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.

DEA NEWS: FEDS ANNOUNCE SEIZURE OF $150 MILLION IN CONNECTION WITH HIZBALLAH-RELATED MONEY LAUNDERING SCHEME

DEA Administrator Michele M. Leonhart and United States Attorney for the Southern District of New York Preet Bharara today announced the seizure of $150 million in connection with a civil money laundering and forfeiture complaint filed in December 2011 alleging a massive, international scheme in which entities linked to Hizballah, including the now defunct Lebanese Canadian Bank (“LCB”), used the U.S. financial system to launder narcotics trafficking and other criminal proceeds through West Africa and back into Lebanon.

In September 2011, Société Générale de Banque au Liban (“SGBL”) agreed to purchase most of the assets of LCB, and at least $150 million in purchase price funds related to that sale are being held in escrow in Lebanon at the Banque Libano Française SAL (“BLF”). The seized funds are substitutes for the money in the LCB escrow account at BLF, and came from an account at a U.S. bank that is used by BLF to conduct U.S. currency transactions (the “correspondent account”). The funds were seized pursuant to seizure warrants issued on August 15, 2012. There are no allegations of wrongdoing against BLF, SGBL, or the U.S. bank that maintains the correspondent account for BLF in the U.S.

“As we alleged last year, the Lebanese Canadian Bank played a key role in facilitating money laundering for Hizballah controlled organizations across the globe,” Administrator Leonhart said. “Our relentless pursuit of global criminal networks showed that the U.S. banking system was exploited to launder drug trafficking funds through West Africa and into Lebanon. DEA and our partners are attacking these groups and their financial infrastructure, while establishing clear links between drug trafficking proceeds and terrorist funding.”

“Money is the lifeblood of terrorist and narcotics organizations, and while banks which launder money for terrorists and narco-traffickers may be located abroad, today’s announcement demonstrates that those banks and their assets are not beyond our reach,” U.S. Attorney Bharara said. “We will use every resource at our disposal to separate terrorists and narco-traffickers, and the banks that work with them, from their illicit funds, even those hidden in foreign accounts.”

According to the Complaint, the affidavit in support of the seizure warrants and other documents filed in the case:

From approximately January 2007 to early 2011, at least $329 million was transferred by wire from LCB and other financial institutions to the U.S for the purchase of used cars that were then shipped to West Africa. Cash from the sale of the cars, along with the proceeds of narcotics trafficking, were funneled to Lebanon through Hizballah-controlled money laundering channels. LCB played a key role in these money laundering channels and conducted business with a number of Hizballah-related entities. Hizballah is a U.S. Department of State designated Foreign Terrorist Organization, a Specially Designated Terrorist and a Specially Designated Global Terrorist.

On February 10, 2011, the U.S. Department of the Treasury, Financial Crimes Enforcement Network (“FinCEN”) issued a finding and proposed rule, pursuant to the USA Patriot Act, that LCB is a financial institution of primary money laundering concern, based on, among other things, FinCEN’s determination that there was reason to believe that LCB had been routinely used by drug traffickers and money launderers operating in various countries in Central and South America, Europe, Africa, and the Middle East. FinCEN also determined that there was reason to believe that LCB managers were complicit in the network’s money laundering activities.

After the FinCEN action, another Lebanese financial institution, SGBL acquired the assets and liabilities of LCB for $580 million, $150 million of which is being held in an escrow account at BLF (the “LCB Escrow Funds”). Because the LCB Escrow Funds are traceable to the assets of LCB, they are also subject to forfeiture, but since they are in an account in Lebanon, the U.S. is unable to seize the LCB Escrow Funds directly. However, pursuant to U.S. law, the U.S. can seize funds located in a bank’s correspondent accounts in the U.S. if there is probable cause to believe that funds subject to forfeiture are on deposit with that bank overseas. Based on this provision and others, the seizure warrants were executed. A total of $150 million was seized from BLF’s correspondent account. These funds will be transferred to a seized asset account maintained by the United States Marshals Service pending resolution of the forfeiture action.  

