Former Employee of New Jersey Defense Contractor Convicted of Exporting Sensitive Military Technology to China

Stole Trade Secrets from Morris County Company

NEWARK—A federal jury today convicted a former employee of a New Jersey-based defense contractor of exporting sensitive U.S. military technology to the People’s Republic of China (PRC), stealing trade secrets, and lying to federal agents, U.S. Attorney Paul J. Fishman announced.

Sixing Liu, a/k/a, “Steve Liu,” 49, a PRC citizen who had recently lived in Flanders, New Jersey, and Deerfield, Illinois, was taken into custody following the verdict, based on risk of flight considerations. Sentencing before U.S. District Judge Stanley R. Chesler is scheduled for January 7, 2013.

“The jury found that in order to promote himself, Liu took highly sensitive defense information and trade secrets to China, violating the rules of his company and the laws of this country, and then lied about it upon his return to the United States,” U.S. Attorney Fishman said. “We will not tolerate the exploitation of this country’s opportunities through the theft of our secrets.”

“This specific investigation is troubling on many levels,” FBI Special Agent in Charge Michael B. Ward said. “Mr. Liu helped develop technology critical to our military, then took a computer with that information on an unauthorized trip to China to present at a conference sponsored by the Chinese government. The United States spends billions of dollars each year on research and development, and this ‘intellectual capital’ is very attractive to others. If they are able to acquire this research, they can save billions and quickly develop their own products to compete against the United States, be it in the world economic market or on the battlefield.”

“Exporting military weapons and technical data and the theft of sensitive technology in violation of the Arms Export Control Act are serious crimes with global consequences,” Andrew McLees, Special Agent in Charge of Immigration and Customs Enforcement-Homeland Security Investigations (ICE-HSI) in Newark, said. “Illegal foreign procurement networks continue to threaten our safety and this conviction reinforces that HSI has no tolerance for those who try to undermine our nation’s safety and security.”

“This arrest demonstrates the determination of Customs and Border Protection’s frontline officers, who work closely with our law enforcement partners to safeguard the American public from potential threats,” Robert E. Perez, Director Field Operations, for CBP New York, said.

The jury convicted Liu of nine of the 11 counts in the second superseding indictment with which he was charged, including six counts of violating the Arms Export Control Act and the International Traffic in Arms Regulations, one count of possessing stolen trade secrets in violation of the Economic Espionage Act of 1996, one count of transporting stolen property in interstate commerce, and one count of lying to federal agents. The jury acquitted Liu on two counts of lying to federal agents.

According to documents filed in the case and evidence presented at trial:

In 2010, Liu stole thousands of electronic files from his employer, L-3 Communications, Space and Navigation Division, located in Budd Lake, New Jersey. The stolen files detailed the performance and design of guidance systems for missiles, rockets, target locators, and unmanned aerial vehicles. Liu stole the files to position and prepare himself for future employment in the PRC. As part of that plan, Liu delivered presentations about the technology at several PRC universities, the Chinese Academy of Sciences, and conferences organized by PRC government entities. However, Liu was not charged with any crimes related to those presentations.

On November 12, 2010, Liu boarded a flight from Newark Liberty International Airport to the PRC. Upon his return to the United States on November 29, 2010, agents found Liu in possession of a non-work-issued computer found to contain the stolen material. The following day, Liu lied to agents of the Department of Homeland Security about the extent of his work on U.S. defense technology, which the jury found to be a criminal false statement.

The U.S. Department of State’s Directorate of Defense Trade Controls later verified that several of the stolen files on Liu’s computer contained export-controlled technical data that relates to defense items listed on the United States Munitions List (USML). Under federal regulations, items and data covered by the USML may not be exported without a license, which Liu did not obtain. The regulations also provide that it is the policy of the United States to deny licenses to export items and data covered by the USML to countries with which the United States maintains an arms embargo, including the PRC.

