Taiwan's Double Loyalty

Theft of Micron Chip Secrets Is an Embarrassment for Taiwan
A loss of trust in the technology hub’s ability to protect intellectual property could threaten its economic survival.

By Tim Culpan
An article of faith. 

A U.S. indictment of United Microelectronics Corp. and three executives is a slap in the face for Taiwan.
As a critical partner in the nexus between U.S. clients and the Chinese supply chain, the last thing Taiwan needs right now is to become known as a place that can’t be trusted.
This isn’t the first time its credibility has come into focus.
Weak enforcement is endemic in Taiwan, from insider trading rules to know-your-customer requirements, and that includes many more cases of intellectual property theft.
According to the U.S. Justice Department, UMC executives were the front for a Chinese plan to steal semiconductor secrets from Boise, Idaho-based Micron Technology Inc. 

Even before jumping into bed with state-owned Fujian Jinhua Integrated Circuit Co., UMC had a history of questionable deals in China.
More than a decade ago, the Hsinchu-based company was charged with illegally investing in He Jian Technology (Suzhou) Co. and handed a paltry $150,000 fine. 

Years later, a court overturned an initial guilty verdict. 

That this case even dragged through the courts is a reflection of Taiwan’s weak legal structure and poorly worded regulations. 

In 2009, UMC publicly bought a stake in He Jian in the ultimate show of disdain for Taiwan’s attempts to hold onto locally developed technology.
There’s every indication that UMC takes the Jinhua case just as seriously as it did He Jian (i.e., not very). 

The company said it would halt R&D work for the Chinese client only this week, despite knowing of the case for over a year.
IP isn’t the only area of regulatory weakness. 

Mega Financial Holding Co. was handed a $180 million fine by New York State’s department of financial services in 2016 for money laundering after the regulator found that the bank's compliance program was a “hollow shell.” 

At least six current and former Taiwanese cabinet members were subsequently investigated locally for their lax supervision of Taipei-based Mega.
Cybersecurity is another area of concern, one with global implications. 

The problem was highlighted when an old piece of malware caught out Taiwan Semiconductor Manufacturing Co., UMC’s bigger rival. 

Ongoing attacks by China on local companies show there’s no room for complacency. 

For years, Taiwanese authorities were ill-equipped and largely uninterested in combating the threat, with interference ahead of local elections finally giving the issue some overdue attention.
And let’s not forget insider trading. 

Taiwan is a known hub of industry gossip, tips and non-compliance. 

Eight years ago, I spent months digging up details of its inside information ecosystem, with sources boasting to me about how much they knew and how easy it was to get away with trafficking in company secrets. 

To the best of my knowledge, none of those people have been investigated by Taiwanese regulators.
So when a Taiwanese company gets charged with leaking U.S. secrets to a Chinese government-backed entity, the sad truth is that we’re not surprised – even though we should be.
Taiwan, and its government, has spent four decades and billions of dollars building its technological know-how. 

That’s translated into trust on the part of Western companies that Taiwanese partners will keep their secrets.
With intellectual property at the heart of President Donald Trump’s trade war with China, Taiwan needs to show this hard-earned faith is still warranted. 

In the past few months, numerous companies have indicated a willingness to move production out of China – and in some cases back to Taiwan – in response not only to U.S. security concerns, but also to rising costs and new tariffs.
If Taiwan, and its companies, can’t be trusted to safeguard confidential information then there’s little reason for global clients to keep giving them orders. 

Chinese companies are eager to take over, and its government is ready and willing to spend money to make that happen.
That makes Taiwan’s protection of intellectual property not just a political and security issue, but one of economic survival.

Chinese Firm, Taiwanese Partner Steals Trade Secrets From Micron

Indictment is announced alongside wide-ranging initiative to combat Chinese theft of critical U.S. technology
By Aruna Viswanatha, Kate O’Keeffe and Dustin Volz

The indictment, unsealed Thursday, is the latest in a flurry of charges targeting massive Chinese technology theft.

The Justice Department unsealed charges Thursday against a Chinese state-owned firm and its "Taiwan partner" for stealing trade secrets from the U.S.’s largest memory-chip maker, Micron Technology Inc.
The indictment, announced alongside a wide-ranging U.S. initiative to combat Chinese national security threats, is the latest in a flurry of charges targeting Chinese technology theft.
The case, which follows related criminal charges filed by Taiwanese authorities last year, charges United Microelectronics Corp. , a Taiwan semiconductor foundry that is publicly traded on the New York Stock Exchange; Chinese state-owned Fujian Jinhua Integrated Circuit Co.; and three Taiwan nationals.
Attorney General Jeff Sessions also condemned China for clear violations of an accord reached with the Obama administration under which both governments agreed not to support cyberattacks to steal corporate secrets from one another.
“In 2015, China committed publicly that it would not target American companies for economic gain,” Mr. Sessions said. 

