Updated 2000-01-24

Economic Security

“Today’s economic competition is global. The conquest of markets and technologies has replaced former territorial and colonial conquests. We are living in a state of world economic war and this is not just a military metaphor...the companies are training the armies and the unemployed are the casualties.”

Spoken at a Paris conference on economic espionage, by Bernard Esambert, President of the French Pasteur Institute

Introduction

The era when traditional global security relations overshadowed economic concerns and regional conflict has passed. Accelerating economic interdependence and international competition have emerged as major sources of tension and conflict among world powers. In this uncertain environment, developed countries eager to maintain their standards of living, and developing countries equally determined to improve their own, are under pressure to use whatever means they have to improve their productivity and ensure their economic security. One such means is economic espionage, which can be described as illegal, clandestine or coercive activity by a foreign government in order to gain unauthorized access to economic intelligence, such as proprietary information or technology, for economic advantage.

Impact

Although some spectacular incidents have found their way into media reports, analysis of the overall impact of economic espionage is difficult because of industry’s reluctance to discuss the issue in detail. In fact, the General Accounting Office—the investigative arm of the US Congress—had to abandon its plan to study the extent and impact of foreign government spying on US companies when it became clear firms had little desire to discuss the matter. Canadian explorations of the issue have met with similar responses. There are a number of reasons for this corporate reticence. In many cases, firms fear disclosure could harm their reputation, or undermine shareholder confidence.

Despite these obstacles to a formal calculation, business and government representatives generally agree that the cost of economic espionage activities to individual firms and the economies that host them is in the billions of dollars. On February 9, 1999 during a United States Chamber of Commerce symposium on economic espionage, Chamber President Thomas Donahue stated that there is no challenge more ominous to global business competitiveness than economic espionage. He added that business espionage—whether state sponsored or conducted by a rogue hacker—is a growing threat to shareholder value with current losses estimated at $2 billion a month. Given similar economies, it is likely that Canada too suffers serious damage from economic espionage.

The Canadian government has transformed its national requirements for security intelligence to reflect this modified threat environment. Currently, the government has identified economic security as one of its priorities. CSIS has responded to these changing dynamics and to their impact on Canadian defence, foreign policy and economic interests. However, it is important to note that while economic security is of significant concern to CSIS, public safety is the Service’s number one priority.

CSIS’ Economic Espionage Mandate

Though there has been a decline in offensive intelligence operations directed against Canada by some members of the former Central and Eastern European services, a number of countries continue to carry out such activity . Moreover, increasing global economic competition is leading many governments to shift the focus of their intelligence collection away from the traditional areas of political and military matters to the illicit acquisition of economic and technological information. One of our primary objectives is to monitor the activities of known or suspected foreign intelligence officers in Canada, and to prevent foreign visitors, students and delegates suspected of intelligence activities from gaining access to the country.

CSIS’ mandate relative to economic espionage is to investigate, when necessary, clandestine activities by foreign governments that are potentially detrimental to Canada’s economic and commercial interests.

CSIS seeks to forewarn government when the otherwise level playing field of free market competition is deliberately tilted against Canadian industry.

CSIS does not investigate industrial espionage—the practice of one private sector company spying on another. If these activities are of a criminal nature, they may be investigated by law enforcement agencies. As well, civil remedies may be available.

The vast majority of economic intelligence gathered by businesses or governments is derived from open sources in a legal manner involving no clandestine, coercive or deceptive methods. The collection and dissemination of information in this manner, either through visiting scientists, students or businessmen, is rightly seen as a beneficial element of a free and open society. In a minority of cases, however, economic intelligence is obtained with less than laudatory techniques and with less than desirable results.

The Global Environment

Economic Espionage in Canada

Canada is a world leader in many technology-intensive fields. Aerospace, biotechnology, chemical, communications, information technology, mining & metallurgy, nuclear, oil & gas and environmental technology are key industrial sectors in the Canadian economy. Canadian enterprises maintain and develop information and technology of economic significance, the protection of which is essential to their economic viability, and by extension, the economic well-being of Canada.

A number of Canadian companies operating in these sectors have been targeted by foreign governments to obtain economic or commercial advantages. The damage to Canadian interests takes the form of lost contracts, jobs and markets, and overall, a diminished competitive advantage. Information and technology that has been the target of economic espionage includes trade and pricing information, investment strategy, contract details, supplier lists, planning documents, research and development data, technical drawings and computer databases.

