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ECONOMIC INTELLIGENCE
Recognising the importance of economic intelligence for
safeguarding national security, the Central Intelligence Agency (CIA) of the US set up an
economic intelligence division immediately after the Agency was created under the National
Security Act of 1947.
Recruitment for this division was directly made from the universities and economic think
tanks and the division inter-acted closely with the non-governmental community of economic
experts as well as executives of the multinationals having branches in target countries.
Of all the departments of the US Government, the CIA's economic intelligence division is
believed to have the largest percentage of PhDs.
Despite this, the CIA's performance was considered below mediocre. The Congressional
Quarterly Researcher (CQR) wrote on December 11,1992: " After the Soviet
break-up,economists were amazed at the extent to which the CIA had overestimated the
performance of the Soviet economy, leading many to speculate that the numbers were hyped
to fuel the arms race."
Mr.Allan Goodman, Dean of Georgetown University's School of Foreign Service, described the
CIA's economic intelligence performance as "between abysmal and mediocre."
Senator Daniel Patrick Moynihan, former Vice-Chairman of the Senate Intelligence
Committee, said after the Soviet break-up: " For a quarter century, they (the CIA)
told the President everything there was to know about the Soviet Union, excepting the fact
that it was collapsing (due to a bad economy). They missed that detail."
Speaking on the CIA's role in economic intelligence during an address to the Economic Club
of Detroit on April 13,1992, Mr.Robert Gates, then CIA Director, said: "Long
before I became an intelligence analyst, the (intelligence) community had experts looking
at everything from the stability of major foreign currencies to water resources in the
Middle East…We had---and continue to have---recognised authorities on balance of
payments of foreign countries, advanced technology developments, the inner workings of
regional economic groupings and many other economic issues."
He added: " In this post cold war period, I see three broad tasks for the
intelligence community with respect to economic issues. The first task is to support US
policy-makers in the executive and legislative branches as they set this country's
economic policy course. The second general economic intelligence task of the community is
to monitor trends in technology that could affect national security. The third and final
general task is to undertake such counter-intelligence measures as may be necessary to
protect our economy from those who do not play by the rules. This is a task our
intelligence professionals are uniquely equipped to handle. We have been doing it for a
long time."
Since the end of the cold war, the US Government has given added importance to economic
intelligence from the intelligence collection as well as counter-intelligence angles. This
is due to a general belief that future threats to national security could be more economic
than military and that the cold war of the classic mold is likely to be replaced by a
mercantilist cold war, with different countries vying with each other for market share
through means, fair and foul, and with economic dominance, instead of only military
dominance, becoming a major objective of state policy.
This led to an interesting debate as to whether the CIA should confine itself, as in the
past, only to the collection of economic intelligence of interest to the Government or
whether it should also help the US corporate houses in winning overseas markets.
Admiral Stansfield Turner, CIA Director under President Carter, wrote in the "Foreign
Affairs" of Fall, 1991: " In an age of increasing attention to economic
strength, there needs to be a more symbiotic relationship between the worlds of
intelligence and business."
Apparently disagreeing with this view, Mr.Gates told the Detroit Economic Club:
"Some years ago, one of our
clandestine service officers overseas told me: "I am prepared to give my life for my
country, but not for a company." The case officer was absolutely right."
Despite this controversy, both the Bush and the Clinton administrations have been
increasingly using the CIA for assisting the US multinationals. The CQR quoted an instance
in 1990 when on a CIA report that Indonesia's Suharto was about to award a telecom
contract to Japan's NEC, Mr.Bush intervened to pressurise Suharto to split it half-half
between the NEC and the USA's AT&T. There have been many other such instances of the
CIA helping US companies.
In an executive order of 1994, Mr.Clinton stipulated the CIA's economic intelligence role
as follows: " In order to adequately forecast dangers to democracy and to US economic
well-being, the intelligence community must track political, economic, social and military
developments in those parts of the world where US interests are most heavily engaged and
where overt collection of information from open sources is inadequate. Economic
intelligence will play an increasingly important role in helping policy-makers understand
economic trends. Economic intelligence can support US trade negotiators and help level the
economic playing field by identifying threats to US companies from foreign intelligence
services and unfair trading practices."
This order legitimised the counter-intelligence role of the US intelligence community in
helping corporate houses in preventing the penetration of their companies by foreign
intelligence agencies, but was silent on their assistance to the corporate houses in
penetrating overseas markets through covert action.
The FBI and the General Accounting Office (GAO) have been greatly concerned over three
counter-intelligence aspects:
- The increasing attempts of not only Russia and
China, but also allied intelligence agencies like those of France, Germany and Israel to
penetrate US companies, industries and R&D establishments.
