Unraveling Taiwanese submarine spy mystery: Did China weigh on South Korea?

[First in a three-part series]

In January 2022, an unexpected visitor appeared at the South Korean Mission in Taipei. Chinese Nationalist Party (KMT) Legislator Ma Wen-chun, carried an unidentified USB Drive. “This USB contains evidence that Taiwan has stolen South Korean submarine technology,” she said.

The South Korean National Intelligence Service (NIS) immediately sprang into action. At the time, the NIS had been tracking and investigating a small and medium-sized South Korean company, referred to as S Corporation, for nearly three years, as they were involved in Taiwan’s secret submarine development project.

Two years later, on January 3rd 2024, a shocking piece of news made headlines in South Korea. “Two thousand pages of South Korean submarine design blueprints have been leaked to Taiwan.”

Reports revealed that the blueprints were found at shipbuilder CSBC Corp, which had recently launched Taiwan’s first domestically built submarine, Hai Kun, in September of the previous year. Two retired employees of South Korea’s Daewoo Shipbuilding & Marine Engineering (DSME, now Hanwha Ocean) and S Corporation were indicted for industrial espionage.

“The leaked submarine designs are not South Korean,” a lawyer for S Corporation told the JoongAng Ilbo, a leading Korean newspaper affiliated with the Korea Daily, after the news broke. “Something is wrong. Please investigate this further.”

This was hard to believe. Hundreds of related articles flooded the internet, and there were calls to “punish the traitorous spies.” Editorials demanded measures to prevent technology leaks. The news was not only covered in South Korea but also by Chinese, Taiwanese, and Western media outlets.

On January 22nd, twenty days after the initial silence, Hanwha Ocean released a statement to several media outlets.

“The blueprints reported as leaked are not those of former DSME,” the statement read. “They are blueprints of a German submarine imported by Indonesia in the late 1970s. These do not constitute defense technology or military secrets.”

A Hanwha Ocean representative elaborated further when meeting with the reporter.

“After the reports, our staff went to the police and saw the blueprints identified as leaked from DSME,” the representative said. “They bore the symbol of German shipbuilder Howaldtswerke-Deutsche Werft (HDW). Upon investigation, we confirmed that they were produced by HDW in 1978. Moreover, there are no traces of these blueprints being leaked from our systems.”

[Editor’s note: HDW, now TKMS, is a German shipbuilder that transferred submarine technology to South Korea in the 1980s. South Korea’s first domestically produced submarine, the 1,200-ton “Jang Bogo I,” was built based on HDW’s technology.]

Taiwan reacts, South Korean government remains silent

Isn’t it strange? The “South Korean submarine blueprints leak” incident is a serious matter with potentially enormous repercussions. The shocking “fact” that Taiwan, developing its own submarines since 2016 to counter China’s threats, had stolen South Korean technology could escalate into an international military and diplomatic scandal. It could also disrupt South Korea’s relations with China and Taiwan and provoke national outrage due to the breach of security technology by South Korean spies.

Despite this, neither the South Korean Presidential Office nor the Ministry of Foreign Affairs, Ministry of National Defense, Defense Acquisition Program Administration, or the police have issued an official statement. This contrasts sharply with the uproar in Taiwanese politics and the immediate rebuttal from CSBC declaring the claims “groundless.”

What is the truth behind this enigmatic case? It is shrouded in mysteries.

1. Were the leaked blueprints genuinely not South Korean?
2. If so, why were they misidentified as South Korean?
3. Did the government and intelligence agencies know the truth?
4. Why did Hanwha Ocean remain silent for so long?
5. How did the USB end up in the hands of a Taiwanese lawmaker?
6. What files were on that USB?
7. What was happening in Taiwan at the time?
8. Why has this case, investigated for nearly five years by the NIS since the Moon Jae-in administration, remained shrouded in mystery?
9. Is S Corporation, accused of espionage, truly guilty?

To unravel these questions, one must first examine a trial that took place last month.

Overturned verdict: The submarine spy case takes a twist

“Order, the original verdict is overturned. The defendants are acquitted.”

On January 11, at Changwon District Court, Criminal Courtroom 126, the judge’s acquittal was met with cheers and applause. A defendant in his 60s, who had been nervously listening to the verdict for about 40 minutes, sighed in relief. His charge was the illegal export of military materials used in Taiwanese submarines without government permission. The defendant, Mr. Park, the younger brother of S Corporation’s CEO, who was implicated in the spy case, met with the reporter but remained reserved, stating, “Although my grievance has been resolved, now is not the time to speak.”