* * *

Mr. Bharara thanked the DEA for its leadership and praised the New York Organized Crime Drug Enforcement “Strike Force” (“Strike Force”), for its outstanding work on this investigation, which he noted is ongoing. The Strike Force is comprised of agents and officers of the United States Drug Enforcement Administration, the New York City Police Department, Immigration and Customs Enforcement’s Homeland Security Investigations, the New York State Police, the United States Internal Revenue Service Criminal Investigation Division, the United States Marshal Service, Alcohol, Tobacco, Firearms and Explosive, Federal Bureau of Investigations, and the United States Attorney’s Office. The Strike Force is partially funded by the New York/New Jersey High Intensity Drug Trafficking Area, which is a federally funded crime fighting initiative. Mr. Bharara also thanked the U.S. Department of State, the U.S. Department of the Treasury, the Federal Bureau of Investigation, and the New Jersey State Police for their assistance.

2 indicted after HSI investigation for alleged efforts to supply Iran with US materials for gas centrifuges to enrich uranium

Accused Iranian procurement agent arrested in the Philippines

WASHINGTON — A federal grand jury in the District of Columbia has returned a superseding indictment charging Parviz Khaki, a citizen of Iran, and Zongcheng Yi, a resident of China, for their alleged efforts to obtain and illegally export to Iran U.S.-origin materials that can be used to construct, operate and maintain gas centrifuges to enrich uranium, including maraging steel, aluminum alloys, mass spectrometers, vacuum pumps and other items. Khaki is also accused of conspiring to procure radioactive source materials from the United States for customers in Iran. The indictment is the result of an extensive investigation by U.S. Immigration and Customs Enforcement's (ICE) Homeland Security Investigations (HSI).

The superseding indictment, which was returned late yesterday, was announced by ICE Director John Morton; Assistant Attorney General for National Security Lisa Monaco; and U.S. Attorney Ronald C. Machen Jr., District of Columbia.

The superseding indictment charges Khaki, age 43, aka Martin, and Yi, aka Yi Cheng, aka Kohler, aka Kohler Yi, each with one count of conspiracy to violate the International Emergency Economic Powers Act (IEEPA) by conspiring with others to cause the export of U.S. goods to Iran without the required U.S. Treasury Department license. Both defendants are also charged with one count of conspiracy to defraud the United States; two counts of smuggling; two counts of illegally exporting U.S. goods to Iran in violation of IEEPA; and one count of conspiracy to commit money laundering.

Khaki was arrested May 24, 2012, by authorities in the Philippines in connection with a U.S. provisional arrest request stemming from a March 8, 2012 indictment in the District of Columbia. Yi, who is purported to be the managing director of Monalila Co. LTD, a company in Guangzhou City, China, remains at large.

Both defendants face a maximum potential sentence of 20 years in prison for conspiring to violate IEEPA; five years in prison for conspiring to defraud the United States; ten years in prison for each smuggling count; 20 years in prison for each IEEPA count and 20 years in prison for conspiracy to commit money laundering.

"By dismantling this complex conspiracy to deliver nuclear-related materials from the United States to Iran, we have disrupted a significant threat to national security," said ICE Director Morton. "Homeland Security Investigations will continue to pursue those who exploit U.S. businesses to illegally supply foreign governments with sensitive materials and technology that pose a serious risk to America and its allies."

"Today's indictment sheds light on the reach of Iran's illegal procurement networks and the importance of keeping U.S. nuclear-related materials from being exploited by Iran. Iranian procurement networks continue to target U.S. and Western companies for technology acquisition by using fraud, front companies and middlemen in nations around the globe. I applaud the authorities in the Philippines and the many U.S. agents, analysts and prosecutors who worked on this important case," said Assistant Attorney General Monaco.

