Secrets and Lies The Rise of Corporate Espionage in a Global Economy
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JAVERS Espionage Exposed
Secrets and Lies
The Rise of Corporate Espionage in a Global Economy
Eamon Javers
In 2008, thousands of employees at American defense Eamon Javers is a
Washington corre-
and technology companies received emails from an exec- spondent for CNBC
utive-recruiting firm based in Tokyo called Fox Adams. and author of the book
Broker, Trader, Lawyer, Spy:
The correspondence hinted at lucrative job opportunities The Secret World of Corpo-
rate Espionage.
and urged the employees to reply with contact information.
However, there was something wrong with the email: Fox
Adams did not exist.
Security experts and veteran U.S. intelligence agents
examined the issue and concluded that Fox Adams was sim-
ply a front for Chinese intelligence.1 According to these
authorities, the spam emails were part of a very wide net
cast by the Chinese to help identify American executives
with access to sensitive technologies. Under the guise of a
job interview, anyone who replied to the email would likely
be quizzed for details about his or her work, access to tech-
nology, and experience. Several veteran U.S. intelligence
officers described the Fox Adams ploy as a routine Chinese
intelligence probe of U.S. corporate infrastructure, some-
thing they say has been on the rise in recent years as the
Beijing government attempts to steal technology and infor-
Winterr/Spring 2011 [ 53]SECRETS AND LIES
mation that can help keep the country’s credentials, the Mattel market intel-
astonishing economic growth on pace ligence employees allegedly used spy
with aggressive government goals. cameras to film secret demonstration
All of this means that American models of toys that rival companies
corporate executives must be increas- planned to launch. Mattel said there
ingly guarded against spying by current was no merit to the charges, which came
employees, former employees, com- in the course of a long-running litiga-
puter hackers, and the full gamut of tion battle over which company should
Cold War-style intelligence techniques. hold the rights to the Bratz dolls.
In the second category—financial
It was this wave of Chinese hacking
attacks that finally drove Google into the arms
of the U.S. National Security Agency.
Forms of Corporate Espionage. firms gathering information to use in
market trading—corporate spy orga-
China is not the only perpetrator.
nizations operate around the globe,
Corporate espionage can be separat-
working for Wall Street, hedge funds,
ed into three broad categories: spying
and wealthy individuals. In one case,
practiced by companies, by financial
a private spy firm even flew aerial sur-
firms, and by nations.
veillance missions for the notorious
An example of the first category of energy-trading firm Enron.
corporate espionage—companies spy- This private spy firm was Diligence, a
ing against other companies in order company founded by two former intel-
to harm competitors—came to light ligence officers (one previously worked
late this summer. MGA Entertainment for the CIA, the other for British
Inc., the maker of the wildly popular MI5). In the early 2000s, Diligence
Bratz line of toy dolls, filed docu- was hired by Enron to develop infor-
ments in federal court alleging that mation about the European power
rival Mattel Inc. maintained an inter- industry that might prove advantageous
nal “market intelligence” unit whose in Enron’s daily buying and selling of
members traveled the country under energy contracts. However, Diligence
fake identities, gaining entrance to operatives didn’t scour trade publica-
confidential product briefings by pos- tions and interview experts, as a typical
ing as potential customers of rival toy consulting firm might have; instead,
makers.2 There, with their cover stories the spies-for-hire set up thermal imag-
backstopped by fake business cards and ing equipment in fields around some
[ 5 4 ] Georgetown Journal of International AffairsJAVERS Espionage Exposed
of Europe’s biggest power plants.3 They agents have tried to steal American
used the data to develop a comprehen- hybrid car technology, insecticide
sive, real-time look at the production manufacturing techniques, and—in the
of energy being sold into the market. most high profile case to date—the
The more energy being moved into the cyber secrets of the search-engine giant
market, the lower prices would be. The Google.
