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In this climate of distrust, intelligence services are expanding from their primary focus on military secrets to collecting economic secrets, i. e., to conducting economic espionage. Since cessation of the Cold War, the most virulent offenders have been former military allies of the United States. Economic espionage poses a real threat to America's economic future, yet outside of the intelligence community, few know about it. The author attempts to close this information gap by defining economic espionage, and by discussing the methods used to obtain trade secrets from U. S. corporations. He also provides an overview of legislation used in fighting economic espionage and the impact of the Economic Espionage Act of 1996, which is aimed at strengthening efforts at preventing it. Full Text: COPYRIGHT 1997 American Society for Public Administration Introduction Throughout history, espionage has generally been viewed as an activity conducted by spies to obtain the military secrets of an enemy. Some of the most successful and well-known examples of espionage include England's use of spies to uncover the military information that helped to defeat the Spanish Armada in 1588; the use of spies by the Allies during World War 11 to defeat the Axis powers; and the Soviet Union's use of spies to steal atomic bomb secrets from their former allies, the United States and Britain. In the post Cold War era, however, increasing international economic competition has redefined the context for espionage as nations link their national security to their economic security. Spying conducted by intelligence services is expanding from its primary focus on military secrets to collecting economic secrets, i.e., to conducting economic espionage. The United States is particularly vulnerable to the changing focus of international espionage agencies since so many American corporations and research centers rely heavily on communications systems, computer networks, and electronic equipment to process and to store information. Over 50 countries have covertly tried to obtain advanced technologies from United States industries (U.S. Senate, 1996a). In 1995, the annual cost of economic espionage to corporate America was conservatively estimated to be at least $50 billion. If intellectual property theft and unrestricted technology transfer are included, the estimate rises up to $240 billion (Perry, 1995, 3). A wide range of federal statutes provide the authority for activities that counter economic espionage. These activities are undertaken by at least nine federal agencies, including the FBI, which has the dominant role. However, given the extent of the problem, it was obvious that existing initiatives had not been effective in preventing the theft of economic secrets. In recognition of the growing threat of economic espionage and the inability of existing legislation to deal with it, the Economic Espionage Act of 1996 (18 U.S.C. secs. 1831-1839) was signed into law on October 11, 1996, creating a new federal crime -- the theft of trade secrets. The Department of justice now has sweeping authority to prosecute the theft of trade secrets in the United States. The act, intended to crack down on economic espionage by foreign and domestic competitors, makes it illegal to steal a competitor's "proprietary" economic information and imposes stiff new penalties for these thefts. Section 1831 of the act addresses economic espionage provisions and agents of foreign powers. Section 1832 of the act makes it a federal crime for any person to convert a trade secret to his own benefit or the benefit of others knowing that the offense will injure the owner of the trade secret. Although the problem of economic espionage had become extensive and was the subject of debate in Congress, few people outside of those fighting it and those affected by it were aware of its scope and impact. This article attempts to close this information gap by providing a working definition of economic espionage and trade secrets, describing the methods that are used to obtain trade secrets from American corporations and research centers, and summarizing the technological capabilities of selected countries to conduct economic espionage against the United States. The article also addresses public-sector initiatives in the United States to protect its economic interests. Economic Espionage: What Are We Talking About? According to the FBI, "economic espionage means foreign-power sponsored or coordinated intelligence activity directed at the U.S. Government or U.S. corporations, establishments, or persons for the purpose of unlawfully obtaining proprietary economic information" (FBI, 1995, 2). In Section 1839 of the Economic Espionage Act of 1996 "trade secret" is defined to mean all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing." Foreign intelligence services that seek out America's trade secrets can damage national and corporate interests much more readily than can traditional "industrial espionage" whereby one company attempts through legal and illegal methods to learn the trade secrets of another. A recent survey of 173 nations found