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Understanding and Preventing Economic Espionage

Dramatic illustration of corporate economic espionage.

April 1, 2015

By Stephanie Kent
Investigative Research Assistant

Now more than ever, American industry is a focal point for foreign intelligence services, economic spies and criminals at large. Today, nearly all critical business and technology information is accessible through the cyber environment, giving all adversaries a faster, safer and more efficient way to penetrate the foundations of our economy. Their criminal endeavors compromise trade secrets, intellectual property and technological developments that are not only essential to our businesses, but also to national security. It’s imperative that large and small companies understand the gravity of economic espionage, as it is highly prevalent and threatening in today’s high-stakes competitive business world.

What constitutes economic espionage?

In general terms, economic espionage is the unlawful or clandestine targeting or acquisition of sensitive financial, trade or economic policy information; proprietary economic information; or technological information.1

The Economic Espionage Act of 1996 (EEA), Title 18 U.S.C.§§ 1831-1839, defines the term “economic espionage” as the theft or misappropriation of a trade secret with the intent or knowledge that the offense will benefit any foreign government, foreign instrumentality, or foreign agent. The act of receiving, purchasing, or possessing a trade secret known to have been stolen or misappropriated, as well as any attempt or conspiracy to commit economic espionage are punishable as a federal crime under the EEA.2

Why should I be concerned about economic espionage?

The FBI estimates billions of U.S. dollars are lost to foreign adversaries each year. These foreign competitors deliberately target economic intelligence in advanced technologies and flourishing U.S. industries. Costly data theft litigation, loss of business, drastic depreciation of corporate value and negative publicity are merely a few reasons to be well-educated on economic espionage. All organizations possess confidential data — “trade secrets” — such as personal employee information, consumer lists, financial details, research reports, etc. In the face of industrial espionage, such sensitive proprietary information could potentially threaten business profits, numerous jobs, and our economy as a whole. Much of this classified information is critical to our national security and research projects, thereby posing potential damage on a national scale.

For example, in the research and development phase of government project bidding, millions of dollars are spent in order to determine optimal production methods, material costs, and amount of labor necessary for the bid. If this intelligence is leaked, overseas business competitors (including those in ally countries) will gain an enormous and unjust advantage. According to Compliance Training Group, frequently targeted industries are private and educational institutions that aid U.S. Government projects, in addition to those that “conduct research on high-tech industrial applications, information technology and aerospace projects.”3 Corporations that carry out their own research and development and allocate money to manufacturing process experiments are always at risk for espionage.

What methods are used to conduct economic espionage?

According to the FBI, foreign competitors function under three categories to devise an elaborate network of spies:

 1. Aggressively target present and former foreign nationals working for US companies and research institutions;
 2. Recruit and perform technical operations to include bribery, discreet theft, dumpster diving (in search of discarded trade secrets) and wiretapping; and,
 3. Establish seemingly innocent business relationships between foreign companies and US industries to gather economic intelligence including proprietary information.

What are the legal ramifications for committing economic espionage and theft of trade secrets?5

Whether you call it economic espionage, industrial espionage, theft of trade secrets or corporate espionage, it is a federal criminal offense as defined by the Economic Espionage Act of 1996. There are two main sections of the Act: 18 U.S.C. § 1831 (a) criminalizes the theft of trade secrets to benefit a foreign power, company or individual; 18 U.S.C. § 1832 (b) criminalizes domestic theft for commercial or economic purposes. Theft, unauthorized use, purchase and/or possession, attempting to commit the aforementioned, and conspiring are all considered violations of both sections. Although the definitions are nearly interchangeable, the statutory penalties differ slightly.

Under Economic Espionage (18 U.S.C. § 1831 (a)):

  • Individual: Up to 15-year imprisonment and/or a maximum fine of $500,000.00
  • Organization: Up to $10 million fine

Under Theft of Trade Secrets (18 U.S.C. § 1832 (b)):

  • Individual: Up to 10-year imprisonment and/or a fine (unknown amount)
  • Organization: Up to $5 million fine

How to Recognize Signs of Economic Espionage:

First and foremost, you must heed potential warning signs of espionage, particularly within your business. The following may be indications of an individual engaging in espionage acts:

 1. Employee may suddenly have a change in ideology, developing a cynical and negative view of the company, its key people or even the U.S. Government.
 2. Individuals trying to obtain unauthorized information may arrive for work early, work through lunch or stay late to gain access to information without raising suspicion.
 3. Individuals involved in long-term espionage will avoid taking vacations in fear of their activities being discovered during their absence.
 4. Uncharacteristic or extravagant employee spending on travel, houses, cars, etc.
 5. Be wary of disgruntled employees, who are often motivated by revenge.
 6. Blackmail is a possible factor when an executive is trapped in a shameful or compromising position.
 7. Romance and sexual relationships seem cliché, but nonetheless are real methods employed to access confidential information.
 8. Addictions such as gambling, drugs, and sex can lead to compromising situations and, ultimately, the theft of sensitive information.
 9. Information loss takes place not only within the organization, but also through suppliers and customers who have access to your company data.

What are some economic espionage countermeasures?

 1. Recognize the threat (see above).
 2. Identify which information is to be protected, and across what time span.
 3. Identify and determine the monetary/competitive value of all trade secrets in case information is stolen and you need to effectively prosecute and recover the damages.
 4. Devise and enforce a definable plan for protecting trade secrets and reviewing the status of specific safeguards (perhaps some data no longer require protection).
 5. Ensure that confidential information is marked appropriately and that your staff understands this requirement.
 6. Properly store physical trade secrets in secure, authorized areas.
 7. Utilize necessary disposal procedures and effective disposal equipment to shred, delete and destroy confidential data when no longer needed.
 8. Conduct pre-employment and sporadic background investigations of all who have access to company’s sensitive information.
 9. Implement regular security training for employees, along with mental health and job activity screenings of employees.
10. Utilize an internal threat program.
11. Proactively report suspicious incidents before your proprietary information is irreversibly compromised.
12. Your Information Technology system should be designed to prohibit access to sensitive materials and to trace and immediately report potential breaches of security.

To obtain additional information, report suspected violations, or schedule a briefing regarding economic espionage, contact Jennings Smith Associates toll-free today at 866-629-3757 for a free consultation or visit us online at www.jsainvestigations.com.







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