Bay Area tour operator gets prison for working as agent for China

OAKLAND - A former San Francisco Bay Area tour operator was sentenced to four years in prison for serving as an unregistered agent for China's Ministry of State Security in a scheme to use “dead drops” to pick up digital memory cards from a source and take them to China.

Xuehua Edward Peng, 56, also was sentenced Monday in Oakland, California, federal court to pay a $30,000 fine, the U.S. Justice Department said.

Peng pleaded guilty on Nov. 25, 2019, to acting at the direction and under the control of ministry of state security officials in China. If convicted at trial, he could have faced up to 10 years in prison and a $250,000 fine.

The Hayward, California, resident admitted that while he was on a business trip to China in March 2015, an official of the People's Republic of China introduced himself and asked Peng to use his U.S. citizenship to assist him.

Peng came to understand the official worked for China's Ministry of State Security but agreed to take actions in the U.S. on behalf of China and learned how to use dead drops: rent hotel rooms, leave money and leave for several hours.

“The official instructed Peng to return later and retrieve small electronic storage devices that the source would leave for him,” a Justice Department statement said. “Thereafter, Peng was to fly to the PRC and deliver the retrieved devices to the PRC official. Peng 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.”

Peng made practice run in June 2015 and then participated two dead drops in the San Francisco Bay Area between October 2015 and April 2016. He then made three dead drops from Columbus, Georgia, before telling the Chinese official that he wanted to return to dead drops in the San Francisco Bay Area.

The U.S. was never at risk because the information left for Peng was provided by an FBI double agent who had also been approached for spy work by the Chinese government but decided to inform the U.S. government instead, prosecutors have said.

Peng was arrested in September 2019 before completing the next dead drop.

“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,” Assistant Attorney General for National Security John C. Demers said in a statement.

Investigators described Peng as a sightseeing operator in the San Francisco area for Chinese visitors and students. Public records listed Peng as president of U.S. Tour and Travel in San Francisco, but no website for the company was found.

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.