- The role played by the US subsidiaries of
foreign companies in helping their intelligence agencies.
The possibility of the destabilisation of the US
economy by foreign currency and stock market speculators.
According to Mr. Louis F.Freeh, the FBI Director, 23 countries were found to be engaged in
economic espionage against US targets. He told a Congressional committee that in 1995, the
FBI investigated 800 such cases, double the 1994 number.
In a congressional testimony of February 1996, the GAO expressed its concern over the fact
that US subsidiaries of 54 foreign companies had won defence contracts in sensitive fields
in the US. It also gave instances of recruitment of agents in US companies or their
overseas offices by the French and Israeli intelligence agencies and alleged theft of
sensitive equipment by visiting Israeli delegations.
The GAO said of Japan: "It has no official foreign intelligence service. It uses
private companies for the purpose (of external intelligence collection). It has been quite
successful in developing and exploiting ties with Americans who have access to classified
and proprietary information."
It said of Germany: "It has started a semi-overt collection of foreign economic
intelligence, including large-scale losses of technology from the US that were discovered
in the early 1990s."
A 1996 study by the American Society for Industrial Security (ASIS) claimed that since
1992 there had been a 323 per cent increase in the theft of economic and technological
information from US companies, resulting in an estimated loss of US $ 24 billion annually.
According to a 1995 study by the State Department and the National Counter-Intelligence
Centre, there were 446 instances of theft of technologies from 173 companies. Only 58 per
cent of the affected companies reported the theft to the FBI. The remaining hushed them
up.
Keeping these developments in view, the Clinton Administration has also taken the
following steps:
- The setting-up of a National Economic Council,
which has been described as the economic equivalent of the
National Security Council to focus totally on economic intelligence and long-term
projections.
- The setting-up of a special situation room, called
the Advocacy Centre, in the Commerce Department to track minute by minute the status of
major projects around the world in which US companies are
interested.
- The enactment in 1996 of an Economic Espionage Act,
to deal exclusively with economic espionage. It provides for
a maximum imprisonment of 25 years.
Congressional
testimonies are silent on economic covert actions to weaken the competitiveness of other countries and destabilise their economies.
However, the practice of the following methods by the CIA and other Western intelligence
agencies has come to notice:
- Influencing economic decisions by foreign political
leaders and bureaucrats through cash and other incentives. The US laws and the proposals
of the
Organisation for Economic Cooperation and
Development (OECD) for banning the use of bribes and
commissions by Western companies and governments for winning
overseas contracts do not apply to their intelligence agencies. - Economic psywar to damage the credibility of
foreign companies and their executives and the quality and safety of their products. In
July, 1995, the French journal "L'Expansion" had
reported instances of such psywar by the CIA against
French firms and their CEOs.
- Destabilisation of the economies of
competitor-nations through currency and stock market speculators and damaging their
competitiveness through campaigns on issues like alleged
employment of child labour, payment of unreasonable wages, environmental damage, health
hazards of products etc organised by non-governmental organisations funded by the
intelligence agencies.
The CIA has always had experts in foreign currencies to monitor and assess movements in
the currency markets abroad. The importance of this capability has increased tremendously
because of the increase in the volume of currency transactions.
The large volumes transacted in currency markets, often with the advantage of anonymity
provided by electronic commerce, lend themselves to exploitation by the intelligence
agencies for enhancing their budgets for clandestine operations and for destabilising the
economies of target countries.
In an article titled "Looking out for Economic Interests: An Increased Role for
Intelligence" in the "Washington Quarterly" (autumn,1996), Mr.Samuel
D.Porteous, of the Canadian Security Intelligence Service (CSIS), the external
intelligence organisation, says: "French operatives have been quoted as saying that
just a few economic espionage operations relating to the currency markets netted benefits
for France that more than paid the cost of running the entire French intelligence
service."
During the Second World War, the main technique for destabilising the economy of a country
was flooding the country with counterfeit currency notes. Currency and stock markets did
not then have the huge volumes of transactions that they have today. The tremendous
increase in the volume of transactions, much of it borderless, and the increasing use of
electronic commerce have placed a disquietingly destabilising weapon in the hands of
intelligence agencies.
Following the 1997 currency turmoil in South-East Asia, not only Dr.Mahatir Mohammad, the
Malaysian Prime Minister, but also Mr.Li Peng, the then Chinese Prime Minister, had
suspected that external speculators might have played a role in creating the confusion.
While the US and other Western countries ridiculed these suspicions, opinion-makers in the
US have themselves been warning their government of possible threats to the US economy
from Chinese and Russian stock and currency market speculators. In 1997, they had advised
the administration to study the South-East Asian currency turmoil and draw the necessary
lessons.
