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"Our orientation in national security is influenced considerably by the global security environment. Just as our national security system has undergone adjustment and reorientation over the last ten years, so must we be ready to adapt and reorient in the coming years".
The Hon. Herb Gray, Solicitor General, Statement on National Security, April 11, 1994
The era when traditional global security relations overshadowed economic concerns and regional conflict has passed. Accelerating economic interdependence and international competition have emerged as major sources of tension and conflict among world powers. In this uncertain environment, developed countries eager to maintain their standards of living, and developing countries equally determined to improve their own, are under pressure to use whatever means they have to improve their productivity and ensure their economic security. One such means is economic espionage, which can be described as illegal, clandestine or coercive activity by a foreign government in order to gain unauthorized access to economic intelligence, such as proprietary information or technology, for economic advantage.
Although some spectacular incidents have found their way into media reports, analysis of the overall impact of economic espionage is difficult because of industry's reluctance to discuss the issue in detail. In fact, the General Accounting Office — the investigative arm of the U.S. Congress — had to abandon its plan to study the extent and impact of foreign government spying on U.S. companies when it became clear firms had little desire to discuss the matter. Canadian explorations of the issue have met with similar responses. There are a number of reasons for this corporate reticence. In many cases, firms fear disclosure could harm their reputation, or undermine shareholder confidence.
Despite these obstacles to a formal calculation, business and government representatives generally agree that the cost of economic espionage activities to individual firms and the economies that host them is in the billions of dollars. This view is supported by Marshall Phelps, a vice-president of IBM, one of the few companies to publicly estimate the financial damage they have suffered from economic espionage. Speaking for his company before a committee of the U.S. Congress investigating the issue in spring 1992, he stated "governments seeking to bolster national industrial champions" have contributed in a significant way to the billions of dollars in losses IBM has calculated it suffered as a result of the theft of proprietary information.
The Canadian government has transformed its national requirements for security intelligence to reflect this modified threat environment. Currently, the government has identified economic security as one of its priorities. CSIS has responded to these changing dynamics and to their impact on Canadian defence, foreign policy and economic interests. However, it is important to note that while economic security is of significant concern to CSIS, public safety is the Service's number one priority.
Though there has been a decline in offensive intelligence operations directed against Canada by some members of the former Central and Eastern European services, a number of countries continue to carry out such activity . Moreover, increasing global economic competition is leading many governments to shift the focus of their intelligence collection away from the traditional areas of political and military matters to the illicit acquisition of economic and technological information. One of our primary objectives is to monitor the activities of known or suspected foreign intelligence officers in Canada, and to prevent foreign visitors, students and delegates suspected of intelligence activities from gaining access to the country.
CSIS' mandate relative to economic espionage is to investigate, when necessary, clandestine activities by foreign governments that are potentially detrimental to Canada's economic and commercial interests.
CSIS seeks to forewarn government when the otherwise level playing field of free market competition is deliberately tilted against Canadian industry.
CSIS does not investigate industrial espionage — the practice of one private sector company spying on another. If these activities are of a criminal nature, they may be investigated by law enforcement agencies. As well, civil remedies may be available.
The vast majority of economic intelligence gathered by businesses or governments is derived from open sources in a legal manner involving no clandestine, coercive or deceptive methods. The collection and dissemination of information in this manner, either through visiting scientists, students or businessmen, is rightly seen as a beneficial element of a free and open society. In a minority of cases, however, economic intelligence is obtained with less than laudatory techniques and with less than desirable results.
Canada is a world leader in many technology-intensive fields. Aerospace, biotechnology, chemical, communications, information technology, mining & metallurgy, nuclear, oil & gas and environmental technology are key industrial sectors in the Canadian economy. Canadian enterprises maintain and develop information and technology of economic significance, the protection of which is essential to their economic viability, and by extension, the economic well-being of Canada.
A number of Canadian companies operating in these sectors have been targeted by foreign governments to obtain economic or commercial advantages. The damage to Canadian interests takes the form of lost contracts, jobs and markets, and overall, a diminished competitive advantage. Information and technology that has been the target of economic espionage includes trade and pricing information, investment strategy, contract details, supplier lists, planning documents, research and development data, technical drawings and computer databases.
A Canadian company's technology was compromised when the company, hoping to secure a lucrative contract from a foreign government, allowed a national of that country to work on a sensitive, leading-edge technology project. The foreign government then proceeded to duplicate the technology based on the information obtained through the direct access their representative agent had to this project.
In another instance, a foreign government is believed to have tasked its intelligence service to gather specific information. The intelligence service in turn contracted computer hackers to help meet the objective, in the course of which the hackers penetrated databases of two Canadian companies. These activities resulted in the compromise of numerous computer systems, passwords, personnel and research files of the two companies.
In another incident, a foreign scientist working in the biotechnology sector stole laboratory cultures and confidential manuals from a Canadian company which is believed, in the process, to have lost valuable R&D data, as well as potential earnings. It was later determined that the individual involved had also stolen similar materials from his previous employer based in another country.