that 57 were actively running operations to obtain proprietary economic information and technologies from U.S. corporations, and that some 100 countries spent a portion of their gross national product on collecting proprietary economic information (Richter, 1995, 8). Ironically, a number of these countries, including Germany, Japan, South Korea, and France, developed their modern intelligence services with assistance from the U.S. intelligence community. Additional resources are also expended by many countries in order to collect nonproprietary information through accessing environments not protected or classified. Conducting Economic Espionage Many spy agencies around the world are adapting classic spy techniques from military and political espionage endeavors to conduct economic espionage. Agencies use a number of "intrusive" methods to obtain classified proprietary economic information relating to trade secrets. A country's intelligence service will also, at certain times, use what can be described as "nonintrusive" methods to obtain nonproprietary information. These methods might involve monitoring the marketing surveys of a company or an organization, soliciting disclosures by employees, and researching published materials that can be processed into information useful to spy agencies. Intrusive Methods The methods listed below constitute the intrusive methods most widely used to collect proprietary information involving trade secrets. Electronic Access of Protected Environments * Eavesdropping through wiretapping, bugging offices, or capturing cellular telephone conversations. * Penetrating a computer system through hacking into the network, hard drive, or software. Physical Access of Protected Environments * Using direct illegal observation and surreptitious photography. * Using surveillance and reconnaissance. * Trespassing on a competitor's property. * Stealing proprietary information contained in drawings and documents or on floppy disks and CD ROMs. Access to Personnel Working in Protected Environments * Utilizing the services of a prostitute for blackmail purposes. * Using a "swallow" (good looking woman) or a "raver" (good looking man) to form a close personal relationship with an employee having knowledge of trade secrets. * Hiring a competitor's employee who has the specific knowledge desired. * Bribing a supplier or employee. * Planting an agent or "mole" on the competitor, whose true identity is hidden and whose true task is to compromise key employees, tap into the computer databases, and intercept all communications with the goal of ferreting out confidential research, technologies, and information. * Conducting false employment interviews with competitor's employees who have knowledge of trade secrets. Nonintrusive Methods The use of nonintrusive methods to gather nonproprietary information from open source environments can also serve to increase economic competitiveness. These methods are not considered espionage as such. Nevertheless, the processing of data, collecting information, and forming it into intelligence for distribution is a service that thousands of analysts at intelligence agencies perform. Nonintrusive methods can supply data and information that are used to formulate intelligence-based decisions through researching published materials, seeking out disclosures made by employees, obtaining market surveys and reports, and analyzing competitors products. Economic Espionage Activities Unfortunately, and not surprisingly, publicly available information is limited concerning the economic espionage activities of most countries. However, sufficient evidence for a select group of countries provides some insight into how intelligence agencies have adapted to the economic arena. Although the French may view the United States as a political and military ally most of the time, this friendship extends only to those two areas, and certainly not to the areas of technology and economics. France uses its intelligence services to engage in a variety of intrusive methods to conduct economic espionage and to provide intelligence to various French governmental agencies, which in turn determine which French companies should receive it. Both the Directorate General of the External, which is France's equivalent of the CIA, and the Directorate of Surveillance and Terrorism, its equivalent of the FBI, play a major role in conducting economic espionage. Surveillance and Terrorism monitors personnel and communications inside France, including telephone conversations and faxes, and even began in the early 1970s to bug Air France flights from New York to Paris. It has also been known to conduct "bag" operations in hotels whereby it surreptitiously opens suitcases and uses bribes and prostitutes to compromise employees who can supply information or provide access (Schweizer, 1993). France prides itself on having one of the world's strictest laws on the abuse of personal data, but its intelligence services are not held accountable to these same personal protection laws. Two special units of the Directorate of General Information, which report to the Ministry of the Interior, gather domestic intelligence for the