Industrial Espionage

Nowadays counterintelligence is no longer a government problem. It’s a problem for any firm that has valuable secrets to keep, regardless of whether those secrets may be classified. And it’s a problem for any business that uses electronic communications devices – which means every business, all the time.

We now live in a world in which the United States can no longer assume it has a qualitative technological advantage over friends and adversaries. The world has gotten flatter – a lot flatter. Moreover, the dirty world of stolen information has become increasingly economically rational. Thieves who were incapable of exploiting information they knew how to steal have now figured out how to sell it. There’s a robust market for your secrets, and the sellers in that market include amateur hackers, criminal syndicates, and foreign intelligence services.

Entities from a record number of countries—108—were involved in collection efforts against sensitive and protected US technologies in FY 2005, according to evidence amassed by the Counterintelligence (CI) Community. A relatively small number of countries, though—including China and Russia —were the most aggressive and accounted for much of the targeting, just as they have since the CI Community first began systematically tracking foreign technology collection efforts in 1997.

Examples of Foreign Technology Acquisition Efforts—Listed By Suspected End-User Country Selected technology acquisition efforts in FY 2005:

• In October 2004, a naturalized US citizen and a Chinese citizen were sentenced to three years probation for false statements in connection with illegally exporting to China 25 low-noise amplifier chips that have applications in the US Hellfire missile. According to the indictment, the defendants falsely labeled the amplifier chips in export documents as “transistors” worth some $20. One of the individuals was a former employee of a major US defense contractor, and the other worked at a US research institute that designed software for military and warfare simulations.

• In November 2004, a New Jersey company was charged with attempted violation of the Iranian embargo in connection with an effort to export oil-burner nozzles to Germany, knowing that the devices would subsequently be illegally diverted to Iran.

• In November 2004, a federal judged fined a US aircraft parts supplier for illegally exporting components for the HAWK missile, the F-4 Phantom fighter jet, and the F-5 Phantom/Tiger fighter jet to China. The conviction was the 11th to result from a 5-year undercover US Immigration and Customs Enforcement investigation that targeted aircraft parts suppliers that sold defense articles over the Internet to foreign buyers without obtaining the required US export licenses or complying with the arms embargoes.

• In December 2004, a US citizen pleaded guilty to conspiracy to violate the Arms Export Control Act after purchasing from US vendors sensitive US military items, including components for HAWK missiles, military radars, and F-4 Phantom fighter jet aircraft for export to Israel. The individual knowingly failed to obtain the required export license. The individual has previously exported items via Israel to Iran. Israeli authorities that cooperated in the investigation do not believe the final destination of the shipments was Israel.

• In early 2005, a Singapore company on multiple occasions shipped US export-controlled items, including GPS components and radiofrequency power meters, to Iran Electronics Industries, according to press.

• In early 2005, the FBI arrested two employees of a US auto parts manufacturer on charges that they leaked trade secrets to a Chinese firm, according to press reporting. The Chinese company, Chongqing Huafa Industry Co., used the information to manufacture metal connecting rods and undercut the US manufacturer’s prices.

• In January 2005, a Japanese national pleaded guilty in federal court to conspiracy to violate the Arms Export Control Act after attempting to purchase and illegally export military laser sights for M-16 and M-5 rifles.

• In February 2005, a UK citizen was indicted for violating the US embargo on Iran after allegedly attempting to illegally export an experimental, single-engine aircraft from the United States to Iran via the United Kingdom. The aircraft was intercepted in the United Kingdom. The individual, who also allegedly exported electrical components from the United States to Iran via Austria on four occasions between 2000 and 2004, was arrested in Warsaw, Poland, by Polish authorities acting on a US arrest warrant.

• In February 2005, a US citizen pleaded guilty to illegally exporting sensitive night-vision lenses to Iran.

• In February 2005, managers of two United Arab Emirates (UAE)–based companies were charged with conspiring to illegally export goods to Iran via the UAE. The indictment alleges that the defendants shipped computer goods from a Texas company to an entity in Iran affiliated with that nation’s ballistic missile program. It also alleges that they illegally exported a satellite communication system and other goods to Iran.

• In March 2005, a federal grand jury indicted the sales director of a US company with attempting to illegally export sensitive US technology to Iran in violation of the US embargo. According to the indictment, the individual attempted to export a machine that measures the tensile strength of steel and related software technologies.

• In March 2005, a US company pleaded guilty to exporting digital oscilloscopes to Israel without a license. The items were capable of being utilized in development of weapons of mass destruction and in missile delivery fields.

• In October 2005, an engineer working for a cleared defense contractor attempted to transfer US Navy Quiet Electric Drive (QED) technology to China, according to press reports. The engineer transferred QED information to a compact disk with the assistance of his wife and then delivered the disk to his brother. The brother encrypted the QED information and was arrested at the airport as he prepared to leave the United States for China with the data.

Sources: NCIX speech — Counterintelligence in the 21st Century: Not Just a Government Problem and Annual Report to Congress on Foreign Economic Collection and Industrial Espionage--2005 (PDF Download 6 Mb)