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Kirby Lee-USA TODAY, via Reuters
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WHAC-A-MOLE

A San Francisco tour guide was accused of spying for China

By Justin Rohrlich

A San Francisco tour guide with a background in mechanical engineering and acupuncture has been charged with being a Chinese government agent, allegedly passing classified information regarding US national security to China’s Ministry of State Security (MSS). The operation hinged on an unidentified double agent working with the FBI, which tracked Xuehua “Edward” Peng, a naturalized US citizen, for at least four years, according to a complaint unsealed today in federal court.

“This is a good reminder that the US remains the top intelligence target for most every country on earth,” former CIA officer John Sipher told Quartz. “The Chinese are intent on stealing our government and industry secrets, and they are willing to suborn US citizens to do their bidding.”

The use of overseas ethnic Chinese for espionage is part of Beijing’s “standard playbook,” said Sipher, who said such tradecraft is “old but proven.” However, he explained, relying on Americans as middlemen is risky, and suggests that the Chinese are “scared to use their own officers to operate on US soil.”

Peng, 56, conducted six “dead drops” at hotels in the Bay Area and Georgia, according to court filings. The first dead drop, in June 2015, was a dry run in which Peng picked up an empty package left at the hotel’s front desk. On at least five subsequent occasions, Peng exchanged a total of $70,000 for SD cards loaded with US secrets that he later delivered to his Chinese government handlers, say prosecutors.

But Peng’s contact was in fact reporting his every move back to the FBI. Agents monitored Peng’s phone calls with the MSS, and used hidden cameras to record the hotel room exchanges.

Peng appears to be a “classic go-between in this case,” said Cedric Leighton, a 26-year US Air Force intelligence officer and former deputy director at the National Security Agency. “Based on the complaint, Peng served primarily as a courier,” Leighton added. “This is an essential function in espionage, but he himself does not appear to be the ‘big fish’ in this spy story.”

On June 29, 2018, the FBI tailed Peng to a hotel in Columbus, Georgia. The next morning, Peng “taped a white envelope to the top of the uppermost drawer of the television stand in his room,” court papers say. Peng then “checked the drawer several times thereafter to ensure that the envelope remained in place.”

He left the hotel at about 8.30 am and drove to a nearby shopping center. A little over an hour later, Peng’s contact entered the room and retrieved the envelope. There was $20,000 inside. The contact taped an SD card to the top of the uppermost drawer of the TV stand, then left. Peng returned to the room around two hours later, and picked up the SD card.

He first drove to a restaurant, then to the Atlanta airport, where he caught a flight back to San Francisco. Four days later, Peng flew to Beijing.

Chinese intelligence may focus heavily on the US, but operates against all of the world’s developed economies, said Joseph Wippl, a former operative with the CIA’s clandestine service. Wippl, who posed as a US diplomat across Europe throughout his espionage career, pointed to Germany, South Korea, Japan, Singapore, and Taiwan as particularly attractive targets.

The MSS is extremely aggressive, and as such, incredibly effective, said Jan Neumann, a former Russian intelligence officer who now lives in the US. The Chinese have an extensive network of informants inside the US, and are “recognized masters of economic, scientific, and political espionage.”

Peng was arrested Friday at his home in Hayward, California. He is being held without bail pending his next court appearance, scheduled for Wednesday (Oct. 2). If convicted, Peng faces up to 10 years in prison.

“Putting an end to Mr. Peng’s alleged actions are an important and significant step in dismantling the PRC’s overall efforts against our country,” FBI special agent in charge John Bennett said in a statement. “Our message is clear: the FBI, along with our intelligence community partners, will pursue foreign adversaries—at any level of an operation—and disrupt their malicious activity when it is detected.”