IP: Economic Espionage

[Dave Farber <farber () central cis upenn edu>]

Date: Fri, 12 Jul 1996 12:30:02 -0500
From: marsha-w () uiuc edu (Marsha Woodbury)
To: cpsr-global () cpsr org


(from a friend--Marsha)   FWD>Economic Espionage


FYI...recent scenarios reported in th#005# GAO hearings on Capitol Hill in
DC.  From my perspective the  naming of the countries is less important than
the fact that they are "friendly-allied" (traditional military supporters)
and that they use espionage methods to obtain data.  My guesses are A=Israel,
B=France,C=Germany, D=Japan, E= ??..
Regards..
--------------------------------------
Date: 7/12/96 2:16
From: Cloaks-and-Daggers   Open Disc
Greetings from Munich.


Has anyone identified the Countries A through E listed in the
GAO report below?  Thanks for any info.


United States General Accounting Office


GAO Testimony Before the Select Committee on Intelligence United States
Senate


For Release on Delivery Expected at 10:30 a.m., EST Wednesday, February
28, 1996


ECONOMIC ESPIONAGE


Information on Threat From U.S. Allies
Statement for the Record by David E. Cooper, Associate Director, Defense
Acquisitions Issues, National Security and International Affairs
Division


GAO/T-NSIAD-96-114


Mr. Chairman and Members of the Committee:


I am pleased to be able to provide this statement for the record. We
recently completed a report on security arrangements used to protect
sensitive information when foreign-owned U.S. companies work on
classified Department of Defense contracts.1 As part of this effort, we
examined the threat of foreign espionage facing U.S. defense companies,
a concern of today's hearing.


In brief, Mr. Chairman, we reported that, according to the Federal
Bureau of Investigation and intelligence agencies, some close U.S.
allies actively seek to obtain classified and technical information from
the United States through unauthorized means. These agencies have
determined that foreign intelligence activities directed at U.S.
critical technologies pose a significant threat to national security.


Economic Espionage Efforts of Allies U.S. intelligence agencies report a
continuing economic espionage threat from certain U.S. allies. Our
report discussed the espionage activities of five allies.


A goal common to most of these countries was the support of the
country's defense industry. Countries seek U.S. defense technologies to
incorporate into domestically produced systems. By obtaining the
technology from the United States, a country can have cutting-edge
weapon systems without the cost of research and development. The
cutting-edge technologies not only provide superior weapon systems for a
country's own use, but also make these products more marketable for
exports.


Country A


According to a U.S. intelligence agency, the government of Country A
conducts the most aggressive espionage operation against the United
States of any U.S. ally. Classified military information and sensitive
military technologies are high-priority targets for the intelligence
agencies of this country. Country A seeks this information for three
reasons:


(1) to help the technological development of its own defense industrial
base,
(2) to sell or trade the information with other countries for economic
reasons, and
(3) to sell or trade the information with other countries to develop
political alliances and alternative sources of arms.


According to a classified 1994 report produced by a U.S. government
interagency working group on U.S. critical technology companies,2
Country A routinely resorts to state-sponsored espionage using covert
collection techniques to obtain sensitive U.S. economic information and
technology. Agents of Country A collect a variety of classified and
proprietary information through observation, elicitation, and theft.




The following are intelligence agency examples of Country A information
collection efforts:


* An espionage operation run by the intelligence organization
responsible for collecting scientific and technological information for
Country A paid a U.S. government employee to obtain U.S. classified
military intelligence documents.
* Several citizens of Country A were caught in the United States
stealing sensitive technology used in manufacturing artillery gun tubes.
* Agents of Country A allegedly stole design plans for a classified
reconnaissance system from a U.S. company and gave them to a defense
contractor from Country A.
* A company from Country A is suspected of surreptitiously monitoring a
DOD telecommunications system to obtain classified information for
Country A intelligence.
* Citizens of Country A were investigated for allegations of passing
advanced aerospace design technology to unauthorized scientists and
researchers.
* Country A is suspected of targeting U.S. avionics, missile telemetry
and testing data, and aircraft communication systems for intelligence
operations.
* It has been determined that Country A targeted specialized software
that is used to store data in friendly aircraft warning systems.
* Country A has targeted information on advanced materials and coatings
for collection. A Country A government agency allegedly obtained
information regarding a chemical finish used on missile reentry vehicles
from a U.S. person.




Country B


According to intelligence agencies, in the 1960s, the government of
Country B began an aggressive and massive espionage effort against the
United States. The 1994 interagency report on U.S. critical technology
companies pointed out that recent international developments have
increased foreign intelligence collection efforts against U.S. economic
interests. The lessening of East-West tensions in the late 1980s and
early 1990s enabled Country B intelligence services to allocate greater
resources to collect sensitive U.S. economic information and technology.


