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Spies Took $300-Billion Toll on U.S. Firms in '97

Business: FBI says espionage is increasing, with at least 23 governments targeting American companies.

January 12, 1998|JACK NELSON | CHIEF WASHINGTON CORRESPONDENT

WASHINGTON — Despite passage of the 1996 Economic Espionage Act, the FBI says foreign spies have stepped up their attacks on U.S.-based companies, and a new national survey estimates that intellectual property losses from foreign and domestic espionage may have exceeded $300 billion in 1997 alone.

Governments of at least 23 countries, ranging from Germany to China, are targeting U.S. firms, according to the FBI.

Urging U.S. firms to notify the FBI if they suspect espionage, Larry Torrence, deputy assistant director of national security, said: "The odds are not favorable for any American company when they are targeted for clandestine action by some country's intelligence service."

More than 1,100 documented incidents of economic espionage and 550 suspected incidents that could not be fully documented were reported last year by major companies in a survey conducted by the American Society for Industrial Security. The Times obtained results of the survey, which is scheduled to be released Wednesday.

The society's periodic surveys, which FBI Director Louis J. Freeh has cited in congressional testimony, provide the federal government with its only estimate of potential damage from economic espionage.

The 1997 survey disclosed that high-tech companies, especially in Silicon Valley, were the most frequent targets of foreign spies, followed by manufacturing and service industries. Among the spies' most sought-after information were research and development strategies, manufacturing and marketing plans, and customer lists.

As a matter of policy, the FBI does not identify governments that sponsor economic espionage. But in a recent article in an academic journal, an FBI agent who works in the field named some of the countries and provided a rare look into commercial spying by foreign intelligence services.

France, Germany, Israel, China, Russia and South Korea were named as major offenders in the article by Edwin Fraumann, a New York-based FBI agent who teaches at John Jay College of Criminal Justice. His article appeared in Public Administration Review, published by the American Society for Public Administration.

Both Fraumann and intelligence sources say China has accelerated its efforts to penetrate the security of U.S. firms. In fact, China was involved in one of the relatively few cases the FBI has brought into court so far under the 1996 Economic Espionage Act, which makes theft of proprietary economic information a felony punishable by a $10-million fine and 15-year prison sentence.

Harold C. Worden, 56, a retired Eastman Kodak manager, pleaded guilty in November to stealing Kodak's formulas, drawings and blueprints and passing them along to China. He agreed to cooperate in a continuing investigation.

U.S. District Judge Michael Telesca, in sentencing him to a year in prison under a plea bargain negotiated by prosecutors, denounced Worden for providing trade secrets to "not just any foreign national, but China," a longtime U.S. adversary with a bad human rights record.

The FBI confirmed Fraumann's report that pending before the bureau are more than 700 foreign counterintelligence investigations involving economic espionage. It said economic spying by countries considered friends as well as adversaries of the United States has been increasing.

French intelligence, according to Fraumann, has spied on U.S. companies by wiretapping U.S. businesspeople flying on Air France between New York and Paris. France has also used such clandestine methods as surveillance of business personnel and communications inside France, including telephone conversations and faxes.

The Directorate General of the External, France's equivalent of the CIA, and the Directorate of Surveillance and Terrorism, its equivalent of the FBI, continually use their databases to target foreign companies and personnel, Fraumann wrote. When they identify a particular target, he said, "individuals are sometimes placed in 'deep cover' within a foreign firm without revealing their true allegiance."

The CIA, FBI and other U.S. agencies engage in counterespionage, but officials of the agencies insist that U.S. policy bars spying on foreign firms and governments. However, U.S. intelligence sources have engaged in commercial espionage--with decidedly mixed results.

As recently as 1995, five Americans--four of them CIA agents--were expelled from France after being accused of economic spying against the French government. U.S. sources said the bungled operation forced the CIA to temporarily suspend virtually all of its operations in France. In addition, sources said, it made U.S. intelligence agencies much more conservative in their overall approach to commercial espionage.

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