Strategic Thought Transformation - The IIPM Think Tank

S T R A T E G I C I N S I G H T
country of the acquisition agency].
4. Investment [so as to get access to understanding
of the trade secrets].
5. Customer [so as to acquire samples of
products and prototypes, as well as to
learn about future development plans
before they publicly are revealed].
6. Acquisition [outright purchase of the
target company (particularly popular
for highly innovative target companies
that are in start up mode).
Cross Ownership: It is possible easily
to hide the true ownership of a front
company by making its ownership come
from other front organizations who in turn
are partially owned by other front organizations
[in third countries], leading to a
complex chain of ownership that is difficult
to discover or understand without an
extremely expensive and time-consuming
investigation.
Ownership Ambiguity: Since the transfer
of trade secrets or other confidential
information may take place within the context
of negotiations [or other relationships]
between companies, it becomes more
problematical clearly to establish that the
information was “stolen”; a good counterargument
is that it was “given” within the
context of the on-going [or purposefully
terminated] business relationship. 12
We have illustrated the “front company”
model in Figure 3. Of course, the formation
of front companies faces various barriers
that might be imposed by the government
of the country of the target company. In
particular, it is necessary to get licensing
and other approvals. These are some of
the difficulties:
Incorporation: It is necessary to file incorporation
papers and get them approved
by the concerned regulatory authority. 13
Staff Expense: Someone must be made
available to be the staff of the company,
and these persons must be highly trained
enough to carry out the basic mission of
theft of technology secrets.
Long-Term Investment: Front companies
require offices, leases, bank accounts,
local staff, and so on, e.g., all of
the paraphernalia of an office and a company.
The practical implications of this is
that the office must, if only as a matter of
economy, be prepared always to conduct
multiple industrial intelligence gathering
operations.
Liability: Should the operation be
“blown”, then it may be relatively easy
for the investigating authorities to locate
the responsible parties associated with the
front organization. 14
Visibility: Since the incorporation papers
by nature are in the public record, it is considerably
easier for investigating counterintelligence
groups to discover the nature
The U.S. counterintelligence
community has not
been integrated to
accomplish a
national strategic
mission
of the ownership of the front organization.
This problem can be overcome by means such
as the systematic incorporation of such a large
number of front organizations that it is impossible
to keep track of, e.g., investigate, all of
them. [The “massive front” approach.]
Easily it is possible to see the resemblance
between the “classical” model and the “front
company” model. In the former most of the
key tasks are carried out by individuals whereas
in the latter, the key tasks are carried out
by organizations.
Systems of inter-locking corporate ownership
structures, spanning many different
banks, countries, types of companies, time
zones, and relationships indeed is difficult
to trace.
The possible implication of that is that
it is extraordinarily difficult to determine
at any time who owns technology, where
knowledge ultimately is supporting, and
the ownership legitimacy of any information
that is stolen.
3. Prosecution
According to Michelle Van Cleave, 15 the
first national counter-intelligence executive:
“We will never have leak-proof technology
controls, just as we will never have
protection against all threats at all times.
... [We are threatened by] a diverse set of
adversaries, many of whom have become
highly skilled in using their intelligence
services, especially their human collectors,
to acquire U.S. national security secrets
[including] technological and engineering
secrets... The U.S. counter-intelligence
community has not been organized or integrated
to accomplish a national strategic
mission.”[14]
In the United States, the number of industrial
espionage cases has been increasing,
or at least the recognition of them.
Ehrlich [6] notes that as early as 1994, the
FBI was “investigating 800 cases involving
23 countries”. 16
One can conclude that the number of
12
This presents many legal problems in prosecuting a case.
13
In the United States, this generally is the Secretary of Commerce for the state in which incorporation is filed.
14
Assuming that the leadership of the organization itself is aware of the illicit activities [not always the case]
15
Until recently, Ms. Van Cleave reported directly to the U.S. Director of National Intelligence, John Negroponte. According to David Ensor [7], a few of the most important countries that have
organized industrial espionage operations in the United States include (1) Russia, (2) India, (3) Pakistan, (4) Iran, (5) Japan, (6) France, (7) Israel, “and above all by far”, (8) China.
16
Also cited by Mosier [12]. 17 The data is based on investigations of several different Federal laws governing transfer of technology. These include: (1) Arms Export Controls Act, (2)
International Emergency Economic Powers Act, (3) Trading With the Enemy Act, (4) International Traffic in Arms Regulations, and (5) Export Administration Regulations. NB: In the first five years
after passage of the Economic Espionage Act, only 23 cases were prosecuted. (See Carr & Gorman [1].)
18
Because it is reported or (less likely) because it is otherwise detected. Note: Based on 2004 data from the Office of the National Counterintelligence Executive reported byGrammas & Goodale [8].
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