China linked to three quarters of Korea’s chip tech leaks, but prison terms remain short

Three-quarters of Korea's semiconductor technology leaks over the past 20 years were linked to China, while prison terms averaged less than three years, an analysis of court rulings found.

In one such case, chip data was leaked from Korea's SK hynix to China in March 2019, but it led to no actual prison time.

An employee of Mujin Electronics, a semiconductor supplier to SK hynix, entered SK hynix's facility with a USB drive hidden in their sock and captured images of mass-production recipes — process blueprints — displayed on the control screen of operating cleaning equipment, saving them to the USB. A total of 15 core manufacturing blueprints for cleaning processes, along with other materials, were secretly taken from the company.

The SK hynix materials, designated as national core technology that would harm national security if leaked abroad, were then emailed to an employee of China's ChangXin Memory Technologies (CXMT).

Mujin Electronics later exported seven cleaning machines jointly developed with SK hynix, worth about 37.7 billion won ($27.9 million), to CXMT — although SK hynix had withheld consent over concerns about technology leaks.

Despite the technology leak, the employee was sentenced to eight months in prison, suspended for two years.

The scheme went further. A Mujin Electronics vice president surnamed Shin, who headed the company's semiconductor equipment business, began communicating with the Chinese side after the company started exporting cleaning equipment to CXMT in May 2017. The executive led efforts to recruit key personnel from Korea's semiconductor industry and acquire technical information for equipment development.

The Supreme Court ultimately upheld a prison term of just 18 months for the executive.

Light sentences for tech leaks

Despite the seriousness of the technology leaks, prison terms remained relatively short.

A total of 44 of the 90 defendants in 24 semiconductor technology leak cases over the past 20 years, or 48.9 percent, received prison terms. Another 44 received suspended sentences, while one was fined and one was acquitted.

The JoongAng Ilbo, on Wednesday, analyzed court rulings from every semiconductor technology leak case brought under the Unfair Competition Prevention Act, the Trade Secret Protection Act and the Act on Prevention of Divulgence and Protection of Industrial Technology during the period.

The average prison term among those incarcerated was about two years and seven months.

Of the 44 sentenced to prison, 18, or 40.9 percent, received terms of more than one year but no more than two years. Ten received terms of more than two years but no more than three years, eight received more than three years but no more than five years and five received one year or less.

Only three, or 6.8 percent, received more than five years. The longest sentence was seven years, handed down to a former Samsung Electronics employee surnamed Jeon, who was charged with leaking and using the company's 18-nanometer dynamic random-access memory (DRAM) technology for CXMT.

China was the primary destination for the leaked technology. A total of 18 of the 24 cases, or 75 percent, were linked to China. Among the 90 defendants, 82, or 91.1 percent, were linked to China.

A similar pattern recurred across multiple cases. Chinese companies recruited key Korean engineers, who then brought technology and former colleagues with them. The technology and expertise were then used to replicate equipment and build local production lines.

A total of 19 of the 24 technology leak cases occurred from the late 2010s onward, as China accelerated its push to develop its semiconductor industry. Targets extended beyond memory chips such as DRAM, NAND flash and high bandwidth memory (HBM). Virtually the entire semiconductor ecosystem, including cleaning equipment, ultrapure water systems, vacuum pumps and packaging, was also targeted.

"Advanced technology leaks are rapidly shifting away from batteries and displays toward semiconductor equipment, an area China is particularly eager to develop," said LKB Pyeongsan attorney Park Hyun-cheol, who primarily handles technology leak cases. "The methods are also becoming bolder and more sophisticated, going beyond recruiting key personnel to leaking design drawings and even copying entire pieces of equipment."

Big paychecks, discreet transfers

Money was a key incentive in the technology leaks.

One person involved in a case concerning the leak of semiconductor chemical mechanical planarization process technology was offered an annual salary of around 380 million won before taxes, a 10 percent equity stake and the title of president. Another was offered take-home pay of at least 250 million won, a 5 percent stake and a vice president-level position.

Another engineer saw their annual salary jump 4.5-fold from about 70.57 million won to about 320 million won in the first year after moving to China.

The exchanges of technology were conducted discreetly.

"From now on, after sending the specifications by email, use only WeChat to communicate," one person involved in a cleaning equipment technology leak case was found to have said. "Don't send anything sensitive by email."

Another discussed keeping "the server in Korea" and traveling there to download the technology.

When technology outpaces safeguards

There were also cases in which the law failed to keep pace with technological advances.

In a case involving the leak of SK hynix's hybrid bonding technology for complementary metal-oxide-semiconductor image sensors, the Seoul High Court in April found the defendant not guilty of violating the Act on Prevention of Divulgence and Protection of Industrial Technology because the technology could not be considered an advanced technology designated by the government at the time of the offense.

Hybrid bonding is considered a key technology for next-generation HBM, but its development outpaced its designation as a protected technology.

The cases also exposed vulnerabilities in companies' internal security systems.

In a case involving solid-state drive (SSD) controllers, which perform core functions in SSDs, an employee posted technical materials on a personal blog 289 times before being caught. Just two days later, the employee displayed confidential materials on an office screen and manually entered the information into a personal iPad to take it off company premises.

In the SK hynix hybrid bonding case, security measures blocked storage devices such as USB drives, but there were no restrictions preventing people from photographing information displayed on screens.

Calls grow for tougher penalties

Amid growing concern over industrial espionage, a revised Criminal Act took effect on Sept. 13. The change expands the scope of espionage beyond an "enemy country" to include a "foreign country or a group of foreigners" that takes hostile action against Korea.

The change allows the collection, disclosure or transmission of state secrets for a foreign country or equivalent organization to be punished as espionage.

China responded sensitively.

"At the same time, to this end, we believe that ⁠all countries should safeguard the normal investment and business activities of enterprises and provide a fair, just and non-discriminatory business environment," China's ⁠foreign ministry spokesperson Mao Ning said in a regular news briefing on Sept. 11, according to Reuters.

But in Korea, some say penalties and safeguards remain too weak.

People Power Party Rep. Koh Dong-jin proposed an amendment on Aug. 31 to expand the scope of espionage offenses to include foreign companies and national core technologies. The proposal also calls to raise the statutory penalty to at least 10 years in prison. Democratic Party Rep. Park Kyoon-taek also proposed a special act on Aug. 24 to impose heavier penalties for industrial espionage, including fines of up to 10 billion won for individuals and 20 billion won for companies.

The Korea Enterprises Federation (KEF) also formed a task force with major companies, namely Samsung Electronics, SK hynix, Hyundai Motor and Hanwha Ocean, to propose relevant institutional reforms to the government and lawmakers.

"We need stronger deterrents to make clear that stealing technology comes with consequences," Lee Dong-geun, vice chairman of KEF, said. "Criminal proceeds must also be confiscated so that technology theft is no longer seen as profitable even when offenders are caught."

BY LEE YOUNG-KEUN, KIM SU-MIN [[email protected]]