This report was prepared by the Office of the National Counterintelligence
Executive and is not available in hardcopy. However, it is in
PDF format and can be downloaded by using the link at the bottom
of this page.
This annual report reviews the threat from foreign economic
collection and industrial espionage and is conducted in compliance
with a Congressional mandate. Reporting throughout calendar
year 2000 showed continued efforts by foreign governments, corporations,
and individuals to acquire US proprietary economic information.
The Intelligence Authorization Act for Fiscal Year 1995, Section
809(b), Public Law 103-359 requires that the President annually
submit to Congress updated information on the threat to US industry
from foreign economic collection and industrial espionage. This
report updates the sixth Annual Report to Congress on Foreign
Economic Collection and Industrial Espionage, disseminated
in September 2000 and covers intelligence reporting and other
information from calendar year 2000.
The Authorization Act specifies that the annual report is
to examine three aspects of the threat to US industry: the number
and identity of the foreign governments believed to be conducting
industrial espionage, the industrial sectors and types of information
and technology targeted by such espionage, and the methods used
to conduct espionage. To prepare this assessment, the Office
of the National Counterintelligence Executive (NCIX) requested
the assistance of the Intelligence Community (IC). The following
government agencies provided individual assessments for this
- Air Force Office of Special Investigations (AFOSI).
- Central Intelligence Agency (CIA).
- Defense Intelligence Agency (DIA).
- Defense Security Service (DSS).
- Department of Energy (DOE).
- Department of State, including the Bureau of Intelligence
and Research and the Bureau of Diplomatic Security.
- Federal Bureau of Investigation (FBI).
- Army Counterintelligence Center (ACIC).
- Naval Criminal Investigative Service (NCIS).
- National Reconnaissance Office (NRO).
- National Security Agency (NSA).
- US Customs Service.
As the world's leading industrial power and leader in technology
development, the United States continues to be a prime target
of foreign economic collection and industrial espionage.
The United States pays a high financial price for economic
espionage. The business community estimates that, in calendar
year 2000, economic espionage cost from $100-250 billion
in lost sales. The greatest losses to US companies involve information
concerning manufacturing processes and research and development.
Increasing competition for limited global resources will intensify
economic collection against the United States, including the
theft of trade secrets and competitive business information.
There is no consensus within the US Government on the
definition of economic espionage. For the purposes of
this report, NCIX will use the US Attorney General's definition
of economic espionage as "the unlawful or clandestine
targeting or acquisition of sensitive financial, trade,
or economic policy information; proprietary economic information;
or critical technologies." This definition excludes
the collection of public domain and legally available
information that constitutes a significant majority of
economic collection. Aggressive intelligence collection
that is entirely in the public domain and is legal may
harm US industry, but it is not espionage. It, however,
may help foreign intelligence services identify and fill
information gaps that could be a precursor to economic
Industrial Espionage. According
to the Justice Department, industrial espionage is defined
"as activity conducted by a foreign . . . government
or by a foreign company with the direct assistance of
a foreign government against a private US company for
the sole purpose of acquiring commercial secrets."
This definition does not extend to the activity of private
entities conducted without foreign government involvement,
nor does it pertain to lawful efforts to obtain commercially
useful information, such as information available on the
Internet. Although some open-collection efforts may be
a precursor to clandestine collection, they do not constitute
industrial espionage. Some countries have a long history
of ties between government and industry; however, it is
often difficult to ascertain whether espionage has been
committed under foreign government sponsorship, a necessary
requirement under the Economic Espionage Act, Title 18
U.S.C., Section 1831.
Another term used in this report is proprietary information,
the definition of which is information not within the
public domain and that which the owner has taken some
measures to protect. Generally, such information concerns
US business and economic resources, activities, research
and development, policies, and critical technologies.
Although it may be unclassified, the loss of this information
could impede the ability of the United States to compete
in the world marketplace and could have an adverse effect
on the US economy, eventually weakening national security.
Commonly referred to as "trade secrets," this
information typically is protected under both state and
For a conviction under the Economic Espionage Act (EEA)
of 1996 (Title 18 U.S.C., Chapter 90), a person must convert
a trade secret to an economic benefit in interstate or
Overview of the Threat to
US National Security
The United States continues to be threatened by the theft
of proprietary economic information and information on critical
technologies. The risks to sensitive business information and
advanced technologies continue to increase significantly as
foreign governments--both former adversaries and allies--focus
their espionage resources in ever-greater numbers on the private
sector. They are seeking not only technological data but also
financial and commercial information that will provide their
companies with a competitive edge in the global economy.
Targeted US Defense Information
According to US defense industry reporting, targeting conducted
by commercial and individual foreign collectors accounted for
60 percent of the total suspicious activities. Government-sponsored
targeting--including military and other official government
activity--accounted for 21 percent of suspicious activities.