less energy, the higher prices would be. In order to keep their economic
That is invaluable information for an growth miracle going, the Chinese are
energy trader like Enron. trying to move up the manufacturing
Diligence did not stop with thermal food chain, evolving from low-cost
imaging. Veteran CIA officer and co- providers of unskilled labor to pro-
founder Mike Baker chartered private ducers of more technically complicated
airplanes and flew surveillance missions goods at higher price points.6 Since
over the power plants, looking for signs the United States is far ahead in a wide
of when the plants might be taken off array of industries, one way to catch
line for maintenance.4 A power plant up is to steal the plans, formulas, and
shutting down has a dramatic effect algorithms that allow American com-
on supply and demand in the market, panies to dominate world markets. If
and pinpointing the dates of such a the Chinese can steal such secrets faster
shutdown in advance could yield arbi- than Americans can develop new ones,
trage opportunities for Enron. Baker they will close the gap between the
relentlessly circled the plants, look- two economies. Andrew Arena, Special
ing for declining coal stacks—because Agent in Charge of the FBI office in
the power companies would not order Detroit that conducted one investiga-
more coal in advance of a shut down. tion into Chinese corporate espionage,
The planes even searched for port-o- noted that “theft of trade secrets is a
potties being set up on the property threat to national security,” demon-
since annual maintenance can involve a strating the U.S. government’s concern
large number of workers.5 By watching with these intrusions.7
for such mundane details, Diligence In secret diplomatic cables revealed
was able to spot trading opportunities by the website Wikileaks in late 2010,
in the market. American diplomats in Beijing con-
The last category of corporate espio- cluded that the electronic attacks on
nage—nations spying on companies— Google’s home servers to obtain the
can be difficult to prove. Government identities of Chinese dissidents and
intelligence agencies operate behind Google’s proprietary source code had
layers of plausible deniability. The been ordered at the highest level of the
bogus Fox Adams emails were ham- Chinese government. In one cable, the
fisted in comparison to a slew of recent diplomats said they had a well-placed
cases in which Chinese-connected source who said that Li Changchun, a
Winter/Spring 2011 [ 55]SECRETS AND LIES member of China’s Politburo Standing motivated by politics, it highlights the Committee, had been shocked to find willingness of foreign countries—and negative information about himself China in particular—to resort to illegal when he Googled his own name on activities in order to collect the secrets the Chinese language version of the of private companies. search engine’s website. Another cable If it is any consolation to Western revealed that Mr. Li was a key leader in intelligence, Chinese economic espio- China’s anti-Google efforts, and that nage is not always flawless. Fox Adams, his self-Googling likely led to his inter- the bogus executive recruiting firm est in the company.8 experts suspected of being a front The effort was part of a wider cam- for Chinese intelligence, made some paign of corporate espionage against noticeable mistakes. Emails coming American companies and government from purported “Fox Adams” recruit- agencies that began as early as 2002, ers used names that looked like they the American cable-writers concluded. had been randomly mixed and matched Particularly vulnerable were Chinese from American phone books—and by subsidiaries of non-Chinese compa- someone with little feel for American nies, whose local executives were often culture. One email was signed by a afraid to inform their Western bosses recruiter supposedly named “Jesus about the extent of Chinese govern- Black.” The Internet domain regis- ment meddling. “Contacts in the tech- tration for the website www.foxadams. nology industry tell us that Chinese com was listed to a New Jersey address interference in the operations of for- that does not seem to exist. The phone eign businesses is widespread and often number listed was “1-234-5678.”11 underreported to U.S. parent compa- nies,” reported one U.S. diplomat.9 The Rise of Private Intelligence It was this wave of Chinese hack- Firms. Corporate intelligence gath- ing attacks that finally drove Google ering has created a new market for a into the arms of the U.S. National rising class of private espionage firms— Security Agency, announcing a part- companies set up by veterans of the nership with the American techno- world’s intelligence agencies that sell logical spy agency to help Google fend their services on a contract basis to off intrusion attempts.10 For Google, companies and financial firms. In the as for many companies, one option 21st Century, companies and financial when faced with government-funded firms have a greater need for infor- spying is to team up with another gov- mation than ever and—particularly in ernment. Even in a global economy, emerging markets—the best providers it seems, companies sometimes have of that information are former intel- to choose sides. Although it appears ligence officers who are deeply steeped that the Google incident was partially [ 5 6 ] Georgetown Journal of International Affairs
JAVERS Espionage Exposed
in the leadership and politics of a given freelancers, each layer papered with
country and intimately familiar with its strict non-disclosure agreements.
