Economic Espionage

Encyclopedia of Espionage, Intelligence, and Security, (2004) by JUDSON KNIGHT

Economic Espionage

Economic espionage, sometimes known as industrial espionage, is spying conducted for the benefit of a commercial or industrial enterprise, typically to gain information not available through open channels. (By contrast, economic intelligence conducted on behalf of governments usually draws on information available through open channels.) Technologically advanced nations such as the United States are most vulnerable to economic espionage, which threatens hundreds of billions of dollars in U.S. economic losses to industry. In an attempt to curb industrial and commercial spying, Congress in 1996 passed the Economic Espionage Act, but challenges to U.S. companies have continued.

Vulnerabilities. According to a 1999 report delivered by the American Society for Industrial Security (ASIS) to the Federal Bureau of Investigation (FBI), some $300 billion worth of U.S. intellectual property was directly threatened by industrial espionage in 1997 alone. The ASIS noted more than 270 individual cases of theft and attempted theft involving commercial information. In 2000, the ASIS estimated that each year, losses and potential losses from economic espionage cost American industry more than $60 billion each year. Of 1,300 companies surveyed by the ASIS, fully 1,100 reported that they had been the targets of economic espionage.

Just as the most highly industrialized nations are the obvious potential victims of economic espionage, emerging industrial powers and their economic firms are often the most likely perpetrators. Such is the case with China, which figured in a number of news reports involving economic espionage during the 1990s and early 2000s.

In November, 2001, for instance, the FBI learned of an attempt by individuals operating a Chinese corporation to

Pen Yen Yang, pictured, was among the first to be convicted of economic espionage under the Economic Espionage Act of 1996, which banned the theft of trade secrets. AP/WIDE WORLD PHOTOS .

steal information from Transmeta, a computer hardware company in California's Silicon Valley. According to an affidavit submitted by the FBI to the U.S. District Court in San Jose, Transmeta employee Fei Ye had partnered with fellow Chinese nationals Sun Li and Ming Zhong in a company called Supervision Incorporated. Backing the company, created to develop high-speed, high-performance computer processors, was the Chinese government, according to the FBI.

America is certainly not the only victim of economic espionage. In 2003, for instance, Swedish authorities expelled two Russian diplomats accused of spying at Ericsson, a manufacturer of radar and missile-guidance systems for Sweden's principal strike warplane, the Gripen fighter jet. Nor are the nations involved in spying always inferior technological powers, such as Russia or China; the United States has on several occasions been the target of economic espionage by high-quality producers of technology, including Japan, France, and Israel.

Spying by technological competitors. Despite the close relationship between the United States and Japan in matters of national defense, the Central Intelligence Agency (CIA) estimated in 1987 that 80 percent of Japanese intelligence-gathering activities were directed toward U.S. industry, particularly in high-tech and computer-related fields. U.S. military contractor Recon/Optical in 1992 accused Israel of attempting to appropriate a design for an airborne spy camera, and after lengthy legal wranglings, the Israelis agreed to settle out of court.

In 1993, the CIA warned U.S. aircraft manufacturers to be on the lookout for French spies at the Paris Air Show, and intelligence officials have claimed that France regularly sponsors the theft of information from U.S. companies. A French intelligence official defended his country's efforts in economic espionage with a public statement to the effect that spying in the modern world is primarily directed toward "economic, scientific, technological, and financial" objectives.

U.S. spying. Responding to these and other accusations, the French in 1995 accused a CIA operative of attempting to obtain classified information from an official of their government. Under the leadership of Admiral Stansfield Turner in the late 1970s and early 1980s, the CIA regularly sponsored Commerce Department briefings at which U.S. corporate executives received information on developments in semiconductor and aircraft technology by foreign powers. American authorities continued to deny the French charges in the mid-1990s. For the most part, the leading technology is in America. While U.S. intelligence has a powerful motivation to keep tabs on the activities of foreign technological concerns, the purpose is primarily defensive, because the United States and its companies have less to gain by stealing from overseas.

Protecting U.S. technology. By the same token, U.S. companies are vulnerable to foreign competitors—and to one another. For this reason, the federal government has put in place a number of mechanisms to protect American industry. One of these is the CIA, which monitors potential cases of economic espionage against U.S. companies by foreign concerns. If the CIA uncovers information regarding possible criminal activity such as bribery, it turns this over to the FBI. Additionally, the National Security Agency (NSA), despite the high levels of secrecy involving its activities, sometimes passes on information to the FBI, which notifies threatened companies using documentation that leaves out sensitive NSA information.