Economic espionage!

A watch on critical minerals

The first ever charges under a section of the Security of Information Act (2001) (SOIA) have been laid against an individual who was once employed by Hydro Quebec in its Centre of Excellence in Transportation Electrification and Energy Storage. Yuesheng Wang, who faces economic espionage charges under s19 of SOIA, apparently holds a Ph.D. in physics from the Chinese Academy of Science and did postdoctoral research in the US and Britain before joining Hydro Quebec in 2016. Wang is an expert in the chemistry of battery materials.

The Globe and Mail has a good piece on the known elements of the case, here:

https://www.theglobeandmail.com/canada/article-rcmp-china-espionage-quebec/

The case intersects with key Canadian national security concerns around espionage, foreign interference, the protection of economic security, the tightening of rules around foreign investment with national security implications, and efforts to launch a significant critical minerals industry in Canada to provide resources for the transition to a green economy, especially with regard to electric vehicle (EV) supply chains. Loosening dependency on China’s grip on critical minerals supply chains is a key ingredient of Canada’s own critical minerals push.

Let’s dust off this unused s19 of the SOIA. (The link is here: https://laws-lois.justice.gc.ca/PDF/O-5.pdf). There are four key elements of the Economic Espionage section. The first describes the offence:

“Every person commits an offence whom at the direction of, for the benefit of, or in association with a foreign economic entity, fraudulently and without colour of right and to the detriment of Canada’s economic interests, international relations or national defence or national security a) communicates a trade secret to another person, group or organization; or b) obtains, retains, alters, or destroys a trade secret”

Of note are three key aspects of the offence: the fact that it can involve a foreign state or private sector organization (hence “entity”), thus encompassing both foreign state espionage and commercial spying; that it must harm a specific element of Canada’s national interests; and involve a trade secret.

The second element lays down the maximum penalty—10 years.

The third contains some caveats about knowledge of a trade secret, notably that the offence does not occur if the secret was obtained by “independent development” or in the course of a person’s work amounted to no more than “enhancements of a person’s personal knowledge…” As there is no case law for economic espionage charges, it is easy to imagine that these caveats might well come into play for the defence.

The final element of the economic espionage section adds some definitional characteristics to the notion of a “trade secret,” probably the most important of which is the sub-section that reads “is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” In essence, a trade secret is something that an entity or company believes should be kept secret. It need not be an objective standard.

The information (charge) that the RCMP laid in Quebec court against Yuesheng Wang indicates that Mr. Wang obtained a trade secret “for the benefit of the People’s Republic of China.” Crucially, what the information does not allege (at least not yet) is that Mr. Wang “communicated” the trade secret. There is, to be specific, no charge under s19(1) (a).

So the Wang case has its surface peculiarities. China is named as the beneficiary of his economic spying but there is no charge that Mr. Wang actually communicated trade secrets to China.

How do we understand this? The answer is that the Wang case takes us further into the world of University research connected to China and its potential nexus to espionage. The RCMP Inspector in charge of this case, in a press conference, stated that “Mr Wang allegedly used his position to conduct research for a Chinese university and other Chinese research centres…He reportedly published scientific articles and submitted patents in association with this foreign actor.” Given the nature of the Chinese state and party control over all sectors of society, the general assumption is that no daylight exists between the Chinese state and its national security interests and work undertaken by Chinese universities.

The RCMP took charge (“carriage”) of this case after being alerted to it by Mr. Wang’s employer, Hydro Quebec. The timelines are interesting. It appears that Mr. Wang began working for Hydro Quebec in 2016, that his alleged economic espionage activities might have begun in 2018, but the RCMP only began investigating in August 2022 following the receipt of information from Hydro Quebec’s corporate security branch. On the face of it there is both a good news and bad news side to this story. The good news is that Hydro Quebec was able to detect what is known as an “insider threat,” and was able and willing (not always the case with regard to industrial spying) to communicate its information to the RCMP. The RCMP were able to develop a criminal case quickly.

The bad news side of the story is also to be found in the timeline. Up to four years elapsed before Hydro Quebec developed and communicated its concerns about Mr. Wang’s activities to the RCMP. We don’t when and how in that timeline Hydro Quebec first began to suspect Mr. Wang. We also don’t know anything about the initial vetting that Hydro Quebec may have undertaken during its original hiring of Mr. Wang or the extent that it was able to draw on the advice of federal security bodies as part of that hiring process. Mr. Wang’s hiring predated efforts on the part of CSIS in particular to engage in outreach to the Canadian university community and private sector to warn about aspects of China’s espionage efforts.

While it is the case that the charges laid against Mr. Wang are unique, there have been other known instances of economic espionage in Canada attributed to China or involving the Chinese state. The cases are rare but their rarity should not be taken as a sign that Chinese espionage in Canada is rare. It may just a ‘known unknown’ to quote a now disgraced, former US secretary of defence. One case involved a man named Qing Huang, who was charged under other sections of the Security of Information Act for attempting to pass Canadian naval secrets to Chinese government officials. That case began in 2013 and ended badly 8 years later, when charges were stayed followed lengthy procedural wrangling, mostly concerning access to CSIS warrants for intelligence collection against the Chinese embassy. Mr. Huang is now a free man. If you want to read the Ontario Superior Court ruling, it is here:

https://www.canlii.org/en/on/onsc/doc/2021/2021onsc2654/2021onsc2654.html

Then there was the sensational case of a Chinese-Canadian businessman, Su Bin, who was engaged in cyber espionage against the US military aviation sector in partnership with two Chinese intelligence officers. Although Su Bin was resident in Vancouver and nominally ran his business affairs from Canada, Canadian authorities were largely bystanders in the espionage case. He was arrested at the request of the FBI in 2014, subject to extradition, and later voluntarily went to the US, where he entered into a plea bargain.

There was, however, a knock-on effect, as China engaged in an instance of hostage diplomacy by grabbing two innocent Canadians, Kevin and Julia Garratt, and charging them with espionage in a tit-for-tat case. The Chinese intent was to try to put pressure on Canada not to allow the extradition of Su Bin.

For an overview of the Su Bin case, see Garrett M. Graff, “How the US Forced China to Quit Stealing—Using a Chinese Spy,” Wired, October 11, 2018 https://www.wired.com/story/us-china-cybertheft-su-bin/

Does this all sound a little familiar in the context of the later hostage diplomacy conducted in association with the extradition of the Huawei executive, Meng Wanzhou?

The Su Bin extradition problem was actually solved by Su Bin himself, who decided to waive extradition and take himself off to the US to face charges. His lawyer would later say in court that he did so because he realized that the extradition process might actually leave him behind bars for longer than a plea bargain term in the US. That was probably a good guess, as Su Bin was sentenced in 2016 to 4 years in prison and a fine of $10,000.

The Wang case does not appear to have the complexities of either the Huang or Su Bin cases. But it could still pose a significant challenge as the court comes to grips with a first-ever economic espionage act prosecution.

However the court case evolves, it stands as a case study of the complex realities of economic espionage in Canada, the sectors across which it can spread, the difficulties of securing Canadian economic “secrets,” and the challenges presented in using legal sanctions, as opposed to other tools, to curb its impacts.