Economic & Industrial Espionage

Classified and other protected U.S. technologies—those that both underpin the U.S. economy and contribute to U.S. military superiority—are prime targets for economic espionage, trade secret theft, and illegal export. Certain foreign governments, companies, scientists, academics, and others see the acquisition of American technology as key to their economic development, ability to compete in the global marketplace, and military strength.

Their continued ability to acquire state-of-the-art U.S. technology at little or no expense has undermined U.S. national security by enabling foreign firms to push aside U.S. businesses in the marketplace and by eroding the U.S. military lead.

The United States encourages the free exchange of most scientific and technical information. Many Government programs support the exchange of technology to facilitate economic development in a wide variety of foreign countries. However, a clear line must be drawn to protect information that is classified, is subject to export controls because it concerns militarily critical technologies, or is proprietary information that is the intellectual property of a specific firm or individual.

The foreign intelligence assault on the high technology sector of our economy is sometimes called "economic espionage" or "industrial espionage," but these terms can be misleading in two ways:

  • Espionage is by definition illegal, but much intelligence collection today is done by legal or quasi-legal means. Traditional espionage, such as the use of spies and hidden microphones, is only one part of a larger, coordinated intelligence collection program involving multiple elements of the foreign government. The term now used by the Office of the National Counterintelligence Executive (ONCIX)  is "foreign economic collection and industrial espionage." This term includes both legal information collection and traditional espionage, but it's a bit of a mouthful for everyday use. We may have to live with some ambiguous terminology. Intelligence collection methods that do not meet the legal definition of espionage are discussed in Getting Information Out of Honest People Like Me.
  • The term economic espionage implies economic targets and economic consequences, but the distinction between economic and military espionage has been blurred by rapid advances in science and technology. Most of the militarily critical technologies are now dual-use technologies. That is, the same technology has both military and civilian applications. As a result, the loss or compromise of unclassified but proprietary or embargoed dual-use technology damages military security as well as the economy.

The systematic way by which a small number of countries steal classified, export-controlled, and proprietary U.S. technology is especially noteworthy. It may involve collaboration between a half-dozen ministries (Foreign Affairs, Trade, Defense, Science and Technology, Education, and Justice) as well as the various science organizations and intelligence and security organizations. Obtaining foreign technology to support the country's economic development is viewed as a national mission, not just an intelligence program, and is sometimes discussed in the open press. (See One Country's Program to Obtain U.S. S&T Secrets.)

Who Is Doing It?

Due to foreign policy considerations and the need to protect sources, the U.S. Government does not publicly name the countries that are most active in conducting espionage against the United States. However, several European and Asian countries have stated openly that their national intelligence services collect economic intelligence to benefit their industries at the expense of foreign competition. Considerable information on this subject is available in public sources.

For example, a statement by a former head of an allied Western European intelligence service illustrates the attitude of some friendly and allied countries toward economic and industrial espionage against the United States. When interviewed on the NBC television program "Expose," this former high government official was unapologetic about his country's espionage against the United States. He claimed credit for starting his country's program of economic and industrial espionage against the United States as a means of improving economic competitiveness. He said his country

"... would not normally spy on the States in political matters or in military matters where we are really allied. But in the economic competition, and in the technological competition, we are competitors. We are not allied."

While the theft of trade secrets is illegal in the United States, some other countries consider it normal business practice. "...there is no global law on trade secrets or even a universal definition of a trade secret. Patents, copyrights, and trademarks are addressed in comprehensive international legal treaties, but trade secrets are not fully included. What can be protected as a trade secret differs from country to country, and, in some nations, trade secrets have no legal standing at all." 1

The ONCIX Annual Report to Congress on Foreign Economic Collection and Industrial Espionage reports that almost 100 countries attempted to acquire sensitive technologies from the United States during 2004.2 The large number of countries involved in intelligence collection against the United States is one measure of the scope of the problem, but most are not major players. A relatively few key players consistently account for the lion's share of the activity, and these are just as likely to be friends and allies of the United States as they are to be potential adversaries. They are countries that try to compete with the United States, either regionally or globally, in the development and sale of technology and/or military equipment.