local powerbrokers. In public, they describe their services
There is nothing wrong with compa- as “strategic advisory consulting,” “risk
nies turning to such intelligence advi- mitigation analysis,” or “litigation sup-
sors for information on potential new port.” With names like “Diligence,”
business partners and advice on the “Control Risks Group,” and “Hakluyt,”
political landscape in unfamiliar coun- these private intelligence firms hide in
tries, but there is enormous poten- plain sight, offering extremely lucra-
tial for abuse by corporate intelligence tive post-government career options
firms. The ways in which they gather for veterans of the CIA, the British
information can wander into a legal MI5, and the former Soviet intelli-
gray area, and their offensive opera- gence agency, the KGB.
tions—efforts to damage competitors The industry’s growth is driven by
through underhanded tactics includ- several trends. The increased globaliza-
The corporate espionage industry is
deliberately hidden in a thicket of
complex relationships.
ing surveillance, placing of operatives tion of commerce has created a demand
inside competitors’ firms, and other for companies to understand the rela-
techniques the companies would be tionships between business and politi-
embarrassed to admit in public—can cal elites in countries they often know
deprive legitimate businesses of oppor- little about. Who better to help piece
tunities to succeed. together the puzzle than the men and
Indeed, the corporate espio- women who spent their careers gath-
nage industry is deliberately hidden ering the same information for their
in a thicket of complex relationships governments?
designed to obscure just who is work- And, of course, there is the romance
ing for whom. Often, these firms are of it all. Globe-hopping corporate
hired as subcontractors for corporate executives sometimes cannot resist
law firms and they argue that everything the glamour of the spy business. The
they do is covered by attorney-client romance factor is often implicit in
privilege.12 Thus, their operations do the spies’ sales pitches to prospec-
not surface to the public. In other tive clients. In 2001, for example,
cases, these private spy firms protect the former British secret intelligence ser-
secrecy of their operations around the vice officer Christopher James wrote
world by using a series of cutouts and to Enron executive Jeff Skilling, hop-
Winter/Spring 2011 [ 57 ]SECRETS AND LIES
ing to land Skilling as a new client of cies have a vested interest in know-
his London-based private intelligence ing where such people are employed
firm, Hakluyt. “Dear Mr. Skilling,” and they should therefore track that
he wrote, “Your office has asked me to information. Retired spies working in
outline Hakluyt’s services. … I would corporate espionage are not motivated
simply say this: Hakluyt is what you by love of country any longer; they are
make of it—it places an unparalleled motivated by love of money. When the
private intelligence network at the per- spies have taken their skills and gone
sonal disposal of senior commercial to work for paying clients, the govern-
figures.” 13 ments that trained them with taxpayer
money should monitor their activities
Responding to Corporate to make sure that they are not deploy-
Espionage. What is astonishing about ing those skills in ways that undermine
this private spy industry is how little the the very governments that provided
them.
What is astonishing about this
private spy industry is how little the U.S.
government seems to know about it.
U.S. government seems to know about What is more, Western governments
it. The CIA says it does not know where should be working harder to learn just
its former agents are working today how intertwined their intelligence ser-
and argues that tracking where they are vices are with companies in the global
employed would violate the civil rights of economy. American intelligence agen-
those agents; it surely behooves the U.S. cies, for example, have long had a policy
intelligence community to have some stating that their operatives are allowed
sense of where its alumni are plying their to “moonlight” in their off hours and
trade, however, and whose payrolls they work for private sector firms.15 That
join when they enter the private sector.14
is, active duty intelligence officers,
The CIA and similar organizations
including those of the CIA, are allowed
should know where their alumni work,
to work for private companies in order
particularly when they are being hired
to make extra money. This creates a
by foreign governments, oligarchs, and
conflict of interest; agents who have
political parties. Some of the infor-
access to classified materials of national
mation is not difficult to come by;
security are also working with pri-
the websites of some of the private
vate firms that sometimes engage in
intelligence firms are a handy place
questionable practices and undermine
to start. Western intelligence agen-
or violate domestic and international
[ 5 8 ] Georgetown Journal of International AffairsJAVERS Espionage Exposed
laws. But even intelligence commu- between Western companies can
nity leaders profess ignorance of the include unethical and even illegal tac-
entire moonlighting system. In pub- tics, resulting in economic victories
lic testimony, Director of National for the most underhanded firms, not
Intelligence Dennis Blair said he had necessarily for the most innovative.
