Bribery, Bitcoin and Obstruction: DOJ Announces Charges Against Chinese Agents for Attempting to Obstruct Huawei Investigation | Sheppard Mullin Richter & Hampton LLP

On Monday, October 24, 2022, the Department of Justice (DOJ) announced charges against two alleged Chinese intelligence officers for bribery and theft of documents to obstruct the criminal investigation of, allegedly, Huawei (although the complaint does not name Huawei, according to multiple reports, it is the company).

In the unsealed criminal complaint, the DOJ describes a two-year period during which the intelligence officers engaged in multiple attempts to steal files and other information for the benefit of the Chinese company under federal prosecution. The Chinese officers instructed an undercover American police officer, whom they believed to be a Chinese asset, to steal confidential information, including prosecutorial evidence, witness lists, and trial strategy to obstruct the criminal investigation. In exchange, one of the Chinese officers paid $61,000 in Bitcoin to the double agent.

This DOJ announcement was part of a broader effort in three criminal cases to stop the alleged illegal influence of Chinese agents in the United States. On the same day, the DOJ announced that seven other individuals were charged with participating in a scheme to forcibly repatriate another Chinese national. In addition, four other individuals were charged with conspiracy to act as agents of a foreign government by targeting individuals to act on behalf of the Chinese government in furtherance of intelligence objectives.

Takeaways

• National security focus on China: The national security focus on China is increasing more than ever before. In just the past few weeks, we’ve seen additional controls on semiconductor technology and President Biden’s national security strategy being explicit about the threats we face from China. It is clear that the DOJ is focused on threats here and abroad influenced by the Chinese government.
• Bitcoin: The bribe here was paid in bitcoin, which is a bad choice, since bitcoin transactions can be tracked on a public ledger. Going forward, the use of bitcoin or digital assets for illegal activity is likely to be an even worse choice. As we discuss here, there have been more successful law enforcement actions, such as prosecuting cryptocurrency fraud and tax evasion stemming from cryptocurrency investment schemes. It also highlights how the DOJ has coordinated with other regulatory agencies such as the Office of Foreign Assets Control to prosecute those who use digital assets to avoid sanctions. The belief that the use of bitcoin is anonymous is misplaced. It’s much more traceable than giving someone a bag of cash.
• The importance of diligence: The alleged use of Chinese intelligence officials on behalf of Huawei highlights the complexity of understanding third parties and truly “knowing your customer” to ensure compliance with US regulations. Regulators are increasingly focusing on end-use and end-users, as evidenced by the model certificate described in Addendum No. 1 to Part 734, which was proposed by BIS and referenced in the latest Semiconductor Export Rules. Companies should be thoughtful about their due diligence policies and procedures to ensure business relationships are in line with compliance best practices.