- The Washington Times - Friday, May 4, 2001

Two Chinese scientists at Lucent Technologies, along with a Chinese-born U.S. citizen, were arrested yesterday by the FBI in a scheme to send sophisticated telecommunications software and equipment to a Chinese state-owned technology firm.
A leading China expert, who worked with a House select committee two years ago investigating the illegal transfer of U.S. technology to the Peoples Republic of China, said the Lucent equipment is the kind of updated telecommunications technology the PRC is seeking to modernize its military.
The two scientists, both Chinese nationals, were taken into custody at their homes near Lucents Murray Hill, N.J., plant where they worked, according to FBI spokeswoman Sandra Caroll.
They were identified as Hai Lin, 30, of Scotch Plains, N.J., and Kai Xu, 33, of Somerset, N.J., both considered experts in source-code software. They were working at Lucent on business visas and had recently been designated by the company as "distinguished members" of the firms technical staff.
The third man arrested was Yong Qing Cheng, 37, of East Brunswick, N.J., a Chinese-born naturalized U.S. citizen, who was taken into custody at an Eatontown, N.J., optical-networking company where he is a vice president.
U.S. Attorney Robert J. Cleary said the men were charged with conspiring to steal source code and software technology associated with an industry-leading Internet service developed exclusively by Lucent and to transfer it to a state-owned company in Beijing. He said they sought to use the stolen technology to create the leading data-networking company in China, which he described as the "the Cisco of China."
"This is grave intrusion upon American business and technology. In the information age, it is difficult to imagine anything more dangerous to a companys business interests," Mr. Cleary said, adding that Mr. Lin and Mr. Xu "came to Lucent as scholars, but in reality they were nothing more than sleuths."
Federal authorities, in court documents, said the two scientists worked on Lucents highly advanced and profitable PathStar system, now discontinued, that enabled Internet-service providers to offer low-cost voice and data services. The three men had formed a company, ComTriad Technologies in New Jersey, and established a joint venture with the Chinese state-owned firm, known as Datang Telecom Technology Co. Ltd. of Beijing.
They are accused of conspiring to ship illegally obtained PathStar software and equipment to Datang. Officials at Datang had funded the New Jersey company with a $1.2 million investment in exchange for 1.2 million shares of ComTriad stock, which gave the Beijing firm a 51 percent ownership in ComTriad, Mr. Cleary said. Lucent notified the FBI in February that intellectual property had been stolen.
The court documents show that based on intercepted e-mails, the three men and representatives of Datang had planned the theft and the later transfer of Lucents proprietary technology to create a server identical to PathStar.
The suspected conspiracy began last July when Mr. Cheng traveled to Beijing to meet with officials at Datang, Mr. Cleary said. He noted that the stolen PathStar source code and software were stored on a password-protected Web site created by ComTriad and established through a Web-hosting company.
Mr. Cleary said the three men transferred the Web-site data to Datang earlier this year and were ready to "roll out" with a new system, called CLX1000, in September — including a public offering of stock options.
If convicted, the three men each face five years in prison and fines of $250,000.
Mr. Cleary, in announcing the arrests, outlined no specific accusations tying the scheme to the PRC.
But Rick Fisher, a China authority with the Jamestown Foundation, who served on the House Republican Policy Committee during the 1998 investigation of U.S. technology transfers to China, described the arrests as a signal that the United States needs to "redouble" its efforts to find those persons working in this country for the benefit of the Chinese government.
"The Peoples Liberation Army requires all manner of modern high-tech communications and technologies in order to create a secure national, instantaneous communications network for its armed forces," said Mr. Fisher. "There are likely many more instances of systematic PRC attempts to subvert commercial ventures to assist the PRCs military modernization."
In 1998, the select committee said transfers to China of both "dual use" technology for military and civilian applications and technology directly supporting research and development had damaged U.S. national security.
The committee said in a 700-page report that Chinese efforts to acquire technology were part of a "serious and sustained" program that began more than 20 years ago and was ongoing.
Mr. Fisher said the committee also found that U.S. technology was being transferred to China through front companies, although the extent of the effort was not clear "since the PRCs paramilitary industrial complex often blurred the true end use of the technology acquired."
William Price, a Lucent spokesman, said the firm cooperated with the FBI and the U.S. Attorneys Office in the probe, but declined to elaborate.
Lucent is the worlds largest designer and maker of communications systems, software and products. Spun off from AT&T; in 1996, it split three years later into four divisions to sharpen its focus on the high-growth areas of optical networking, wireless communications, semiconductors and electronic business.

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