government, specifically collecting information on foreigners in France and on French employees working for foreign firms. The Directorate General of the External and the Directorate of General Information continually match up information from their databases regarding foreign companies and personnel. When a particular target is identified, individuals are sometimes placed in "deep cover" within a foreign firm without revealing their true allegiance (Schweizer, 1993, 110-111; Madsen, 1993, 423). To the Japanese, objectivity and insight can be obtained only when they are based on access to the correct information, without which effective and profitable decisions are not possible. The Japanese word for information, joho, means having a purpose and a method (Baumard, 1994, 35). In the United States information is seen more as a commodity. Economic espionage in Japan is very sophisticated and diverse; its mission is to make Japan even more prosperous and competitive. Prior to World War II, Japan had a very effective military espionage apparatus, which was dismantled when the peace treaty ending the war prohibited the re-establishment of a Japanese intelligence agency. Many Japanese intelligence officers found employment in Japanese trading companies. To this day Japan does not have an intelligence agency to conduct economic espionage, but relies instead on its trade ministries to collect economic information through mostly nonintrusive methods. During the 1950s the Japanese government began subsidizing the worldwide travel of up to 10,000 Japanese businessmen each year to gather foreign technological information. It has recently been estimated that 80 percent of all Japanese intelligence assets have been directed toward gathering information about the United States and to a lesser degree, Europe (Richter, 1995, 8). Not only is economic espionage performed externally, it is performed internally as well. The domestic Public Security Investigation Agency is charged with conducting "bag job" operations against targeted American business executives. Much of Japan's economic success is attributable to the coordination of its economic espionage through the Japan External Trade Organization (JETRO), with offices in 59 countries, and the Ministry of International Trade and Industry (MITI). John D. Shea, president of Technology Analysis Group, Incorporated, of San Jose, puts it this way, "It's very similar to the way the CIA is set up.... The Japanese have people gathering data and sending it back to a central clearing operation run by MITI and JETRO" (Schweizer, 1993, 80-84). Intelligence gathering at MITI is conducted by a variety of sections, such as the General Affairs sections of the Secretariat of the International Trade Policy Bureau, which is responsible for foreign trade policies and procedures and works with affected companies when collecting intelligence. More than a hundred Japanese companies ... paid up to $100,000 a year in 1990 for annual membership in ILPs [industrial liaison programs] that provided members with pre-published papers, ready access to university laboratories, a chance to acquire exclusive rights to patents held by the university, and help in overcoming technological problems in developing their products (Tolchin and Tolchin, 1992, 220). In the laboratories of such American universities as Stanford for instance, Japanese corporations have endowed six permanent chairs and one visiting professorship, devoted either to business or engineering pursuits. Half of the foreign companies that participate in the Industrial Liaison Program at the Massachusetts Institute of Technology are Japanese, and more than a third of the endowed corporate chairs there are sponsored by Japanese companies. These 19 chairs represent $20 million to MIT (Combs and Moorhead, 1992, 25). This involvement certainly allows for the use of many nonintrusive methods for information collection, while at the same time quite possibly providing access to trade secrets as well. Although Japan relies primarily on nonintrusive methods, it has used intrusive methods as well. In 1981 Hitachi was offered IBM's secret plans for the new 3381 computer by a computer consultant on behalf of a former IBM scientist. In 1982 a Hitachi agent was arrested in the act of buying this information. In all there were twelve defendants in the subsequent lawsuit, but the case never even came up for trial. It was settled out of court (Schweizer, 1993). The Germans have been very active and quite successful in the field of economic espionage through the utilization of a top secret computer facility outside Frankfurt, which has allowed the Federal Intelligence Service to enter both data networks and databases of companies and governments around the world. This computer espionage operation, code named Project RAHAB, involves the systematic entry into computer databases. It has accessed computer systems throughout the United States and the world, targeting electronics, optics, avionics, chemistry, computers, and telecommunications (Madsen, 1993, 421). Economic, scientific, and technological intelligence gathering in Israel is traditionally placed under counterintelligence, the