The Long Arm of China’s Security Services
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In January, the CEO of American Superconductor publicly detailed how traditional economic espionage methods carried out by a small Chinese firm resulted in over a billion dollars in loss to his company. Since at least 2011, much attention has been given to the rampant cyber espionage threat against U.S. firms, ultimately pushing U.S. businesses to improve their cyber security measures. Yet, global U.S. companies, like American Superconductor, also need to be prepared for non-cyber economic espionage tactics, because they are a relatively easier target given the general lack of legal consequences for this form of spying.
According to the Federal Bureau of Investigation (FBI), the impact of economic espionage on U.S. companies is valued between $200 billion and $1 trillion, and the threat is only growing as foreign companies and countries attempt to obtain information or technologies to increase their market share, build their economies, or modernize their militaries.
There are numerous tactics used internationally to steal U.S. intellectual property. The following are examples of some of these tactics used in countries where U.S. firms operate:
In many other countries, local nationals and domestic businesses are subject to less legal restraints for industrial espionage targeting foreign companies than in the U.S. The U.S. Economic Espionage Act of 1996 criminalizes the misappropriation of trade secrets; however, it is only applicable if the offense is committed in the U.S. or the violator is a U.S. person or organization.
Other countries similarly prohibit economic espionage under national law, but law enforcement confronts difficulties because the offenders include foreign governments. Similarly, using extradition or mutual legal assistance treaties proves ineffective when the requested state is sponsoring the acts. In 1996, for example, Russia adopted a law requiring its intelligence services to “assist the country’s economic development and scientific and technical progress.”
International law bodies relating to espionage issues, such as rules on armed conflict and on diplomatic relations in peacetime, do not prohibit economic espionage. Additionally, state sponsored economic espionage indicates that these activities do not constitute wrongful acts triggering state responsibility under international law.
The Agreement on Trade-Related Aspects of Intellectual Property Rights of the World Trade Organization (WTO) requires each member to protect intellectual property rights within its territory, yet WTO members have generally not demonstrated a willingness to address economic espionage within the WTO, according to the American Society of International Law.
Economic espionage activities against U.S .corporations operating abroad are expected to accelerate as the number of targets increase, with more U.S .companies moving their headquarters overseas. U.S. firms moving their headquarters abroad have increased by 61 percent over the last decade, according to Bloomberg News and are expected to continue to rise as U.S. firms look to take advantage of cheap labor, expand their market share, and avoid relatively high American corporate tax rates.
Developing holistic counterintelligence (CI) security procedures is critical for mitigating economic espionage threats abroad. There are five strategies global U.S. businesses should consider including in their comprehensive CI program in order to reduce their risk of economic espionage.
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