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Welcome to cold war II.

The political Cold War may be over, but corporate spies, many of them employed by "friendly" governments, are stealing technology and information vital to America's competitiveness and national security.

Stealthy footfalls in a darkened room ... a pencil-thin beam of light flickering briefly on a wall safe dial ... plans spread out on a desktop as a miniature camera clicks away . . . a door quietly closing, receding footsteps followed by silence.

It sounds like a James Bond adventure, but similar scenarios take place almost every day in one or more of the thousands of offices, plants, and R&D centers of American corporations here or overseas. Today, spies steal valuable business information rather than military information--which is worth less now that the Cold War is over--and the advanced technologies of American companies are particularly tempting targets for them. In addition to costing our industries billions of dollars, such information thefts undermine America's competitiveness, impede our economic recovery, and ultimately threaten our national security.

Many countries and companies outside North America seek a competitive advantage through intelligence: There are probably more corporate spies active today than there were political spies at the height of the Cold War. France, Argentina, Germany, and Great Britain have been implicated in covert corporate operations, while Japan targets U.S. industry with the biggest intelligence operation in the world. Experts estimate that American business loses between $20 billion and $30 billion a year as the result of foreign and domestic spying. Spying may well be the growth industry of the 1990s.

There are a number of steps companies can take to protect their trade secrets and technology: Some are as simple as locking doors and desks. Given the forces aligned against them, however, the only way for American corporations to achieve a truly level playing field seems to be to initiate greater cooperation between the private sector and U.S. government intelligence agencies.


In some cases, the new spy masters are foreign companies saving time and money by stealing R&D results from American competitors. More often, the spies work for the intelligence services of governments friendly to the U.S. Those services exist to meet their nations' intelligence needs and also to provide economic intelligence to private sector companies, which are often partly government-owned.

The magnitude of thefts from U.S. corporations can be gleaned from a 1991 survey of 1,700 U.S. companies conducted by the American Society for Industrial Security. Of the 165 U.S. companies responding to the survey, 61 (37 percent) said they had experienced a theft or attempted theft of information in the past two years. Thefts by foreign spies were more than double the level of 10 years ago.

The small sample reflects the reluctance of U.S. corporations to report or even discuss espionage. In fact, information thefts are so universal that more than half of the Fortune 500 companies and almost all "high-technology" companies are thought to have been victimized.

Foreign theft of technology and trade secrets already poses a serious threat to the U.S. economy and is well on the way to jeopardizing our national security. If current trends continue, it is expected to become much more dangerous during the balance of this decade.

Most disturbing of those trends is the growing involvement in corporate spying of government intelligence agents from nations we consider to be allies. Such agents have access to sophisticated, miniaturized equipment that is nearly undetectable. They also take advantage of generous funding from their governments. Even major Fortune 500 companies would be hard-pressed to match those resources, much less smaller high-technology companies.


France's intelligence service, the Direction Generale de la Securite Exterieure, has been the most brazen offender, using complex and illegal "tradecraft" techniques worthy of John LeCarre's famous spy novels.

The DGSE recently "ran" a group of French engineers out of France's embassy in Washington, D.C. Posing as officials of the French nuclear agency, the engineers contacted more than a dozen U.S. chemical manufacturers that produce the stealth coatings that enable U.S. warplanes and missiles to evade enemy radar. Before the FBI caught them, they tried unsuccessfully to persuade the U.S. firms that giving them the secret coating formulas would aid Franco-American defense!

The DGSE also uses diplomatic personnel stationed in this country. In 1991, a security guard at the home of a U.S. computer company executive in the affluent River Oaks section of Houston, TX, saw two men throwing bags of trash from outside the house into a van. The van's license number was traced to the French consulate in Houston. The French consul general lamely explained that he and an assistant were taking the trash bags to fill up a hole dug for a swimming pool. Since he had diplomatic immunity, the case was dropped.

The DGSE can use any component of the French government, including the national airline, Air France. Conversations of American executives on the French carrier's trans-Atlantic flights have been recorded by tiny microphones hidden in their seats.

