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a CANADIAN SECURITY INTELLIGENCE SERVICE publication
July 1995
Unclassified
Editors Note:
In this third in a series (see issue #s 32 and 46), Mr. Samuel Porteous, a Strategic Analyst with CSIS, focuses on the role of intelligence services in protecting and pursuing a state's economic/commercial interests, and on how Western governments are beginning to approach this issue since the end of the Cold War. In particular, the author addresses the provision of economic intelligence to government decision-makers, and the future of the relationship between economic interests and intelligence services.
Disclaimer: Publication of an article in the COMMENTARY series does not imply CSIS authentication of the information nor CSIS endorsement of the author's views.
Introduction
"The place of economics at the intelligence table must now be moved well above the salt. Economic developments, furthermore, can no longer be considered in relative isolation; the web of economic, military and other factors directly affecting ... national interests and security is becoming seamless. In this fact lie some major conceptual, procedural and organizational challenges for ... intelligence and the government it serves." George Carver
The end of the Cold War accelerated the transformation of low politics into high politics: mercantile concerns, once subservient to ideological conflict, are today, from Tienanmen to Toronto, the primary motivators in foreign policy.
This shift presents intelligence services, particularly those in North America, with significant challenges. Until quite recently, North American intelligence services, partially due to the relative prosperity in North America since WWII, perceived the economic and commercial elements of their work as decidedly secondary in importance to military/political concerns -- a perception not always shared by states with longer memories, less preoccupation with the Cold War and keener senses of economic security.
Intelligence services operate almost exclusively in the nebulous milieu of "national security". From an offensive perspective, they are typically tasked to identify and pursue opportunities to advance a state's strategic interests. In a defensive mode, they are responsible for "security intelligence": warning of, and dealing with, threats to national security or public safety.
When it exists, intelligence service enabling legislation often refers to pursuing these national security interests either through reporting on, or engaging in, "special activities". These special activities, while not necessarily illegal, are almost always clandestine or deceptive. Foreign intelligence services use these techniques either to obtain information otherwise unavailable, or to influence events, behaviour or policy formulation in foreign lands. Defensive agencies, such as CSIS, defend against these acts of surreptitious "international lobbying" that some have described as a fact of international life.
A sharp line between offensive and defensive intelligence activities is difficult to draw, yet it is useful to divide governments' approach to this issue between proactive behaviour (offensive activities), and reactive behaviour (defensive activities), in support of their economic and commercial interests.
Decisions informed by the provision of economic intelligence range from determining whether to raise interest rates to the proper stance to take in contentious trade negotiations. This type of intelligence support to government decision-makers is generally accepted as a legitimate function of state intelligence services. Related intelligence services that go beyond the mere collection of information and aim to influence events directly, either at a macro-economic or firm level, are understandably more controversial.
In fact, the CIA recently distinguished between intelligence used to inform government policy-makers and intelligence used to influence events at the firm level, to differentiate their economic intelligence activities in France from the direct industry-support activities in which French intelligence had engaged in the USA. In the former, the CIA was allegedly supporting the formulation of American trade policy with regard to negotiations concerning audio-visual matters at the GATT. This was reportedly done through the provision of clandestinely obtained intelligence on the French bargaining position. The Americans argued that this support to government decision-makers was well within the bounds of tolerable espionage behaviour, whereas alleged French intelligence activities in support of French commercial actors through directly transmitting clandestinely obtained proprietary information from American companies was not.
France and the USA are not alone in struggling to define the role of their intelligence services in this area. Many Western powers, including the United States, the UK, Australia, South Africa and even quasi G-7 member, Russia, have recently made official statements regarding their intelligence services engagement in this area. Recent American statements and British legislation to this effect are of particular interest.
In a presidential statement in 1994 entitled "A National Security Strategy of Engagement and Enlargement", President Clinton detailed just what his administration expected from American intelligence with regard to protecting or pursuing American economic interests:
To adequately forecast dangers to democracy and to U.S. economic well-being, (emphasis added) the intelligence community must track political, economic, social and military developments in those parts of the world where U.S. interests are most heavily engaged and where overt collection of information from open sources is inadequate (emphasis added). Economic intelligence will play an increasingly important role in helping policy-makers understand economic trends. Economic intelligence can support U.S. trade negotiators and help level the economic playing field by identifying threats to U.S. companies from foreign intelligence services and unfair trading practices.
