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CHINESE INTELLIGENCE SERVICES PENETRATION OF CANADIAN COMPANIES


46. All areas of the Canadian economy are targeted, but high technology is the one most at risk. Several cases of theft of Canadian proprietary information and/or technology have been reported to and investigated by Canadian authorities. For example, Ontario Hydro believes it was the victim of theft of information in the nuclear technology field by an individual of Chinese origin. This individual sent unauthorized faxes (some containing hours worth of data) to a telephone number in China, associated with the State Science and Technology Commission. In another case, a Chinese employee of a major computer company based in Canada was accused of copying the company's proprietary information onto diskette, for the purposes of selling the information to China. In a third instance, a Canadian company alleged that one of their former employees, who had previously served in the Chinese military, stole proprietary information regarding energy technology and sold it to the Chinese government. (S)


47. The Chinese government also takes advantage of growing business ties between China and Canada to provide cover for intelligence activities. For example, a company owned by a Chinese-Canadian sponsored what was ostensibly a Chinese business delegation to come to Canada. In reality, the "delegation" was comprised of Ministry of State Security officials travelling to Canada to conduct an intelligence operation. Another delegation that travelled to Canada under the cover of representing a Chinese company was actually composed of officers from a sensitive sector of the People's Liberation Army, who were attempting to make arrangements to purchase secure communications technology for military purposes.


48. The ChIS do not hesitate to expend great energy on pursuing their activities. They have established companies on Canadian soil solely for traditional and economic espionage purposes. These companies are used as cover for ChIS agents to help gain them an entree into Canadian business circles. These front companies have been observed to have contacts with the triads in Canada. (S)


INTERFERENCE BY FINANCING OF CANADIAN POLITICAL PARTIES


49. One of the means used by the Hong Kong business people and triads associated to Beijing is to seek influence and support among Canadian politicians by financing political parties. This practice, is not unique to Canada. Recently, a stir was caused in the US media over the illegal Chinese funding of the Democratic Party. Over 2,000 American companies suspected of being used by Chinese are currently under investigation by the FBI. In 1993, Britain was wracked by a similar scandal when over ?1.5 million (or nearly CDN $3 million) was donated to the British Conservative Party by Hong Kong financiers such as Li Ka-Shing (CDA $1.8 million), Stanley Ho ($200,000), Tsu Tsin-Tong ($100,000) and even C.H. Tung ($70,000) who is now Beijing's man in Hong Kong. (C)

50. Canada also allows "Canadian corporate citizens" to make financial contributions to political parties, but the parties are obliged by the Canada Elections Act to report the amounts. Many of the companies identified in this research have contributed sometimes several tens of thousands of dollars to the two traditional political parties, the Liberals and the Conservatives. As examples, in 1994, Merrill Lynch Canada gave the Liberal party $20,432.94. Between 1991 and 1194, Husky Oil, which is owned by Li Ka-Shing, alone contributed over $100,000 to the same two parties. North American Studio (Canada), which was affiliated with the triads, also contributed. Set within their Canadian and regional contexts, the total amount of these contributions to local organizations is substantial. Further, an "entrepreneur" may have several businesses in an area that will also contribute to the parties' funds. In the end, large sums are distributed by various hands but from the same wallet. It is precisely the total amount distributed at several places that makes the interplay of influence and political 'friendships" so important. (S)


51. The information presented here represent only a very partial view of the real situation and brings questions to the amount of influence gain through donations. To obtain a complete picture, further research would be needed. (S)


THE IMPORTANCE OF CHINESE DIASPORA


52. The key to the Chinese riddle lies in understanding the unique culture of the Chinese people.20 The core of this culture is to be found in the importance of developing and maintaining a very broad network of privileged contracts based on the fact of being Chinese, your backers (Hou Tui) and an individual's obligations towards others (Guanxi). Furthermore, no other ethnic group in the world can equal the economic power of the Chinese diaspora. Their numbers are estimated at over 60 million, and their financial power is put conservatively at over US $2 trillion. With the wave of immigration from Hong Kong, this financial power has grown again exponentially. Most Southeast Asian countries have long found their national economics to be dominated sometimes by as much as 90 per cent, by the Chinese community. While not supporting its political views, most Chinese retain a strong attachment to the Motherland remains. The Chinese diaspoa is present on every continent and has always been, willingly or not, the point of entry into and the centre of operations in a foreign country for the ChIS and the triads. (S)