"This new indictment shows that we have no tolerance for those who try to traffic in commodities that can be used to support Iran's nuclear program," said U.S. Attorney Machen. "It also underscores our commitment to aggressively enforcing export laws."

According to the indictment, from around October 2008 through January 2011, Khaki, Yi and others conspired to cause the export of goods from the United States to Iran in violation of the embargo. At no time during this period did the defendants have a license or authorization from the Treasury Department to export any U.S. goods to Iran.

In carrying out the conspiracy, the indictment alleges that Khaki directed Yi and others to contact U.S. companies about purchasing U.S.-origin goods. Yi and other conspirators then placed orders and purchased goods from various U.S. companies and had the goods exported from the United States through China and Hong Kong to Khaki and others in Iran. Yi and others allegedly made a variety of false statements to U.S. companies on behalf of Khaki to conceal that Iran was the final destination and end-user of the goods and to convince U.S. companies to export these items to a third country.

Efforts to Export to Iran U.S. Materials for Gas Centrifuges to Enrich Uranium

For example, the indictment alleges that Dec. 6, 2008, Khaki asked an individual in China to obtain 20 tons of C-350 maraging steel from the United States for Khaki's customer in Iran. In the months that followed, Khaki also had communications with Yi about purchasing 20 tons of maraging steel from a U.S. company with which Yi was in contact. Maraging steel is a special class of high-strength steel known for possessing superior strength without losing malleability. The enhanced strength of maraging steel makes it particularly suited for use in gas centrifuges for uranium enrichment.

In March 2009, Khaki allegedly began communicating with an undercover U.S. federal agent posing as an illegal exporter of U.S. goods. The agent told Khaki that the U.S. company (referenced above) could not sell Khaki the maraging steel because doing so was illegal, but that he (the undercover agent) could potentially help export the steel for a fee. Khaki allegedly replied to the agent with questions about price and payment. In the months that followed, Khaki continued to communicate with the agent in an effort to acquire and export the maraging steel to Iran, noting in one instance, "you know and I know this material are [sic] limited material and danger goods..." Khaki also discussed his desire to make money from the transaction.

The indictment also alleges that in late 2008, Khaki reached out to an individual in China about procuring 20 tons of 7075-O aluminum alloy 80mm rods and 20 tons of 7075-T6 aluminum alloy 150 mm rods from the United States or Europe. In one communication, Khaki explained to the individual that the aluminum alloy had to be American made because his Iranian customer had previously found that Chinese aluminum alloy was of poor quality.

Khaki also allegedly sought to obtain mass spectrometers from the United States. In a May 2009 email request to the undercover federal agent, Khaki specified that one magnetic mass spectrometer he sought was for the isotopic analysis of gaseous uranium hexafluoride. Uranium hexafluoride is the chemical compound used in the gas centrifuge process to enrich uranium. Khaki and Yi also conspired to obtain other items from U.S. companies that can be used for gas centrifuges, including measuring instruments, pressure transducers, vacuum pumps and other accessories, according to the charges.

Efforts to Export to Iran Radioactive Materials

The indictment further alleges that Khaki sought to obtain radioactive source materials from the United States. In May 2009, for instance, Khaki sent an email to the undercover agent asking the agent to purchase radioactive sources and test materials from a U.S. company. Attached to the email was a list of products, including barium-133 source and europium-152 source, as well as contact information for the U.S. company.

In January 2011, Khaki contacted the undercover agent again requesting that he purchase various radioactive sources. In one email to the agent, Khaki allegedly sent a product catalogue for radioactive sources, including cobalt-57 source, and in another email he requested the agent purchase cadmium-109 source.

Exports to Iran of Lathes and Nickel Alloy Wire through Hong Kong, China

The indictment alleges the defendants caused the illegal export of lathes and nickel alloy 120 wire from the United States through China to Iran. In February 2009, Khaki asked Yi to contact a U.S. company about procuring two Twister Speed Lathes. Yi allegedly purchased these items and arranged for them to be shipped from the United States to Hong Kong and ultimately to Iran in June 2009.