S Corporation’s actual name is SI Innotec, is a submarine consulting firm founded in 2007 by its current CEO, a retired naval colonel. In March 2019, SI Innotec signed a contract worth 43 billion won ($31 million) to supply equipment to Taiwan’s CSBC. The issue involved three welding machines used in the hull structure process that can withstand high pressure.

The trial focused on two main points: whether the equipment exported to Taiwan by SI Innotec constituted military strategic materials and whether the company knowingly bypassed government approval. In August 2022, the first trial court found these machines to be specialized production equipment for submarine hulls and thus classified as military strategic materials, resulting in a guilty verdict. The sentences included one year and six months in prison, a two-year suspended sentence, a 1 billion won fine, and 12.9 billion won in forfeiture. However, the appellate court reached a different conclusion.

“The equipment was used for producing submarine hulls in Taiwan, and it appears a submarine was indeed constructed,” the court ruled. “However, the evidence presented is insufficient to conclusively determine that the equipment constitutes military materials.”

Strategic materials used in the production of weapons of mass destruction and conventional weapons are classified as military materials and dual-use items that can be used for both civilian and military purposes. Exporting military materials requires approval from the Defense Acquisition Program Administration (DAPA). So, how did SI Innotec manage to export this equipment to Taiwan during the Moon Jae-in administration, which faced accusations of pro-China diplomacy?

DAPA was aware of the submarine equipment export to Taiwan

In early 2020, DAPA received a tip-off about SI Innotec’s intention to export submarine equipment to Taiwan. Alarmed, a DAPA official met with Mr. Park, an executive at SI Innotec, who was acquitted in the second trial.

“This equipment may be categorized as military strategic materials,” said the official. “Please submit an application for an expert determination to DAPA. We will expedite the review if needed.”

SI Innotec declined and conducted a self-assessment, exporting the equipment to Taiwan in March and May of that year. Dual-use items can be exported without government approval if they pass a self-assessment through the Strategic Materials Management Service’s system. Initially, the export passed quietly as DAPA took no action despite knowing about it.

However, in 2021, the police raided SI Innotec, discovering documents indicating the equipment was exported for offshore wind power use instead of submarines. This led to suspicions that SI Innotec had falsified documents to pass the self-assessment, prompting further investigation. In June 2022, the Gyeongnam Provincial Police Agency’s Industrial Technology Security Investigation Unit sent six individuals from SI Innotec, K Corporation, and S Corporation to the prosecution, and issued an arrest warrant for SI Innotec’s CEO surnamed Park, who was in Taiwan. Korean and Taiwanese media widely reported this incident.

Why did DAPA’s expert panels change their conclusions?

An inexplicable turn of events occurred thereafter. Following the police investigation, DAPA convened two expert panels on November 10, 2021, and January 19, 2022. The panels included seven experts from related fields. In the first meeting, the panel concluded that it was “impossible to determine” if SI Innotec’s exported equipment constituted military strategic materials.

Shortly after the first panel meeting, Reuters published a bombshell report, alleging that seven countries, including South Korea, were secretly aiding Taiwan’s submarine development project.

China’s Foreign Ministry responded angrily:

“The Taiwanese authorities are colluding with external forces to build submarines. Those playing with fire will eventually get burned.”

Then South Korean presidential Blue House quickly issued a rebuttal:

“The Reuters article is not true. We are investigating if any individuals provided illegal assistance to Taiwan.”

SI Innotec was the entity implicated as operating on an “individual level.”

“Moon Jae-in administration sacrificed for China”

Coincidentally, the second panel meeting reached a different conclusion. The experts determined that the three controversial pieces of equipment, along with two additional items, did constitute military materials, supporting the police investigation.

An industry insider familiar with the case, who requested anonymity, revealed:

“There was much talk in the defense industry that the government, mindful of China, and DAPA, sensitive to the government’s stance, reversed the conclusion of the second panel meeting. This was to show China that the South Korean government did not approve the export or get involved in Taiwan’s submarine development, sacrificing a small company in the process.”

No definitive evidence exists that the Blue House or the Ministry of Foreign Affairs intervened in the case or that DAPA and the panel members were pressured. However, the JoongAng Ilbo’s investigation suggests that such suspicions are “reasonably plausible.”

(To be continued)

BY TAEYOON KIM, YOONSEO CHANG, YOUNGNAM KIM [pin21@joongang.co.kr]