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Essay/Term paper: Economic espionage

Essay, term paper, research paper:  History Essays

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Economic Espionage

A small Mississauga electronics safety equipment company is broken into.
Although filing cabinets and desks were rummaged through, nothing was seemingly
taken. An officer discovered the company had drawn up a bid for $7 million
dollar contract a day or so before the break-in. The contract in question was
for a foreign country. It was later discovered that the company in question was
known for its aggressive economic espionage. An iron ore shipping company was
also broken into. At first it was thought that the target had been the firms
computers. But, nothing was taken, it was assumed that the burglars had been
scared off. Within thirty minutes it was discovered that the company was
approaching its fiscal year end. staff eventually found that most of the recent
database backup tape was missing. A Quebec based company with the laser-based
system for inspecting materials used in, among other things, the stealth
aircraft, had three computers stolen. On their harddrives were confidential
codes for specialized software used by the Canadian Armed forces. The above are
all true examples of the modern threat facing international business today
known as industrial or economic espionage. The end of the cold and economic
pressures have increased the risk of economic espionage. The collapse of the
Soviet Union has left unemployed KGB and other former communist bloc
intelligence agents selling everything from Russian night vision devices to
completely assembled and functional bugging devices. Even friendly western
European governments have been caught spying on private corporations based in
the U.S. and other countries, while industrial competitors sometimes hire
private companies to collect competitive intelligence from their corporate
rivals( Lester:96). What exactly is economic espionage? how prevalent is it?
Who does it? How do they do it? and what can we do to stop it. These are the
questions that will be looked at in the following pages.
First lets look at, what exactly is economic espionage. Espionage and
intelligence is no longer the exclusive domain of monarchs and governments, it
has become a must for modern international business. Large corporations around
the world particularly in western Europe and Asia now hire agents to gather
intelligence on their competitors and other countries. The goal of economic
espionage is to steal trade secrets, plans and confidential procedures or
anything to give your company or country a competitive edge over another
(Perry:1996). The areas that interest industrial spies the most include
radiation transfer technology, systems diagnostic and testing software,
traveling wave tubes, aviation technologies, microwave monolithic integrated
circuits, inferred signature measures software, radar technologies, wet
processing systems, information management and processing, simulation
technologies, physical security technologies, ram-jet engine and ram-jet
technologies.(Special Security news letter:1995). Although this is not all of
the areas that modern spies target, it will give you an idea of the scope of the
problem. Peter Schweiser author of the book "Friendly spies" speculates that
for the most part, modern industrial spies are motivated by pure greed of money.
If we look back in history we can see that the majority of the spies that were
caught, were motivated by the money. John walker head of the notorious Walker
spie ring, sold submarine secretes to the Soviets for 17 years for one million
dollars. Larry Wu-Tai Chin and analyst of the CIA, passed secrets to China
and was paid $180,000 over a three year period. Richard Miller worked for the
FBI and was to be paid 2 million dollars to pass counter-intelligence secrets to
the Soviets, but he was caught and was only paid one quarter of this amount. It
is easy to see that spying for friendly countries is a profitable business.
Is economic espionage really as bad as it is made out to be? Since 1985
economic espionage directed at American companies has increases 260 percent and
the FBI's industrial espionage caseload has jumped to well over five hundred
investigations. Espionage is costing American companies well over a 100 billion
dollars a year in lost sales infact some sources put the loss at 260 billion.
In Canada that Number translates to 10 billion a year and companies with
overseas operations are estimated to lose 140 billion dollars per year. It is
hard to get accurate numbers when it come to losses due to espionage for the
simple reason that companies don't want to admit to being victims, in fear of
undermining the confidence of their suppliers and shareholders (Lester:1996).
The visible damage of economic espionage takes the from of Lost contracts, jobs
and markets, and overall a diminished competitive edge. The companies
that are hurt the most are the ones that earn under 11 million dollars annually.

How do industrial spies go about collecting information. It is a well
known fact that modern spies have used all of the collection methods used during
the cold war for collecting information on industrial competitors.
Practitioners of modern espionage seldom use one method by itself, but combine
them into concerted collection programs. countries and corporations have been
known to turn legitimate transactions or business relationships stealthy
collection opportunities. Some of the methods of information collection listed
below are most often used for legitimate purposes. Including them here is not to
imply illegal activity, they are used to show as potential elements of a broader,
coordinated intelligence effort(Security Online:1996:5).