This statement clearly envisages the use of clandestine methods to obtain this intelligence where "overt collection...from open sources is inadequate".
The concept of "economic well-being" used above is also found in the British Intelligence Services Act, 1994. The Act discloses for the first time the functions of the British Secret Intelligence Service (BSIS) and the General Communications Headquarters (GCHQ) with regard to the economic and commercial interests of the state. According to the Act, under the authority of the Secretary of State, the functions of the BSIS include obtaining and providing information as well as performing "other tasks" relating to the actions or intentions of "persons outside the British Isles". These functions of the BSIS, like those of the GCHQ, are to be exercised only in the interests of national security, prevention or detection of serious crime and, most importantly from the point of view of this article, "in the interests of the economic well-being of the UK".
Interesting here is the use of terms. National security is noted in one section while another category, using the exact same terminology as the American statement discussed above — "the interests of the economic well-being of the UK" — is set out in a separate section. By discussing both national security and "economic well-being" at the same time, the British seem to have decided that while some economic and commercial interests issues may not directly threaten the national security interests of the UK in the traditional sense, they are nonetheless important enough to be supported through the use of the intrusive and controversial powers of the British intelligence community. The American use of the term seems intended to achieve the same result.
The term "economic well-being", therefore, is not to be strictly tied to the defence and foreign policies of the UK or the USA. This narrow interpretation might, for example, have limited intelligence service interests to issues like security of supply of certain critical materials or technologies. As a threshold requirement the need to establish an impact on a country's economic well-being is substantially easier to meet than establishing an economic threat to a country's national security. The use of this term clearly indicates the British and American governments want their respective intelligence communities involved in the broadest way in furthering and protecting the economic and commercial interests of the state.
While the Canadian government has made no official statements concerning offensive economic intelligence activities, indications from parts of the Canadian intelligence community point to an increased interest in the economic and commercial world. In early 1995 the Communications Security Establishment (CSE), Canada's agency responsible for signals intelligence (SIGINT) which includes activities such as telecommunication interception, advertised for applications from university graduates for analyst positions noting that "graduation in fields such as economics, international business, commerce ... would be an asset".
Examples of intelligence support to economic decision-makers within government indicate that such activities are not limited to super or former colonial powers. Those incidents derived from media and other open sources listed below can be divided roughly into two categories: trade negotiation intelligence and macro-economic intelligence.
Security intelligence, or defensive activities, engaged in within a state's own jurisdiction to counter or report on foreign entities engaging in the "special activities" discussed earlier is far less controversial. Most states recognize the need to engage in counter-intelligence, and many have recently commented on the increasingly economic nature of this role.
The practice of intelligence services providing economic intelligence to government decision-makers, be it for offensive or defensive purposes, raises several issues. An analysis of the problems this practice raises, particularly in the North American context, reveals the importance of just what the government requests of its intelligence services and the methods used to meet these requests.
Unlike some other regions, in North America economic departments tend to be considered peripheral or secondary members of the intelligence community. Consequently, communications between intelligence services and the economic departments in Canada and the USA have been described as uncertain, informal and characterized by ad-hockery. American Senator Deconcini, writing on the American approach to the involvement of the intelligence community in protecting and pursuing American economic and commercial interests, has described intelligence policy in this area as "largely a matter of collection requirements, which are voluminous but too unfocused. Intelligence agencies are left to do what they feel is appropriate." The increasingly seamless nature of military, political and economic influences in determining threats and opportunities for a nation's citizenry is, however, pushing Western intelligence services and economic departments to work more closely together to improve their product. Ad-hockery of the type described by Deconcini is less and less acceptable.