Examples

A Canadian company’s technology was compromised when the company, hoping to secure a lucrative contract from a foreign government, allowed a national of that country to work on a sensitive, leading-edge technology project. The foreign government then proceeded to duplicate the technology based on the information obtained through the direct access their representative agent had to this project.

In another instance, a foreign government is believed to have tasked its intelligence service to gather specific information. The intelligence service in turn contracted computer hackers to help meet the objective, in the course of which the hackers penetrated databases of two Canadian companies. These activities resulted in the compromise of numerous computer systems, passwords, personnel and research files of the two companies.

In another incident, a foreign scientist working in the biotechnology sector stole laboratory cultures and confidential manuals from a Canadian company which is believed, in the process, to have lost valuable R&D data, as well as potential earnings. It was later determined that the individual involved had also stolen similar materials from his previous employer based in another country.

There is no limit to ingenuity when it comes to the clandestine collection of significant economic information. The most frequently used collection method is the recruitment of someone who has access to the information (employees, contractors, consultants, students, etc.). However, other methods include break-ins, briefcase tampering, photocopying, garbage retrieval and communications interception. In the latter case, the means at the disposal of a foreign government to monitor telecommunications often exceed what is commercially available.

Economic Espionage Abroad

Businessmen travelling abroad are vulnerable to economic espionage due to the limited control they can exercise over the foreign business environment. In this context, a foreign government can operate more easily and with greater impunity in its own country. Hotel rooms, restaurants, office buildings, safes, telecommunications systems and personnel are more vulnerable than domestic counterparts to compromise through covert economic espionage activities.

In one case, it was suspected that a host government was intercepting telephone conversations between an executive abroad and his Canadian company headquarters. Canadian executives discussed detailed negotiation information including a specific minimum bid. This minimum bid was the immediate counter-offer put forward by the host company the following day.

In another incident, an executive from a Canadian company, while visiting a foreign company overseas with which it had a business agreement, strongly suspected that his briefcase and documents had been compromised while they were left in the “security” of the foreign corporation’s office.

Once again, if the potential gains are significant enough, any covert method or a combination of some of them can be used to acquire the desired information or technology, and obviously it is easier for a foreign government to initiate covert activities on its own territory.

Countries Involved

While some traditionally “hostile” countries continue to pose a threat to Canada’s economic security, there are strong indications that other foreign governments—including some of those from countries considered “friendly” to Canada—use espionage as a means to further their economic and commercial interests. Any competing nation, given sufficient motivation, may well engage in espionage against Canada to further its economic objectives.

For more information on economic espionage, please see the attached excerpt from the 1999 Report of the Special Senate Committee on Security and Intelligence chaired by the Honourable William M. Kelly.

"SUSPICIOUS INDICATORS OF ECONOMIC ESPIONAGE"

There are several well known Modus Operandi (MO) used by foreign governments attempting to acquire sensitive corporate or proprietary information. These include:

• UNSOLICITED REQUESTS FOR PROPRIETARY INFORMATION,
• INAPPROPRIATE CONDUCT DURING VISITS,
• SUSPICIOUS WORK OFFERS,
• TARGETING AT INTERNATIONAL EXHIBITS, SEMINARS, AND CONVENTIONS,
• EXPLOITATION OF JOINT VENTURES AND JOINT RESEARCH,
• ACQUISITIONS OF TECHNOLOGY AND COMPANIES,
• CO-OPTING OF FORMER EMPLOYEES, TARGETING CULTURAL COMMONALITIES,

The above activities serve as indicators of economic espionage. While these indicators do not always equate to an actual foreign collection threat, they can serve as a signal. A number of indicators in a given situation might warrant further examination.

UNSOLICITED REQUESTS FOR INFORMATION

Unsolicited requests for proprietary or classified information is associated with foreign collection activity. Requests frequently involve faxing, mailing, E-mailing, or phoning to individual persons rather than corporate marketing departments. The requests may involve surveys or questionnaires and are frequently being sent over the Internet.

Marketing surveys can elicit sensitive technological and business information. With this particular method it is important to consider who is the end user of the information and who is completing the survey. Increasing use of the Internet provides a method of direct communication with government and Canadian industry for foreign collection purposes. Internet access to a company's bulletin board, home page, and employees provide a foreign collector many avenues to broaden collection efforts.