In another transaction Jan. 26, 2009, Khaki allegedly asked a conspirator to contact a U.S. company about purchasing nickel alloy 120. At Khaki's request, the conspirator sent a U.S. company an order for nickel alloy, falsely stating that a company in China was the purchaser. In June 2009, the U.S. company shipped the nickel alloy to Yi in Hong Kong, who shipped it on to Iran, according to the charges.

This investigation was conducted by HSI special agents. Assistance was provided by authorities in the Philippines. The prosecution is being handled by the U.S. Attorney's Office for the District of Columbia and Trial Attorney Brandon L. Van Grack of the Counterespionage Section of the Justice Department's National Security Division. The Office of International Affairs in the Justice Department's Criminal Division also provided assistance.

The magnitude and scope of the threats facing the United States has never been greater than today. This is due in part to individuals exporting military items overseas and sending products to sanctioned or embargoed countries. This jeopardizes the safety of our soldiers, citizens and national interests. HSI aims to prevent terrorist groups and hostile nations from illegally obtaining U.S. military products and sensitive technology, including weapons of mass destruction. The Counter-Proliferation Investigations Unit, part HSI's National Security Investigations Division, oversees a broad range of investigations related to export law violations. It enforces U.S. export laws involving military items and controlled dual-use goods, as well as products going to sanctioned or embargoed countries. Learn more at www.ICE.gov/HSI.

The public is reminded that an indictment contains mere allegations. Defendants are presumed innocent unless and until proven guilty in a court of law.

Local Man Sentenced for Providing Material Support to Terrorist Organization

ST. LOUIS—Mohamud Abdi Yusuf, 31, was sentenced to 140 months in prison on charges of providing material support to a foreign terrorist organization.

According to court documents, from February 2008 through at least July 2009, Yusuf conspired with others to provide money to al Shabaab, which was designated by the U.S. State Department as a foreign terrorist organization in February 2008. Yusuf transferred money to al Shabaab under fictitious names and telephone numbers utilizing money remitting businesses operating in the United States.

Al Shabaab is a terrorist organization based in Somalia whose objective is the overthrow of the Transitional Federal Government (TFG), eliminating the African Union support for TFG, and the imposing Shari’a law in Somalia. Al Shabaab has engaged in and used violence, intimidation, and acts of terrorism in Somalia and elsewhere to further its objectives.

Yusuf admitted with his plea in November to soliciting money from inside and outside the Eastern District of Missouri and coordinating the transfer of the money to al Shabaab. Members of the conspiracy frequently communicated in coded language as they planned the means by which they transferred money to al Shabaab members and affiliates in Somalia.

“This is the first international terrorism case prosecuted in Eastern Missouri since 9/11 and it represents the FBI’s number one priority in protecting this country against terrorism,” said Special Agent in Charge Dean C. Bryant of the FBI St. Louis Division. “Today’s sentence underscores our concern about people in the United States actively supporting al Shabaab, especially when its leaders publicly pledged their allegiance to al Qaeda just this past February.”

Yusuf entered guilty pleas to one count of conspiracy to provide material support to a designated terrorist organization and three counts of providing material support to a designated terrorist organization last November and appeared today for sentencing before United States District Judge Henry E. Autrey.

Duane Mohamed Diriye, who is a resident of Kenya, was also indicted along with Yusuf on October 21, 2010 and remains at large.

The case was investigated by the Federal Bureau of Investigation’s Joint Terrorism Task Force, U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI), and the U.S. Postal Inspection Service. Assistant United States Attorneys Matthew Drake and Howard Marcus are handling the case in conjunction with the Counterterrorism Section of the Justice Department’s National Security Division.