American intelligence expert Ernest May has analyzed issues surrounding intelligence involvement in economic issues. May argues that despite the existence of liaison offices located within departments such as Treasury, Commerce and the Office of the Special Trade Representative, the US National Security Council (NSC) does not have a history of dealing well with economic issues. He cites as an example the treatment of the debt crisis of the early 1980s which, at the time, was considered to be one of the greatest threats to American national security.
According to May, faced with the prospect of America's financial sector being thrown into chaos by defaulting Latin American banks, the NSC's senior director of economic affairs set out to warn the president. The problem was, however, that "neither the Treasury nor the Federal Reserve had seen the NSC as a natural venue for a problem in their domains and neither agency had a comfortable relationship with the intelligence community". The result was "they succeeded in keeping their worries to themselves". May's account of intelligence treatment of the debt crisis, while instructive, omits any reference to the alleged role of American intelligence in distributing "bugged" software to various international financial institutions involved in the debt crisis to better monitor the situation.
It is not known, if this did indeed occur, who this information went to or if they found it useful. This points to a very important difficulty in analyzing the impact of intelligence activity of any kind. Typically, intelligence product is provided only to the highest levels of government or specific clients. Due to the tendency of intelligence services to operate on a "need to know" and containment basis to protect sources and methods, even senior officials of major departments may not be able to speak with authority on what exactly intelligence services provided to whom and its value. This argument applies equally to some members of the intelligence bureaucracy who purport to speak authoritatively on areas that, despite their years of experience within the community, they may really have minimal experience with.
Improving communication and co-ordination between the intelligence community and its clients apparently remains an issue for the Americans. A recent presidential statement on the American intelligence community and American economic and commercial interests clearly communicates the White House to "develop new strategies for collection, production and dissemination (including closer relationships between intelligence producers and consumers) to make intelligence products more responsive to consumer needs; ... revise long-standing security restrictions where possible to make intelligence data more useful to intelligence consumers." The document also calls for better co-ordination between overt and covert collection. Similar conclusions are likely to arise from the Aspin Commission, a congressionally mandated bipartisan presidential commission, when it tables its report on the future of the American intelligence community in 1996.
It remains to be seen what impact these calls for improved co-ordination between overt and covert collection could have on intelligence participation in the Clinton administration's new projects such as the "Advocacy Centre", a situation room in the U.S. Commerce Department. Reportedly the centre is "staffed by specialists who track, minute by minute, the status of thousands of giant projects around the world that American firms are vying to win". The Centre also follows competitor progress. In one news account an unnamed official is quoted as saying of the Centre: "The idea is to bring the whole force of the government together to press the case for American business".
In March of 1995, France announced the creation of what appears to be a similar organization, the Committee for Economic Competitivity and Security. The committee, to be chaired by the French prime minister, will "research, analyze, process and distribute information" with the goal of protecting economic secrets and advising French firms and the government on trade strategy. The committee's work will be co-ordinated by the Secrétariat Général de la Défense Nationale (SGDN, responsible for the intelligence analysis provided the French prime minister). Such centres clearly would provide excellent locales for better co-ordination between overt and covert collection.
In Canada, co-ordination between various departments and the intelligence community is sought through an interdepartmental committee structure directed from the Privy Council Office— a central government agency. This committee structure includes the deputy level Interdepartmental Committee on Security and Intelligence (ICSI), chaired by the Clerk of the Privy Council, and its intelligence subcommittee, the Intelligence Advisory Committee (IAC). The IAC is supported in its work by its own Intelligence Assessments Secretariat (IAS), which draws on intelligence community and other government expertise through the intelligence expert groups. It would seem this structure, similar to the British model, could be used to better co-ordinate economic department interests with intelligence service capabilities and production.
More particularly, CSIS has recently improved the relevance of its product to client departments, including economic ones, through the creation of a Marketing and Client Liaison Unit. The Unit's task is to identify client requirements in order that CSIS respond more accurately to client demand. The Service also introduced a computer system to track who receives CSIS product and the clients' level of satisfaction.
Apart from co-ordination concerns, the value of intelligence service involvement in this area depends largely on the quality of economic intelligence gathered and analysis provided. Ideally, intelligence services would provide government decision-makers with valuable economic intelligence unavailable from any other source, and/or a value-added analysis of the issue. For example, some suggested that concern over the potential impact on American interest rates of a dramatic increase in German inflation (which was predicted if the currencies of East and West Germany were unified) would have been motive enough for George Bush's administration to task the CIA to seek economic intelligence on this issue.