“Obviously, that commitment has not been kept.”
According to the indictment, one of the defendants was a former Micron employee in Taiwan who moved to UMC in 2015 and recruited the two other individuals who were charged to join him and bring Micron’s trade secrets with them. 

The ringleader arranged for UMC to partner with Jinhua, where he then went to work, to develop the same technology, the indictment says.
Representatives for Jinhua and the Chinese Embassy in Washington, D.C., didn’t immediately provide comment. 

A lawyer for UMC declined to comment. 

The individuals, who are not in U.S. custody and believed to be overseas, couldn't be located for comment.
Micron praised the indictments in a statement, saying it has invested billions of dollars over decades to develop its intellectual property.
The unsealing of the indictment, obtained in September and made public Thursday, comes just days after the Commerce Department dealt a potentially fatal blow to Jinhua by barring exports and transfers of U.S.-origin technology to the firm, which depends on the technology to produce its own chips. 

Jinhua, a startup backed by $5.7 billion in state funds, is a key part of China’s plan to build a world-class semiconductor industry and wean itself off a dependence on foreign technology.
The Justice Department also filed a civil action to prevent UMC and Jinhua from exporting the allegedly stolen technology to the U.S. to compete with U.S. chip firms. 

“We are not just reacting to the crimes... We are acting to block the defendants from doing more harm to our United States-based company, Micron,” Mr. Sessions said.

Also on Thursday, Mr. Sessions announced a new “China initiative” to better combat theft of trade secrets, bribery, illegal Chinese lobbying and business deals that could give Chinese investors access to critical U.S. technology.
Mr. Sessions said that as part of the initiative, a new working group of Justice Department officials, including the top federal prosecutors from districts in California, Texas and other states, would increase law-enforcement engagement with U.S. universities, where the Justice Department believes Chinese Communist party initiatives target technology and threaten academic freedom.
U.S. officials have stepped up pressure on Beijing over what they describe as a wide-ranging campaign to improperly obtain critical U.S. technology. 

Earlier this week, federal prosecutors unsealed charges against two Chinese intelligence officers and eight others who worked with them on a yearslong campaign to steal information about a commercial aircraft engine being developed by a U.S. and a French firm.
“Taken together, these cases, and many others like them, paint a grim picture of a country bent on stealing its way up the ladder of economic development, and doing so at American expense,” said John Demers, who heads the Justice Department’s national security division.
With a mix of cyberattacks and on-the-ground recruiting, Beijing’s corporate raiding costs the U.S. economy hundreds of billions of dollars annually.

FBI officials say the agency has active economic espionage investigations leading back to China in all 56 FBI field offices that span nearly every industry and sector.
On Thursday, the FBI’s deputy director David Bowdich said China poses one of the “broadest, most complicated and longest-term threats we face,” and highlighted company insiders, students, and academics who share research results with people not authorized to receive them as the types of spies the FBI is concerned about.
The administration’s renewed focus on rooting out Chinese spies in the scientific community has caused concern among Sino-American suspects.

The sharp rhetoric from senior Justice Department officials contrasted with Trump’s description of a “long and very good call” earlier Thursday with Chinese dictator Xi Jinping, on topics including trade and North Korea.
The Justice Department action against UMC and Jinhua comes after Micron in December sued the companies in a federal court in California, alleging they stole its talent and trade secrets. 

Jinhua contests the claim and the case is continuing.
Jinhua then sued Micron in January in a court in China’s Fujian province—whose government partly controls Jinhua—and won a temporary order blocking Micron units from selling products in China on which each company claims patents. 

Micron has said Jinhua’s suit was a bogus retaliation measure and has criticized Beijing over its treatment.
Among the files pilfered from Micron are hundreds of pages of documents and large Microsoft Excel spreadsheets containing precise design specifications for the architecture of various dynamic random access memory, or DRAM, products. 

Micron is the only U.S.-based company to manufacture DRAM devices, and the value of the stolen intellectual property was at least $400 million and as high as $8.75 billion, according to the indictment.
Thursday’s allegations also added to a growing consensus that China is in violation of the 2015 bilateral pact between Xi Jinping and then-President Obama on cybertheft. 

Officials said that even if the Micron case wasn’t itself a cyber matter, it involved insiders stealing information with the help of cybertools.
U.S. intelligence officials and several private-sector cybersecurity firms believe the accord led to a light decline in Chinese corporate espionage through hacking, but that the malicious activity has returned since Mr. Trump took office as hostilities over trade and other issues have escalated.
Idaho-based Micron, valued at about $100 billion, owns a 20% to 25% share of the dynamic random access memory industry, a computer technology the Chinese didn’t possess until very recently, Mr. Sessions said.