In a 1987 operation, the DGSE planted "moles" in the European branches of IBM, Texas Instruments, and Corning Glass (a maker of fiber optics used in telecommunications). Until they were caught in 1989, the undercover agents ferreted out computer secrets and passed them along to Compagnie des Machines Bull, a computer company owned in large part by the French government.


But France is not alone in spying on American companies. A ring of former Argentine intelligence agents and police officials, recently rounded up for crimes that included kidnapping, had 500 wiretaps on foreign business telephones in Buenos Aires--mostly American subsidiaries. As a profitable sideline, they sold the wiretap information to Argentine-owned companies.

During the Cold War, West Germany swarmed with spies from every Eastern Bloc country, including East Germany's SSD or Stasi. In 1988, Stasi agents bugged the Dusseldorf hotel rooms of executives from a U.S. aircraft manufacturer and photographed documents containing technology of military value. After unification, the same Stasi agents, now unemployed, made unsuccessful bids to several European companies to spy on the same aircraft company in America, citing in their group resume, "prior experience with the quality of information to be obtained."

But German corporate spying is not confined to comic-opera Eastern Bloc agents. In 1991, the BND, the intelligence service of what used to be West Germany, was charged with bugging IBM's telecommunications and providing important business information to Big Blue's German competitors. BND's spying may have caused IBM to lose several valuable European bids during this period.

U.S. intelligence officials also have long suspected that Great Britain's Secret Intelligence Service (SIS), better known as MI-6, monitors overseas telephone calls of American companies from its powerful electronic listening posts at Cheltenham in Gloucestershire and passes along commercially valuable information to British firms. In a classic Catch-22 situation, however, the Americans have been reluctant to unmask the SIS operation because of possible countercharges about information gleaned from their own eavesdropping on global telecommunications traffic.


As sophisticated as they are, the European intelligence services pale in comparison with Japan's massive corporate intelligence effort, most of it quite legal if not exactly ethical by Western standards. Japan has not had a formal intelligence service since the end of World War II when the Kempei Tai, its military intelligence establishment, was disbanded. In Japan, intelligence gathering is shared about equally by the government and the private sector.

The intelligence effort is coordinated by the government's powerful Ministry of International Trade and Industry. Much of MITI's intelligence gathering is conducted through its Japan External Trade Organization formed in 1958 to promote Japanese exports. Currently, JETRO has 80 offices in 60 countries, seven of them in the U.S. MITI channels its information to the private sector through a network of government and industry trade associations, as well as 15 MITI-sponsored research centers. The Keidanren, the Federation of Economic Organizations within MITI, also uses JETRO information to identify high-potential industries whose penetration is a national goal. Past targets were automobiles, shipbuilding, steel, and consumer electronics; current targets ominously include high-definition television, superconductors, and biotechnology.

The information gathered by JETRO is heavily supplemented by the intelligence efforts of the nine major trading companies, or Sogo Shosha, including Mitsubishi and Sumitomo. The trading companies account for 30 percent of Japan's GNP and have 2,200 offices around the world. It is estimated that the 60,000 employees staffing those offices file a total of 10,000 pages a day on the companies, governments, and economies of their host countries as a regular part of their normal business routine.

With this massive, "legitimate" intelligence-gathering machinery in place, Japanese companies seldom resort to illegal spying on American companies. When they are occasionally tempted to do so to save time, the results are usually disastrous. In 1982, for example, executives of Hitachi and Mitsubishi were arrested when they naively tried to buy information on new IBM computers and software from an undercover FBI agent.

In 1991, 15 Japanese manufacturers--including Hitachi, Mitsubishi Heavy Industries, and Toyota--were charged with espionage for buying new product and corporate strategy plans stolen from Komatsu, Japan's largest maker of construction equipment. Similar documents also may have been stolen from Shin Caterpillar Mitsubishi, a Japanese-based joint venture of Mitsubishi and Caterpillar, the U.S. construction machinery company. Mitsubishi would have been spying on itself if it did buy secrets stolen from the joint venture company, a bizarre result of the tangled relationships of multinational companies in today's global economy.

