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1996 * CovertAction Quarterly * Economic Intelligence : $pying for Uncle $am by Pratap Chattergee

Economic Intelligence : $pying for Uncle $am

In the space of a month this fall, the US intelligence community engineered a series of high-profile events to hype its new mission. Near Washington on September 18, the National Counterintelligence Center (NACIC) (see box, p. 43) hosted a two-day public seminar on the threat from foreign industrial spies. Ed Appel, director of counterintelligence programs at the National Security Council, warned that US companies underestimated the foreign threat to intellectual property and other proprietary information.

Less than two weeks later, the FBI began a special threat awareness fax service for key US companies, ostensibly to warn about the dangers of foreign espionage. The FBI also hinted it would soon offer more programs for US firms, including security checks on foreign joint venture partners.

Ten days later, Commerce Secretary Ron Brown told Congress that his agency had documented nearly a hundred cases of foreign firms using bribery to win contracts. He put the value of those contracts at $45 billion, and estimated that bribe-offering foreign firms win 80 percent of the deals they bid on.

The CIA was ahead of the curve. During the summer, it had been quick to boast to Congress that it had helped US businesses win $30 billion in contracts. *4 And high government officials have been touting its role in trade negotiations and uncovering corruption by foreign companies that bid against US firms.


For the intelligence community, and especially the CIA, the timing of this new crusade couldn't be better. For decades, US spies rested secure knowing that their services were desired and their budgets safe. The Soviet Union's evil empire and the fear that Third World countries would fall under its spell guaranteed that the community would get almost limitless resources. By the time the Berlin Wall fell, the CIA alone counted 20,000 full-time employees and a $3 billion budget.

Now the spy establishment faces threats of a different sort. The Cold War is over, and its future depends on finding new public rationales for its existence. Congress has already slashed total intelligence funding 14 percent from its 1987 high of roughly $34 billion. *6 Although the House passed a slight spending increase for next year, it did so only after fending off liberal efforts to cut even deeper.

The intelligence community is also under scrutiny from several high-level panels. The House intelligence committee has begun IC21, a major assessment of spy programs, capabilities and capital equipment needed after the year 2000. A Senate review is also under way. And the Presidential Foreign Intelligence Advisory Board is also looking at an overhaul of the intelligence community.

The CIA, badly bruised by a series of recent scandals, needs to show how useful it can be. Enter the new mission : economic espionage, the clandestine collection of information to assess the threat posed by foreign companies to US national interests.

The official reasons tendered are threefold: preventing the theft of US technology, combating bribery or corruption by foreign competitors, and helping trade negotiators at bilateral or multilateral negotiations.


Not that aiding US business is anything new for the spooks. Even at the height of the Cold War, political and economic interests were impossible to separate. Containing the USSR also meant opening markets to US economic influence. But in some countries, CIA plotting advanced narrower corporate interests.

The 1954 overthrow of the elect-ed government of Jacobo Arbenz in Guatemala is a case in point. The CIA fomented the coup in part to help United Fruit, a family-owned US business, protect its interests in the Central American nation. Allen Dulles, then director of the CIA, sat on the board of Schroder Bank, United Fruit's partner in the banana business.

A year earlier, the agency had moved successfully against Iranian Prime Minister Mohammad Mossadeq when he nationalized British oil investments. Again in Chile, the CIA worked hand in hand with US corporations. After the CIA and telecommunications giant ITT failed in their 1970 attempt to block Salvador Allende's election to the Chilean presidency, they both backed a military coup three years later that resulted in Allende's death and Chile's descent into dictatorship.

Besides past alliances with corporate interests to contain challenges to US dominion, the CIA also has experience providing information directly to the private sector. Retired Adm. Stansfield Turner, CIA director under Jimmy Carter, began a program to provide declassified intelligence to US companies at Commerce Department briefings. In one session, the CIA filled in a couple of dozen companies on Chinese plans to build large hydropower projects. Other seminars covered semiconductors and aircraft technology. *9 That program died when Carter lost the 1980 election.


Now, the game remains the same, but the face of the foe has changed. The threat is no longer communists, but competing capitalists. Proponents of CIA cooperation with US companies explain that foreign intelligence services, notably the French, routinely help their national businesses. For example, France was accused of bugging the first-class seats on Air France to eavesdrop on business travelers' conversations.

France has long been a favorite target, and with some reason. In the 1970s, French intelligence services obtained US and Soviet plans to sell fighter aircraft to India. Armed with this information, Mirage of France won a huge contract from New Delhi.

The French also claim success in previous attempts at economic espionage. In 1993, the Count de Marenches, former head of French intelligence, claimed in his memoirs that French agents uncovered advance information that the Nixon administration would devalue the dollar in 1971. France made a handsome profit speculating against the US currency.

French efforts continue today. Philippe Parant, head of the Direction de la Surveillance du Territoire (DST) this summer became the first French spook to speak on the record when he addressed participants at a public seminar on Companies and Business Intelligence organized by the Institut des Hautes tudes de Dfense Nationale at the French Senate. The Intelligence Newsletter reported that Most of those who spoke at the seminar identified the US as both the main adversary in the war and the best model of how it is fought.

