VANCOUVER — Sun Yian was living the Canadian dream.
The Chinese immigrant found fortune harnessing Canadian talent to develop cutting-edge technology, everything from semiconductors to facial recognition, to take back to China. His company grew to more than 1,500 employees across China and North America, and was lauded by Canadian officials as a model for unlocking the Chinese market to create homegrown prosperity.
Then Mr. Sun stopped paying his Canadian workers and fled to China. Left behind are lawsuits from angry investors and Canadian employees who are wondering whether their work could be used to help China’s growing domestic surveillance state.
Canada has long benefited from close business ties to China, and lawmakers have courted the country as a new market for Canadian companies as well as a source of investment. Now, Mr. Sun’s story is fueling calls for heightened skepticism of Chinese money.
“Canadian officials have to some degree been blinded by China’s incredible economic growth and waves of capital spreading worldwide,” said Michael Byers, a professor of global politics and international law at the University of British Columbia in Vancouver. “They’re certainly naïve to China’s approach to acquiring high tech from other countries, and they haven’t pushed hard on getting answers before allowing deals to go through.”
In March 2017, the government of Prime Minister Justin Trudeau approved the sale of a Montreal laser company to a firm partly owned by the Chinese government, despite objections from security officials in the previous Canadian government. In June 2017, Canada waived a security review for a Chinese takeover of Norsat International, a Vancouver high-tech company that provided satellite technology to the United States military.
Mr. Sun’s company, Istuary Innovation Group, initially appeared to represent the positives of Chinese investment. His company brought jobs and high-tech business to Vancouver. But a review of the company’s finances and interviews with former employees reveal a murky web of financial and previously undisclosed ties to the Chinese government.
Mr. Sun, 45, who goes by the name Ethan, founded Istuary in 2013 in a Vancouver Starbucks, just as the Canadian government was welcoming greater Chinese investment. At its peak, the technology incubator and venture fund occupied two floors of a downtown Vancouver office building, where engineers toiled on semiconductors, robotics, big data analytics and facial recognition. By 2017, Istuary had 24 offices around the world, including in Beijing, Shanghai, Los Angeles and Toronto.
The company’s growth helped give Mr. Sun access to Canada’s political elite, relationships that were nurtured through political donations and corporate sponsorships. Photos he posted online show him smiling with Prime Minister Justin Trudeau during a trade mission in China. Government officials in British Columbia praised Mr. Sun for creating Canadian jobs.
A Vancouver government agency signed a contract with Chinese industrial parks to expand Istuary’s operations. Istuary joined publicly funded Canadian organizations to do research. Canada’s immigration ministry approved the company for a federal startup visa program that lets foreign entrepreneurs obtain permanent residency.
“The government gave us really good support,” Mr. Sun told a Canadian business summit in 2015, according to a video of his speech posted online.
Yet some of Istuary’s work provoked concern among employees.
Eric Hsu, 39, an American data scientist hired by Istuary’s Vancouver office in 2016, said he worked on artificial intelligence capable of recognizing a person’s face across multiple surveillance feeds or detecting specific human behavior, like fighting. “A lot of these security applications were both humanitarian and ethically troubling,” he said in an interview. “Chinese clients had lots of ideas for ways they would use our applications. Some of those raised red flags.”
An Istuary customer presentation reviewed by The New York Times highlighted the services its technology could offer in Chinese cities. They included the ability to recognize faces through security cameras and run them through databases, as well as track people’s personal relationships. It also highlighted other services, like tracking crowds and land records.
Mr. Hsu said he attended trade shows in China where Mr. Sun pitched Istuary’s artificial intelligence technology to potential customers interested in products designed to prevent prisoner suicides or for detecting criminal activity.
Human rights groups say Chinese authorities have been zealously using big data collection, A.I. and facial-recognition technology to upgrade Beijing’s mass surveillance efforts.
Mr. Sun enjoyed ties to the Chinese government that his Canadian workers and investors say he did not disclose.
Kuang’en Network Technologies, a cybersecurity company he founded in Beijing in 2014, specialized in industrial control systems for some of China’s biggest state-owned enterprises.
State Grid, China’s national power distributor, said it banned Kuang’en, among other companies, in 2016 from bidding on public contracts because of collusion, without offering details. But that year, Kuang’en formed a joint venture with another cybersecurity firm, BeijingVRV, whose powerful Chinese government clients include the National People’s Congress, the finance and foreign ministries, military contractors and public security agencies.
According to corporate documents and Mr. Sun’s employees in China, Istuary and Kuang’en shared funding, workers, technology, office space and shareholders, including Mr. Sun’s wife, Hu Yulan.
Former Istuary employees in Vancouver said the company’s collapse began last spring with a series of missed payrolls and final paychecks in May 2017. Many stayed at their jobs anyway.
“Sun kept giving us false hopes,” said Manivannan Gajendran, who led an Istuary quality testing team in Vancouver. He said he took out a $15,000 line of credit to cover his daily expenses while he waited for money that never came.
By then, Mr. Sun had gone back to China. In August, Istuary investors in British Columbia sued Mr. Sun and his wife, accusing the couple of illegally using funds to purchase two multimillion-dollar homes in Vancouver.
Canada’s immigration ministry suspended Istuary from the startup visa program after learning of the allegations. In an email, a ministry spokeswoman said it had gathered information on Istuary after the company was recommended by an industry association, and “found no reason to reject the designation recommendation at that time.”
Mr. Sun did not respond to interview requests made through his Vancouver lawyer. But he denied the allegations in a letter posted on Istuary’s now-defunct website in October. “We are NOT a Ponzi scheme,” he wrote.
A British Columbia provincial employment department has since ordered Istuary to pay around $2.2 million in unpaid wages to more than 150 employees and has begun collection proceedings in order to seize Mr. Sun’s residential properties, a spokeswoman from the province’s labor ministry said in an email.
The fallout, and Mr. Sun’s broken promises, soon reached the company’s operations in China. According to Laura Fan, an Istuary employee in Guangdong Province, Mr. Sun claimed the company’s cash crunch was because of poor management and Chinese regulatory changes. He also blamed Chinese investors and their “political mission” for pressuring him into striking deals with American chip companies, she said.
In December, Istuary and Kuang’en’s offices began closing across China, without employees being paid for months of work. “These people never got any of their salaries,” Ms. Fan said.
Just before Christmas, former employees said, two people from a Chinese technology firm that had invested in Kuang’en camped out in the Beijing office, hoping to catch Mr. Sun. A few weeks later, debt collectors locked the doors with a heavy chain. On a recent visit to the shuttered office, trash covered a rickety cot and chairs visible in the entryway.
Someone had scrawled a large handwritten message across the glass doors: “The fraudster network fakes bankruptcy, maliciously owes salaries and cons its employees.”
Underneath was an ultimatum: “Pay us the money and we’ll unlock the place.”
Dan Levin reported from Vancouver. Juecheng Zhao contributed research from Beijing, and Cao Li contributed research from Hong Kong.