San Francisco-Area Man Arrested on Charges of Espionage

October 1, 2019 Updated: October 1, 2019

A San Francisco Bay Area man has been arrested and charged with spying for the Chinese government, the U.S. Department of Justice reported on Sept. 30.

Xuehua “Edward” Peng, 56, a naturalized U.S. citizen from China, was arrested for “acting as an illegal foreign agent of the People’s Republic of China,” last Friday at his home in Hayward, Calif., according to DOJ documents.

Peng was caught on two FBI surveillance videos released by the Justice Department labeled Exhibit 2A and Exhibit 2B allegedly conducting acts of espionage with “a combination of age-old spycraft and modern technology,” U.S. Attorney David Anderson said in a statement.

The suspect is believed to have been working in the San Francisco area as a tour guide for Chinese visitors and students. Peng arrived in the U.S. on a temporary business visa in 2001, married and became a lawful permanent resident in 2006 and a U.S. citizen in September 2012, according to a criminal complaint filed Sept. 24, 2019 in the Northern District of California and unsealed Monday morning.

Peng has a degree in mechanical engineering and is trained in traditional Chinese medicine. He was also a licensed acupuncturist and was the registered owner of U.S. Tour and Travel from 2010 to 2014.

“Peng is charged with executing dead drops, delivering payments, and personally carrying to Beijing, China, secure digital cards containing classified information related to the national security of the United States,” Anderson said Monday. “The charges announced today provide a rare glimpse into the secret efforts of the People’s Republic of China to obtain classified national security information from the United States and the battle being waged by our intelligence and law-enforcement communities to protect our people, our ideas, and our national defense.”

The suspect was caught on video acting as a courier for China’s Ministry of State Security (MSS), according to the complaint. Peng’s alleged activities included one dry run and at least five successful dead drops in the Bay Area and Georgia between October 2015 and July 2018.

An elaborate FBI “double agent” sting operation was launched in March 2015 after a meeting in China in which an MSS intelligence officer set up a dry run to get classified information. The plot involved placing an SD card in a book, wrapping it in a package marked “Ed” and leaving it at the front desk of a hotel in Newark, Calif. Peng later showed up in a silver Mercedes to collect the empty package on, June 13, 2015, the day of the planned drop-off, according to the complaint.

Peng allegedly collected packages with SD memory cards containing classified information left at hotels in Newark, Oakland, Calif. and Columbus, and left behind a total of $70,000 for the source who dropped them off.

A confidential FBI source—the “double agent”—met with MSS intelligence officers, provided them with classified information relating to national security concerns in exchange for financial payments, the complaint states. The classified information was carefully curated by the federal government to avoid giving away state secrets.

On Oct. 8, 2015, the FBI source emailed his or her MSS handler saying he or she would be traveling to San Francisco for sightseeing on Oct. 24. Allegedly, the email was a coded message indicating the source had planned a dead drop at a hotel that day, the complaint states. The source left a package marked “Ed” with a hotel receptionist at 8:30 a.m., and Peng went to the same hotel less than an hour later, leaving with the package containing the SD memory card. The next day, Peng flew to China. He then returned to the U.S. where he collected other packages at hotels over the next few years.

On June 30, 2018, after receiving a coded message, Peng showed up at the last dead drop site, a hotel in Columbus, Georgia, where he taped a white envelope containing $20,000 to the shelf of a drawer inside a room, according to the complaint. Peng left the hotel about 8:30 a.m., and about an hour later, the source went into the room, took the envelope, taped the SD memory card to the top of the drawer and then left the hotel.

“His arrest exposes and disrupts an operation by those Chinese intelligence officers to collect such information without having to step foot in this country,” Assistant Attorney General of National Security John Demers said in statement. “Coming on top of our many recent Chinese espionage cases—involving both national defense and intellectual property information—this case illustrates the seriousness of Chinese espionage efforts and the determination of the United States to thwart them.”

Peng appeared in federal court in San Francisco following his arrest last week and was ordered held without bond. If convicted, he could face 10 years in prison and a $250,000 fine for acting as an agent of a foreign government without notifying the U.S. Attorney General. Peng’s next hearing is scheduled for Wednesday.

“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,” said Special Agent in Charge Bennett of the FBI San Francisco Division. “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.”

In July, FBI Director Christopher Wray testified before the U.S. Senate Judiciary Committee, saying that China poses a more serious counterintelligence threat to the U.S. than any other country in the world, including Russia.

The agency has more than 1,000 active investigations involving economic espionage and attempted intellectual property theft, “almost all leading back to China,” Wray said.

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