The French Center of Foreign Trade recently created a new economic intelligence office, codenamed R31. The office will supply information to a new interagency group, the Comit pour la Competitivit et la Securit Economique, formed in April by then Prime Minister Edouard Balladur. The committee, chaired by Jean Arthuis, minister for economic planning and development, will use information gleaned from both French intelligence services and French business people.

The Australians as well are improving their intelligence capabilities. How much is for commercial and how much for defense reasons is uncertain, but Indonesia and China, two lucrative regional markets, are clear priorities. In 1988, Australia opened a new station on its north coast to eavesdrop on Indonesian satellite traffic. In 1993, it set up a $250 million tracking station in western Australia to monitor Chinese satellites. That station will replace a joint British-Australian station in Hong Kong that will revert to China in 1997.

Japan too is active. Its agents reportedly aimed an infrared beam at a window in the Australian embassy in Jakarta, the Indonesian capital, to eavesdrop on conversations inside.


In the US, the emphasis on economic espionage has been gathering momentum for several years, and spying by other nations is often cited to justify it. In 1991, President George Bush, a former CIA director, told an agency meeting that we must have intelligence to thwart anyone who tries to steal our technology or otherwise refuses to play by fair economic rules. Robert Gates, then CIA director, said a Bush directive emphasized tracking international economic trends.

The following year, Bill Clinton invited Treasury Secretary Lloyd Bentsen to attend daily White House CIA briefings. He also created a new agency in January 1993, the National Economic Council, which works closely with the CIA. Robert Rubin, its first director, has now replaced Bentsen as Treasury secretary.

On July 14, Clinton went to CIA headquarters to outline his priorities for the agency. Among them he listed illicit trade practices. Also in July, economist Richard Neu drew up a specific plan for economic espionage and counterespionage for the administration. It would establish few limits on stealing business information from foreign companies. Neu, a former White House adviser, has had close ties with the CIA.

Administration officials are now talking up the new priorities. CIA director John Deutch said in July that we are not going to undertake espionage for the sake of commercial advantage of specific US industries or firms. The users of intelligence will be the Treasury Department, the National Economic Council, the US Trade Representative and the Commerce Department, he said.

Others say that senior US officials abroad will also be able to request information. The thinking now is that our ambassadors should be able to request the local station chief to get information on key contracts information about possible competitors, about any illegal activities such as bribery, said a State Department source.

At a September Senate Intelligence Committee hearing, Lawrence Summers, second in command at Treasury, highlighted some areas where spying could prove useful:

"[T]here's a role for the intelligence community to play in detecting foreign attempts to seek unfair advantage over US businesses through industrial espionage. While we reject an effort to assist our own businesses through the use of intelligence operations to steal property or proprietary information from foreign entities, whether public or private, there is certainly a need for counterintelligence in this area."

Nice sentiments, but they fly in the face of a lengthening record of US economic espionage that extends far beyond defensive counterintelligence programs.


In fact, the US has been using the same espionage techniques it condemns in its competitors. In July, the French business magazine L'Expansion claimed the CIA used disinformation tactics to undermine French companies and frame their executives. It also reported official French claims that the CIA and other intelligence agencies, plus private investigators and major accounting firms, are plotting to destroy French companies in high-tech industries such as aerospace and telecommunications. The magazine named private detective agencies with international practices, including Kroll Associates, the Triangle partnership run by former CIA analyst William Lee, the Futures Group, and SIS International.

US officials countered that the French were looking for a scapegoat for their business leaders' problems with the courts and their businesses' problems with exports and, as often, the invisible hand of the US is the most convenient villain.

For the French, it is certainly a familiar one. In February, France accused five US citizens of trying to bribe French government and corporate officials to obtain technology and trade secrets.

Henri Plagnol, a Balladur aide, was reportedly courted by a US woman who claimed to be the public relations director for a Texas rainforest foundation. Another CIA operative paid Plagnol $100 a pop for information on French negotiating positions at General Agreement on Tariffs and Trade (GATT) talks. Two more CIA agents asked communications ministry officials for information about GATT, while another tried to bribe a France Telecom engineer to report on how to bug French telecommunications.

When the French finally blew the whistle on the spying, which they say they knew about for two years, they summoned US Ambassador Pamela Harriman to the office of Interior Minister Charles Pasqua to be reprimanded. Four of the suspects were asked to leave the country. (The fifth had already left.)

Also this spring, upset Australian spooks leaked reports that the US and Australia had bugged the new Chinese embassy in Canberra. The Australians leaked the story out of pique; the US National Security Agency translated and analyzed the data before it would pass it on to Australian intelligence. US negotiators thus had the upper hand in negotiations where Australian and US firms openly bid against each other for Chinese contracts.

In September 1993, Clinton reportedly asked the CIA to spy on Japanese plans to build a zero-emission vehicle and to provide its intelligence to the Big Three US car manufacturers. The agency subsequently compiled a daily tip sheet on the Japanese negotiating position in the recent US-Japan spat over cars. CIA's Tokyo station and the NSA reportedly contributed information. The team worked side-by-side with negotiators at the Inter-Continental Hotel in Geneva, reporting, for example, on conversations between Nissan and Toyota executives arguing for a settlement to the trade dispute.