Classic agent recruitment is an intelligence collectors best source.
This method provides a trusted member inside a company or organization who the
collector cans task to provide classified information. An information
collector's interest in recruiting personal is not limited to a high ranking
personal in a company or organization. It is true that researchers, key
business managers, and corporate executives are a good target for industrial
spies, but support personal such as secretaries, computer operators, technicians,
and maintenance personal are also targeted. The latter may behave the best
access to competitive information, and their low pay may provide good ground for
manipulation by intelligence agencies.(Security On-line: issue 1)
Next spies use what is called us volunteers. The people that have the
easiest access to companies information is the companies own employees.
Employees who steal information from their companies exhibit the same
motivations as the typical spie or thief, illegal or excessive use of drugs or
alcohol, money problems, personal stress, and just plain greed.
industrial spies will use ordinary surveillance and simple break and
enter to gain access to sensitive information. Companies have reported break
and enters were only laptops and disks were stolen when items of much more value
were close by. Some countries pursuade hotel operators to give their spies
access to visitors rooms and luggage. during these break-ins known as "bag ops"
luggage is searched for sensitive information and any useful documents are
copied or simply stolen.(Security On-line: issue 1)
Specialized technical operations constitutes the largest part portion of
economic espionage. This type of collection includes computer intrusion,
telecommunications targeting and intercept, and private-sector encryption
weaknesses. Corporate telecommunications especially international
telecommunications provide a highly vulnerable and lucrative source for anyone
interested in obtaining trade secrets or competitive measures because they are
so easily accessed and intercepted. Due to the increased use these links for
computer transmission and electronic amil, intelligence collectors find
telecommunications interception cost-effective. For example, foreign
intelligence collectors intercept facsimile transmissions through government-
owned telephone companies, and the stakes are large, approximately half of all
overseas transmissions are facsimiles. innovative hackers connected to
computers containing competitive information evade the controls and access
companies information. In addition many American companies have begun using
electronic data interchange, a system of transferring corporate bidding, invoice,
and pricing data electronically overseas. many foreign government and corporate
information collectors find this information invaluable.(Security On-line: issue
Another tactic used in the world of corporate espionage is economic
misinformation. Some governments use misinformation campaigns to scare their
domestic companies and potential clients away from dealing with US companies.
The press and governments agencies often discuss foreign economic and industrial
intelligence activities, often in vague non-specific terms. The issue has been
to paint foreign competitors or countries as aggressive and untrustworthy, even
if the accuser has no proof of any collection activity. Some countries have
widely publicized their efforts to set up information security mechanisms to
protect against their competitors penetration attempts, and frequently the
United States id mentioned as the primary threat.(Security On-line: issue 1)
Tasking foreign students studying in the US and other countries. Some
governments task their students studying in a different country to aquire
information on a variety of economic and technical subjects. In some cases the
students are recruited before they start their studies, others are approached
after and are recruited or pressured based on loyalty, fear for their countries
government or intelligence service. In some cases, at an intelligence
collectors request, foreign graduate students serve as assistance at no cost to
professors doing research in target areas. These students then have access to
the professors research and learns the applications of the technology. As an
alternative to compulsory military service one government has an organized
programs to send interns abroad, often with the specific task of collecting
foreign business and technological information.(Security On-line: issue 1)
As well as recruiting students studying abroad, information collectors
will task foreign employees of North American firms and agencies. The
information collector will recruit or task compatriot employee in A North
American firm to steal information. Although similar to the clandestine
recruitment used by intelligence agencies, often no intelligence service is
involved, only a competitive company or non-intelligence government agency. The
collector then passes the information directly to a foreign firm or the
government for the use in it research and development activities.(Security On-
line: issue 1)
Debriefing of foreign visitors to North American countries is another
method collectors use. Some countries actively debrief their citizens after
travel in North America, asking information acquired during their trips abroad.