Few doubt that intelligence services, if properly tasked, would be able clandestinely to collect economic intelligence of use to decision-makers that would be unavailable through overt means. The governments and businesses of the world have not become open books. To obtain economic and commercial secrets, clandestine means will continue to be used. While the comparative advantage of intelligence services' collection capacity is generally accepted, the value-added provided by the intelligence analysis function is a more contentious issue, particularly in relatively non-traditional areas such as economic and commercial interests.
The experience of the Australian Office of National Assessments (ONA), as co-ordinator of the relatively small intelligence community of a Western middle power, is instructive in this area. According to Australian academic A.D. McLennan, in fulfilling its role the ONA initially found it hard to engage the interests of Australian economic departments, as they were "unconvinced intelligence advice or resources had much to offer in the formulation of sound economic policy". The Department of Trade, in particular, was leery of too close a relationship with intelligence. The department feared that any association with intelligence, even if it were just in analysis, could send the wrong message to foreign governments and companies with whom they were negotiating. They also did not want Australian businesspeople to think they engaged in spying. Partially in response to this and with a desire to avoid overlap, the ONA focused its economic intelligence product on illuminating "capabilities and intentions that competitors and adversaries seek to conceal".
One example of a subject matter given this treatment was the impact of sanctions on the South African economy. Interestingly, in struggling with much the same issue, the South African government came to a similar conclusion about the role of intelligence in relation to a country's economic and commercial interests. In late 1994 the South African government released its "White Paper on Intelligence" wherein one of the "purposes" enunciated for intelligence was "to identify opportunities in the international environment, through assessing real or potential competitors' intentions and capabilities. This competition may involve the ... technological, scientific and economic spheres, particularly the field of trade."
To avoid some of the potential problems raised above, some have suggested economic and commercial intelligence analytical functions be performed within other government departments responsible for the formulation of economic and foreign policy. These suggestions, however, raise concerns regarding the traditionally accepted need to maintain some distance between those whose task is to provide objective information and those who make policy. The goal, of course, is to avoid intelligence being perceived to "sell" policy rather than "inform" it.
This policy-neutral approach of intelligence services toward information is a further reason for conflict between economic departments charged with policy formulation and intelligence services who may provide intelligence that complicates their policy process. Former CIA Director Stansfield Turner describes this as the conflict between "fresh intelligence" and "established policy". The need for this separation has, however, been challenged by those who argue it simply replaces policy-makers' biases in intelligence analysis with intelligence community biases. Still, it seems that the clandestine techniques required for collection and some analysis of denied information would be unwelcome and awkward additions to many economic departments with broad policy-making mandates.
Motivated by the desire both to protect and pursue what the USA and the UK have characterized as the "economic well-being" of the state, the issue of intelligence service involvement in protecting or pursuing the economic and commercial interests of a country is receiving renewed attention in the West. Many of Canada's closest allies and most important trading partners, no longer preoccupied by the Cold War, are seeking to set out the proper role for intelligence services in an era where some argue economic issues have overtaken in importance strictly military/political matters.
Five general roles for intelligence services in protecting and pursuing economic and commercial interests can be established.
1) Providing counter-intelligence support: The least controversial function. In this capacity a nation's counter-intelligence service simply seeks to advise government about and report on the activities of foreign intelligence services or their surrogates engaging in clandestine activities directed against their state's economic and commercial interests.
2) Providing economic intelligence to government decision-makers: Here intelligence services through their unique collection capacity would provide decision-makers valuable economic intelligence unavailable through other means and value-added analysis on issues deemed important. This would include intelligence on macroeconomic policies and significant upcoming decisions of major economic actors, for example, in the area of monetary or fiscal policy.
