White Collar Alert

Yesterday, the Department of Justice unsealed a 31 count indictment against five members of the Chinese People’s Liberation Army: Wang Dong, Sun Kailiang, Wen Xinyu, Huang Zhenyu, and Gu Chunhui. The five men were indicted on May 1st by a federal grand jury in the Western District of Pennsylvania and are charged with conspiracy to commit computer fraud, intentionally accessing and obtaining information from a protected computer, intentional damage to a protected computer, aggravated identity theft, economic espionage, and theft of trade secrets. Attorney General Eric Holder stated that the members engaged in hacking American businesses including U. S. Steel Corporation, Westinghouse, Alcoa, Allegheny Technologies, the United Steel Workers Union, and SolarWorld. These charges are the first ever brought against a foreign nation for cyber spying, and mark the beginning of an assertive position by the U.S. government. At a news conference yesterday, Holder said the U.S. “will not tolerate actions by any nation that seeks to illegally sabotage American companies and undermine the integrity of fair competition in the operation of the free market.”

Since the indictment was unsealed, the Chinese government has vigorously denounced the charges, lashed out at the U.S., and taken public steps to defend against the allegations. In a statement, Chinese Foreign Ministry spokesman Qin Gang said:

The United States fabricated facts in an indictment of five officers for so-called cybertheft by China, a move that seriously violates basic norms of international relations and damages Sino-U.S. cooperation and mutual trust. China has lodged a protest with the United States, urged the U.S. to correct the error immediately and withdraw its so-called prosecution.

Moreover, he proclaimed that “China is steadfast in upholding cybersecurity,” and that “[t]he Chinese government, the Chinese military and their relevant personnel have never engaged or participated in cyber-theft of trade secrets. The U.S. accusation against Chinese personnel is purely ungrounded and absurd.”

Chinese state-run Xinhua News Agency also reported that Chinese Assistant Foreign Minister Zheng Zeguang summoned Ambassador Max Baucus on Monday night to make a formal complaint about the charges. Additionally, new statistics were published by China’s internet controllers yesterday that essentially accused the U.S. of hypocrisy, suggesting that cyber-attacks on China came from United States and “target[ed] Chinese leaders, ordinary citizens and anyone with a mobile phone.” China also decided to suspend participation in the Sino-US Cyber Working Group.

While the Chinese government has invoked the “outrageous” defense, the significance of the U.S. government’s action cannot be understated. Cyber threats and data breaches are very serious problems for all business throughout all sectors of the economy, including, as alleged in yesterday’s indictment, major U.S. manufacturing companies. Indeed, just this month, Target Corp. ousted its CEO, in part, as a result of the significant data breach last year that compromised personal data of millions of its customers. Yesterday’s indictment marks the first step by the Department of Justice to address cyber spying against a foreign government and reveals a new front on attacking the cyber-attackers.