Sometimes this debriefings are heavy handed, with foreign scientists describing
them as offensive. In some countries, they are simply and accepted part of
traveling abroad.(Security On-line: issue 1)
Recruitment of emigres, ethnic targeting is another way information is
collected. Frequently, intelligence collectors find it effective to target
persons of their own ethic group. Persons working for the Us military and
research and development who have access to classified technology. Several
countries have found repatriation of emigre and foreign scientists to be the
most beneficial technology transfer methodology. One country, in particular,
claims to have repatriated thousands of ethnic scientists back to their home
country from the United States. Ethnic targeting includes attempts to recruit
and task naturalized US citizens and permanent resident aliens to assist in
acquiring secret information. Frequently, foreign intelligence collectors
appeal to a persons patriotism and ethnic loyalty. Some countries collectors
resort to threatening family members that continue to reside in their home
country.(Security On-line: issue 1)
Information collectors will also use what is refereed to as elicitation
during international conferences and trade fairs. Events such as international
conferences on high-tech topics, trade fairs, and air shows-attract many foreign
scientists and engineers, providing foreign intelligence collectors with
concentrated group of specialists on a certain topic. Collector target these
individuals while they are abroad to gather any information the scientists or
engineers may posses. Sometimes depending on the country and the specific
circumstances these elicitation efforts may be heavy handed. Intelligence
collectors sometimes try to recruit scientists by inviting them on all expense
paid trips abroad for conferences or sabbaticals. The individuals are treated
royally, and their advice sought on areas of interest. When they return to
their country, collectors recontact them and ask them to provide information on
their areas of research. (Security On-line: issue 1)
Commercial data bases, trade and scientific journals, computer bulletin
boards, openly available US government data, corporate publications are another
source. Many collectors take advantage of the vast amount of competitive
information that is legally and openly available in the United States. Open
source information can provide personality profile data, data on new research
and development and planned products, new manufacturing technics, and
competitor strengths and weaknesses. Most collectors use this information for
its own worth in their business competition. However, some use openly available
information as leads to refine and focus their clandestine collection and to
identify individuals and organization that posses desired information.(Security
On-line: issue 1)
Foreign government use of private-sector organizations, front companies,
and joint ventures is the next way collectors use to gather intelligence. Some
foreign governments exploit existing non-government affiliation organizations or
create new ones-such as friendship societies, international exchange
organizations, import and export companies, and other entities that have
frequent contact with foreigners to gather intelligence and to place
intelligence collectors. They conceal government involvement in these
organizations and present them as merly private entities in order to cover their
intelligence operations. These organizations spot and assess potential foreign
intelligence recruits with whom they have contact. Such organizations also
lobby US government officials to chanfe policies the foreign governments
consider unfavorable.(Security On-line: issue 1)
Corporate mergers and acquisitions. Several countries use corporate
mergers and acquisitions to aquire technology. The vast majority of these
transactions are made for legitimate purposes. Sometimes though they are made
to specifically to allow a foreign company to aquire North American technology
without spending their own resources on research and development. According a
1994 US government document entitled " Report on US critical technology
Companies" 984 foreign mergers and acquisitions of US critical technology
companies occurred between January 1st 1985 and October 1st 1993. All but a
handful of these mergers and acquisitions were friendly, and four countries
accounted for 68 percent of them. Of the total 60 percent of them involved US
companies involved in advanced materials, computers including software,
peripherals, biotechnology, areas relative US professional and scientific
instrumentation, communications equipment, advanced manufacturing, and aircraft
and spare parts. (Security On-line: issue 1)
The next way information is collected is refered to as headhunting or
hiring competitors employees. Foreign companies typically hire knowledgeable
employees of competing US firms to do corresponding work for the foreign firm.
At times, they do this specifically to gain inside technical information from
the employee and use it against the competing US firms.(Security On-line: issue
Corporate technology agreements is another way information collectors
assemble technological information. Some foreign companies use potential
technology sharing agreements as condiuts for receiving propriety information.
In such instances, foreign companies demand that, in order to negotiate an
agreement, the North American company must divulge large amounts of information
about its processes and products, sometime much more than is justified by the
project be negotiated. Often the information requested is highly sensitive. In
some of these cases, the foreign company either terminates the deal after
receipt of the information or refuses to negotiate further if denied the
information.(Security On-line: issue 1)
Foreign companies will often use the favorable research climate in North
America. Foreign countries will sponsor research activities at the North
American university and research centers. Generally everyone benefits from the
finished research. At times, however, foreign governments or companies use the
opportunity as a one sided attempt only to collect research results and
proprietary information at the North American facility. Foreign intelligence
services also use these efforts to insert intelligence officers who act solely
as information collectors. (Security On-line: issue 1)
Hiring information brokers, consultants. Information brokers scour the
world for valuable information. What they can not obtain legally or by guile
some information brokers will purchase. The broker then verifies the data, puts
it into a usable and easily accessible format, and delivers it to interested
clients. The following example, that was printed in the Asian Wall Street
Journal in 1991 and illustrates this type of activity. The ad was followed by a
phone number in western Europe.