been surprised when the moonlight- That is bad for capitalism. Corporate
ing was first revealed in the media. espionage by financial firms results in
“Sometimes I too am surprised about a transfer of information—and huge
what I read in the press about my own financial rewards—into the hands of
organization,” Blair told Congress in the most powerful and wealthy, rob-
February.16 bing average investors of a chance to
As of fall 2010, the Director of participate in the benefits of the finan-
National Intelligence has promised that cial markets. That too, is damaging to
a full review of such moonlighting the market economy, causing market
will be completed and turned over to participants to conclude that the system
Congress.17 That is a promising first is stacked against them. Markets only
step, but the American taxpayers need work best when all players—large and
to know much more about the moon- small—have confidence that the rules
lighting habits of their intelligence are fair.
officers. How often, for example, are Finally, Western intelligence agen-
active duty officers going to work for cies must ratchet up their counter-
intelligence contractors—effectively intelligence capabilities in the eco-
forcing the taxpayer to pay twice for the nomic space. The intelligence com-
same work? munity needs to focus on the threat to
American executives, too, need to American global economic dominance
educate themselves on the range of cor- that comes from Chinese economic
porate espionage tactics arrayed against espionage. One of the United States’
them. Unfortunately, the best way for greatest advantages in its competition
them to do that right now is to reach with China is its corporate ingenu-
out to some of the very private spy firms ity, inventiveness, and sophistication.
that are already in the corporate espio- If Chinese intelligence is able to chip
nage business. Companies would be away at that advantage though corpo-
well advised to create internal monitor- rate espionage techniques, it will do as
ing units so that they can increase their much or more for China’s position in
ability to recognize and respond to the world than traditional spying on
corporate espionage. Some firms have America’s military capabilities or polit-
already implemented these practices, ical leadership. Corporate espionage
but these are few and far between. against the United States is one of many
At its worst, corporate espionage tools that China uses in its effort to
Winter/Spring 2011 [ 59]SECRETS AND LIES
undermine America’s position as the the position. This is a far deeper threat
number-one economy on the planet, to free-market capitalism and is why
and to take for itself the geopolitical America’s counter-intelligence effort
power and influence that comes with had better be up to the challenge.
NOTES
1 Eamon Javers. Anonymous interview, July ing by a China Fearful of the Web,” The New York
2009. Times, 4 December 2010.
2 Jonathan Stempel and Dan Levine, “Mat- 9 “A Selection from the Cache of Diplomatic
tel accused in Bratz battle of spying on rivals,” Dispatches,” Internet, http://www.nytimes.com/
Internet, http://www.reuters.com/article/idUS- interactive/2010/11/28/world/20101128-cables-
TRE67G4FZ20100817 (date accessed: 17 August viewer.html#report/china-99BEIJING999 (date
2010). accessed 5 December 2010).
3 Eamon Javers, Broker, Trader, Lawyer, Spy: The 10 Ellen Nakashima, “Google to Enlist NSA to
Secret World of Corporate Espionage (New York: Harper- help it Ward off Cyber Attacks,” The Washington
Collins Publishers, 2010) 18. Post, 4 February 2010.
4 Ibid. 11 See supra note 1
5 Ibid. 12 Eamon Javers, Broker, Trader, Lawyer, Spy: The
6 Li Cui and Murtaza Syed, “IMF Working
Secret World of Corporate Espionage (New York: Harper-
Paper: The Shifting Structure of China’s Trade
and Production,” Internet, http://books.google. Collins Publishers, 2010), 265.
com/books?hl=en&lr=&id=dADHBsFWJLQC&oi= 13 Archived Enron emails available at the web-
fnd&pg=PA3&dq=Chinese+economy+more+sophis site of the Federal Energy Regulatory Commission:
ticated+manufacturing&ots=FBaAzl5ZPY&sig=7uC http://www.ferc.gov/industries/electric/indus-act/
-JIlzZD5igh1Bm1xtcBjQB34#v=onepage&q&f=false wec/enron/info-release.asp.
(date accessed: September 2007). 14 Interview by the author with CIA public
7 The Associated Press, “Ex-General Motors affairs office, 2009.
worker, husband accused of stealing hybrid vehicle 15 Eamon Javers, “CIA moonlights in corpo-
secrets,” Internet, http://www.mlive.com/auto/ rate world,” Politico, 1 February 2010.
index.ssf/2010/07/ex-general_motors_worker_ 16 Kasie Hunt, “CIA Moonlighting to be Inves-
husba.html (date accessed: 23 July 2010). tigated,” Politico, 3 February 2010.
8 James Glanz and John Markoff, “Vast Hack- 17 Ibid.
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