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By Associated Press, Wire Service Content?Dec. 23, 2019, at 2:29 p.m. 6park.com
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Feds: Chemical Engineer at Center of Industrial Espionage 6park.com
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BY ROBERT MOORE, Citizen Tribune 6park.com
MORRISTOWN, Tenn. (AP) — A high-performing, Chinese-born chemical engineer began work at Eastman Chemical Company in Kingsport in September 2017 as the alleged linchpin in a broader industrial-espionage scheme devised to steal tens of millions of dollars worth of trade secrets, proprietary information she planned to use to jump-start a competing business in China, according to federal court documents. 6park.com
Xiorang “Shannon” You, a naturalized U.S. citizen, allegedly conspired with a Chinese engineer to hijack $119.6 million worth of trade-secret information, according to an indictment drafted by Assistant U.S. Attorney Timothy C. Harker and Matthew W. Walczewski, a prosecutor with the National Security Division of the U.S. Department of Justice in Washington D.C. 6park.com
The case against You and the Chinese engineer, Liu Xiangchen, who remains in China, involves a relatively obscure sector of the economy, yet one that accounts for an estimated $3 billion in annual worldwide economic activity — polymer coatings sprayed inside metal drink and food cans that minimize flavor loss and prevent the container from corroding or reacting with the contents. 6park.com
This federal prosecution centers on an entirely uncommon substance, but it has elements in common with higher-profile espionage cases: an alleged double agent; alleged state-sponsored theft; fevered, eleventh-hour computer downloads; and a potential financial impact large enough to buoy or blow holes in the economies of four countries. 6park.com
And while the alleged $119.6 million theft is a haul, according to the FBI, it’s just an ice cube perched on the tip of an iceberg. The FBI estimates the annual economic loss to China through the theft of trade secrets, pirated computer software and counterfeit goods ranges from $225 billion to $600 billion. 6park.com
As a yardstick, Tennessee state government’s entire spending plan for this fiscal year is $38.5 billion. This year’s U.S. military budget approximates $716 billion. 6park.com
You allegedly stole trade secrets from Eastman that represent $13 million in research-and-development costs. The remaining $106.6 million in alleged intellectual-property theft occurred at You’s prior employer, the Coca-Cola Corporation in Atlanta, according to William Leckrone, a Knoxville-based FBI agent who testified at You’s detention hearing. 6park.com
Federal prosecutors do not allege You stole from Coca-Cola directly. They maintain You plundered trade secrets belonging to six chemical companies that entrusted Coca-Cola with their proprietary can-coatings formulations, according to Leckrone. 6park.com
The chemical companies and their reported research-and-development setbacks are: PPG Industries, $39 million; Sherwin-Williams Valspar, $30 million; Dow Chemical, $25 million; and AkzoNobel, a Dutch company, $7.3 million. The combined research-and-development losses at BASF and Toyochem, a Japanese firm, are $5.3 million, according to the FBI agent. 6park.com
The federal government believes that You transferred the proprietary information to Xiangchen. 6park.com
When U.S. Customs and Border Protection agents questioned You in September 2018 after she returned to the United States from China – three months after she lost her job at Eastman – she was carrying the trade-secret information from all seven companies, but that’s just one facet of the government’s proof, according to Leckrone. 6park.com
The FBI agent testified that while You was still employed at Eastman, she was receiving a full-time, $7,000-a-month salary from Xiangchen’s company, Weihai Jinhong Polymer Company. The FBI has the employment contract. Text messages recovered from You’s phone provide a detailed roadmap of You’s dealings with Xiangchen, according to Leckrone. 6park.com
Also, in the weeks before You was arrested on Feb. 12 in Lansing, Michigan, she was shopping for an apartment in an exclusive beachfront high-rise in Weihai, China, a city of 2.8 million inhabitants located about 250 miles across the Yellow Sea from the Koreas. Prosecutors interpret the apartment search as an indication You wasn’t long for the United States. 6park.com
What makes You’s prosecution more intriguing is that she received 13 million Chinese yuan, about $1.86 million, in grant-like awards from the Chinese national government and the Shandong provincial government. 6park.com
While employed at Eastman, You won the Thousand Talents Program grant and the Yishi-Yiri award by using the stolen trade secrets “as the basis for (her) application,” according to the indictment. Eastman was unaware of the awards. 6park.com
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Part of the award money is earmarked for startup costs. The rest goes to the prize winner. 6park.com
It appears You would have pocketed about $715,000. Leckrone testified You was in line to receive one million yuan a year for four years, about $572,000, for the Yishi-Yiri award. Thousand Talent winners normally receive about one million yuan. 6park.com
However the bounty was divvied, the return on the investment for the national and provincial governments could have been enormous. 6park.com
Acquiring $119.6 million worth of proprietary technology for $1.86 million is the equivalent of buying a $1 million house for $15,625, and Harker suggested the actual value of the coatings formulations could be several times the research-and-development costs. 6park.com