Israeli Defense Force Intelligence Branch or the Israeli Central Institute for Intelligence and Special Duties. These agencies have been successful at obtaining information beneficial to Israeli state-owned industries, particularly for those in aerospace, chemicals, and electronics. The Chinese External Liaison Department uses intrusive methods such as monitoring data communications and computers and actively eavesdrops on digital links within China. The Chinese government often use their visiting students and professors in nonintrusive methods to penetrate American corporate and academic laboratories and report their findings to Chinese authorities. The new Russian Federation has divided the once powerful KGB into two separate agencies. The Ministry of Security is now responsible for domestic security and law enforcement while the Foreign Intelligence Service is responsible for gathering foreign intelligence. The National Center for Automated Data Exchanges at the Institute of Automated Systems in Moscow, using intrusive methods, monitors Soviet computer users and foreign data networks and databases to obtain any proprietary information or intellectual property it can. Intrusive methods for conducting economic espionage in protected environments include electronic access, physical access, and gaining access to personnel. An example of economic espionage carried out via the computer occurred from 1986 to 1989 when a group of contract hackers employed by the KGB accessed countless computer systems and networks from terminals outside the United States. This group of hackers, based in West Germany, was run by a KGB officer based in East Berlin, with the objective of penetrating sensitive computer systems around the world. The hackers were paid both in cash and drugs for information obtained from the U.S. military, from scientific R&D organizations, and from universities. Upon penetrating the computer system at the Lawrence Berkeley Laboratory in California, the group used it as the host to access the Advanced Research Projects Agency Network/military Network, which in turn allowed the group to penetrate 450 other computers (Madsen, 1993, 417). South Korea South Korean methods for pursuing economic espionage include aggressively accessing closed source environments through the use of electronic access, physical access, and access to personnel for obtaining proprietary information. South Korean intelligence agents are extremely active in collecting political, economic, and technological secrets. For its size South Korea possesses one of the world's most successful intelligence organizations. Its National Security Planning Agency boasts of possessing technically proficient agents, enormous financial resources, and well-organized informers who are paid large sums for helping collect proprietary information. Overseas, members of the intelligence service are usually posted to the South Korean embassy as part of the diplomatic staff, but often they arc assigned to Korea's industrial conglomerates, such as Hyundi, Samsung, and the Lucky Group (Schweizer, 1993, 186-187). Economic Espionage Across Countries Although economic espionage methods differ among countries, in many instances the technological capabilities of a nation's intelligence agency can be categorized based on its level of advancement in electronic eavesdropping and computer intelligence gathering. The following table categorizes levels of sophistication of selected countries based on two criteria: (1) having technological capabilities and (2) having personnel with expertise in conducting electronic eavesdropping and computer intelligence gathering. Tier 1 countries have the technological and the intelligence abilities to conduct electronic eavesdropping and possess the expertise to use computer intelligence gathering. Tier 2 countries possess first-rate intelligence gathering organizations but lack the resources to utilize sophisticated computers and data intelligence gathering. The intelligence agencies of Tier 3 countries will soon have high technology capabilities. The Role of Federal Agencies in Protecting U.S. Interests The FBI has instituted a program called the Awareness of National Security Issues and Response, which allows the bureau to interface with the private sector concerning the issues that arise when attempting to safeguard proprietary information. During fiscal years 1993 and 1994, the FBI briefed nearly a quarter of a million personnel in almost 20,000 companies and also held briefings at academic institutions, laboratories, and state and local governments. In 1995 over 700 foreign counterintelligence investigations were pending involving economic espionage. This is a dramatic increase over the 400 cases investigated during 1994. T4is increase is primarily attributable to recent changes in the FBI's foreign counterintelligence program, resources, and initiatives. It also demonstrates the size of the problem (FBI, 1995). Classification Levels of Countries having Electronic Eavesdropping and Computer Intelligence Gathering: Tier 1 Tier 2 Tier 3 France Russia Iraq Bibliography: Word Count: 3105
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