Inside China's Four-Year Espionage Campaign: How MSS Operatives Systematically Penetrated US Navy Operations

Breached Company

26 Jul 2025 — 8 min read

A newly unsealed FBI affidavit reveals the sophisticated methods China's Ministry of State Security used to infiltrate American military installations and recruit naval personnel through an elaborate spy network operating on US soil.

Bottom Line: Chinese intelligence officers orchestrated a comprehensive espionage operation targeting US Navy facilities and personnel from 2021-2025, utilizing dead drops, social media recruitment, and systematic intelligence gathering while maintaining operational security through encrypted communications and gaming platforms.

The Scope of the Operation

Two Chinese nationals, Yuance Chen, 38, and Liren "Ryan" Lai, 39, have been charged with acting as agents of China's Ministry of State Security (MSS) without proper notification to the US Attorney General. Chen, a legal permanent resident living in Happy Valley, Oregon, and Lai, who traveled to Houston on a tourist visa in April 2025, were arrested on June 27, 2025, by the FBI.

The operation systematically collected intelligence on US Navy facilities and personnel through multiple sophisticated approaches:

Intelligence Collection Methods

Naval Facility Surveillance Chen was tasked to visit a U.S. Naval installation in Washington State and a U.S. Navy recruitment center in San Gabriel, California, where he obtained photographs of a bulletin board containing the names, programs, and hometowns of recent Navy recruits, the majority of whom listed their hometown as "China".

Personnel Information Gathering Chen traveled to San Diego, California, to meet with a Navy hire and tour the USS Abraham Lincoln, an aircraft carrier. Photos included in the affidavit show a visitor's badge as well as Chen posing with the employee and their child on top of the aircraft carrier's deck.

Recruitment Intelligence Chen received instruction from the MSS on what to say to potential recruits regarding potential payment that could be made by the MSS, preferred Naval job assignments for potential recruits, and methods for minimizing Chen's risk of exposure.

Operational Methods and Security Protocols

The $10,000 Dead Drop Operation

While in Guangzhou, China, in January 2022, Lai and Chen worked together to facilitate a dead-drop payment of at least $10,000 on behalf of the MSS, working with other individuals located in the United States to leave a backpack with the cash at a day-use locker at a recreational facility located in Livermore, California.

The FBI affidavit reveals the real-time coordination of this operation:

Chen's wife traveled from Portland to San Francisco with a backpack containing $10,000 in cash, which she placed inside a locker at a bowling alley in Livermore, California. Surveillance footage shows her and an accomplice with the backpack
The operation included detailed logistical planning, with Chen directing his wife via encrypted messaging to scout multiple locations when initial lockers were full
FBI surveillance captured the entire operation, including communications between Chen and MSS handlers as they modified the plan in real-time

Communication Security

The MSS demonstrated sophisticated operational security awareness:

Encrypted Channels: The MSS used COVCOM tools for sensitive communications while reserving email for scheduling

Gaming Platform Communications: Texts show Chen discussing the operation with a person who the FBI believed was an MSS officer using code words like "go shooting" for continuing communications using online video game platforms

Security Briefings: Chen received instruction from the MSS on methods for minimizing his risk of exposure

Recruitment and Asset Development

Targeting Strategy

The PRC government seeks blue-water naval capabilities as part of their effort to modernize their navy and establish hegemony in the South China Sea region. The PRC government also seeks to collect intelligence on adversary military targets, particularly the U.S. military.

The operation focused on specific recruitment targets:

Personnel with Chinese Heritage: The majority of recruits listed their hometown as "China," which he appears to have transmitted to an MSS intelligence officer in China
Strategic Naval Positions: The MSS provided guidance on preferred Naval job assignments for potential recruits
Social Media Outreach: Chen began contacting a Navy employee over social media and provided information about the employee to the MSS

Financial Incentives and Operational Support

Texts show Chen discussing potential $15,000 payments to the recruits and whether or not they can pass a polygraph test. The MSS also demonstrated awareness of US security procedures, instructing assets to avoid mentioning Chinese financial sources during psychological evaluations.

Regular Compensation: Chen traveled to Guangzhou and met with MSS intelligence officers in April 2024 and March 2025 in order to discuss compensation and specific taskings

The Network Structure

Handler-Asset Relationship

Lai recruited Chen to work on behalf of the MSS in or about 2021, establishing a classic intelligence handler-asset relationship where Lai served as the primary conduit between Chen and MSS headquarters in Guangzhou.

Operational Coordination: Chen served as a relay, waking up MSS officers at 3:32 AM Guangzhou time to report his wife's progress finding suitable combination locks

In-Person Meetings: Chen made multiple trips to China for face-to-face briefings with MSS intelligence officers, maintaining the personal relationships crucial for espionage operations.

Cover and Deception

Lai traveled to Houston, Texas, in April 2025, claiming that the purpose of his visit was related to his business as an online retail seller, and that he would be staying in the Houston area for two weeks. However, on May 9, 2025 – more than four weeks after his arrival in the United States – Lai traveled by car with a companion from Houston to Southern California.

This extended and undisclosed travel pattern suggests Lai was conducting operational activities beyond his stated business purposes.

Counterintelligence Success

FBI Investigation and Arrests

Chen and Lai were arrested on June 27, 2025, by the FBI in Happy Valley, Oregon, and Houston Texas, as part of a coordinated counterintelligence and law enforcement operation across multiple states.

Multi-Agency Coordination: FBI San Francisco led the investigation, with collaboration from FBI offices in Portland, Houston and San Diego, as well as the Naval Criminal Investigative Service

Legal Consequences

Chen and Lai are charged with violating Title 18, United States Code, Section 951, which makes it a crime for a person to operate or agree to operate within the United States as an agent of a foreign government without notification to the Attorney General of the United States.

If convicted, the defendants could face up to 10 years in prison and a fine of up to $250,000.

Official Response and Broader Context

Government Statement

"This case underscores the Chinese government's sustained and aggressive effort to infiltrate our military and undermine our national security from within," said Attorney General Pamela Bondi. "The Justice Department will not stand by while hostile nations embed spies in our country – we will expose foreign operatives, hold their agents to account, and protect the American people from covert threats to our national security."

Ongoing Threat Assessment

The case is one in a series of prosecutions concerning Chinese intelligence-gathering, including concerning the military. Last year, for instance, the Justice Department charged five Chinese nationals with lying and trying to cover their tracks, more than a year after they were confronted in the dark near a remote Michigan military site. And in 2023, two Navy sailors were charged with providing sensitive military information to China.

Key Takeaways

This case reveals several critical aspects of modern Chinese intelligence operations:

Systematic Approach: The four-year operation demonstrates MSS's patient, methodical approach to penetrating US military institutions
Operational Security: Sophisticated use of encrypted communications, gaming platforms, and dead drops shows advanced tradecraft
Financial Resources: Regular salary payments and operational funding indicate substantial MSS investment in long-term operations
Cultural Targeting: Focus on personnel with Chinese heritage reveals MSS's strategic use of ethnic and cultural connections
Technology Integration: Combination of traditional espionage methods with modern digital communications platforms

The successful FBI investigation and arrests demonstrate the effectiveness of US counterintelligence efforts, but also highlight the persistent and sophisticated nature of foreign intelligence threats to American national security.