According to Bruce Gebhardt, Deputy Director of the FBI, "we are seeing a rise in incidences of economic espionage. The increasing value of proprietary information and new technologies have combined to increase both the motives and the opportunities for these crimes. Theft of trade secrets and critical technologies is costing the U.S. economy upwards of $250 billion per year.... The players in the espionage game have diversified. The number of countries engaged in espionage against the U.S. has actually risen since the end of the Cold War, and we are not dealing exclusively with intelligence agents. Today, the threat can come from university students or business executives. According to one study, about 75 percent of economic espionage cases involve company insiders."3

What Are They After?

It would be nice to know exactly what classified, proprietary or other sensitive information foreign countries are trying to collect, so that we could then concentrate on protecting that information which is most at risk. Unfortunately, waiting for that kind of specific information before taking appropriate security measures would usually mean locking the barn door after the horses have left.

Security measures must be based on what information needs to be protected, rather than the latest report on what a specific country is trying to collect. The Militarily Critical Technologies List is a basic tool for making decisions about what technology needs special protection. It is a detailed compendium of information on technologies which the Department of Defense assesses as critical to maintaining superior U.S. military capabilities. "The acquisition of any of these technologies by a potential adversary would lead to the significant enhancement of the military-industrial capabilities of that adversary to the detriment of U.S. security interests."2

However, any proprietary information that would be of value to a competitor is at risk and requires protection. The American Society of Industrial Security survey of trade secret theft, which includes theft by U.S. competitors, found the most common targets were customer-related information such as business volume and preferences, new product information, financial data, and manufacturing process information.4

Case Examples

The following are three brief summaries of cases prosecuted under the Economic Espionage Act.1

Fei Ye and Ming Zhong: Both men were indicted in December 2002 for conspiring to steal computer chip trade secrets from Sun Microsystems, NEC Electronics, Trident Microsystems, and Transmeta where they had previously worked. Both men were Chinese nationals and were arrested on their way to China with the stolen information and equipment. They were convicted in December 2004.

Takashi Okamoto: Okamoto was a Japanese national employed by the Cleveland clinic Foundation to conduct research into the cause and potential treatment for Alzheimer's disease. He resigned this position after accepting employment with a government-affiliated research institute in Japan. Before leaving he stole DNA and cell line reagents from the laboratory and destroyed or sabotaged the DNA and reagents he left behind. These materials were transported to Japan. Okamoto was indicted in May 2001 and the U.S. Government is now seeking his extradition from Japan.

Kai-Lo Hsu: A Taiwanese national who was technical director of a Taiwan company, Hsu was trying to obtain secret information on how to make Taxol, a powerful anticancer drug manufactured by Bristol-Myers Squibb Company. Hsu's efforts to find a Bristol-Myers employee who could be bribed to sell the desired information were reported to the FBI and eventually led to a sting operation. Hsu was arrested in 1997 and pled guilty in 1999.

Security Countermeasures

All organizations that handle classified or other sensitive information need to have focused programs for employees and management to protect that information from theft or compromise. Employee awareness of the problem, alertness to indicators of suspicious activity, and willingness to report those indicators to management are keys to the successful protection of information. See Reporting Improper, Unreliable, and Suspicious Behavior.

Related Topics: A Comprehensive Program to Steal U.S. Technology, Notable Industrial Security Cases, How Do I Know When I'm Being Targeted and Assessed?, Getting Information Out of Honest People Like Me, Vulnerability to Technical Operations, Hotline Numbers, In the Line of Fire: American Travelers Abroad.

1. Nasheri, H. (2005). Economic espionage and industrial spying. New York: Cambridge University Press, p. 170.
2. Office of the National Counterintelligence Executive, Annual Report to Congress on Foreign Economic Collection and Industrial Espionage, 2003. NCIX 2004-10003, February 2004.
3. Frank Gebhardt, speech to the International Security Management Association, Jan. 12, 2004.
4. "Economic Espionage Losses Estimated at $239 Billion, Survey Finds," National Security Institute Advisory, February 1998.