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Economnic terrorism



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


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 1)

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 1)

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.

" Do 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


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


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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