For as long as there has been commerce, there has been espionage. The methods for spying on competitors have changed over time, but the desire to uncover a rival’s secrets has not. Economic espionage is foreign power-sponsored or coordinated intelligence activity directed at a government or corporations, establishments, or persons, designed to unlawfully or clandestinely influence sensitive economic policy decisions. It unlawfully obtains sensitive financial, trade, or economic policy information, proprietary economic information, or critical technologies. This theft, through open and clandestine methods, can provide foreign entities with vital proprietary economic information at a fraction of the true cost of its research and development, causing significant economic losses.
Economic espionage is also the unlawful targeting and theft of critical economic intelligence such as with trade secrets and intellectual property. Economic espionage differs from corporate or industrial espionage in a number of ways – it is likely to be state-sponsored, have motives other than profit or gain, such as closing a technology gap, and be much larger in scale and scope. Recognizing the threat from such activity, several nations initiated the Economic Espionage Act, which criminalizes misappropriation of trade secrets and gives the governments the right to pursue such cases in the courts.
Both economic and industrial espionage are illegal and unethical theft of business. In terms of corporate spying it is ‘competitive intelligence’, an act of collecting and analyzing data and trade secrets, intended to impact upon economic conditions, clandestine takeover and economic integration or disintegration. Industrial espionage competes with domestic Research & Development, with potentially far reaching negative effects. Also, backwards economies often have trouble incorporating stolen technology into the industrial bases. Developing countries undertake extensive efforts to steal from advanced countries, and advanced countries take steps to protect their advanced technology from theft. Corporate espionage is not that straightforward – as the typical Coke-Pepsi textbook example illustrates, in which each tries to steal the other’s recipe for sugared water.
The story had begun much earlier. The much popular “Hot Commodity” affair refers to Père d’Entrecolles, a French Jesuit missionary in the early 1700s. By some descriptions, he was an industrial spy. While in China, which was the leading maker of high-quality porcelain, he learned the secret techniques for manufacturing the ceramic by gaining access to the kilns, studying Chinese books, and getting “many particulars from my neophytes, several of whom work in porcelain.” D’Entrecolles then spelled out that information in letters sent to France. “Nothing but my curiosity could ever have prompted me to such researches,” he wrote, “but it appears to me that a minute description of all that concerns this kind of work might, somehow, be useful in Europe.”
Next we had the “Tea’s Secrets”: in the 1800s, Britain had a thirst for tea, a brew monopolized by China. So the London-based East India Co. hired Scottish botanist and adventurer Robert Fortune to smuggle the tea’s plants, seeds, and secrets out of China and into British-ruled India. Disguised as a Chinese merchant, he succeeded, and within his lifetime the production of tea in India surpassed China’s. It was the “greatest single act of corporate espionage in history,” according to Sarah Rose, the author of For All the Tea in China.
The Research Paper by Albrecht Glitz and Erik Meyersson suggests how industrial espionage works. Glitz and Meyerson used extensive resources from the East German (GDR) intelligence archives, as well as a range of economic data, to demonstrate that the GDR’s espionage program against West German (FRG) paid off in significant technological growth, even as it crowded out domestic R&D. They also run a counter-factual to demonstrate that the GDR’s technological base grew faster because of industrial espionage than it would have otherwise. Spies infiltrated every institution of West German life, including academia, labour unions, the government, and private firms. Administrators routed stolen information across the East Germany economy, concentrating on the most competitive industrial sectors. Despite the oppressive nature of the GDR, the effort worked; East Germany maintained the most advanced, competitive economy in the Eastern Bloc. But the East Germans also had major advantages that other Eastern Bloc states (including the Soviet Union) lacked. The East German penetration of West German life was unmatched by any other espionage relationship, for obvious reasons of language and social affinity. The East German economy had more in common with the West German (and thus greater absorption capacity for specific technologies) than, for example, the Soviet Union had with the United States.
During the Cold War, the US developed and enforced an elaborate system of export controls designed to prevent advanced military and industrial technology from falling into the hands of the Soviets. Today, US officials relentlessly complain about Chinese intellectual property theft. Whereas, the former USSR continuously had difficulty in taking advantage of successful industrial espionage operation during the Cold War, with acquisitions often leading to technical dead-ends rather than sustained progress.
