One of the ironies of the post-Cold War world may well be that
intelligence operations directed against the United States have
Just over a decade ago, intelligence collection efforts still focused
primarily upon military assets. Now, these have largely shifted
to concentrate upon technology, manufacturing processes, and other
trade secrets that sometimes have dual use but often only civilian
Recent studies suggest that espionage costs U.S.-based businesses
more than $200 billion annually in intellectual property losses,
in addition to at least several tens of billions of dollars in related
damages. More than 1,000 documented incidents of economic espionage
transpired in 2001, and major companies reported at least 500 suspected
The number of countries actively pursuing economic espionage against
the United States is on the rise, regretfully adding political allies
to an assortment of long-standing, prying adversaries. The industry
magazine Public Administration Review lists France, Germany, Israel,
China and South Korea as major offenders.
To be sure, not all economic and financial data collection by competitors
or representatives of foreign powers is illegal. Abundant data are
available from such open sources as newspapers, the electronic media,
books and the Internet. Other legal collection methods include requests
under the Freedom of Information Act and the physical copying of
patents registered at the U.S. Patent office. Activities involving
the acquisition of information by theft, bribery, or coercion are
illegal and hence properly termed espionage.
Economic espionage entails the unlawful compilation and use of
data with economic consequences, although technological developments
can, on occasion, obscure the distinction between economic and military
In addition to foreign intelligence services, other practitioners
of economic espionage pose threats to protected information. Among
these are foreign corporations, organized crime, extremist ethnic
or religious organizations, terrorists, drug syndicates and computer
hackers. The September 2001 attacks on the United States underscored
the need for companies to safeguard proprietary information that
could be of use to terrorists, especially terrorist organizations
with global reach. Although the motivation for accumulating data
will vary considerably across groups, improper dissemination can
have grave consequences for a company and far beyond.
Dual-use technologies impart an important military aspect to economic
intelligence, potentially compromising military readiness and capability.
Modern warfare, characterized by stunning technological complexity,
places ever-greater demands upon the civilian economy. Technology
thus forges a closer bond between the state, the military and private
enterprise. The dividing line between national security concerns
and issues of economic policy continues to blur accordingly. Such
developments consign a greater premium to economic espionage.
In a sense, then, state-sponsored economic espionage operates as
the handmaiden to a mercantilist revival in national economic policies.
The reasoning of the usual suspects is apparent: instead of spending
five years and several billion dollars on research and development,
bribing a competitor’s employees will yield an analogous or
even better outcome.
A case this spring in Ohio illustrates the point, while highlighting
potential risks to target companies. In May, a Japanese scientist
pleaded guilty to stealing biological materials used for studies
of Alzheimer’s disease from a clinic. The FBI estimated that
the purloined items resulted in more than $2 million in direct losses.
The theft consequently led to the effective termination of the research.
When economic espionage co-mingles by design with a national industrial
policy or an extensive subsidy program for defense-related industries,
conspicuous similarities between traditional mercantilism and neo-mercantilism
present themselves. By assigning inordinate weight to the productive
side of the economy at the expense of consumption, and subsequently
of living standards, neo-mercantilist policies are short-sighted
and imprudent. Such policies ultimately spawn the emergence of a
command economy and, paradoxically, become the source of a systemic
incapacity to transmit the technological/military innovations that
attracted government interest in the first place.
Granted, an emerging body of American law offers a preliminary
recourse for economic espionage. Recognition of the potential magnitude
of the international problem is enshrined in the Economic Espionage
Act of 1996, and as a result, certain federal resources and remedies
are now on offer. More than 30 cases prosecuted under the EEA are
pending in federal courts. Yet, legal recourse and appeals to transnational
organizations cannot by themselves be effective.
Companies must manage critical economic information in such a way
as to reduce the possibility of a security breach. Corporate management
must recognize the value of proprietary information and undertake
physical steps to safeguard knowledge as a bank protects bullion
on deposit. Shrewd information management is an essential component
of a comprehensive corporate response to economic espionage. Many
companies should also embark on a dynamic program of competitive
intelligence, permitting them to legally and ethically collect data
As a matter of standard operating procedure, businesses must protect
their secrets by developing counterintelligence techniques. Corporate
counterintelligence should involve procedures to identify and neutralize
the intelligence-collection activities not only of rival companies,
but also of foreign government agents and, above all, of terrorist
organizations. For starters, businesses need to determine what is
most worthy of protection. Keeping all activities under wraps is
obviously not practical, so managers need to recognize and guard
proprietary information that is vital to the company.
Then, a company must decide how to protect what is to be kept secret.
What exactly would be most damaging were it to fall into the wrong
hands? Second, managers should carefully evaluate the company’s
vulnerabilities. Third, one should evaluate the competition and
the nature of potential espionage threats.
The fourth step is to develop and implement countermeasures. These
may take the form of simply limiting access to certain materials
and technology, or might be more proactive, involving the use of
disinformation or outright deception. The former is the product
of efforts to disseminate information that is deliberately and evasively
constructed. As a rule, disinformation is leaked to the target’s
communication system. Deception entails furnishing misleading information
so targeted as to distract a rival from what one is really doing.
The fifth step is to evaluate the functioning of countermeasures.
The final step is to circulate the findings to those people who
have a need to know.
David M. Keithly is a professor at the Joint Military Intelligence
College, Washington, D.C. Stephen P. Ferris is chairman of the department
of finance at the University of Missouri, Columbia.