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FEATURE ARTICLE  

Industrial Espionage Becoming ‘Big Business’  

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by John Stanton 

The world’s economic globalization has intensified competition in every industrial sector, including defense, and with that has come a concomitant rise in industrial espionage, said business intelligence experts.

“Corporate espionage is growing,” said Ira Winkler, president of the Internet Security Advisors Group. He spoke during a conference of the Association of Former Intelligence Officers (AFIO), in Washington, D.C.

What are the spies after? According to Winkler, oil, marketing plans, pharmaceutical formulas, merger and acquisition data and component technology. Winkler’s advice to industry is to “sweat the small stuff, because that’s where the billions of dollars are. Use the 95-5 rule, and take care of the 5 percent stuff.”

In 1999, that “5 percent stuff” cost industry an estimated $100 billion in losses from industrial espionage activity. According to a survey by the American Society of Industrial Security and Price Waterhouse Coopers, that worked out to about $50 million an incident. “High technology and service organizations led the number of reported proprietary information loss incidents with 530 and 356 incidents reported, respectively. ... Companies perceived on-site contractor employees and original equipment manufacturers (OEMs) as the greatest threat to their proprietary information,” according to the report.

Rusty Capps, president of the Center for Counterterrorism and Security Studies in Alexandria, Va., told National Defense that those types of losses could be minimized if organizations and individuals availed themselves of counterintelligence education and training. “Accessibility is vulnerability, and employees are accessible in many common places and subject to tactics of the ‘collectors.’ Nobody will ever have the counterintelligence to match up against the collectors from a corporation or government. Making the employee or ‘target’ more resilient and aware through education can help.”

Capps’ organization provides training to government and defense industry employees through its SpyMaryland and SpyVirginia coursework. These one-day courses taught by former U.S. and Soviet government intelligence officials focus on counterintelligence and security issues. Capps said he has seen an increase in private-sector attendance at these security seminars.

Contrary to many media reports, commercial enterprises and individuals account for the bulk of international industrial espionage activity. For example, in the defense industry, 58 percent of industrial espionage is practiced by corporations and individuals, while only 22 percent is attributable to foreign government-sponsored efforts, according to the FBI’s 2000 Annual Report to Congress on Foreign Economic Collection and Industrial Espionage.

In the United States, the CIA’s Senior Deputy Counsel John Rizzo mocked sensational stories of the CIA “spying” on behalf of American companies. He indicated that there are good reasons why the CIA steers clear of economic espionage. But he admitted that the agency has “relationships” with American businesses, which are designed to counter government-sponsored terrorism.

Intelligence Collection
“The CIA is not in the business of industrial espionage and does not target foreign companies. Collection of intelligence to benefit American companies would be inconsistent with U.S. values, and it is not a matter of national security,” he said. “But, if any threat is made against an American company from another government or terrorist, we would get word to them through a cutout from another department. It’s no secret that the CIA has relationships with many American companies, but we protect our sources and methods. We think of creative ways to get a warning to the company.”

John Nolan, chairman of the Phoenix Consulting Group, in Huntsville, Ala., said in an interview that there is a constant education process to “demystify spookdom.” Like Rizzo, he said that stories of intelligence agencies “spying” on foreign corporations are much exaggerated, and he’s glad that the CIA stays out of his business world. “It’s way overblown that government gives industry competitive intelligence information.”

Nolan, a former U.S. government intelligence official and now a practitioner in the burgeoning field of commercial competitive intelligence, wears another hat as the president of the Society of Competitive Intelligence Professionals (SCIP). The society’s 6,747 members include all industries and services, with 189 members coming from the defense industry.

Competitive intelligence is “a systematic and ethical program for gathering, analyzing and managing information that can affect a company’s plans, decisions and operations. [It] enables senior managers in companies of all sizes to make informed decisions about everything from marketing, research and development and investing tactics to long-term business strategies,” according to SCIP’s charter.

In other words, competitive intelligence relies on techniques such as recruitment, tactical surveillance, profiling of corporate personnel, information assurance and elicitation training to destabilize a competitor’s ability to maintain or gain market share. And competing organizations are keen on profiling business leaders and others that influence the market, according to Nolan. “Competitors want profiling of business leaders and CEOs, to assess them and figure out what they are going to do in the marketplace. We don’t talk to the person being profiled directly, but we use an ex-FBI / PhD profiler and do a remote assessment that involves talking to 50-100 of the subject’s friends and associates.”

While it all sounds like murky business, it’s not, according to Nolan. “You don’t hide the fact that you are looking for information or protecting information, but you do protect your sources and methods,” he said.

“Competitive Intelligence is a somewhat dramatic name for what everyone in business has always done: Know the competition, and know the market,” said Steven Aftergood, of the Federation of American Scientists, in Washington, D.C. “Calling it intelligence is a bit over-dramatizing. It is not the same thing. The fate of the nation and the planet do not depend on getting a marketing plan.”

Winkler agreed with Aftergood’s view that there’s nothing unusual about keeping an eye on competitors. “You just have to follow the money to find out what’s going on in the market. And, besides, companies feel they have a right to steal information, and they really don’t care about the losses. What they really care about is bad publicity. They’ve already made a calculation about the costs involved with bad publicity or an actual loss. Nobody really knows what’s going on, and we only find out about the losses when someone does something really stupid or bizarre. Never underestimate the stupidity of the criminals,” Winkler said.

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