A representative of one of Komatsu's competitors charged in the spying case said, "Someone who is really fanatical about his work, if told that other companies are also buying such information, will naturally tend to be tempted by something served to him on a plate. It's better to have than not have information, I don't know what's immoral about it." That statement sums up the essential difference between the mind-set of American executives and that of their counterparts elsewhere in the world. We tend to be concerned about the morality of buying stolen information; our overseas competitors tend to worry more about whether the information is genuine, accurate, and current. If it is, they buy it.


The Central Intelligence Agency and the Federal Bureau of Investigation have been increasingly active in warning U.S. businesses about foreign spies and actually apprehending spies in some cases. CIA Director Robert Gates and FBI Director William Sessions testified in 1992 before several Congressional committees that foreign spying has reached such high levels that both agencies are moving immediately to beef up their economic counterintelligence programs.

Such an involvement is not new. Government agencies have long offered foreign economic information, including the CIA's Fact Book, to American companies. Unfortunately, most of the information is an embarrassment of unused riches. The bulk of this intelligence, which contains valuable analyses by officials stationed overseas, is available at least in theory to the private sector, but neither its availability nor its value are well-known. In business terms, there has been no marketing of the product and few people outside the Beltway are even aware it exists.

Mobilizing the U.S. intelligence community will not be easy. Under current policies, there is no mechanism for the intelligence agencies to provide business intelligence directly to the private sector. Instead, they distribute it to other parts of the government, such as the Commerce Department, which are responsible for providing it to the private sector. It is hard to fault the intelligence agencies for the defects of this approach since they meet their charge by collecting and analyzing intelligence. But forwarding it to a fragmented bureaucracy does not put it in the hands of the eventual end users--private sector organizations.

Before U.S. government intelligence agencies can provide the private sector with more than token assistance, several major legal obstacles must be overcome.

For example, the CIA's charter prohibits it from operating within the U.S.--where most corporate spying takes place--while the FBI's largely bars it from operating overseas, where most corporate spies are based. Since foreign agents are free to spy on American companies and executives anywhere in the world, the charters of both agencies should be changed to give them the same geographic flexibility.

Another legal question is who selects the companies or industries to receive business information gathered by U.S. government intelligence agencies? Benefiting one company or one industry at the expense of others would probably violate current federal antitrust laws, and the intelligence agencies have already stated their firm unwillingness to incur such problems. And how do you determine which companies are "American" in a world of multinational enterprises? Finally, as a practical matter, the private sector is reluctant to deal directly with U.S. intelligence agencies because business and government in this country have never entered into the close partnership that prevails in Japan and most of Western Europe. Instead they have remained at arm's length, mutually respectful but wary.


What emerges from these various concerns is the need for a third party to serve as both an interface and a buffer between the private sector and the intelligence community. Consideration should be given to creating a quasi-private company, similar to COMSAT, that can bridge the gap between the private sector and the government intelligence community.

The possible activities of such an organization (let's call it BUSINTEL) are almost limitless. For example, BUSINTEL could offer training courses to business intelligence professionals from the private sector much as the FBI provides training for police forces from around the nation and the world. In addition, BUSINTEL could provide orientation courses for government intelligence agents that would help them understand what kind of business information is most useful.

Whatever the intelligence community decides to do about aiding the private sector, pressures for such assistance are growing rapidly, and eventually the intelligence agencies will be forced to take action. Billions of private sector tax dollars helped make the U.S. intelligence apparatus the best in the world, and it is high time that massive investment began paying dividends.


The absence of effective counterintelligence efforts sponsored by the U.S. government is only one of several reasons that American industry is such easy prey for foreign corporate spies. The underlying philosophical reason we are losing Cold War II is that American management plays by the rules and expects its competitors to do the same.

That naive attitude was best expressed by Henry L. Stimson when he was asked after becoming Secretary of State in 1929 if the U.S. needed an international spy network like Great Britain's. He replied starchily, "Gentlemen do not read each other's mail." That position is out of date in today's global economy. We must begin fighting back, or we will continue to lose.

One of the first steps we must take is to rip away what might be called the "veil of silence," behind which corporate managers try to keep incidents of corporate espionage as quiet as possible. In that effort, the CEO must play a key role, adopting proactive counterintelligence measures that are far more sophisticated than current security measures for offices, plants, and R&D facilities. All instances of industrial espionage should be reported, and apprehended spies should be prosecuted. Companies must also press for the expulsion of spies who have diplomatic immunity against prosecution.