The jury heard testimony that Liu’s company trained him about the United States’ export control laws and told him that most of the company’s products were covered by those laws.

After the verdict, Judge Chesler ordered Liu taken into custody, citing the penalties Liu faces, his ties to the PRC, and the lack of an extradition treaty with the PRC, among other reasons.

Liu faces the following maximum penalties, per count:

■Export violations—20 years in prison, $1 million fine

■Stolen trade secrets violation—10 years in prison, $250,000 fine

■Interstate transportation of stolen property—10 years’ in prison, $250,000 fine

■False statement—five years in prison, $250,000 fine

U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Ward; special agents of ICE-HSI, under the direction of Special Agent in Charge McLees; and officers of CBP, under Director of Field Operations Perez, for the investigation leading to today’s verdict.

The government is represented by Assistant U.S. Attorney L. Judson Welle of the United States Attorney’s Office’s National Security Unit and Assistant U.S. Attorney Gurbir S. Grewal of the United States Attorney’s Office’s Economic Crimes Unit, both in Newark. The prosecution received valuable support from attorneys of the U.S. Department of Justice’s National Security Division, Counterespionage Section.

North Pole Man Sentenced to Five Years in Prison on Explosives and Weapons Convictions

ANCHORAGE—U.S. Attorney Karen L. Loeffler announced today that Coleman L. Barney from North Pole, Alaska, was sentenced in federal court in Anchorage to five years in prison for conspiracy to possess grenades and silencers and to five years in prison for possession of an unregistered destructive device, with the two sentences to run concurrently.

U.S. District Court Judge Robert J. Bryan presided over the trial in this case and also imposed the two five-year concurrent prison terms on Coleman Barney.

On June 18, 2012, a jury returned guilty verdicts against Coleman Barney, Schaffer Cox, and Lonnie G. Vernon on a majority of charges alleged in the superseding indictment and acquitted them on several other charges. Cox, a local militia leader, and Vernon, a fellow militia member, were found guilty of conspiring to murder federal officials, which carries a possible life sentence. Barney, a fellow militia member, was convicted of conspiracy to possess unregistered silencers and destructive devices, as well as possession of unregistered destructive devices. The jury could not reach a verdict as to one of the counts, which charged Barney with conspiracy to murder federal officials, and that count was later dismissed. The verdicts represented the culmination of an extensive investigation that included obtaining recordings of Vernon, Cox, and Barney discussing the murder of numerous state officials in retaliation for attempting to arrest Cox.

Barney’s sentencing is an important step toward concluding this investigation, which resulted in a six-week trial in June. Sentencing for the Vernon’s and Schaeffer Cox are scheduled to occur this coming November.

Ms. Loeffler said, “The actions of Mr. Barney and his co-conspirators presented a very real and dangerous threat to our community.” She commended “the professional work and dedication of law enforcement in protecting citizens and public servants from these threats.”

Mary Rook, Special Agent in Charge of the FBI in Alaska added, “This investigation and prosecution found its genesis in the voice of concerned citizens that a group of people, operating under the auspices of a sovereign militia, were planning to murder state and federal officials. As a result of the investigation by the FBI’s Joint Terrorism Task Force and the Alaska State Troopers, Coleman Barney and his co-conspirators were arrested before they could carry out their murderous plans.”

Ms. Loeffler commends the Federal Bureau of Investigation; the United States Marshals Service; the Bureau of Alcohol Tobacco, Firearms, and Explosives; the Alaska State Troopers; and the Fairbanks Police Department for the investigation of this case.

Congressional Testimony: The Domestic Terrorism Threat

Michael A. Clancy

Deputy Assistant Director, Counterterrorism Division

Federal Bureau of Investigation

Statement Before the Senate Judiciary Committee, Subcommittee on the Constitution, Civil Rights, and Human Rights

Washington, D.C.

September 19, 2012

Good Morning, Chairman Durbin, Ranking Member Graham, and members of the subcommittee. It is my honor to come before you to represent the Counterterrorism Division of the Federal Bureau of Investigation to discuss one of the highest priorities of the Bureau: the threat posed by domestic extremists.