"No you have advanced/privileged information on any type of
project/contract that is going to be carried out in your country?
We hold commission/agency agreements with many large
European companies and could introduce them to "your"
project/contract. Any commission received would be shared with

Some countries frequently hire well connected consultants to write
reports on topics of interest and to lobby North American government officials
on the countries behalf. Often, the consultants are often high ranking US
government officials who maintain contacts with their former colleagues. They
exploit these connections and contract relationships to acquire protected
information and gain access to other high level officials who are currently
holding positions of authority through whom they attempt to further aquire
protected information.(Security On-line: issue 1)
Fulfillment of classified US government contracts and exploitation of
department of defense sponsored technology sharing agreements. At times,
classified government contracts are awarded to companies that are partially or
substantially controlled by foreign governments. Although the US governments
security agencies closely monitor these contracts, they still provide foreign
governments with unauthorized access to information. Traditional allies of the
US are most likely to use this method, since non-allies seldom are included in
such contracts.(Security On-line: issue 1)
The last method of information collection we will look at tasking
liaison officers at government to government projects. During joint research
and development activities, foreign governments routinely request to have on-
site liaison officers to monitor progress and provide guidance. Several allied
countries have taken advantage of these positions as cover for intelligence
officers assigned with collecting as much information about the facility as
possible. Using their close access to their US counterparts conducting joint
research and development, particularly in the defense arena, liaison officers
have been caught removing documents clearly marked as restricted or classified.
(Security On-line: issue 1)
Now that we have looked at how foreign countries and companies go about
collecting information from North American companies. The FBI investigations
reflect that 23 countries are currently engaged in espionage against North
American countries. France is one of the countries that we will look at.
The French currently commit 200 full-time agents world wide. These
agents are known as the " General de la Securite Exterieure" and concentrate on
the soft business targets. The other full-time group in the French
intelligence service is the "Service 7". This group of spies is also known as
the action unit. They carry out all of the operations that require a deft
hand,IE break-ins, buggings and covert operations. These full-time agents are
only part of the story, France also has part-time information collectors called "
Honorary correspondents". This group of people includes a large number of
corporate officials living overseas. Some of these people work for money, but
others see it as part of their jobs. An example of this type of information
collectors a man by the name of Pierre Marion. Pierre was a Air France
representative who lived in Japan. His job was to collect information about
Japanese social circles particularly as it related to Japanese political
For its size no other country in the world has the intelligence
capability of South Korea. The Korean intelligence service is called the "
National Security Planning Agency" and is active around the world providing a
variety of intelligence and espionage services to Korean interests. South Korean
agents operate in North Korea, China and the Soviet Union, but the United States
and Japan is were they are most active. US intelligence sources have bee heard
to say that the NSP is more effective than Israelis Mossad. The NSP has a
technically proficient agents, enormous financial resources, and a well-
organized group of informers. An example of an operation the South Koreans
carry out is called " Operation Laughing Bird". This operation was conducted in
Japan and was designed to gather technological information to support South
Korean industry. It was put into action in 1981. It included more than 200
agent. These agents engaged in electronic eavesdropping, the planting of moles
and agents, the use of organized crime syndicates in Japan and the recruitment
of Japanese and American workers to act as agents.
Israel is the next country that we will look at. The Israeli economic
espionage collection agency is called the " LAKAM", and is one of Israel's most
effective intelligence organizations> LAKAM is an Hebrew acronym for Israeli
Defense Minuister's Scientific Liaison Bureau. Its agents operate in United
States, Japan, France, Germany, Italy, Great Britain, Switzerland, and Sweden.
LAKAM's biggest operation is in the US. Their agents operate out of the Israeli
ambassy in Washington as well as two other shops, in Los Angeles and the other
in New York. Theri operations in these cities are believed to include thirty
five full-time agents with a several dozen informers. companies that benefit
the most in Israel include aerospace, chemical producers, and electronics firms.
In addition to regular agents the Israelis use dee cover agents posing as
business people and scientists traveling to the United States. Most of the time
the agents are in direct contact with the Prime Minister through the telephone
and telex, but if it is something that is extremely sensitive diplomatic pouches
are used to transport it.