A federal grand jury in Greeneville indicted You, 56, and Xiangchen, 61, for conspiracy to steal trade secrets, seven counts of stealing trade secrets and a single count of wire fraud. If convicted of the lot, she faces a federal prison sentence that ranges between 210 and 262 months. 6park.com
Federal inmates must serve 85 percent of their sentences before they’re eligible for supervised release. A bottom-of-the-range sentence would mean You would be approaching 71 years old when she’s set free. 6park.com
Xiangchen would be around 76 years old, but he has nothing to worry about from the U.S. attorney’s office as long as he stays in China or in countries that don’t have extradition treaties with the United States. The U.S. and China do not have an extradition treaty. 6park.com
By any professional measure – in the field of metal-can coatings – You is a star among street lamps. But when it came to the way she allegedly plotted to plunder Eastman and Coca-Cola’s partners – and the way she allegedly belittled and otherwise mistreated coworkers and alleged coconspirators – she was a difficult employee, according to the FBI agent. 6park.com
You was in her late 20s in 1992 when she began work in the United States. Seven years later, she renounced her Chinese citizenship and became a U.S. citizen around the time she earned a doctorate from the Emulsion Polymers Institute at Lehigh University in Pennsylvania, according to court documents. 6park.com
You’s upward professional trajectory reached a milestone when she landed the job as principal engineer for global research at Coca-Cola in 2012, which was one of the best years ever to be a leading polymer engineer. 6park.com
In 2011, France banned the use of bisphenol-A – a synthetic compound that had been a standard in the coatings industry for more than 50 years - after research suggested that even low-dose exposure was linked to cardiovascular problems, including coronary artery disease, heart attack, hypertension and angina. California followed France’s lead on BPA shortly thereafter. 6park.com
At the time, BPA was also a common component of coatings for plastics. In 2012, the U.S. Food and Drug Administration banned the use of BPA in the manufacture of baby bottles and “sippy cups” after further research indicated BPA could mimic the effect of estrogen, the primary female sex hormone. 6park.com
Apart from the fact that micro-dosing infants and children with an estrogen biosimilar never sounded like a good idea, the industry-wide stampede away from BPA had begun, and You was at the center of the BPA-free universe. 6park.com
The six chemical companies that You allegedly compromised had agreements with Coca-Cola to share their BPA-free trade secrets to advance research and development in the field, according to Leckrone. 6park.com
“The entire industry (was) interested in coming up with the best can coating product they (could) develop … They wanted it and they needed it,” Leckrone testified. 6park.com
Access to the six companies’ trade secrets was on a strict, need-to-know basis. You had access to everything, and she was the only point of contact for more than one company, according to Leckrone. 6park.com
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In March 2017, Xiangchen allegedly first approached You about stealing the BPA-free trade secrets. Xiangchen sweetened the pot with the enticement that if You were successful, Weihai Jinhong would sponsor her application for the Thousand Talents and Yishi-Yiri awards, according to the indictment. 6park.com
At some point, Coca-Cola managers decided to eliminate You’s research division, which ceased operations on Aug. 31, 2017. Toward the latter part of You’s employment in Atlanta, the timeline the FBI advances becomes critical. 6park.com
On Aug. 10, Coca-Cola paid You $33,912 to sign a document affirming she had not retained any trade secrets. Coca-Cola provided You with a hard drive to which she was supposed to download the proprietary information. When You returned the hard drive, it was blank, according to Leckrone. 6park.com
Ten days later she traveled to China to defend her application to the Yishi-Yiri award program. 6park.com
On Aug. 29, shortly after 11 p.m. – two days before You’s employment in Atlanta ended – Coca-Cola computer logs show the files containing the six chemical companies’ trade secrets were moved, but they do not show the destination. 6park.com
Coca-Cola security software could not block the file transfer. The chemical companies’ proprietary information would later be found on You’s Eastman-supplied laptop in Kingsport, Lekrone testified. 6park.com
Coca-Cola computer forensic security staff may have strongly suspected You had stolen the files, but they couldn’t prove it. For the time being, You was in the wind, allegedly with $106.6 million worth of trade secrets. 6park.com
Seventeen days after You started work at Eastman on Sept. 1, 2017, she traveled to China for four days – with Xiangchen’s assistance – to defend her application to the Thousand Talents award. 6park.com
You’s relationships with Eastman employees were deeply flawed from the outset and they never improved significantly before she was fired in June 2018, according to the FBI. 6park.com
“One manager described her as a ‘nightmare,’” Leckrone testified. “Others described her as unwilling to work on the product that they wanted, that she continually worked on products that Eastman wasn’t attempting to develop; that she was reluctant to go to the lab space …” 6park.com
