State-Owned Chinese Firms Hired Military Hackers for IT Services

Amid the details of the specific charges the US government is leveling against five members of a Chinese military hacking team was a bit of information that provided a rare peek into the inner workings of state-run cyber espionage teams: A Chinese government-owned company allegedly hired one of the defendants to build a database to store stolen intelligence about its competitors.

According to the DOJ indictment, Huang Zhenyu was hired between 2006 and 2009 or later to do programming work for one of the companies (referred to as "SOE-2" in the indictment). Huang was allegedly tasked with constructing a "secret" database to store intelligence about the iron and steel industry, as well as information about US companies.

"Chinese firms hired the same PLA Unit where the defendants worked to provide information technology services," according to the indictment, which the US Department of Justice unsealed Monday. "For example, one SOE involved in trade litigation against some of the American victims herein hired the Unit, and one of the co-conspirators charged herein, to hold a 'secret' database to hold corporate 'intelligence.'"

The for-hire database project sheds some light on the operations of China's most prolific hacking unit, Unit 61398 of the Third Department of China's People's Liberation Army (also known as APT1), where the alleged hackers work. US Attorney General Eric Holder announced an unprecedented move Monday: The Justice Department had indicted the five men with the military unit for allegedly hacking and stealing trade secrets of major American steel, solar energy, and other manufacturing companies, including Alcoa, Allegheny Technologies Inc., SolarWorld AG, Westinghouse Electric, and US Steel, as well as the United Steel Workers Union.

"One of the companies hired APT1. That would be like GE hiring the NSA," says Richard Bejtlich, chief security strategist for FireEye and an expert on the so-called APT1 group. "They built a database. To me, that is interesting that they hired the military unit to [build it] and get the stolen information in it."

What's unclear, he says, is how the US discovered that detail of the operation. "How do we know about that? Did we use our intel to figure it out?"

Huang also registered and managed domain accounts that his co-defendants used to break into US company networks, and faces charges for managing the infrastructure used in the hacking incidents, according to the indictment. In all, the indictment against Huang and his fellow defendants contains 31 criminal counts, including ID theft, hacking, economic espionage, and theft of trade secrets. The charges carry prison sentences of five to 15 years each.

Tom Kellerman, chief cybersecurity officer for Trend Micro, said in an email interview that the for-hire tactic used by APT1/Unit 61398 mirrors the "service-based economy of scale" that has evolved out of Eastern Europe's cybercrime scene, namely that of the Russian Cyber Arms Bazaars. "They have learned to appreciate both opportunity cost and comparative advantage, thus emulating the hacking service-based economy of Eastern Europe," he said. "Oftentimes they use the very effective crime kits and RATs that were originally produced in Europe for the purposes of bank heists and apply those to IP theft. If you observe the metamorphosis of SpyEye and Citadel, this speaks to that reality."

So if a state-sponsored Chinese steel company hires a military hacking unit to do some work for it, who pays the tab? "The company is paid by the military," Kellerman said. "Many of these companies are merely shell companies."

Despite the high profile of China's Unit 61398/APT1, it's just one of many such units there. "They get the most attention because they are the most prolific, and they go after the most industries," says Bejtlich, who is also a nonresident senior fellow at the Brookings Institution. "But they are not the A Team."

China's equivalent to the NSA would be a collection of military units such as 61398. "These guys get attention because they are everywhere and in some ways are noisy," he says. "There may be some groups that are much quieter, that we are less likely to know about."

Yesterday, FireEye released additional details on the APT1/Unit 61398 group. The information provides further evidence that the attackers work out of China; 98.2% of the IP addresses used to log into hop points came from networks based in Shanghai.