Methods used by Country B are updated versions of classic Cold War
recruitment and technical operations. The Country B government
organization that conducts these activities does not target U.S.
national defense information such as war plans, but rather seeks U.S.
technology. The motivation for these activities is the health of Country
B's defense industrial base. Country B considers it vital to its
national security to be self-sufficient in manufacturing arms. Since
domestic consumption will not support its defense industries, Country B
must export arms. Country B seeks U.S. defense technologies to
incorporate into domestically produced systems. By stealing the
technology from the United States, Country B can have cutting-edge
weapon systems without the cost of research and development. The
cutting-edge technologies not only provide superior weapon systems for
Country B's own use, but also make these products more marketable for
exports. It is believed that Country B espionage efforts against the
U.S. defense industries will continue and may increase. Country B needs
the cutting-edge technologies to compete with U.S. systems in the
international arms market.


The following are intelligence agency examples of Country B information
collection efforts:


* In the late 1980s, Country B's intelligence agency recruited agents at
the European offices of three U.S. computer and electronics firms. The
agents apparently were stealing unusually sensitive technical
information for a struggling Country B company. This Country B company
also owns a U.S. company performing classified contracts for DOD.
* Country B companies and government officials have been investigated
for suspected efforts to acquire advanced abrasive technology and
stealth-related coatings.
* Country B representatives have been investigated for targeting
software that performs high-speed, real-time computational analysis that
can be used in a missile attack system.
* Information was obtained that Country B targeted a number of U.S.
defense companies and their missile and satellite technologies for
espionage efforts. Companies of Country B have made efforts, some
successful, to acquire targeted companies.




Country C


The motivation for Country C industrial espionage against the United
States is much like that of Country B: Country C wants cutting-edge
technologies to incorporate into weapon systems it produces. The
technology would give Country C armed forces a quality weapon and would
increase the weapon's export market potential. The Country C government
intelligence organization has assisted Country C industry in obtaining
defense technologies, but not as actively as Country B intelligence has
for its industry. One example of Country C government assistance
occurred in the late 1980s, when a Country C firm wanted to enter
Strategic Defense Initiative work. At that time, the Country C
intelligence organization assisted this firm in obtaining applicable
technology.


Country D


The Country D government has no official foreign intelligence service.
Private Country D companies are the intelligence gatherers. They have
more of a presence throughout the world than the Country D government.
However, according to the 1994 interagency report, the Country D
government obtains much of the economic intelligence that Country D
private-sector firms operating abroad collect for their own purposes.
This occasionally includes classified foreign government documents and
corporate proprietary data. Country D employees have been quite
successful in developing and exploiting Americans who have access to
classified and proprietary information.


The following are examples of information collection efforts of Country
D:


* Firms from Country D have been investigated for targeting advanced
propulsion technologies, from slush-hydrogen fuel to torpedo target
motors, and attempting to export these items through intermediaries and
specialty shipping companies in violation of export restrictions.
* Individuals from Country D have been investigated for allegedly
passing advanced aerospace design technology to unauthorized scientists
and researchers.
* Electronics firms from Country D directed information-gathering
efforts at competing U.S. firms in order to increase the market share of
Country D in the semiconductor field.


Country E


Intelligence community officials stated that they did not have
indications that the intelligence service of Country E has targeted the
United States or its defense industry for espionage efforts. However,
according to the 1994 interagency report, in 1991 the intelligence
service of this country was considering moving toward what it called
"semi-overt" collection of foreign economic intelligence. At that time,
Country E's intelligence service reportedly planned to increase the
number of its senior officers in Washington to improve its semi-overt
collection-probably referring to more intense elicitation from
government and business contacts.


The main counterintelligence concern cited by one intelligence agency
regarding Country E is not that its government may be targeting the
United States with espionage efforts, but that any technology that does
find its way into Country E will probably be diverted to countries to
which the United States would not sell its defense technologies. The
defense industry of this country is of particular concern in this
regard.


It was reported that information diversions from Country E have serious
implications for U.S. national security. Large-scale losses of
technology were discovered in the early 1990s. Primary responsibility
for industrial security resides in a small staff of the government of
Country E. It was reported that this limited staff often loses when its
regulatory concerns clash with business interests. The intelligence
agency concluded that the additional time needed to eradicate the
diversion systems will consequently limit the degree of technological
security available for several years. The question suggested by this
situation is, if technology from a U.S. defense contractor owned by
interests of Country E is transferred to Country E, will this U.S.
defense technology then be diverted to countries to which the United
States would not sell?


Our report also discusses how the Department of Defense seeks to protect
sensitive information and technologies at foreign-owned U.S. companies
against such threats. It makes recommendations aimed at improving
information security at firms operating under these security
arrangements.