Targeting activities by government-affiliated entities--including
institutes, laboratories, and universities--accounted for another
19 percent. Foreign companies whose work exclusively or predominantly
supports government agencies were assessed as being government
There has been no visible change in foreign collection methods
over the past year. Economic and industrial information collectors
seldom use one method of collection. They combine collection
techniques into a concerted effort that includes legal and illegal
methods, and they continue to become more innovative in their
tactics. Consistent with traditional espionage operations, significant
foreign intelligence collection efforts are often conducted
legally and openly. These collection efforts often serve as
precursors to economic espionage:
- Open-source collection activities:
- Requests for information.
- Solicitation and marketing of services.
- Acquisition of technology and companies.
- Visits by foreign nationals to US facilities.
- Internet activity (cyber attack and exploitation).
- Exploitation of joint ventures.
Requests for Information
Activities reported in this category include unsolicited requests
received from known or unknown sources--usually foreign--for
classified, sensitive but unclassified, export?controlled, or
company proprietary information. According to the Defense Security
Service (DSS), in 2000 these kinds of suspicious activities
accounted for 41 percent of total reported collection efforts.
Not surprisingly, there has been a dramatic rise in the use
of the Internet for these kinds of collection activities. DSS
reported that the use of the Internet by foreign entities collecting
US technology and technical information accounted for 27 percent
of all suspicious contacts.
The Internet provides a simple, low-cost, nonthreatening,
risk-free means of worldwide access to US technology. E-mail
and Web-chat exchanges are inconspicuous and can bypass traditional
security safeguards, directly reaching the targeted individual.
Solicitation and Marketing
of Foreign Services
One of the most popular tactics used to gain access to US
research and development facilities is to have foreign scientists
submit unsolicited employment applications. In 2000, facilities
that were the targets of this kind of solicitation were working
on such technologies as electro-optics, ballistics, and astrophysics.
Other approaches included offers of software support, internships,
and proposals to act as sales or purchasing agents. In addition,
of growing importance is the greater use of foreign research
facilities and software development companies located outside
the United States to work on commercial projects related to
protected programs. Any time direct control of a process or
a product is relinquished, the technology associated with it
is susceptible to possible exploitation.
Acquisition of Technology
Acquisitions were greatly on the rise in 2000. This is the
latest manifestation of an increased trend to acquire sensitive
technologies through purchase. According to DSS reporting, 88
percent of all reported suspicious acquisition activities involved
third parties. Third parties are not the actual entities acquiring
the technology but are the ultimate end users. Third-party acquisitions
are often an indicator of a possible technology transfer or
diversion because when the ultimate recipients are determined,
they are often countries that are on embargoed lists for the
acquired items. One method that is commonly used involves setting
up a freight forwarder, that is, a cooperating US-based company
that will provide the ultimate foreign recipient with a US address
to subvert US export-control laws.
Exploitation of Visits to
During the past year, efforts continued by foreigners to exploit
their visits to US facilities. Some examples of exploitation
- Wandering around facilities unescorted, bringing unauthorized
cameras and/or recording devices into cleared facilities,
or pressing their hosts for additional accesses or information.
- Adding last minute and/or unannounced persons as part of
- Arriving unannounced and seeking access by asking to see
an employee belonging to the same organization as the visitor.
- Hiding true agendas, for example, by trying to shift conversations
to topics not agreed upon in advance.
- Misrepresenting a visitor's importance or technical competency
to secure visit approval.
International seminar audiences often include leading scientists
and technical experts, who pose more of a threat than intelligence
officers due to their level of technical understanding and ability
to exploit immediately the intelligence they collect. The counterintelligence
community reporting indicates that, during seminars, foreign
entities attempt subtle approaches such as sitting next to a
potential target and initiating casual conversation. This activity
often serves as a starting point for later exploitation. Membership
lists of international business and/or technical societies are
increasingly used to identify potential US targets. One of the
most common targeting techniques is to use collectors who have
common cultural backgrounds with the target such as origin of
birth, religion, or language.
Internet Activity (Cyber
Attack and Exploitation)
This category addresses cyber attack and exploitation vice
Internet?based requests for information. The majority of Internet
endeavors are foreign probes searching for potential weaknesses
in systems for exploitation. One example was a network attack
that, over the period of a day, involved several hundred attempts
to use multiple passwords to illegally obtain access to a cleared
defense facility's network. Fortunately, the facility had an
appropriate level of protection in place to repel this attack.
This example reflects the extent to which intelligence collectors
are attempting to use the Internet to gain access to sensitive
or proprietary information. Given the considerable effort that
is under way in the cyber attack and exploitation arenas, substantial
resources will need to be allocated in the future to ensure
adequate security countermeasures.
