Next for the Cia: Business Spying?

By THOMAS McCARROLL

When executives at Science Applications International Corp., a California- based high-tech company, learned that a former employee had been stealing the codes to their computer programs, they brought charges against the man. But when they later found out that he had given those secrets to a spy ring that included Japanese corporate giants Mitsubishi, Nissan and Toshiba, there was little they could do to recoup the competitive advantage they had lost. The man was sentenced to six years in jail, but no action was ever brought against the Japanese companies, which claimed they did not know the information was stolen.

So it goes for hundreds of U.S. companies that, like SAIC, are routinely spied on by either foreign companies or foreign intelligence agencies acting on behalf of foreign interests. Once companies suspect they have been targeted, they usually have only two choices: hire a private investigator or contact local law enforcement. But a growing number of legislators and business leaders are pushing to allow American companies to call on the services of a special group of spies: the Central Intelligence Agency.

With the end of the cold war, the CIA has become more willing to consider sharing its business intelligence with private companies. At his confirmation hearing two weeks ago, the agency's new director, R. James Woolsey, told Senators that the issue "is the hottest current topic in intelligence policy." He is considering a controversial plan -- opposed by many civil libertarians and some of the agency's former directors -- to offer the CIA's intelligence to U.S. corporations. If the plan is approved, the CIA would pass on foreign trade secrets to U.S. firms as well as ferret out foreign agents snooping on American companies. It would also plant undercover agents in overseas firms to find out if those businesses are violating U.S. patents.

If turned loose, the spy service could eventually pay its own way by reducing rip-offs abroad. Trade-secret theft cost U.S. companies more than $100 billion in lost revenues last year. If left unchecked, analysts estimate, the losses could grow an additional 50% by the year 2003.

While industrial espionage may be a sticky subject for Americans, it's common in most other countries. Stealing U.S. industrial secrets was a cottage industry for the former Soviet KGB. Its infamous "Department X" routinely targeted American high-tech secrets. Although the unit was disbanded, the practice continues under the Russian government. The Chinese also regularly eavesdrop on U.S. firms. But the most active spying on U.S. companies lately has not been by agents from old cold-war adversaries. Instead, the spies are employed by allies, including Germany, South Korea and even Canada. Among the most relentless -- and efficient -- have been the Israeli secret services. Last year Recon/Optical, a suburban Chicago military contractor, charged the Israeli air force with trying to steal the blueprints for a top-secret airborne spy camera. The Israelis agreed to settle the case by paying $3 million in damages. The French intelligence service recruited moles in the European branch offices of IBM, Texas Instruments and other U.S. electronics companies. A decade ago, an FBI sting operation caught senior-level executives at Hitachi and Mitsubishi trying to buy confidential information on the latest IBM computer chip. After initially refusing to submit to U.S. jurisdiction, both companies pleaded guilty to charges connected with the theft.

As global competition heats up, spying among allies will grow more intense, says Peter Schweizer, author of the recently published book, Friendly Spies. Despite its persistent denials, Schweizer says the U.S. intelligence community has spied on friends and allies in the past. And American companies, such as Motorola, are setting up their own business-intelligence units. "In the new world order," he says, "yesterday's political allies are today's economic competitors." Schweizer foresees a fundamental shift in intelligence priorities. "Business secrets have become more vital than military secrets," he says. "And counting machine tools is now more important than tracking the number of battle tanks."

Most spy masters, from Richard Helms to William Casey, have preferred to keep the CIA out of corporate spying. Although the agency is forbidden to provide information directly to private companies, it will usually pass on tips through back channels when it stumbles across foreign schemes to steal commercial secrets. However, if the spy service happens upon foreign-trade secrets that would be useful to American firms, it must by policy keep the information to itself. That's as far as most CIA directors have been willing to go.

They rejected past proposals to involve the agency in business intelligence because of the nightmarish legal and logistical questions: Should the CIA conduct counterespionage operations only? What about offensive actions? How would CIA business intelligence be disseminated? To all U.S. companies or just a select few? Then there is the question of how much agents can be expected to do on behalf of corporations. Former CIA director Robert Gates recalls one agent's telling him: "Mr. Gates, I'm prepared to give my life for my country but not for a company."

As support for the idea builds, analysts are beginning to debate just how far CIA agents and officers should go in serving as corporate mercenaries. Most backers of the plan want the spy agency only to defend U.S. firms against foreign spies. Senate Intelligence Committee chairman Dennis DeConcini favors making CIA intelligence available to U.S. companies but does not support running special operations against Airbus or Toyota to gather information. Former CIA Director Stansfield Turner wants the agency to run both defensive and offensive operations. "For us to collect and use commercial intelligence is merely a matter of creating a level playing field," says Turner.

But even if the CIA enters the commercial-spying business, don't expect a stampede of corporate customers to the doors at Langley. The CIA's record for accuracy is far from perfect, and many U.S. executives fear that suspected CIA involvement in their business could scare off customers and suppliers overseas. They're also afraid that American companies themselves may eventually fall under the spy agency's watchful eye.

There is some question whether the CIA spooks who have spent their careers counting crates on the docks of Soviet ports can transfer those skills to deciphering the newest details of Fujitsu's latest supercomputer or the immediate implications of a hike in German interest rates. And even if they can, the bigger issue may be whether any short-term gains by some U.S. corporations will offset the potential losses in civil liberties at home and friendships abroad. In the end, that price may be judged too high to pay.

With reporting by David S. Jackson/San Francisco, William McWhirter/Chicago and Bruce van Voorst/Washington