China also occupies a much different position in the world economy than the GDR. Whereas the United States intentionally isolated East Germany from global technology advances, China continues to receive massive injections of FDI and technology transfer from Western firms. The Chinese economy is also far less centralized than the East German. Consequently, industrial espionage may play a less independently important role in China’s technology success. However, it is undoubtedly true that China has achieved a high level of penetration of the United States and other Western societies. This includes actual espionage, but also an array of legal, visible academic and commercial relationships. The biggest question may be whether China has developed the administrative capacity to distribute this knowledge across its industrial sector.
The paper reveals that Chinese economic espionage was never limited to just the United States or just one industry. The 2016 Annual Report of the U.S.-China Economic and Security Review Commission includes an unsurprising series of allegations about the course of Chinese military and economic espionage against the United States. Among other items, the report suggested that China had appropriated elements of the F-35 design and incorporated them in the J-20. The United States was not the only target. Individuals and firms in Japan, Thailand, the Philippines, France, Italy, and Norway also came under Chinese scrutiny.
In 1993, General Motors accused Volkswagen of industrial espionage after Jose Ignacio Lopez, the chief of production for GM’s Opel division, left to join the rival German automaker, along with seven other executives. GM claimed its corporate secrets were used at VW. In the end, the companies agreed to one of the largest settlements of its kind: GM would drop its lawsuits in exchange for VW’s pledge to buy USD 1 billion of GM parts over seven years. In addition, VW was to pay GM USD 100 million.
An engineer who worked with Gillette to help develop its next generation shaver system disclosed confidential information to the company’s competitors in 1997. Steven Louis Davis, an employee at Wright Industries Inc, a designer of fabrication equipment that was hired by Gillette, faxed or e-mailed drawings of the new Razor design to Warner-Lambert, Bic, and American Safety Razor. Davis pled guilty to theft of trade secrets and wire fraud and was sentenced to 27 months in prison.
Oracle Chief Executive Larry Ellison said in June 2000 that it was doing its “civic duty” by hiring a detective agency to investigate groups that supported Microsoft. Oracle employed Investigative Group International to look into actions by two research organizations, the Independent Institute and the National Taxpayers Union, that were releasing studies supportive of Microsoft. Oracle said it sought evidence that the groups were receiving financial support from Microsoft during its antitrust trial. Oracle admitted ties to Investigative Group after news reports said the detective agency had tried to buy trash from two cleaning women at the Association for Competitive Technology, a research group that Microsoft backed.
In one of the largest cyber attacks, more than 70 companies, governments, and nonprofit organizations were hacked by spies beginning in 2006, according to security company McAfee, which didn’t name the perpetrator in its report. Dell Secure Works, another security company, traced the same attacks and pointed to China as the source of the attacks. Victims included a U.S. real estate company, a New York media organization, defense contractors, a South Korean steel and construction company, the International Olympic Committee, and the World Anti-Doping Agency. Hackers took information from some of the victims over a period as long as two years.
In January 2010, Google disclosed that it detected the previous month a highly sophisticated cyber attack originating from China that resulted in the theft of its intellectual property. “This is a big espionage program aimed at getting high-tech information and politically sensitive information,” told James A Lewis, a cyber and national security expert at the Centre for Strategic & International Studies. The company said evidence suggested that a primary goal of the attackers was to access the Gmail accounts of Chinese human rights activists. Google said a wide range of companies were also targeted, including those in the finance, technology, media, and chemical industries.
Many cases of economic espionage go unreported, as companies who fall victim to it suffers a loss in stock value if they report such a breach. It would not be judicious to take the names of some of the leading companies of the developing nations in this subcontinent who are reportedly active in ‘Competitive intelligence’ or spying. Economic espionage is especially prevalent in technology. A 2003 report by the Commission on the Theft of Intellectual Property estimated that economic espionage of intellectual property has an economic impact of about USD 300 billion per year and costs job market about 2.1 million jobs globally. As the world becomes more sophisticated with the rapid growth and adoption of technology, risk of corporate espionage will only become a clear and present danger.
The writer is an author, columnist and educationist based in Kolkata