Indicators

- The Internet address is in a foreign country.

- The recipient has never met the sender.

- Technology requested is classified, its export controlled, or has both commercial and military applications.

- The requester identifies his/her status as a student or consultant.

- The requester identifies his/her employer as a foreign government or the work is being done for a foreign government or program.

- The requester asks about a technology related to a defense-related program, project, or contract

- The requester asks questions about defense-related programs using acronyms specific to the program.

- The requester insinuates that the third company he/she works for is "classified."

- The requester admits he/she could not get the information elsewhere because it was classified or controlled.

- The requester advises the recipient to disregard the request if it causes a security problem or if it is for information the recipient cannot provide due to security classification, export controls, and so forth.

- The requester advises the recipient not to worry about security concerns.

- The requester assures the recipient that export licenses are not required or are not a problem.

- Marketing surveys may be faxed or mailed to an individual via the company marketing office.

- Marketing surveys may be sent by foreign consortiums or a consulting company. Foreign companies with foreign intelligence involvement are likely to be a consortium of officials, military officers, or private interests.

- Marketing surveys often may exceed generally accepted terms of marketing information.

- Strong suspicions that the "surveyor" is employed by a competing foreign company.

- Surveys may solicit proprietary information concerning corporate affiliations, market projections, pricing policies, program or technology director's names, company personnel working on the program, purchasing practices, and types and dollar amounts of Canadian government contracts.

- Customer and supplier bases for a company may also be sent marketing surveys that exceed accepted terms of marketing information.

INAPPROPRIATE CONDUCT DURING VISITS

Foreign visits to Canadian companies can present potential security risks if sound risk management is not practiced and appropriate security measures implemented.

Indicators

- Visitors are escorted by a diplomatic or embassy official who attempts to conceal their official identities during a supposedly commercial visit.

- Hidden agendas as opposed to the stated purpose of the visit, i.e. visitors arrive to discuss program X but do everything to discuss and meet with personnel who work with program Y.

- Last minute and unannounced persons added to the visiting party.

- "Wandering" visitors who act offended when confronted.

- Using alterative mechanisms. For example if a classified visit request is disapproved, the foreign entity may attempt a commercial visit.

- Visitors ask questions during briefing outside the scope of the approved visit hoping to get a courteous or spontaneous response.

SUSPICIOUS WORK OFFERS

Foreign scientists and engineers will offer their services to research facilities, academic institutions, and defense contractors. This may be a MO to place a foreign national inside the facility to collect on a desired technology.

Indicators

- Foreign applicant has a scientific background in a specialty for which his country has been identified as having a collection requirement for that technology.

- Foreign applicant offers services for "free." Foreign government or corporation associated with government is paying expenses.

- Foreign interns (students working on masters or doctorate) offer to work under a knowledgeable individual for free, usually for a period of 2-3 years.

- The technology in which the foreign individual wants to conduct research is proprietary, classified, or export controlled.

INTERNATIONAL EXHIBITS, CONVENTIONS, AND SEMINARS

These functions directly link programs and technologies with knowledgeable personnel.

Indicators

- Topics at seminars and conventions deal with classified or controlled technologies and/or applications.

- Country or organization sponsoring seminar or conference has tried unsuccessfully to visit the facility.

- Receive invitation to brief or lecture in foreign country with expenses paid.

- Requests for presentation summary 6-12 months prior to seminar.

- Photography and filming appears suspicious.

- Attendees wear false / or incomplete name tags.

JOINT VENTURES/JOINT RESEARCH

Co-production and various exchange agreements potentially offer significant collection opportunities for foreign interests to target restricted or proprietary technology.

Indicators

- Foreign representative wants to access the local area network (LAN).

- Foreign representative wants unrestricted access to the facility.

- Enticing Canadian contractors to provide large amounts of technical data as part of the bidding process, only to have the contract canceled.

- Potential technology sharing agreements during the joint venture are one-sided.

- The foreign organization sends more foreign representatives than is necessary for the project.

- The foreign representatives single out company personnel to elicit information outside the scope of the project.

FOREIGN ACQUISITION OF TECHNOLOGY AND COMPANIES

Foreign entities attempt to pin access to sensitive technologies by purchasing Canadian companies and technologies.