Chicago Man Sentenced to Over Seven Years in Prison for Attempting to Provide Funds to Support al Qaeda in Pakistan

CHICAGO—A Chicago man who personally provided hundreds of dollars to an alleged terrorist leader with whom he had met in his native Pakistan, was sentenced today to 7.5 years in federal prison for attempting to provide additional funds to the same individual after learning he was working with al Qaeda. The defendant, Raja Lahrasib Khan, a Chicago taxi driver and native of Pakistan who became a naturalized U.S. citizen in 1988, pleaded guilty in February to one count of attempting to provide material support to a foreign terrorist organization, following his arrest in March 2010.

Khan, 58, of the city’s north side, displayed “toxic altruism” U.S. District Judge James Zagel said in imposing the 90-month sentence, followed by lifetime supervised release, in Federal Court in Chicago. In addition, the judge said it was a “profoundly aggravating factor” that Khan’s crime occurred after he voluntarily chose to become a naturalized U.S. citizen.

Although Khan’s actual donations (approximately $500 to $550) and attempted donation ($1,000) were, relatively speaking, not incredibly substantial amounts, donations need not be large to be of assistance to terrorist organizations, the government argued, and the judge noted as well.

Khan’s plea agreement called for an agreed sentence of between five and eight years in prison, and it requires Khan to cooperate with the government in any matter in which he is called upon to assist through the termination of his sentence and any period of supervised release.

The sentence was announced by Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois, and Robert D. Grant, Special Agent in Charge of the Chicago Office of the Federal Bureau of Investigation.

Khan, who was born and resided in the Azad Kashmir region of Pakistan before immigrating to the United States in the late 1970s, admitted that he met with Ilyas Kashmiri, a leader of the Kashmir independence movement, in Pakistan in the early to mid-2000s and again in 2008. At the time of the second meeting, Khan knew or had reason to believe that Kashmiri was working with al Qaeda, in addition to leading attacks against the Indian government in the Kashmir region. During their 2008 meeting, Kashmiri told Khan that Osama bin Laden was alive, healthy, and giving orders, and Khan gave Kashmiri approximately 20,000 Pakistani rupees (approximately $200 to $250), which he intended Kashmiri to use to support attacks against India.

On November 23, 2009, Khan sent approximately 77,917 rupees (approximately $930) from Chicago to an individual in Pakistan, via Western Union, and then directed the individual by phone to give Kashmiri approximately 25,000 rupees (approximately $300). Although Khan intended the funds to be used by Kashmiri to support attacks against India, he was also aware that Kashmiri was working with al Qaeda.

In February and March 2010, Khan participated in several meetings with an undercover law enforcement agent who posed as someone interested in sending money to Kashmiri to purchase weapons and ammunition, but only if Kashmiri was working with al Qaeda, as well as sending individuals into Pakistan to receive military-style training so they could conduct attacks against U.S. forces and interests. On March 17, 2010, the undercover agent provided Khan with $1,000, which Khan agreed to provide to Kashmiri. Khan then gave the funds to his son, who was traveling from the United States to the United Kingdom, intending to later retrieve the money from his son in the U.K. and subsequently provide it to Kashmiri in Pakistan.

On March 23, 2010, Khan’s son arrived at an airport in the U.K. and a search by U.K. law enforcement officials yielded seven of the 10 $100 bills that the undercover agent had provided to Khan. After learning of his son’s detention, Khan attempted to end his involvement in the scheme to provide funds to Kashmiri by requesting an urgent meeting with another individual who was also present at Khan’s earlier meetings with the undercover agent. During their meeting, Khan demanded to return the undercover agent’s funds by providing $800 to this other individual.

The investigation was conducted by the Chicago FBI Joint Terrorism Task Force, with particular assistance from the Chicago Police Department, the Illinois State Police, and the Department of Homeland Security’s U.S. Customs and Border Protection and U.S. Immigration and Customs Enforcement.

The government is being represented by Assistant U.S. Attorneys Christopher Veatch and Heather McShain and DOJ trial attorney Joseph Kaster, of the Counterterrorism Section of the Justice Department’s National Security Division.