You, whose title was packaging application development manager, let it slip to coworkers that she owned homes in Boston, Atlanta and Shanghai, and that she planned to put the United States behind her and retire to a comfortable life in China. At one point, she told a supervisor that she didn’t need her salary, and she accepted the Eastman job as a favor to the company, according to the FBI agent. 6park.com
The beginning of the end for You at Eastman dawned on April 27, 2018 when she left for what was supposed to be an eight-day trip to China to meet with Eastman officials in Shanghai “to assist them in developing their image.” 6park.com
“As she put it, she was famous in the industry, and that she needed to go to China for this trip,” the FBI agent testified. 6park.com
Eight days passed and You was still in China. Eastman officials contacted You and strongly urged her to return to Tennessee. You overstayed by 17 days, according the FBI agent, who later learned You had been at the Weihai polymer company. 6park.com
Eastman higher-ups called her in for a “counseling” session, which was scheduled for 1 p.m. on May 21, according to the FBI agent, who testified that 20 minutes before the confab started You was downloading Eastman’s coatings-related trade secrets. 6park.com
When the counseling meeting commenced, You’s supervisor presented her with a multi-page document. 6park.com
She lost it. 6park.com
“You took the papers and threw them at individuals and became very angry, and so Eastman elected to stop the meeting for the day, let cooler heads prevail and (they) asked Dr. You to go home and work from home for the day …” Leckrone testified. “Instead, she toured the Eastman facilities looking for executive management to complain and talk to.” 6park.com
Eastman’s computer security was better in 2018 than Coca-Cola’s computer security was in 2017. 6park.com
By the time the meeting reconvened the next day, Eastman had identified the trade-secret files that You had transferred to her company-supplied laptop, and they wanted the hard drive, along with her company iPhone back. They followed her home to her Johnson City residence and got both. 6park.com
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In short order, an Eastman computer specialist identified files stolen from Eastman and the six other chemical companies. That’s when Eastman notified the FBI. 6park.com
The images retrieved from You’s iPhone included photos of the Eastman lab. That’s important because the sequence of machinery Eastman uses is integral to the quality of the final BPA-free product, the FBI agent testified. 6park.com
The discovery was for naught. Not surprisingly, You had copied the files to another location. 6park.com
In May 2018, the FBI appeared to have You dead-to-rights, but agents didn’t take her into custody. Once a person is indicted or arrested on a federal criminal complaint, the defendant can demand a trial in 70 days. More than eight months would pass before prosecutors were ready to present the evidence to a grand jury. 6park.com
By that time, You had found new employment at an unidentified chemical company in Lansing, Michigan. 6park.com
Response from the alleged victim companies was cautious. None addressed the details of the alleged theft. 6park.com
“As an innovation-driven maker of additives and specialty materials, Eastman takes protection of its intellectual property seriously and we have controls in place to help prevent and to detect theft of confidential information” said Amanda Allman, director of Eastman corporate communications. “Those controls worked in this case, and we have been cooperating with law enforcement in this matter for some time. 6park.com
“However, this case involves someone who worked for Eastman for less than 10 months after 25 years with other U.S. companies, so our involvement with the person and the case was relatively limited.” Allman added. “Because of our limited visibility into the specifics of the case, we are not in a position to comment further.” 6park.com
Max Davis, Coca-Cola communications manager, said, “At this time, we are going to respectfully decline participating in this story.” 6park.com
“The proprietary research and development work done by our scientists brings great value to our customers, and ultimately impacts our position in the competitive marketplace,” said Mark Silvey, PPG Industries director of corporate communications. “As a result, it is essential that we safeguard and protect that intellectual property.” 6park.com
Joost Ruempol, senior spokesperson for AkzoNobel Global Communications, declined to comment because the criminal case has not been adjudicated. 6park.com
Sherwin-Williams Valspar, Dow Chemical, BASF and Toyochem did not respond to a request to comment. 6park.com
You’s defense attorney, Johnson City lawyer Thomas C. Jessee, says he can’t comment on the facts of the alleged industrial-espionage case, but he did say You rejected the government’s plea offer and plans to go to trial, which is scheduled to begin in U.S. District Court in Greeneville on April 28. 6park.com
In an order to continue the trial, U.S. District Judge Ronnie Greer indicated he’s disinclined to postpone the trial a third time. In the meantime, You will remain incarcerated in Johnson City unless circumstances arise that would require her to be transferred to another penal institution. 6park.com
The 155-page transcript of You’s detention hearing provides a rare look-see inside federal prosecutors’ brief cases. The same is true for the defense. 6park.com
Jessee characterized You’s case a “prosecution by trick.” Jessee does not maintain his client did not possess coatings-related information she obtained while working at Eastman and Coca-Cola. 6park.com
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