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U.S. citizen charged with spying for China after sting operation

U.S. Attorney David Anderson holds an SD memory card at a news conference in San Francisco detailing the criminal complaint against Xuehua “Edward” Peng, who is accused of spying for China.
U.S. Attorney David Anderson holds an SD memory card at a news conference in San Francisco detailing the criminal complaint against Xuehua “Edward” Peng, who is accused of spying for China. (Justin Sullivan/Getty Images)

The Justice Department unsealed charges Monday against a U.S. citizen accused of spying for the Chinese government and said the man was arrested after a sting operation in which he received what he thought was classified information that was actually provided by a source working for the U.S. government.

Prosecutors said Xuehua “Edward” Peng used dead drops in the United States to retrieve national security material stored on tiny digital cards. He then traveled to Beijing to pass the cards to his handlers at the Ministry of State Security (MSS), the main Chinese spy agency.

Read the criminal complaint

The case against Peng, a naturalized citizen, represents at least the sixth time in the past three years that the department has prosecuted Americans on traditional spying charges related to China. Four of them, including three former U.S. intelligence officers, have been convicted.

Prosecutors also have brought a series of economic espionage cases related to China in recent years. More than 80 percent of all economic spying charges since 2012 have involved China. The Peng prosecution is part of a broader push to confront Chinese espionage, whether economic or traditional, officials said.

The Justice Department launches a broad initiative to crack down on Chinese economic espionage

“The conduct charged in this case alleges a combination of age-old spycraft and modern technology,” David Anderson, U.S. Attorney for the Northern District of California, said in a statement. “The charges announced today provide a rare glimpse into the secret efforts of the People’s Republic of China to obtain classified national security information from the United States and the battle being waged by our intelligence and law-enforcement communities to protect our people, our ideas, and our national defense.”

The case was made with the help of an unnamed double agent who left SD cards containing ostensibly classified information in prearranged locations in hotels in California and Georgia. The information was cleared by the U.S. government to be transmitted to China, Anderson said. He declined to comment on the nature of the information or give more details about the double agent, identified in the criminal complaint only as the “Source.” The U.S. government has paid the source about $191,000 for services and expenses.

The case, said John Demers, assistant attorney general for national security, “illustrates the seriousness of Chinese espionage efforts and the determination of the United States to thwart them.”

The Chinese espionage threat is “multifaceted” and is the FBI’s top counterintelligence priority, said John F. Bennett, the special agent in charge of the San Francisco field office.

Northern California, which includes Silicon Valley, “is a target-rich environment,” Bennett said. “The Chinese frequently prey upon” individuals in the community, including ethnic Chinese residents, whom China “targets” for recruitment, he said.

Peng, a San Francisco-based tour operator, who was arrested Friday at his home in Hayward, Calif., arrived in the United States in June 2001 and was naturalized in 2012, officials said. He allegedly began his work as a courier for the MSS in June 2015 and continued through June 2018. He carried out six dead drops in that time frame, sometimes leaving money for the source, whom he never met, prosecutors said.

The source would gain entry to a hotel room, sometimes telling the front-desk clerk that “his friend ‘Ed’ had reserved a room for him,” according to the complaint. Inside the hotel room, he would leave an SD card for Peng. Sometimes it was hidden in a cigarette pack left in a dresser; sometimes it was taped to a TV stand or a dresser drawer.

On four occasions, Peng left money for the source: cash payments of $10,000 or $20,000.

The FBI intercepted some of Peng’s phone calls with his MSS handlers in Beijing and secretly videotaped Peng. A June 2018 video shows him pulling a wad of cash out of his pocket, counting the money and putting it in an envelope that he tapes to a drawer in a TV stand, officials said.

Peng faces a maximum of 10 years in prison and a fine of $250,000 for acting as an agent of a foreign government without notifying the attorney general.