CONSEQUENCE FOR CANADA


53. Because of its strategic alliance with some important and influential Hong Kong business people, and with organized crime syndicates, the Chinese leadership appears to be today in a position to developing a potential of influence over the international market and particularly on the Canadian economy and political life of the country. Why Canada? Because Canada always been somehow favourable in China. It has also an important Chinese community and very important economic tides with Hong Kong. Having bought significant real-estate holdings and established companies in Canada, gain some access to political leaders and business people, it is now in a position to seek power by influence. What make it difficult to argue against it the fact that most of it has been done legally. Even more, the threat is manifold and very elaborated in a complicated web of businesses. It diffuses itself through a not so tangible network. If you look at a single individual, the threat does not seem to be there but because of their associations and their alliances with China, the facts analysed lead to the believe that a gain of influence is been the object of a concerted plan and that could constitute a threat to Canada. (S)


54. Some Chinese owners are now in a position to use the Canadian companies they have bought and some political channels that they have developed to obtain subsidies for research and even classified contracts. Once access is gained, little is in place to prevent them from repatriating the fruits of the research or classified information to China. (S)


55. The triads and their associates also used these positions to transfer large sums of money derived from criminal activities into the Canadian economy. Buying Canadian property or a Canadian business affords a "window" of opportunity to pursue their illegal activities in Canada, such as money-laundering and drug-trafficking. (S)


56. One of the important dimension of the Chinese financial holdings is its ownership over important Canadian real estate. The nerve centre of the Canadian economy is concentrated in three or four large urban centres. Already, a large part of these financial centres are in the hands of Chinese interests.21 Canada is not the only country where we observe this situation. One has only to look at the profile of the Southeast Asian economy or the investigations currently underway in the United States. The Canadian economy, however, is more vulnerable because of many legislative loop hole governing finance and the concentration of financial power in the hands of few. The potential of threat also lies in the fact that, at present, a foreign power, China, seems to be in a position to influence the Canadian economy and politics. (S)

57. Several Canadian companies in the security field, such as computer management and video surveillance, are now owned by Chinese interests. When a contract is awarded by federal departments to private companies, the usual security investigations are done on the persons who will eventually be working on a project or installing equipment. Now a new threat seems to be itself in relation with the ownership of some companies. The case of Data Crown is a good example of this situation. Although some verifications to investigate foreign companies are done by a group of people at the Department of Public Work, it is not impossible that this shortcoming has already been exploited by no one is able at the moment to answer this question with any certainty because of the complexity of the ramifications involving Chinese companies owned or the ones with some special interest with China. (S)


58. There is no longer any doubt that the emigration process in Hong Kong has been abused, and that individuals are being corrupted in some of the Western immigration services. The entry of triad members and the cases of 13 illegal migrants laid against an ex-judge of the immigration services are not the only cases of malpractices and had caused in the past problems to the immigration system. This situation places Canada in a vulnerable position regarding illegal immigration and shows the interest by the Chinese of the Canadian immigration system. (S)


59. China remains one of the greatest ongoing threats to Canada's national security and Canadian industry. There is no longer any doubt that the ChIS have been able to gain influence on important sectors of the Canadian economy, including education, real estate, high technology, security and many others. In turn, it gave them access to economic, political and some military intelligence of Canada. The great difficulties in determining the threat is that it is diverse and multi-layered. It diffuses itself through elaborated networks hold by a cultural practise that still is not well understood by Western Services. (S)


RECOMMENDATIONS


1. An expanded task force including analysts from at least the RCMP, CSIS, DFAIT, Immigration Canada and Revenue Canada (Customs and Excise) should be formed to pursue the research begun by this document. (S)

To assess the actual control of Chinese companies over the Canadian economy. (S)

To review who the influential Canadian figures are on the boards of the Canadian companies. (S)

To consult the FBI, which has recently undertake a similar study; such consultation could prove mutually beneficial. (S)

2. Support a series of presentations to CSIS regional directorates and RCMP divisions to alert operational managers to the need to investigate Chinese activities the better to grasp the links among the Chinese Intelligence Services, the triads and entrepreneurs in the service of Chinese Companies. (S)

3. Organize a series of presentations for senior members of the Canadian security and intelligence community. (S)

4. Organize presentations for specific government departments affected by the problem other than those in the intelligence community, such as Justice and Industry. (S)

5. Undertake review of security companies which have installed security systems for federal government departments and Crown corporations to determine the real control and ownership of the companies and the potential risk to the integrity of the systems. (S)

6. Carry out thorough research to determine the extent of contributions to Canadian political parties by Chinese companies established in Canada. (S)

7. Produce a strategic analysis of the activities and involvement of the government of China and the triads in Chinese entertainment and media in Canada. (S)"dont adjust the world the problem is only temporal"...and, [a mind is like a parachute, it works best when opened.]