Exploitation of Joint Ventures/Research
Joint ventures place foreign personnel in close proximity
to US personnel and technology and can thereby facilitate access
to protected programs. This is of special concern when foreign
employees are in place for long periods of time. In this scenario,
there is always a danger that foreign employees will be more
readily accepted as full partners, and the security vigilance
of US colleagues may wane.
Some examples of suspicious activity in joint ventures/research
include: foreign workers seeking access to areas or information
outside the purview of their work agreement, enticing US companies
to provide large quantities of technical data as part of the
bidding process, and foreign organizations sending more representatives
than reasonably necessary for particular projects.
Illegal Collection Activities
Foreigners seeking to acquire US proprietary economic and
industrial information often engage in the following types of
- Acquisition of export-controlled technologies. The
unlawful acquisition of export-controlled technologies by
foreign collectors remains a considerable concern. Methods
of operation employed to circumvent the export-control process
include: using front companies within the United States and
overseas, illegally transporting products to an undisclosed
end user by utilizing false end-user certificates, and purchasing
products that have been modified during the manufacturing
process to meet export-controlled specifications.
- Theft of trade secrets and critical technologies. US
businessmen traveling overseas are increasingly becoming targets
of foreign collection activities. There are numerous examples
of briefcases or laptop computers showing evidence of unauthorized
access after being left unattended in hotel rooms. In addition,
there is evidence of travelers being photographed during business
meetings in foreign countries for future targeting.
- Agent recruitment, US volunteers, and co-optees.
Foreign intelligence services and government-sponsored entities
continue to utilize traditional clandestine espionage methods
to collect US trade secrets and critical technologies. These
methods include agent recruitment, US volunteers, and co-optees.
Key Economic Espionage Cases
Published in the Press
People's Republic of China
Two businessmen, one a Chinese national, who is the president
of a Beijing-based firm, and the other a naturalized Canadian
citizen, pleaded guilty to charges of illegally exporting fiber-optic
gyroscopes to the PRC without the required State Department
permits. Export of these gyroscopes to the PRC is prohibited.
The two men bought the gyroscopes from a Massachusetts company
and planned to export them to the PRC via a Canadian subsidiary
of the Beijing-based firm. The gyroscopes can be used in missile
and aircraft guidance systems, as well as smart bombs.
Two naturalized US citizens were convicted of conspiring to
illegally export weapons parts to their native China. They used
their exporting company to purchase surplus US missile, aircraft,
radar, and tank parts from the Defense Reutilization and Marketing
Service and then ship them to the PRC. The exported items were
on the US Munitions List that prohibited them from being shipped
without a license from the State Department.
Two Chinese scientists and a naturalized US citizen who was
born in China were arrested for stealing product designs from
a major US telecommunications firm and passing them to a Chinese
Government-owned company in Beijing. Both Chinese scientists
had received technical degrees from US universities before being
employed by the US firm.
A Chinese company based in Orlando, Florida, was charged with
illegally exporting radiation-hardened integrated circuits to
Chinese missile and satellite manufacturers in the PRC without
the required Department of Commerce licenses. The affidavit
prepared by the Department of Commerce described three illegal
diversions of the missile microchips. According to weapons proliferation
specialists, the microchips have military applications and could
be used by the Chinese military to improve their long-range
A naturalized Chinese national was arrested for attempting
to smuggle a defense-grade Radiance high-speed (HS) infrared
camera to the PRC. Since the Radiance HS camera is on the US
Munitions List, companies must file with the Department of State
to legally export such items. The camera was destined for the
Chinese State Ship Building Corporation, a state-owned conglomerate
of 58 companies that is based in Beijing and Shanghai.
US Customs Service agents arrested two Pakistani brothers
and charged them with conspiring to smuggle sophisticated cameras
for military intelligence gathering to a Pakistani Government
laboratory. One of the brothers was a naturalized US citizen,
while the other, a Pakistani citizen, had recently completed
requirements for a master's degree in engineering at a US university.
A US aerospace company alerted the US Customs Service to the
suspicious activities of the brothers after they attempted to
purchase the cameras despite being denied an export license
by the State Department.
A British citizen pleaded guilty to violating the Arms Export
Control Act by trying to ship night-vision goggles and blueprints
for C-130 aircraft to Pakistan. He was acting on behalf of a
firm located in Islamabad. The C-130 aircraft is used for a
variety of military purposes, including troop transport, surveillance,
A 20-month federal investigation culminated in the arrest
by the US Customs Service of a naturalized Canadian from Iran
and a Malaysian citizen for conspiring to illegally export aircraft
parts for the F-14 Tomcat, F-5 Tiger, and F-4 Phantom to the
Iranian air force. In addition, a naturalized US citizen from
Iran pleaded guilty to violating the Arms Export Control Act
by trying to smuggle F-14 parts into Iran.