A recent film entitled, "Sneakers," vividly dramatizes how dangerous corporate spying has become. Robert Redford plays the head of an investigative firm that uses ultra-sophisticated equipment to break into the computer data bases of corporations and banks to sell their management equally sophisticated countermeasures.

At the end of the film, the villain, played by Ben Kingsley, tells Redford: "The world isn't run by weapons anymore or energy or money. It's run by little ones and zeros, little bits of data. It's all just electrons. There's a war out there, a world war. And it's not about who's got the most bullets. It's about who controls the information. What you see and hear, how you work, what we think. It's all about the information."

"Sneakers" should be required viewing in the boardroom of every U.S. company.


If an ounce of prevention is worth a pound of cure, these counterintelligence measures for protecting your company's valuable intellectual property against corporate spies may be worth billions of dollars. They are based on the experience of my own firm and other private sector counterintelligence agencies.

1. Assume corporate spies are interested in your company's confidential information even if it is not leading-edge technology. And make sure all employees are aware of the real possibility of corporate spying and take steps to guard against it. Keep all desks and offices locked.

2. Never discuss proprietary information over the telephone or transmit it by fax. Wiretaps are easy to install but hard to detect. If you must transmit information electronically, invest in the new encryption telefax machines that will send your message in code.

3. All traveling executives--especially those visiting foreign countries--should avoid leaving confidential material in their hotel rooms. Spies regularly break into hotel rooms and photograph any documents that look interesting.

4. Have a qualified electronics firm do frequent "sweeps" of boardrooms and conference rooms where confidential information is discussed. A single "debugging" sweep by one New York brokerage house turned up 43 hidden microphones in 22 separate offices. Cover windows with sound-absorbing curtains. Advanced directional microphones can pick up the vibrations of voices from the glass. Establish procedures that limit entry to authorized employees with ID badges, key cards, or voice-print identification.

5. Make sure that your in-house or outside legal counsel determines if your proprietary information meets the tests for trade secrets. The Uniform Trade Secrets Act defines a trade secret as "any formula, pattern, device, method, technique, or process" that provides an economic advantage over competitors, and the courts use several tests to decide what information qualifies. They include the extent to which the information is known inside and outside the owner's company and the measures taken to protect it. A major electronics company failed to meet those tests because it had made no real effort to protect its trade secrets, which actually consisted of information easily acquired within the industry.

6. Your employees are frequent targets for corporate spies who gather billions of dollars worth of confidential information every year from current and former employees of American companies. Use detailed pre-hiring background checks that reveal high debt loads, drug use, or other behavior problems to weed out candidates susceptible to bribery or blackmail pressures. When employees leave, most proprietary information that goes with them is in their heads, not their briefcases. Minimize this risk with a complete package of non-disclosure and non-compete agreements that are a precondition of employment.

7. Corporate spies use many different "covers" or false identities. A favorite cover is working for a janitorial services contractor since it provides after-hours access and a set of passkeys. One response: Check out the work force of your outside suppliers as carefully as you do your own employees.

8. One of the corporate spy's best sources of information is trash. Unless they are carefully shredded or burnt, highly confidential documents can be recovered easily by spies from trash cans inside or outside a company's facilities.

9. Proprietary information should be locked up and clearly marked as confidential. Use the British Intelligence Service's practice of putting a preprinted log on a document file jacket to track the employee name and date of each access.

10. Computer systems are prime targets for spies. Install expert systems that can detect unauthorized attempts to access computer data bases. And assign all employees who use computers alpha-numeric codes that not only get them into the system but also make a non-erasable record of each authorized access.

Roderick P. Deighen is chairman and CEO of Cleveland, OH-based Wellington-Fox International, a firm specializing in business intelligence, investigative, and counterintelligence services for corporations and law firms.
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Title Annotation:includes related article; industrial espionage
Author:Deighen, Roderick P.
Publication:Chief Executive (U.S.)
Date:Jan 1, 1993
Previous Article:Japan's other maverick.
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