Tour guide who spied for China sentenced to 4 years in prison

The FBI secretly videotaped Bay Area resident Xuehua Peng during one of his dead drops.

A tour guide based in the San Francisco Bay Area received a 4-year sentence for acting as an agent for People’s Republic of China’s Ministry of State Security (MSS).

In addition to his sentence, Xuehua Peng aka Edward Peng was ordered to pay a $30,000 fine for his role in a scheme to conduct pickups known as “dead drops” and transport Secure Digital (SD) cards from a source in the United States to the MSS operatives in China, announced the Department of Justice.

The sentence and fine was announced Monday by Judge Haywood S. Gilliam, of the U.S. District Court.

“This case exposed one of the ways that Chinese intelligence officers work to collect classified information from the United States without having to step foot in this country" said Assistant Attorney General for National Security John C. Demers. 

"Peng acted as an agent of the Chinese Ministry of State Security in the United States, conducting numerous dead drops here on their behalf and delivering classified information to them in China. He pled guilty and is now being held accountable for his criminal actions and his betrayal of his oath of citizenship.”

According to his Nov. 25, 2019, guilty plea, Peng, a 56-year-old US naturalized citizen living in Hayward, Calif., acted at the direction and under the control of MSS officials in China in retrieving classified information passed to him and leaving money behind for the source. Peng admitted that in March 2015, an official from the People’s Republic of China (PRC) introduced himself to Peng while Peng was on a business trip to China. The official asked Peng to use his citizenship in the United States to assist the official with matters of interest to the PRC. 

Peng eventually came to learn that the official was employed as an intelligence or security services officer of the PRC, specifically of the Ministry of State Security (MSS), and nevertheless agreed to perform activities in the US on behalf of the PRC. Peng’s plea acknowledged that he knew he was acting on behalf of the government of the PRC.

Specifically, Peng admitted that in March of 2015, he received instructions regarding how to use dead drops to exchange money for items to deliver to the PRC. Peng admitted that the official directed him to locate and reserve hotel rooms where he was to leave money and then depart for several hours. The official instructed Peng to return later and retrieve small electronic storage devices that the source would leave for him. Peng was to fly to the PRC later and deliver the retrieved devices to the PRC official. 

Peng said he never met nor interacted with the individual who left the devices for him and was instructed not to access the information stored on the SD cards.

According to court documents, Peng participated in five dead drops involving drop-offs of cash and/or pick-ups of SD cards, after a practice run in June 2015. 

After he participated in two dead drops in the San Francisco Bay Area between October 2015 and April 2016, Peng began making dead drops in Columbus, Georgia. After three dead drops in Georgia, Peng informed the PRC official that he wanted to resume dead drops in the San Francisco Bay Area. Peng did not complete a seventh dead drop before his arrest by federal authorities in September 2019.

Undercover video released by the Federal Bureau of Investigation following his arrest last September showed Peng taping cash and secure digital computer cards to the underside of a chest of drawers in a hotel room for his source to retrieve.

Peng also admitted that the PRC official paid him at least $30,000 for the acts he performed as a courier for the MSS.

Peng reportedly had a degree in mechanical engineering and was trained in traditional Chinese medicine but worked most recently as a guide for Chinese tourists visiting California.

Peng entered the country in 2001 on a temporary business visa. He became a lawful permanent resident in 2006 following his marriage and was naturalized in September 2012.

Peng's lawyers said in court documents that their client was “a simple man who was recruited by sophisticated foreign agents” who had no criminal record, lived with his wife and two young daughters, and “deeply regrets his actions” in the case.

Tour guide arrested for allegedly spying for China

The Department of Justice released this video of Edward Peng in a "dry drop."

Court records were released Monday (Sept. 30) accusing a Chinese American tour guide of spying for the People's Republic of China.

Xuehua "Edward" Peng was arrested at his home in Hayward, Calif and taken into custody Friday and charged with acting as an illegal agent of a foreign government, according to a criminal complaint.

Peng, reportedly had a degree in mechanical engineering and was trained in traditional Chinese medicine but worked most recently as a tour guide for Chinese tourists.

“According to the allegations, Peng conducted numerous dead drops here in the United States on behalf of Chinese intelligence officers and delivered classified information to them in China. His arrest exposes and disrupts an operation by those Chinese intelligence officers to collect such information without having to step foot in this country,” said Assistant Attorney General of National Security John C. Demers. “

"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.”

“The conduct charged in this case alleges a combination of age-old spycraft and modern technology,” said U.S. Attorney David L. Anderson for the Northern District of California. “Defendant Xuehua (Edward) 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.” 

According to the complaint filed Sept. 24, 2019, and unsealed this morning, Peng, 56, acted at the direction and under the control of MSS officials in China in retrieving classified information passed to him by a confidential human source (the source), leaving money behind for the source, or both. 

Peng's activities included one dry run and at least five successful “dead drops” between October 2015 and July 2018. The dead drops occurred in the Bay Area and in Columbus, Georgia.

In the June 23, 2015, “dry run,” no information or money was exchanged. Instead, an empty package was left by the source for Peng at the front desk of a hotel, and Peng later retrieved it. In the first successful dead drop, Peng retrieved a package containing an SD card from the front desk of a hotel. In each of the other four successful dead drops, Peng booked hotel rooms and left a room key to be picked up by the source. Peng then left envelopes of cash in the room, retrieved a secure digital card left there by the source, or both.

In each instance in which he retrieved an SD card from the hotel room, Peng then traveled to Beijing, China, shortly thereafter. The FBI secretly filmed Peng conducting some of the dead drops, and intercepted Peng’s telephone conversations with his MSS handlers in China.

If convicted, Peng faces a maximum sentence of 10 years, His next hearing is scheduled for Wednesday.

U.S. Attorney Anderson further stated, “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.”

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