Racial Profiling under the Economic Espionage Act [ 5 min read ]

The Economic Espionage Act (EEA) of 1996 criminalizes the theft of trade secrets and foreign economic espionage as federal crimes. A significant increase in the number of cases charging EEA-related offenses against suspects of Chinese heritage began in 2009 under the Obama administration. This trend further accelerated during the Trump administration. This rising pattern of prosecutions against people of Chinese descent for misappropriation of economic secrets has raised concerns of ethnic profiling. Have federal prosecutors unfairly targeted people of Chinese descent, including Americans, on account of their Chinese heritage?

The data. Using the Public Access to Courts Electronic Records (PACER) database, researchers relied on court documents that contained EEA charges from 1996 through 2021. To ensure greater completeness, researchers supplemented cases collected via PACER with those that appeared in U.S. Attorney press releases. In total, the sample includes 253 EEA cases involving 384 individual defendants and 35 corporate defendants.

Using names as proxies for race and ethnicity, researchers examined case documents, press releases, and news coverage to code defendants’ names into five categories: “Western,” containing U.S., Canadian, and European (including Russian) names; “Chinese”; “Other Asian”; “Hispanic”; and “Arabic.”

To assess the effects of EEA-related cases on equity values of firms allegedly affected by trade secret theft, researchers also identified all publicly-listed firms named in court documents and paired them against non-victim firms that were otherwise similar. Data on stock prices and other variables were collected from Wharton Research Data Services.

EEA defendants by ethnicity

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The prosecutorial trend. The proportion of Chinese-named defendants charged under the EEA rose dramatically between 2008–2015 under the Obama administration. Between 1996–2008, only 18% of defendants charged with EEA crimes were of Chinese descent; but since 2009, more than 50% of all EEA defendants have been Chinese-named. Meanwhile, the proportion of defendants with Western names has declined from 59% before 2009 to about 28% thereafter. Defendants of other ethnicities (including corporate defendants) charged under the EEA have remained stable at around 21%.

Outcome test for bias. Researchers empirically tested whether federal prosecutors engaged in ethnic prejudice against Chinese-named defendants by conducting the outcome test, which is based on the following idea: if federal prosecutors engage in ethnic prejudice against Chinese defendants, the cases against Chinese defendants will have higher probabilities of being dismissed in court or acquitted by jury.

Differential application of EEA. Researchers found that, between 1996–2021, Chinese-named defendants were, on average, indicted on 2.6 more counts than defendants of other ethnicities. They were, however, found guilty on 26.8% fewer counts and 24.1% fewer EEA-related counts compared to defendants with non-Chinese names.

Comparing defendants who were Chinese Americans with those who were Chinese nationals, researchers found that U.S. citizenship does not give Chinese Americans any statistically significant advantage in prosecutorial decisions in the application of the EEA.

Dismissals and acquittals. Chinese-named defendants were 13.2% more likely to have their cases dismissed or acquitted compared to other defendants, and 13.5% less likely to be found guilty of EEA-related charges than defendants with non-Chinese names. Despite harsher indictments, therefore, defendants of Chinese heritage won acquittals or had their cases dismissed with greater frequency.

Sentencing outcomes. Chinese-named defendants who were found guilty received harsher punishments on average compared to defendants of other ethnicities and defendants with Western names. Specifically, Chinese-named defendants were 23.1% less likely to receive sentences of only probation when compared to all other defendants and were 23.6% less likely to receive sentences of only probation when compared to defendants with Western names. Moreover, for defendants who were sentenced to imprisonment, Chinese-named defendants on average received 12.5 months longer jail terms compared to all other defendants and 12.4 months longer jail terms compared to defendants with Western names. These patterns remained the same regardless of whether the defendant pleaded guilty or not.

Stock market reactions to case-related news. Corroborating the above findings, researchers further found that for publicly-listed firms whose trade secrets were allegedly stolen by the charged defendants, the stock market reacted much less forcefully to the news if the defendants were of Chinese descent. As cases with defendants of Chinese heritage are dismissed with higher probability, investors also appear to take into account the higher dismissal rate and react less to those cases.

Ethnic prejudice apparent under the EEA. This study finds that Chinese-named defendants on average received more counts of indictments than other defendants, but were found guilty on fewer counts, were more likely to have their cases dismissed at trial or acquitted by jury, and, if found guilty, were more likely to receive harsher sentences. Such evidence suggests the prosecutorial decisions of the Department of Justice (DOJ) in its application of the EEA may have been tainted by ethnic prejudice against those of Chinese descent, including American citizens of Chinese descent.Ethnic profiling and racial bias in prosecutorial decisions deeply harm innocent minorities. They also damage the reputation and credibility of the DOJ. While it is vitally important to protect U.S. business interests against foreign economic espionage, it is equally important for laws to be impartially applied across races, ethnicities, and defendants’ countries of origin.