March 2, 2012 / 1:23 AM / 6 years ago

UPDATE 1-China firm to challenge US reach in espionage case

By Dan Levine and Malathi Nayak

SAN FRANCISCO, March 1 (Reuters) - Lawyers for a Chinese steel company will challenge the ability of U.S. prosecutors to bring a criminal case against the company for trying to steal business secrets from chemical giant DuPont , a U.S. magistrate judge said.

Additionally, a former DuPont employee pleaded guilty on Thursday and has agreed to cooperate with U.S. authorities in the case.

A Northern California grand jury indicted Pangang Group and other defendants last month for conspiracy to commit economic espionage and other crimes including conspiracy to steal trade secrets, according to court documents.

Pangang, a state-owned steel manufacturer in Sichuan province, and its subsidiaries worked with a California businessman and others to obtain several valuable trade secrets from DuPont, the indictment alleged.

The United States has identified industrial spying as a significant and growing threat to the nation’s prosperity. However, some advocates have argued that Chinese targets are attractive for law enforcement in an election year, due to concerns about being called soft on China.

At a hearing in a San Francisco federal court on Thursday, two U.S. lawyers appeared for Pangang and its subsidiaries.

However, U.S. Magistrate Judge Nathaniel Cousins referred to a letter Pangang’s attorneys had sent to the court, specifying that their appearance was limited to a jurisdictional challenge to the prosecution.

California businessman Walter Liew has already been in custody for several months on witness tampering charges related to the DuPont allegations. Liew and his wife, Christina, also face charges of conspiracy to commit economic espionage and other counts in the latest indictment handed up last month.

Liew, a U.S. citizen, allegedly paid former DuPont engineers for assistance in designing chloride-route titanium dioxide, also known as TiO2, according to the indictment. DuPont is the world’s largest producer of the white pigment used to make a range of white-tinted products, including paper, paint and plastics.

Both Liew and his wife have plead not guilty.

Another defendant in the case, Tze Chao, pleaded guilty to conspiracy to commit economic espionage at a separate court hearing on Thursday. Chao, who worked as a chemical engineer for DuPont for over 35 years, acknowledged that he kept confidential company information when he left.

“I used a DuPont trade secret,” Chao said in court. “ tried to help Pangang company, which is state-owned, controlled by the government of the People’s Republic of China.”

John Potter, an attorney for Pangang, declined to comment.

Chao faces a maximum of 15 years in prison and a $500,000 fine, but prosecutors indicated that they would recommend leniency.

Assistant U.S. Attorney John Hemann told Cousins that Chao, a U.S. citizen, was “providing cooperation” to the government.

Cousins agreed to release Chao without bail. An attorney for Chao declined to comment.

Prosecutors detailed Liew’s alleged links with the Chinese government in a court filing last month. They named, as one of the Chinese representatives who once met with him, a high-ranking Communist Party official who later became a member of the Politburo.

The Pangang Group is based in Panzhihua city in the far south of China’s Sichuan province and is western China’s largest steelmaker. It was formally known as Panzhihua Iron and Steel (Group) Co Ltd.

The case is United States of America vs. Walter Liew, Christina Liew et al., U.S. District Court, Northern District of California, No. 11-cr-573.

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