Economic Espionage: Security Missions Redefined

By Fraumann, Edwin | Public Administration Review, July-August 1997 | Go to article overview

Economic Espionage: Security Missions Redefined

Fraumann, Edwin, Public Administration Review


Throughout history, espionage has generally been viewed as an activity conducted by spies to obtain the military secrets of an enemy. Some of the most successful and well-known examples of espionage include England's use of spies to uncover the military information that helped to defeat the Spanish Armada in 1588; the use of spies by the Allies during World War 11 to defeat the Axis powers; and the Soviet Union's use of spies to steal atomic bomb secrets from their former allies, the United States and Britain.

In the post Cold War era, however, increasing international economic competition has redefined the context for espionage as nations link their national security to their economic security. Spying conducted by intelligence services is expanding from its primary focus on military secrets to collecting economic secrets, i.e., to conducting economic espionage.

The United States is particularly vulnerable to the changing focus of international espionage agencies since so many American corporations and research centers rely heavily on communications systems, computer networks, and electronic equipment to process and to store information. Over 50 countries have covertly tried to obtain advanced technologies from United States industries (U.S. Senate, 1996a). In 1995, the annual cost of economic espionage to corporate America was conservatively estimated to be at least $50 billion. If intellectual property theft and unrestricted technology transfer are included, the estimate rises up to $240 billion (Perry, 1995, 3).

A wide range of federal statutes provide the authority for activities that counter economic espionage. These activities are undertaken by at least nine federal agencies, including the FBI, which has the dominant role. However, given the extent of the problem, it was obvious that existing initiatives had not been effective in preventing the theft of economic secrets. In recognition of the growing threat of economic espionage and the inability of existing legislation to deal with it, the Economic Espionage Act of 1996 (18 U.S.C. secs. 1831-1839) was signed into law on October 11, 1996, creating a new federal crime -- the theft of trade secrets.

The Department of justice now has sweeping authority to prosecute the theft of trade secrets in the United States. The act, intended to crack down on economic espionage by foreign and domestic competitors, makes it illegal to steal a competitor's "proprietary" economic information and imposes stiff new penalties for these thefts. Section 1831 of the act addresses economic espionage provisions and agents of foreign powers. Section 1832 of the act makes it a federal crime for any person to convert a trade secret to his own benefit or the benefit of others knowing that the offense will injure the owner of the trade secret.

Although the problem of economic espionage had become extensive and was the subject of debate in Congress, few people outside of those fighting it and those affected by it were aware of its scope and impact. This article attempts to close this information gap by providing a working definition of economic espionage and trade secrets, describing the methods that are used to obtain trade secrets from American corporations and research centers, and summarizing the technological capabilities of selected countries to conduct economic espionage against the United States. The article also addresses public-sector initiatives in the United States to protect its economic interests.

Economic Espionage: What Are

We Talking About?

According to the FBI, "economic espionage means foreign-power sponsored or coordinated intelligence activity directed at the U.S. Government or U.S. corporations, establishments, or persons for the purpose of unlawfully obtaining proprietary economic information" (FBI, 1995, 2). In Section 1839 of the Economic Espionage Act of 1996 "trade secret" is defined to mean all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing. …

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