On September 10, 2012, the FBI disseminated its National Terrorism Assessment on Domestic Terrorism. In the formulation of this assessment, the overall threat ranking considers intent, capability, and posture in its determination of the threat domestic extremist movements pose in the United States. The FBI assesses that economic and political events—foremost among them the coming presidential election—are likely to provoke domestic extremists into a more active state, although this is unlikely to drive an increase in large-scale violence. Smaller, localized acts of violence committed by domestic extremists, however, cannot be dismissed. The FBI further assesses that domestic extremist movements pose a medium to low terrorism threat. Specific political and economic events scheduled in 2012 create the potential for greater volatility within domestic extremism than existed in the previous year.

In recent months, the FBI has seen numerous examples of domestic terrorism and violence committed by lone offenders or small cells. For example, this year the FBI proactively dismantled an anarchist extremist cell comprised of five men who planned to blow up a bridge in Cleveland, Ohio. Four members of the cell have pleaded guilty, and the fifth member is going to trial. In November 2011, four members of a militia in Georgia were arrested for planning to acquire silencers and explosives to use against various U.S. government targets in Atlanta, Georgia. To date, two of the subjects have been sentenced to 60 months incarceration and three years of supervised release for conspiracy to possess an unregistered destructive device. This summer, we have witnessed multiple high-profile lone-offender shootings. The FBI investigated each of these incidents in partnership with federal, state, local, and tribal law enforcement agencies as potential acts of domestic terrorism. Three of these shootings—at a movie theater in Aurora, Colorado; at a Sikh temple in Wisconsin; and at the Family Research Council headquarters in Washington, D.C.—resulted in the combined deaths of 18 individuals and the wounding of over 50.

Significant political events and scheduled international and economic meetings combined with ongoing economic concerns create the potential for greater volatility within domestic extremism in 2012 than existed in the previous year. While all domestic extremist movements pose a threat, the following potential outcomes are especially relevant in the current environment:

■Election-related events heighten the opportunity for anarchist extremism in 2012.

■The 2012 election process may revitalize recruitment efforts for the white supremacist extremist movement.

■Militia extremists are expected to continue targeting law enforcement and government officials in response to any recently enacted legislation that is perceived as infringing on their constitutional rights.

■White-collar crime by those in the extremist “sovereign citizen” anti-government movement who exploit the housing crisis could continue if the housing sector of the economy remains weak in 2012.

■Environmental extremists may engage in criminal activity—including the destruction of property—if they perceive that legislative efforts to protect and preserve the environment are ineffective or unsuccessful.

Over the next year, domestic extremists are likely to maintain the intent and capability to pose a persistent threat involving smaller-scale bombings, assaults, firearms and explosives violations, arson, white-collar crime, threats, and other violations of federal law. The FBI will continue to enhance its crucial partnerships with federal, state, local, tribal, and foreign law enforcement agencies; other members of the U.S. intelligence community; and the private sector to combat the unrelenting threat of domestic terrorism.

In every domestic terrorism investigation—and indeed, in every investigation—we in the Bureau strive to balance the need to keep the American public safe with the need to protect constitutional rights, including the First Amendment rights to free speech and freedom of assembly. Intelligence and technology are key tools we use to stay ahead of those who would do us harm. Yet, as we evolve and update our investigative techniques and our use of technology to keep pace with today’s complex threat environment, we must always act within the confines of the rule of law and the safeguards guaranteed by the Constitution. It is not enough to stop the terrorists; we must always do so while maintaining civil rights and civil liberties. Following the rule of law and upholding civil rights and civil liberties—these are not our burdens. These are what make all of us safer and stronger. In the end, we in the FBI will be judged not only by our ability to keep Americans safe from terrorism, by also by whether we safeguard the civil rights and civil liberties for which we are fighting and maintain the trust of the American people.

