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Economic Espionage

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

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 competitorsand 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.

The Office of the National Counterintelligence Executive (NCIX), formerly known as the National Counterintelligence Center (NACIC), coordinates and distributes information on economic espionage gained by intelligence. NCIX distributes this information to targeted U.S. companies on an as-needed basis. The U.S. State Department monitors information on economic espionage through its Bureau of Intelligence and Research (INR), and keeps U.S. companies informed of threats by means of its Overseas Security Advisory Council electronic bulletin board.

To provide further protections for U.S. companies, Congress in 1996 passed, and President William J. Clinton signed into law, the Economic Espionage Act. The act makes it a federal crime to use unauthorized means to obtain any trade secret whose transfer to other parties would cause economic harm to its lawful owner. "Unauthorized means" include the use of undercover employees, pretexts, and the development of confidential informants in order to obtain trade secrets. The act does not address the gathering of information through open sources.

Despite the many efforts of the federal government to protect sensitive trade, industrial, and commercial information, the first and often the best line of defense still lies with the company itself. In order to protect assets from economic espionage, a 2003 report in Security recommended that employees be educated, and technology implemented, so as to track proprietary information. The report also recommended a "cultural approach" to security, meaning that companies should recognize the leading role played by people and processes, and not simply address information and facility security from a technological standpoint.

To better protect against economic espionage, according to the Security report, a number of steps must be taken, beginning with the often-overlooked measure of conducting an evaluation. During this process, company security personnel should review work practices, identity the most sensitive compartments of information, and note the points and areas at which allegedly secure information is transferred. The company should invest in security technology only after this review, which will assist it in best targeting funds for security.



Carr, Chris, Jerry Furniss, and Jack Morton. "Complying with the Economic Espionage Act." Risk Management 47, no. 3 (March 2000): 2124.

Jeffrey, Terence P. "Two Silicon Valley Engineers Indicted for Economic Espionage Aiding China." Human Events 59, no. 2 (January 13, 2003): 1.

Joyce, Jim. "Espionage Battleground." Security 40, no. 1 (January 2003): 2425.

Nasheri, Hedieh, and Timothy J. O'Hearn. "High-Tech Crimes and the American Economic Machine." International Review of Law, Computers & Technology 13, no. 1 (March 1999): 719.

Wolkowitz, Dave. "Facility SecurityPlaying It Safe." Area Development Site and Facility Planning 37, no. 9 (September 2002): 72.


Chinese Espionage Against the United States
Economic Intelligence
Facility Security
NCIX (National Counterintelligence Executive), United States Office of the
Satellite Technology Exports to the People's Republic of China (PRC)
Technical Intelligence

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Espionage, Industrial


ESPIONAGE, INDUSTRIAL. The systematic use of spies by American companies to report on their employees began after the Civil War with the rise of American industry and reached a peak during the 1930s. Employers originally recruited spies from among their workers but eventually turned to trained men from such agencies as Pinkerton, Burns, and Baldwin-Felts. Spies reported on various matters, such as inefficiency, theft, and worker unrest. Companies used spy reports to discharge union activists, and relied on state and local police to provide protection or even aid to professional strikebreakers. The use of industrial spies accelerated during the 1920s along with rising anticommunist and antiunionist sentiment, and climaxed during the heyday of the Congress of Industrial Organizations (known as the Committee on Industrial Organization until 1938), over which John L. Lewis presided after 1935. In 1937 a report by the U.S. Senate Committee on Education and Labor found that American companies employed labor spies in virtually every plant and union. By this time employer associations regularly provided professional labor spies and strikebreakers for their affiliated companies, and some large corporations employed their own private police forces to combat unionization.

The adverse publicity of the 1930s and the maturation of labor-management relations after World War II brought about the virtual cessation of professional anti-union espionage. After 1959 federal law required agents of employers reporting on the labor-management relationship to register with the U.S. Department of Labor, although few do so and not many are believed to exist. Some companies continue to spy on their employees for various reasons, but industrial espionage is now largely confined to spying by companies upon each other. Nearly universal in one form or another, the latter practice is systematic among competitive industries affected by changes in fashion or taste. Its function is to discover trade secrets. The disagreements about it center on the methods used, not on legitimacy of purpose.

As the emphasis of industrial espionage shifted after World War II from antiunionism to protecting and uncovering professional trade secrets, the Cold War context became increasingly important. Fear existed that agents from the Soviet Union and its allies would obtain sensitive technology or information from American industries that could hurt the national security of the United States. Although much information was available in scientific and technical publications, as well as through public conferences, espionage or spying proved necessary to acquire more sensitive items. No one can accurately estimate the dollar value of direct losses to U.S. industry, as well as the indirect costs of higher U.S. defense budgets, that resulted from industrial espionage during the Cold War. One authority, however, estimated that the Soviet Union had as many as 20, 000 agents working as industrial spies.

The end of the Cold War failed to reduce concern about industrial espionage, however. U.S. business and political leaders had long worried about how foreign economic competition could affect national security, and shifted their attention to countries that were political allies but commercial rivals. In June 1982, for example, six executives with the Japanese firms Hitachi and Mitsubishi were arrested in Santa Clara, Calif., for trying to steal documents and computer parts from IBM. In 1993–1994 U.S. and German officials dealt with claims by General Motors that Volkswagen had obtained proprietary information from a former GM vice president who had taken a position with the German company. A former director of the French secret service publicly stated that he had instructed French agents to secure industrial information. U.S. political and business leaders were divided over whether or not U.S. intelligence organizations, such as the Central Intelligence Agency, should conduct its own counterespionage.

With U.S. businesses increasingly dependent on computer networks for relaying information, concern grew in the 1980s and 1990s about the security of their information networks. Major companies were forced to spend more money and time combating the efforts of hackers, skilled computer operators who would try on their own initiative or on behalf of others to penetrate company software programs used by companies. Ultimately, a dispute arose between U.S. private businesses, which desired sophisticated software programs to protect their information, and law enforcement and intelligence agencies, which wanted to have access to all programs and networks being used by companies operating under U.S. jurisdiction. This tension between the need to fight sophisticated means of industrial espionage and the requirements of law enforcement promised to be an increasingly contentious issue in the future global economy.


Calkins, Clinch. Spy Overhead: The Story of Industrial Espionage. New York: Harcourt, Brace, 1937.

Melvern, Linda, Nick Anning, and David Hebditch. Techno-Bandits. Boston: Houghton Mifflin, 1984.

Schweizer, Peter. Friendly Spies. New York: Atlantic Monthly Press, 1993.

Winkler, Ira. Corporate Espionage: What It Is, Why It Is Happening in Your Company, What You Must Do About It. Rocklin, Calif.: Prima Pub., 1997.

JohnHutchinson/c. w.

See alsoAmerican Federation of Labor–Congress of Industrial Organizations ; Central Intelligence Agency ; Cold War ; Computers and Computer Industry ; Intelligence, Military and Strategic ; Labor ; Labor, Department of ; Software Industry ; Strikes .

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