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The Rise and Relevance of Economic Espionage

By   /  April 4, 2012  /  No Comments

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The Economic Espionage Act (EEA) of 1996 was passed in response to the threat and subsequent success of foreign nations accessing U.S. trade secrets and exploiting them to the detriment of American economic and national security interests. Although it seems at best tangential to conventional notions of “National Security,” economic espionage should at the forefront of national security concerns. The following will address some of the basic questions of this critical aspect of national security.

What is it?

The governing statute, 18 U.S.C. § 1831(a), defines economic espionage as the stealing, conveying, or accepting of trade secrets, “intending or knowing that the offense will benefit any foreign government, foreign instrumentality, or foreign agent.” Individual violators of § 1831 are punishable up to $500,000 and 15 years in prison and organizations are punishable up to $10 million. “Trade Secrets,” are defined in § 1839 as any information where the owner of the information has taken measures to keep it secret and the information derives independent economic value from being unknown or easily accessible.

President Clinton stated upon signing the 1996 EEA, the Act ameliorated the “antiquated laws that have not kept pace with the technological advances of modern society.” In a hearing before the House Committee on the Judiciary, Subcommittee on Crime, expert in the field R.J. Hefferman commented on the “antiquated” laws the President referred to, saying that prior to the EEA, the law was simply, “sufficient to prosecute most thefts of corporate property because most corporate property was tangible.” The relevant statute before 1996 was 18 U.S.C. § 1905, the Trade Secrets Act, which did not apply to private sector employees and provided only minor sanctions.  Hefferman continued, “Likewise, national security laws were sufficient to prosecute theft of classified government information.” In United States v. Hsu, the court further pointed out the other relevant statutes before 1996 were, “drafted at a time when computers, biotechnology, and copy machines did not even exist and industrial espionage often occurred without the use of mail or wire.” (Internal quotations omitted).

Even in 1996 enough corporate property had shifted from material to intangible that the necessity for new legislation was clear. Hefferman points out a 323% increase in intangible property from 1982-1992, putting the annual losses to American industry at $24 billion in 1996. Former FBI Director Louis Freeh noted that at the time the EEA was passed, “eight foreign countries have been ‘extremely active’ in using bribery, theft, and other techniques to provide trade secrets to domestic companies,” and the FBI was investigating at one point more than 800 cases of economic espionage.

Why does it matter?

Earlier this year in a report to the Senate Select Committee on Intelligence, Director of National Intelligence James Clapper had focused the list to China, Russia, and Iran as areas of major concern in this field. Director Clapper warned that the growing practice and reliance on cloud data processing and storage coupled with the “dramatic rise and increase in depth and complexity” of these nations will make this issue a prominent one in the immediate future. He also noted that, “owing to market incentives, innovation in functionality is outpacing innovation in security, and neither the public nor private sector has been successful at fully implementing existing best practices.” Additionally the US-China Economic and Security Review Commission published a detailed report with Northrop Grumman which stated that the Chinese, “have adopted a formal Information Warfare strategy called ‘Integrated Network Electronic Warfare’ that consolidates the offensive mission for both computer network attack and Electronic Warfare under the People’s Liberation Army General Staff Department’s the Department of Electronic Countermeasures.”

What’s wrong with the current situation?

The public and private sectors are at odds with who should be responsible for the

prosecution and realistically the implementation of the EEA. The Office of the National Counterintelligence Executive (NCIX) stated, “The private sector alone lacks the resources and expertise to thwart foreign efforts to steal critical American know-how. This is in large part because counterintelligence is not a typical corporate function, even for well-trained and well–staffed security professionals.” Juxtapose with this statement from a corporate crisis management firm: “Economic espionage must be fought in the trenches one company at a time, and it is incumbent upon all at-risk companies to take steps to identify and protect important trade secrets and other intellectual property.” Whether there is a viable efficient solution remains to be seen, but presently this intersection between corporate and national security interests will continue to encourage progress.

What does the future look like?

The future must be a coordinated effort from both the public and private entities of the United States. The FBI lists six steps for businesses to help in the effort to protect the nation from economic espionage: 1. Recognize there is an insider and outsider threat to your company. 2. Identify and valuate trade secrets. 3. Implement a proactive plan for safeguarding trade secrets. 4. Secure physical and electronic versions of your trade secrets. 5. Confine intellectual knowledge on a “need-to-know” basis. 6. Provide training to employees about your company’s intellectual property plan and security. Clearly this is the first echelon of defense and the FBI and broader Intelligence Community seems to be committed to this prevalent aspect of national security. As the NCIX 2009 Strategy states, “the counterintelligence community must act jointly to understand, confound, manipulate, and thwart these threats, which exceed the ability or resources of any single U.S. agency or department to overcome. When necessary, we will disrupt these activities through arrest and expulsion.” As recent as December 2011, Assistant Attorney General of the Criminal Division Lanny A. Breuer reported the conviction and 87 month prison sentence of Kexue Huang for, “stealing valuable trade secrets from two American companies and disseminat[ing] them to individuals in Germany and China.” United States strategy will likely continue to evolve and adapt to the changing threat of economic espionage, and it will take increased cooperation between the Intelligence Community and public sector. American strategy may well be summed up by , USMC: “We’re

surrounded. That simplifies our problem.”


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