Economic Collection
And Industrial Espionage

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, concerns militarily critical technologies, is subject to export controls, or is proprietary information that is the intellectual property of a specific firm or individual.

block.gif (16764 bytes)  Global economic competition has, to a large extent, replaced the Cold War political and military competition between East and West. As a result, friends and allies as well as less friendly countries now pursue their national interests through espionage against the United States. Their goal is to develop a competitive edge in the global market place or boost military readiness, while drastically reducing their own research and development costs.

Intelligence collection is done by foreign corporations acting independently of their governments as well as by foreign intelligence services.

Foreign economic espionage is a major national concern. Our economy and many jobs, as well as our military superiority, depend upon our leadership in high technology research and development. In testimony before Congress, FBI Director Louis Freeh said the United States spends nearly $300 billion a year on basic research, making it "the test lab for the world" and a natural target of U.S. competitors, including some of the nation's former Cold War allies. 1

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 always illegal, but much intelligence collection today is done by legal or quasi-legal means. Traditional espionage, the use of spies and hidden microphones, is usually one part of a larger, coordinated intelligence collection program. The formal term now used by the National Counterintelligence Center 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.
  • The term economic espionage implies economic targets and economic consequences, but the distinction between economic and military targets has been blurred by rapid advances in 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 technology damages military security as well as the economy.

Who Is Doing It?

Due to foreign policy ramifications and the sensitivity of 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 nations 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 U.S. 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."

FBI Director Freeh told a Senate committee that the U.S. counterintelligence community has specifically identified the suspicious collection and acquisition activities of foreign entities from at least 23 countries.2 Eight of these are now considered to be most actively targeting U.S. proprietary economic information and critical technologies." Previously, the FBI had announced it had 800 active espionage investigations involving 23 different countries.3 In some cases, the activity may be sponsored by a foreign corporation rather than the foreign government. The National Counterintelligence Center produces an annual, unclassified report to Congress on foreign economic collection and industrial espionage.

The Defense Security Service receives reports from U.S. defense industry contractors concerning suspicious intelligence collection activity by foreign entities. During 1997, defense contractors reported 265 instances in which representatives from 37 different countries displayed some type of suspicious interest in one or more of the 18 technology categories listed in the Militarily Critical Technology List. 4  DSS publishes an unclassified annual report on known or suspected foreign intelligence collection activities reported by defense industry contractors.

The American Society of Industrial Security conducts a periodic survey of economic and industrial espionage incidents and losses experienced by U.S. corporations. In the survey completed in January 1998, 66 percent of respondents viewed domestic U.S. competitors as key threats to their data. Foreign countries perceived as key threats were China (41%), Japan (36%), France (30%), United Kingdom (27%), Canada (25%), Mexico (20%), Russia (15%), Germany (12%), South Korea (10%), and Israel (10%). The survey did not distinguish between intelligence collection by foreign governments and by foreign corporations. 5

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 already 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 to be protected. It is a detailed compendium of information on technologies which the Department of Defense assesses as critical to maintaining superior U.S. military capabilities.

FBI Director Freeh reports foreign collectors are particularly interested in "dual-use technologies and technologies which provide high profitability."2

The areas on the Militarily Critical Technologies List targeted most frequently during 1997, according to defense industry reports to the Defense Security Service, were Information Systems Technology, Aeronautics Systems, Sensor and Laser Technology, Electronics, armaments and energetic materials, marine systems, and space systems.4

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.5

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.

The rapid increase in foreign economic collection and industrial espionage has led to new federal legislation that enables law enforcement to deal more effectively with this threat to our national interests. See Economic Espionage Act of 1996.

Information on export controls is now available on the Internet in an up-to-date database at This website contains the entire Export Administration Regulations (EAR), including the Commerce Control List, the Commerce Country Chart, and the Denied Persons List.

Related Topics: Spy Stories, 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.

1. Frank Swoboda, "Economic Espionage Rising, FBI Director Tells Congress." Washington Post, February 29, 1996.
2. "Threats to U.S. National Security," Statement for the record before the Senate Select Committee on Intelligence, January 28, 1998.
3. Kenneth Geide (1996). "Economic Espionage: Looking Ahead." In Theodore Sarbin (ed.), Vision 2021: Security Issues for the Next Quarter Century. Proceedings of conference sponsored by Defense Personnel Security Research Center and Security Policy Board Staff, June 25-25, 1996. PERSEREC: Monterey, CA.
4. Defense Security Service, Technology Collection Trends in the US Defense Industry, 1998.
5. "Economic Espionage Losses Estimated at $239 Billion, Survey Finds," National Security Institute Advisory, February 1998.