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Chinese Patriotism Lured TiO2 Spy

Tuesday, March 27, 2012

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Chinese Communist Party officials appealed to a former DuPont employee to “work for the good of the PRC” in divulging secret titanium dioxide technology he had obtained over decades of service with the company.

“In my work with the Pangang Group, I was introduced to employees of the company who held positions with the Communist Party of China,” Tze Chao, 77, explains in an agreement detailing the story behind his recent guilty plea to one count of conspiracy to commit economic espionage.

 Chao agreed to help the Chinese government build a titanium dioxide factory, using information stolen from DuPont.
Chao agreed to help the Chinese government build a titanium dioxide factory, using information stolen from DuPont.

“Pangang Group employees, in asking me to provide DuPont trade secrets to them, overtly appealed to my Chinese ethnicity and asked me to work for the good of the [People’s Republic of China].”

The plea agreement lays out years of duplicity by Chao, who worked from DuPont from 1966 until 2002.

Chao was one of five individuals and five companies, including Pangang, indicted in what federal prosecutors described as a spy ring that attempted to steal a piece of the $12 billion global titanium dioxide market from market leader DuPont.

Titanium dioxide, or TiO2, is a common whitening pigment used in many paints and coatings. Global supplies have been tight in recent years, and prices have skyrocketed.

Chao is now cooperating with prosecutors in the case.

Secret Technology

The defendants, including Chao and another longtime DuPont employee, were offered millions of dollars to provide Pangang and other companies with confidential information about a process that DuPont invented to manufacture TiO2.

That process, called the chloride-route process, took DuPont “many years and hundreds of millions of dollars” to develop, according to Chao’s plea agreement.

As Chao now says he knew all along, Pangang and the other companies were run by the Chinese government. China was eager to obtain the chloride-route technology, which was more efficient and more environmentally friendly than China’s own TiO2 technology, according to indictments in the case.

In his plea agreement, Chao describes signing a confidentiality agreement to protect DuPont’s secrets when he went to work for the company in 1966. For 36 years, Chao said, he worked in TiO2 research and development. When he retired in 2002, he signed a statement saying he had returned all secret information to the company.

But he hadn’t.

‘I Kept … Trade Secrets’

“I kept a large number of DuPont documents containing DuPont trade secrets,” the agreement says. “Many of these documents were clearly marked with admonitions that they were proprietary, confidential and contained trade secrets.”

Less than a year later, Chao says, he started a consulting business called Cierra Technology and began consulting for the Pangang Group, which he knew was “controlled by the government of the People’s Republic of China,” the agreement says.

With knowledge and documents obtained from DuPont, Chao provided information to Pangang to modernize its existing TiO2 factory. At the same time, he said, he learned that a California businessman named Walter Liew owned another company that was also working with Pangang. Walter Liew and his wife Christina Liew are accused of economic espionage, witness tampering and other federal crimes in the case.

A Warning Ignored

Chao said he also learned that another former DuPont employee, Timothy Spitler, was working with Liew. (Spitler is not charged in the case, and no other information about him was immediately available. Another former employee, engineer Robert Maegerle, 76, of Harbeson, DE, was charged, however.)

Ignoring a warning letter in 2005 from his former employer reminding him of his confidentiality agreement, Chao continued to “provide trade secrets belonging to DuPont” to Pangang and its employees, the agreement says.

In 2008, Chao used DuPont information, including details of the chloride process technology, to make a proposal to Pangang to design a new 100,000 MTPY (metric tons per year) TiO2 factory in China.

At the time, Pangang also demanded DuPont TiO2 blueprints and told Chao that he would need to enlist other former DuPont engineers and scientists in order to win the contract.

In both 2008 and 2009, “I recruited and employed former DuPont employees to assist me in my work for Pangang Group,” the plea says.

In 2009, Chao formed Zhi Hua Technology Co. Ltd. and traveled to China to provide a more detailed proposal to Pangang. It was there that he received the patriotic appeal from Party officials, he said.

Recruiting Employees

After the appeal, there is a gap in Chao’s narrative until October 2011, when the FBI raids his home and home office in Newark, DE. (DuPont is based in Wilmington, DE.)

After the raid, realizing that agents had missed some of the documents he had stashed in the basement, “I retrieved the documents and burned them, though I knew that they could relevant to the government’s investigation,” Chao writes.

In pleading guilty, Chao now faces up to 15 years in prison, a fine of up to $500,000, and unspecified restitution as ordered by the court.

He will not be sentenced until prosecutors are satisfied with his cooperation, which includes testifying and participating “in undercover activities,” according to the agreement.

   

Tagged categories: DuPont; Lawsuits; Pigments; Raw materials; Titanium dioxide

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