Indicators

- New employees hired from the foreign partners company, or its foreign partners, wish to immediately access sensitive corporate or proprietary information.

CO-OPTING FORMER EMPLOYEES

Former employees who had access to sensitive, proprietary, or classified program information remain a potential counterintelligence concern. Targeting cultural commonalities to establish rapport is often associated with the collection attempt. Former employees may be viewed as excellent prospects for collection operations and considered less likely to feel obligated to comply with Canadian export controls or company security requirements.

Indicators

- Former employee took a job with a foreign company working on the same technology.

- Former employee maintains contact with former company and employees.

- The employee alternates working with Canadian companies and foreign companies every few years.

TARGETING CULTURAL COMMONALITIES

Foreign entities exploit the cultural background of company personnel in order to elicit information.

Indicators

- Employees receive unsolicited greetings or other correspondence from embassy of country of family origin.

- Employees receive invitations to visit country of family origin for purpose of providing lecture or receiving an award.

- Foreign visitors single out company personnel of same cultural background to work or socialize with.

Definitions

economic security

Economic security is the maintenance of those conditions necessary to encourage sustained long-term relative improvements in labour and capital productivity and thus a high and rising standard of living for a nation’s citizens, including the maintenance of a fair, secure and dynamic business environment conducive to innovation, domestic and foreign investment and sustainable economic growth. This is a broad goal sought by all governments.

economic intelligence

Economic intelligence is policy or commercially relevant economic information, including technological data, financial, proprietary commercial and government information, the acquisition of which by foreign interests could, either directly or indirectly, assist the relative productivity or competitive position of the economy of the collecting organization’s country.

economic espionage

Economic espionage is defined as illegal, clandestine, coercive or deceptive activity engaged in or facilitated by a foreign government designed to gain unauthorized access to economic intelligence, such as proprietary information or technology, for economic advantage.

industrial espionage

Industrial espionage is the use of, or facilitation of, illegal, clandestine, coercive or deceptive means by a private sector entity or its surrogates to acquire economic intelligence.

Excerpt from the 1999 Report of the Special Senate Committee on Security and Intelligence chaired by the Honourable William M. Kelly (page 17 of the report).

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Economic Espionage

With the end of the Cold War, competition among states became less military and more economic. Whereas states previously engaged in espionage primarily for military and foreign policy purposes, intelligence operations are now concentrating more on conducting, or guarding against, economic espionage. Economic espionage is rarely equated with terrorism. However, rogue states that sponsor terrorism may engage in economic espionage as an alternative to conventional terrorism. Furthermore, large, sophisticated terrorist organizations with the resources to do so may decide to engage in economic espionage as another terrorist tactic. An increasing number of states, including the United Kingdom, United States, Australia, South Africa and Russia have made public announcements about using their intelligence organizations both to conduct and protect against economic espionage. Some countries such as the United Kingdom have included protecting or advancing the state's "economic well-being" within the official mandates of their intelligence organizations. The French have expanded their criminal law on espionage to cover industrial and commercial espionage.

Canada's advanced industrial and technological society and our expertise in certain sectors, such as telecommunications, agriculture and fisheries, make us attractive to economic spies. Factors that make us vulnerable to economic espionage include the level of foreign ownership in our economy, the number of multinational corporations with operations here and the number of foreign students studying in Canada in the basic and applied sciences.

The true extent of economic espionage is impossible to gauge. Governments and private sector companies may not know that their secrets have been stolen until long after the event, if ever. Many companies do not report incidents of economic espionage out of embarrassment, or for fear of stock market or other negative consequences for the company.

Within our security intelligence establishment the Canadian Security Intelligence Service is, more than any other organization, charged with guarding against economic espionage. Under section 16 of Canadian Security Intelligence Service Act, the Canadian Security Intelligence Service also has the mandate to assist the government in the collection of information or intelligence "relating to the capabilities, intentions or activities" within Canada of a foreign state or group of foreign states, or persons other than Canadian citizens, permanent residents or special act corporations. The Canadian Security Intelligence Services mandate, however, applies to government: protecting the Canadian government against economic espionage and guarding against economic espionage against Canadian targets by foreign governments.

[Counter-Intelligence][Economic & Information Security]