Next lets turn our attention toward Germany. Germany's intelligence
service is called the Bundesnachrichtendienst (BND). Since the 1960's the
Germans have been actively involved in spying on the US, France, Great Britain,
and Italy. The BND regularly monitor telecommunications of foreign corporations
bases in Germany. he BND is very active in the US. German agents have
cultivated mole or spies in Us high-tech firms. The BND is gathering extensive
information in the fields of economy, technology and industry.
These United States is not completely innocent in the world of espionage.
Now that the cold war is over the CIA officials have latched onto the idea of
collecting economic data to justify the inflated budget of the agency. Dozens
of US corporations from fortune 500 companies to small, high tech firms, are
secretly assisting the CIA, allowing the agency to place full-time officers from
its operations division into corporate offices abroad. Serving under what is
refereed as "nonofficial cover" (NOC), CIA officers pose as American businessmen
in friendly countries, from Asia to Central America to Western Europe. Once
there, they recruit agents from the ranks of foreign officials and business
leaders, pilfer secrets, and even conduct speacial operations and parliamentary
activity (Dreyfus:95:1). Proof that the United States is engaged in this type
of espionage happened in 1995 when the French government demanded that four
business officials leave the country because they were allegedly caught
gathering French economic and political secrets. Three businessmen were posing
as American diplomats and the fourth was operating under a business cover( Time:
March 6:1995).
As stated above Espionage is not the exclusive domain of governments
anymore. Some corporations have intelligence organizations that rival that of a
small country. other companies that do not have intelligence organization of
their own retain or hire private investigators when espionage is required. An
example of the use of company spies happened in July 1989. A du pont chemical
plant was the site of an well planned espionage scheme. Visitors from a German
chemical company were visiting the plant. One of the visitors, while looking
over a table accidentally dip the tip of his tie into a vat of chemicals.
Company officials at first were very apologetic and offered to replace the tie.
The visitor insisted o keeping the tie because it was from his family. Only
after an experienced company security official protested to company leaders that
the accident was probably a scheme to obtain a chemical sample did the company
insist on keeping the tie(Scheizer:1993:253).
Lastly we will look at some of the ways that companies can protect
themselves against economic espionage. The following was taken from a paper
written by Kevin d. Murray A certified protection professional called "10 Spy-
Busting Secrets".
According to Murray, espionage is preventable if you know the
vulnerabilities, you can take the proper precautions. Murray presents a list of
the top ten ways to fight back against economic espionage.
The first thing Murray examines is what is called trash trawling. this
is simply digging through garbage. This activity is legal. The simple counter-
espionage tactic for this is to reduce that availability of what he refers to as
puzzle parts. companies must encourage destruction of waste paper by purchasing
shredders appropriate to the needs of the company, Use crosscut destruction for
high level security, computer paperwork and large volume waste require a
central bulk shredder. do not leave confidential papers in a box under desks
for later shredding shred it now, Do not entrust wastepaper destruction to
paper recycling vendors destroy it before recycling. The big shredder
purchasing mistake is buying just one shredder for everyone to use. Some people
are to busy to be bothered. Murray recommends the use of several convenient
desk-side shredders.
Bugs and wire tapping is the next area examined by Murray. Electronic
spying is the most devastating spy trick there is. A common mistake is saying"
Oh I'm just being paranoid" when you suspect electronic surveillance. Murray
recommends not discussing your suspicions with others unless they have a real
need to know, do not discuss your suspicions in the suspect areas, don't
attempt a do-it yourself solution, don't waste money buying spybuster toys,
seek professional guidance without delay. Contrary to what is seen on
television and in catalogs, detection of bugs and wiretaps is equipment and
knowledge intensive work. Expect a professional sweep team to have about
$100,000 dollars invested in their equipment as well as an extensive background
in security, investigations, telecommunications and electronics. These types of
professionals will not be found in the yellow pages, you must contact a
corporate security professional for a recommendation.
The drop by spies is the next area of interest. Check and photocopy
credentials and work orders of anyone performing technical work in or around
your offices. Verify the work was actually requested and most of all necessary.
This included telecommunications technicians, office equipment repair persons,
paper recycles, cleaning crews, electricians etc. Have someone that represents
the interests of your company accompany these individuals while on your property.
Outsider contractors and unauthorized company employees should never br allowed
to roam free unescorted. One professional snoop brags openly that any building
can be entered at any ti


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