TiO2 and China
The story of Pangang Group, of China, a State Owned Enterprise in China, Walter Liew and Robert Maegerle of California ended in March with the two individuals being convicted of espionage. It also marks the first time a Chinese State Owned Enterprise was specifically named in commercial espionage. China had as a national priority to get access to and to duplicate the formula for Titanium Dioxide and they have succeeded.
Liew paid former DuPont employees like Maegerle to reveal trade secrets that would help the Chinese company, Pangang Group, develop a white pigment called chloride-route titanium dioxide, known as TiO2. The pigment is used to make a variety of white-tinted products, food stuffs, paper, paint, plastics, and other coatings. It is a very widely used chemical and in fact millions of tons are used each and every year, just in the US. The DuPont’s market is over 17 billion dollars per year.
According to court filings this appears to have begun when Liew attended a banquet in 1991 with a number of Chinese officials. The banquet was hosted by LuoGan, a high-ranking official of the Communist Party of China Central Committee now a member of the nine-member Standing Committee of the Politburo. LuoGan gave Liew directives at this meeting, and two days later Liew received a list of target projects including TiO2. According to testimony and court documents, China buys more TiO2 from the West than it makes and that is of an inferior grade. China’s leaders had declared that duplicating—or getting its hands on—DuPont’s recipe was a national economic and scientific imperative. Pangang’s factory is the only facility in China known to be producing titanium oxide the DuPont way, which uses chlorination. Ultimately Pangangpaid Liew’s company $28 million for his success in obtaining, by theft, what Pangang could not buy.
The couple recruited DuPont scientists, including Maegerle, who worked for DuPont from 1956 to 1991 before joining the Liews. Prosecutors said that it was Maegerle that provided the Liews with detailed information about DuPont’s Taiwan factory.
Some parts and facts came from newser.com and the USGS.
What is interesting is the clear chain of events leading up to the theft. A member of the Politburo, at the time a lower but significant figure, specifically gave directions of the technology desired. The Chinese national living in the US than specifically recruited a retired employee of the target company to cough up the information. The means being used by China – and I am sure by others, are ruthless and focused. I am also certain that with the large amount of money even the best current and former employees would buckle and sell out.
This is why the need for OPSEC is so important not just for the big companies but even more so for the smaller companies. DuPont will survive, but what if this was the only product made? What if this was the only product produced and now a Chinese firm has the secret and will enter world wide competition. With a lower overhead for labor, pensions, insurance and regulatory permission, plus the backing of the Chinese government. Industry world wide is under the most significant and sustained assault by their competitors than ever before.
As many times as I attempt to scream this from the tallest podium, the technology guys and gals just stare at me. The typical response is “Yeah, but they are not after us, or we are smarter than they are.” 1. Many companies are after all US technology; no ifs, ands or butts. 2. Yes, you geniuses are smarter than the thieves are, but they have more money and will pay someone to steal the information.