3) Monitoring trade agreements and collecting information on unfair trade and other sharp practices: This is a much more narrow task where the intelligence provided would support not just major economic decisions but direct responses to activities contrary to the economic and commercial interests of the state in question. Here intelligence services, among other activities, assist in monitoring member state adherence to international agreements affecting national economic and commercial interests such as the CIA's admitted pursuit of foreign corrupt practices. The intelligence role in this area is precisely what the Australians described as illuminating "capabilities and intentions that competitors and adversaries seek to conceal".
4) "Special activities" designed to influence events, behaviour or policy formulation in foreign lands: These highly controversial types of covert activities could range from disinformation campaigns targeting third country markets to covert influence on important economic decisions.
5) The pursuit of commercial information and technologies for ultimate transmittal to favoured commercial actors or consortia: This, of course, is the much discussed issue of economic espionage to support commercial actors. Most Western powers have openly disavowed any involvement in this activity.
Under the CSIS Act of 1984, CSIS has the primary mandate to report to and advise government on the clandestine activities of foreign powers within Canada. Its role with regard to Canada's economic and commercial interests is primarily a defensive one. The Service's mandate enables it to advise and report on attempts by foreign powers or their surrogates to engage in economic espionage targeting commercial actors. To this end, CSIS created the Requirements Technology Transfer (RTT) unit, through which it investigates economic espionage targeting Canadian interests. RTT has developed close links with some elements of the Canadian business community through its awareness liaison program and related activities.
CSE also has a role to play in defending Canada against attempts by foreign powers to access or interfere with the country's communications systems. As discussed earlier, the counter-intelligence component of intelligence in this area is fairly well-established and relatively uncontroversial.
Canada, while publicly acknowledging the role of its intelligence services in protecting its economic and commercial interests has, unlike the USA and the UK, made no comparable public statement on the role of its intelligence services in pursuing its economic and commercial interests outside its borders. This is due largely to the fact that Canada, unlike most Western democracies, does not have a foreign intelligence service, employing covert agents abroad.
While primarily a security intelligence organization, CSIS does have a capacity to engage in the collection of foreign intelligence within Canada. This, however, is a limited capacity and only conducted under the direction of the Department of Foreign Affairs or National Defence. Canada does, however, engage in foreign intelligence in the area of signals intelligence (SIGINT) through the CSE; the Canadian equivalent to Britain's GCHQ and America's NSA.
The role of the CSE in pursuing Canada's economic and commercial interests is difficult to set out definitively, given the fact CSE lacks a detailed statutory basis similar to that of the CSIS. There have, in fact, been some recent indications that CSE is seeking to strengthen its analytical capacity in this area. As noted earlier, in January 1995 CSE advertised for applications from university graduates for analyst positions noting that "graduation in fields such as economics, international business, commerce ... would be an asset".
In constructing an economic intelligence policy it appears Canada, like other countries, would have three options:
1) Alliance with intelligence services of countries whose economic interests are almost indistinguishable from Canada's: the "NAFTA Option".
2) An independently functioning economic intelligence system based strictly on Canadian economic and commercial interests: the "Palmerston Option".
3) A combination of the above: the compete and co-operate at the same time or "Integration Option".
Canada's overwhelming economic dependence on the USA, a strong ally and the last remaining super-power, would have a powerful influence on the outcome of any such discussion.
Recently announced American, British, Australian and South African intentions to increase intelligence community involvement in pursuing a state's economic and commercial interests, both of a commercial and broader macro-economic nature, appear indicative of approaches already taken or changes being made in the orientation of intelligence services elsewhere. The impact of this increased focus on economic and commercial interests on international relations, the trading system and more micro commercial interests, is uncertain. What is certain is that for many countries, from the last remaining super-power to second tier middle powers, intelligence services will play an increasing role in warning of threats to and identifying opportunities to advance, economic and commercial interests. In this environment Canada would benefit from a high-level, thorough and co-ordinated review of the proper role of its intelligence services in protecting and pursuing Canadian economic and commercial interests.
The views expressed herein are those of the author, who may be contacted by writing to :
CSIS P.O.Box 9732 Postal Station T Ottawa, Ontario K1G 4G4 FAX: (613) 842-1312
ISSN 1192-277X
Catalogue JS73-1/59
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