There is no limit to ingenuity when it comes to the clandestine collection of significant economic information. The most frequently used collection method is the recruitment of someone who has access to the information (employees, contractors, consultants, students, etc.). However, other methods include break-ins, briefcase tampering, photocopying, garbage retrieval and communications interception. In the latter case, the means at the disposal of a foreign government to monitor telecommunications often exceed what is commercially available.
Businessmen travelling abroad are vulnerable to economic espionage due to the limited control they can exercise over the foreign business environment. In this context, a foreign government can operate more easily and with greater impunity in its own country. Hotel rooms, restaurants, office buildings, safes, telecommunications systems and personnel are more vulnerable than domestic counterparts to compromise through covert economic espionage activities.
In one case, it was suspected that a host government was intercepting telephone conversations between an executive abroad and his Canadian company headquarters. Canadian executives discussed detailed negotiation information including a specific minimum bid. This minimum bid was the immediate counter-offer put forward by the host company the following day.
In another incident, an executive from a Canadian company, while visiting a foreign company overseas with which it had a business agreement, strongly suspected that his briefcase and documents had been compromised while they were left in the "security" of the foreign corporation's office.
Once again, if the potential gains are significant enough, any covert method or a combination of some of them can be used to acquire the desired information or technology, and obviously it is easier for a foreign government to initiate covert activities on its own territory.
While some traditionally "hostile" countries continue to pose a threat to Canada's economic security, there are strong indications that other foreign governments — including some of those from countries considered "friendly" to Canada — use espionage as a means to further their economic and commercial interests. Any competing nation, given sufficient motivation, may well engage in espionage against Canada to further its economic objectives.
"Canadians are concerned about their sense of security in the world — a world that is ever more influencing our conduct at home in terms of the economy, jobs, protecting the environment and our democratic institutions".
The Hon. Herb Gray, Solicitor General, Statement on National Security, April 11, 1994
The Service established its national Liaison/Awareness Program in January 1992. The program seeks to develop an ongoing dialogue with organizations, both public and private, concerning the threat posed to Canadian interests by foreign government involvement in economic and defence-related espionage, including the proliferation of weapons of mass destruction. The purpose of the program is to enable CSIS to collect and assess information that will assist it in its investigation of economic espionage activities against Canada. The Service then assesses the threat, and provides advice to government accordingly.
"What we have seen and witnessed, obviously, by the end of the Cold War is a change in the focus and targeting of foreign intelligence services. They put more emphasis on economic espionage and on acquiring scientific and technological information. Our response to that program was to do something that resembles a community interview program. We established a liaison program. We tried to determine what areas of Canadian industry are likely to be most targeted. Obviously it is in those technology areas like aerospace, nuclear, biochemical, and telecommunications in which we have a state-of-the-art and state-of-the-world industry".
Ray Protti, former Director of CSIS, Standing Committee on Justice and Legal Affairs, May 3, 1994
The program is voluntary. It provides organizations with a better appreciation of the threat environment, and thus enables them to better protect themselves. Upon request, an Economic Security and Proliferation Issues (ESPI) coordinator can provide an organization with formal presentations. CSIS has regional and district offices across the country.
Based on CSIS' experience in investigating foreign government espionage activities in Canada, the presentation includes a review of the most common covert methods used as well as elements that businesses should consider in assessing their own vulnerabilities. CSIS does not provide a security consulting service, and can not provide specific advice regarding the steps a company needs to take to protect its proprietary information and technology.
Since its inception in 1992, CSIS' Liaison/Awareness Program has met with a positive response from the Canadian public and private sectors. As of the end of 1995, the Service had made more than 1600 contacts within Canadian industry and government. 30% of these contacts expressed a security concern and 76% of these concerns related to economic security.
Companies are in the best position to determine what information or technology is critical to their business. Companies can assess what sensitive information could be targeted and can help determine from whom it must be protected. This principle applies to their operations in Canada as well as business executives' travels abroad.
The protection of sensitive information and technology is a matter of appropriate physical and personnel security, as well as an education process. The following are some basic measures that, if implemented, can help reduce the vulnerability of companies to economic espionage:
For comments/enquiries, please contact the, National Coordinator, Economic Security and Proliferation Issues, c/o P.O. Box 9732, Postal Station T, Ottawa, Ontario, K1G 4G4. Telephone (613) 231-0100 or Fax (613) 231-0612.
economic security:
Economic security is the maintenance of those conditions necessary to encourage sustained long-term relative improvements in labour and capital productivity and thus a high and rising standard of living for a nation's citizens, including the maintenance of a fair, secure and dynamic business environment conducive to innovation, domestic and foreign investment and sustainable economic growth. This is a broad goal sought by all governments.
economic intelligence:
Economic intelligence is policy or commercially relevant economic information, including technological data, financial, proprietary commercial and government information, the acquisition of which by foreign interests could, either directly or indirectly, assist the relative productivity or competitive position of the economy of the collecting organization's country.
economic espionage:
Economic espionage is defined as illegal, clandestine, coercive or deceptive activity engaged in or facilitated by a foreign government designed to gain unauthorized access to economic intelligence, such as proprietary information or technology, for economic advantage.
industrial espionage:
Industrial espionage is the use of, or facilitation of, illegal, clandestine, coercive or deceptive means by a private sector entity or its surrogates to acquire economic intelligence.
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