By PAUL ELIAS, Associated Press
SAN FRANCISCO (AP) — The Chinese call it "Titanium white." And it does make many things white, from the inside of Oreo cookies to the paint on cars. Paper, toothpaste, plastics, cosmetics and just about any other commonplace item colored white includes titanium dioxide.
It's a $17 billion-a-year industry and no one makes the whitener better than DuPont, which has been in the titanium dioxide business for 70 years and controls 20 percent of the world market.
China can't get enough of the stuff and buys more from the West than it makes domestically. So, U.S. prosecutors say, Chinese Communist leaders decreed that duplicating — or obtaining — DuPont's manufacturing method was a national economic and scientific imperative.
As DuPont was unwilling to sell its method to China, the Chinese government stole it through a company it controlled called Pangang Group Co. Ltd., according to the diplomatically dicey economic espionage case being laid out in San Francisco federal court.
"Pangang Group employees, in asking me to provide DuPont trade secrets to them, overtly appealed to my Chinese ethnicity and asked me to work for the good of the PRC," longtime DuPont engineer Tze Chao said in a plea agreement signed this month, referring to the People's Republic of China. Chao, 77, is the first of five people charged in the deepening case to plead guilty. He worked at DuPont from 1966 to 2002.
Chao is cooperating with investigators, who say a Northern California couple Chao worked for are at the center of the case. Another former DuPont scientist, the Pangang company and one of its executives are also charged in an indictment unsealed recently in San Francisco.
All are accused of economic espionage, and a conviction for the company or the executive could spell hefty fines that the U.S. government can use to freeze or seize assets in the U.S. The executive could also lose the ability to travel to the U.S. and countries that have extradition agreements with the U.S. Lawyers for the Chinese company say they will seek a dismissal.
Prosecutors allege China used purloined technology to build the only factory inside China known to be producing titanium oxide the DuPont way, which uses chlorination rather than the sulfate method. DuPont's patented manufacturing method, while still dangerous, dirty and complicated, is nonetheless still cleaner and quicker than the outdated production method employed by the other Chinese factories.
Federal prosecutors say Walter Liew and his wife, Christina Liew, launched a small California company in the 1990s aimed at exploiting China's desperate desire to build a DuPont-like factory. The couple recruited former DuPont scientists with the single-minded goal of winning Chinese contracts.
"Some years ago, China let me know that she urgently needed titanium white by chlorination technology," said a letter written by Walter Liew to Pangang officials in 2004 that boasted about a conversation years earlier with a high-ranking government official.
"After many years of follow-up research and application, my company has possession and mastery of the complete DuPont way," said the letter, which was seized by the FBI and appears in a court filing.
In 2009, the Chinese government-controlled Pangang Group Co. Ltd. awarded Liew's company a $17 million contract to build a factory that could produce 100,000 metric tons of "Titanium white" a year. The same company had earlier awarded the Liews' company millions more in similar contracts for smaller projects.
Prosecutors allege that the Chinese factory, which is now operational, was built with a detailed DuPont instruction manual stamped "confidential" that was used to build DuPont's newest plant in Taiwan.
The alleged scheme began to unravel in August 2010, according to court filings, when DuPont received an anonymous letter accusing Walter Liew and a scientist named John Liu of stealing the company's technology. At the time, Liu was working at Chevron Corp. as a high-paid engineer, but appeared to be moonlighting for the Liews' company and was considering working for them fulltime.
DuPont took the letter seriously enough to convince Chevron to launch an investigation of Liu. Chevron ultimately provided DuPont with lengthy email exchanges that contained highly technical titanium dioxide manufacturing information and suspended Lui.