop a product."

Dun said that white-collar crimes of this sort are clearly dangerous to America's economic infrastructure. "If American dollars are spent on research and development of a product, and then that product or research is taken without any compensation to American companies, the value of American companies and American products is significantly reduced in the global marketplace," he said.

David Schafer, the assistant federal public defender representing Zhu, declined to comment or to identify Zhu's former U.S. employer.

According to the criminal complaint, Zhu's former employer is an unnamed company based in Mercer County, N.J., that develops, implements, and supports software for environmental applications. One of its applications is an environmental information management portal for the Chinese market.

Zhu, who holds a Ph.D. from Columbia University in geo-environmental engineering, was hired by the U.S. company around April 2006 as a senior environmental engineer and signed a confidentiality agreement.

In July 2007, the U.S. company signed a contract with Shanxi Province, China, to provide its software to the local Environmental Protection Administration ("Shanxi EPA"). The contract called for four payments totaling about $1.5 million -- a down payment and three subsequent payments following the installation of module 1, modules 2 and 3, and module 4.

In November 2007, the Shanxi EPA made the down payment of about $440,000. By March 2008, all four modules were installed, but the U.S. company never received further payment.

The U.S. company subsequently recognized the software it had provided to Shanxi Province had been altered, which would require access to the company's source code. The company also noticed that a Chinese company set up to serve as a payment conduit for the deal was now listed on a Shanxi Web site as a vendor of environmental software.

The complaint alleges that Zhu e-mailed his company's database and more than 2,000 pages of source code to co-conspirators in China and that the individuals have been selling the U.S. company's software to Chinese government agencies without authorization.