That project, with its leaked CIA boasts of secret successes, has recently chilled relations with Japan. It has also boosted Japan's plans to strengthen its own intelligence gathering.


The US has long spied on Japanese business, making extensive use of yet another tool in its spy kit, non-official cover (NOC). In the NOC program, corporations allow the CIA to plant operatives among their personnel abroad to spy on competitors. Japan is a prime target. According to John Quinn, a former NOC officer in Japan, the Japanese caught a team of 13 NOC officers in 1989. The 15-year program was broken up by Japan's Public Security Investigative Agency, which simply hired thugs to bust up the homes and offices of NOCs, causing the CIA to recall them in a panic.

They wanted to know the structure of the company inside, who were the bigwigs, who were their policy-makers, where was their R&D section, what was the R&D section working on, what was their budget, what were the critical technologies they were developing, said Quinn.

The CIA reportedly has some 60 officers now in Japan investigating companies like Mitsubishi Heavy Industries, Kyocera, Dai Nippon printing, and the National Space Development Agency.

And 30 of the 80 CIA agents in France reportedly operate as NOCs. One of the CIA operatives expelled in last February's spy scandal worked under non-official cover.

Officially known as the Domestic Resources Division, with offices in cities around the country, the program took off in the early 1980s under Reagan CIA head William Casey, who tightened agency liaison with Treasury and enlisted some 150 companies for the project. The roster of corporate volunteers has included Bank of America, Campbell Soup, Chase Manhattan Bank, Ford, General Electric, IBM, Pan Am, Prentice-Hall, Procter & Gamble, Rockwell International, RJR Nabisco, and Sears Roebuck.

Recruitment for the NOC program includes blind help wanted ads. One such ad was placed in the Wall Street Journal by the McLean, Virginia-based headhunter firm of Stackig, Sanderson & White.29

Unlike most CIA officers working abroad, NOCs do not have diplomatic cover, leaving them vulnerable to criminal prosecution if caught, or, as was the case in Japan in 1989, subject to non-official thuggery.


Despite embarrassments such as the Paris scandal, US counterintelligence programs can claim some successes for their corporate friends. After President Clinton intervened with the Brazilian government, Raytheon clinched a $1.4 billion contract to set up a satellite surveillance system ostensibly to monitor rain forest destruction, but which could also monitor drug trafficking and assist oil prospecting. US officials also helpfully pointed out that Thompson CSF, a French company and Raytheon's main rival in the bid, had bribed local officials.

The CIA was tipped off about the bribes. We don't think that bribery is a fair way to do business, especially because our laws don't allow us to do that, says former CIA chief William Colby.

Earlier in the year, the same combination CIA information on French bribes followed up by personal Clinton arm-twisting foiled a French bid to win a $6 billion deal to modernize Saudia, the Saudi Arabian airline. The Saudis awarded the contract to the US consortium of McDonnell Douglas and Boeing. French-led Airbus was left out in the cold.


Still, some spymasters have expressed concerns about economic espionage. I'm not sure that it's such a good idea. What if two US companies are bidding for the same project? Whom do you favor? asked William Colby.

Economic espionage remains controversial inside the CIA. I'm prepared to give my life for my country, but not for a company, one officer told then CIA chief Robert Gates in 1992. In reality, there may not be much difference.

Those companies favored so far have been major corporations with a history of feeding off defense contracts. McDonnell Douglas and Raytheon are the first and fifth largest recipients of federal contracts; more than half of their sales are for war-related activities. They won a total of $18.1 billion in business from the government in 1993, and in November 1995, McDonnell Douglas garnered another $18 billion contract, this one for 80 C-17 cargo planes for the Air Force.

Both have always had close ties to the CIA and the US military because of the nature of their business. Many of their senior officials have worked for either the Pentagon or the CIA at some point in their careers. But these companies are hardly decent, law-abiding corporate citizens: Since 1990, Raytheon has paid fines or penalties totaling $11.5 million for offenses including illegal trading in confidential Pentagon documents and overcharging on separate contracts for missile test equipment, Patriot missiles, and a $71 million radar system.

There are other problems with enlisting the intelligence community in global economic struggles. For one, the CIA's track record on economic intelligence is spotty. For example, in the mid-1980s, the CIA estimated that per capita Gross Domestic Product was higher in East Germany than in West Germany. *37 Admittedly, exaggerating the economic might of Soviet allies helped ensure continued support for CIA activities.

Second, providing new missions in economic intelligence for the CIA duplicates existing programs in a wide range of government, commercial, and academic institutions. As Treasury official Lawrence Summers noted in September, it is frankly difficult to see how the intelligence community can add much value to reports on European government finances, whether generated by US government economists or Wall Street analysts based on public information. Or for that matter, how the community can in many cases improve on analyses for emerging market prospects.

Finally, enlisting the intelligence community on behalf of commercial interests encourages the longstanding false identification of the national interest with corporate well-being. In that sense, economic espionage is very much business as usual.