Thank you for the opportunity to address the subcommittee on the FBI’s efforts to counter domestic terrorism. I will gladly address any questions you may have.

Hillside Man Arrested After FBI Undercover Investigation on Federal Charges for Attempting to Bomb Downtown Chicago Bar

CHICAGO—A Hillside man was arrested Friday evening after he allegedly attempted to detonate what he believed to be car bomb in front of a bar in downtown Chicago, announced Gary S. Shapiro, Acting U.S. Attorney for the Northern District of Illinois; William C. Monroe, Acting Special Agent in Charge of the Chicago office of the Federal Bureau of Investigation; and Garry F. McCarthy, Superintendent of the Chicago Police Department.

The arrest of ADEL DAOUD, 18, a U.S. citizen, was the culmination of a rigorous undercover operation during which Daoud developed his attack plans and surveilled and selected a target. Daoud was closely monitored by law enforcement and was offered several opportunities to change his mind and walk away from the supposed attack.

“The explosives that Daoud allegedly attempted to detonate posed no threat to the public. They were inert and had been supplied by undercover law enforcement personnel,” Mr. Shapiro said.

Daoud was charged in a criminal complaint filed today in U.S. District Court with one count of attempt to use of a weapon of mass destruction (explosives) and one count of attempt to damage and destroy a building by means of an explosive. Daoud had an initial appearance today before U.S. Magistrate Judge Arlander Keys. He remains in custody pending a detention and preliminary hearing, which was scheduled for 3 p.m. Monday in federal court. Daoud faces a statutory maximum sentence of life in prison for attempted use of a weapon of mass destruction and a mandatory minimum sentence of five years and a potential maximum of 20 years in prison for attempt to damage or destroy a building by means of an explosive.

According to an affidavit in support of the complaint, beginning in about October 2011, Daoud used e-mail accounts to obtain and distribute material, some of which he purported to author, relating to violent jihad and the killing of Americans.

In about May 2012, two FBI online undercover employees contacted Daoud in response to material Daoud posted online and thereafter exchanged several electronic communications with Daoud. According to the affidavit, during these communications Daoud expressed an interest in engaging in violent jihad, either in the United States or overseas.

The affidavit alleges that, from late May to mid-June 2012, Daoud confirmed his belief in the propriety of killing Americans in a terrorist attack and then began seeking online resources regarding how to carry out an attack.

In about June 2012, Daoud was introduced to a purported cousin of one of the undercover employees, who said he resided in New York and was an operational terrorist. Daoud allegedly expressed an interest in meeting the cousin, who unbeknownst to Daoud was an FBI undercover agent. In the course of his dealings with the undercover agent, Daoud allegedly drafted a list of approximately 29 potential targets, including military recruiting centers, bars, malls, and other tourist attractions in the Chicago area. He then selected, researched and surveilled a target for attack to be carried out with an explosive device supplied by the undercover agent, the affidavit alleges.

About 7:15 p.m. yesterday, Daoud met the undercover agent in Villa Park and they drove to downtown Chicago. During the drive, Daoud led the undercover agent in a prayer that Daoud and the agent succeed in their attack, kill many people, and cause destruction. They entered a parking lot where a Jeep containing the purported explosive device was parked. Daoud then drove the Jeep out of the parking lot and parked the vehicle in front of a bar in downtown Chicago, which was the target that he had previously selected. According to the affidavit, Daoud exited the vehicle and walked to an alley approximately a block away, and in the presence of the undercover agent, attempted to detonate the device by pressing the triggering mechanism. He was then arrested.

This case was investigated by the Chicago FBI’s Joint Terrorism Task Force (JTTF), which is comprised of FBI special agents, officers from the Chicago Police Department and representatives from 20 federal, state, and local law enforcement agencies. The Justice Department’s National Security Division assisted in the investigation.

The public is reminded that a criminal complaint contains mere allegations. The defendant is presumed innocent and is entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.