In a statement before a congressional committee on November 5,1997, Mr.Jerry Solomon,
Chairman of the House Rules Committee, said: " The communist government of China is
in the midst of offering a whole string of their controlled businesses on the Hong Kong
market, with the intention of listing them on the New York Stock Exchange. We need a
special watchdog agency specifically committed to making sure no entity can engineer
fluctuations that could bring our markets down." In this connection, he cited the
South-East Asian currency turmoil.
Mr.Roger Robinson, an economic expert of the Reagan administration, told the congressional
committee that there was growing recognition of the "serious national security
dimensions" of Russian and Chinese bond offerings and equity issues.
Mr.Solomon and Senator Lauch Faircloth called for the creation of an Office of National
Security within the Securities and Exchange Commission to report regularly to the Congress
on the activities of foreign government entities in the stock and currency markets of the
US.
Under the British Intelligence Services Act of 1994, the functions of the Secret
Intelligence Service (SIS), also known as MI-6, have been re-defined as obtaining and
providing information as well as performing other tasks in the interests of national
security, prevention and detection of serious crime and "the economic well-being of
the UK."
Similarly, the French Government amended on March 1,1994, the law relating to its
intelligence community to task it to collect commercial and industrial intelligence too.
The amendment also laid down that the task of the community would be to protect "the
fundamental interests of the nation". Before the amendment, the task had been defined
as protecting "national defence interests."
In March, 1995, the French Government set up a Committee for Economic Competitiveness and
Security to be chaired by the Prime Minister, "to research, analyse, process and
distribute information with the goal of protecting economic secrets and advising French
firms and Government on trade strategy." Its work is staffed and co-ordinated by the
General Secretariat for National Defence, the French counterpart of the Indian Joint
Intelligence Committee (JIC). An economic intelligence office code-named Section R-31 was
also set up in the French Centre for Foreign Trade.
OTHER COUNTRIES
Amongst other countries, which have re-defined the charters of their intelligence,
communities to give greater priority to economic intelligence are Australia, South Africa,
South Korea and Pakistan. While details of the Australian directives are not available, a
1994 White Paper of the Nelson Mandela Government allotted the following additional task
to its intelligence community: "To identify opportunities in the international
environment, through assessing real or potential competitors' intentions and capabilities.
This competition may involve the technological, scientific and economic spheres,
particularly the field of trade."
President Kim Dae Jung of South Korea has also upgraded the priority for economic
intelligence and counter-intelligence. He was reportedly of the view that the excessive
preoccupation of the South Korean intelligence community with political intelligence to
the neglect of economic intelligence was a contributing factor for the 1997 collapse of
the South Korean economy.
He is reported to have taken his intelligence community to task for their failure to
detect and report in time that overseas branches of South Korean companies had been
borrowing recklessly for their expansion and that these borrowings were not being
reflected in the annual reports of their parent companies in South Korea.
The Inter-Services Intelligence Directorate (ISI) of Pakistan is based structurally on the
continental European model, with most of its officers from the armed forces, but,
operationally, it has been using the Chinese technique of adopting the commercial cover
for its overseas operations, in addition to the diplomatic cover. It has floated a large
number of commercial firms abroad, either through its own retired officers, or through
non-resident Pakistanis (NRPs) and home-based Pakistani businessmen enjoying its
confidence.
This technique played a significant role in its successful clandestine acquisition of
nuclear and missile technology and equipment from the USA, Canada, West Europe and North
Korea.
Amongst the companies and banks, which had been associated with its clandestine overseas
procurement, were the Bank of Credit and Commerce International (BCCI), founded by Mr.Agha
Hasan Abedi, which collapsed in 1991, and the Gulf Shipping Group, based in Geneva,
founded by Mr.Abbas Gokal and his brother, which also collapsed the same year. Mr.Abbas
Gokal was jailed by a British court in April 1997, on a charge of cheating in connection
with the BCCI collapse.
The ISI and Pakistan's Military Intelligence Directorate extensively used the BCCI for
providing cover to their officers and for funding clandestine procurement of nuclear and
missile technologies and equipment. The Gulf Shipping Group was used for the transport of
the secretly procured equipment.
The Army Welfare Trust (AWT), headed by Lt.Gen. (retd) Farrukh Khan, which was started in
the 1970s by the ISI, has become one of Pakistan's most active business groups. Amongst
the projects controlled by it are a housing and land development scheme, a sugar factory,
a shoe factory, a woollen garments factory and a glass factory.
It also controlled the Aksari Commercial Bank and was planning to expand its business
activities to cement and pharmaceuticals. It had also been permitted by the Government to
go into joint venture partnerships with foreign companies and was planning joint ventures
for the manufacture of helicopters and Land Rovers.
Amongst other organisations controlled by the ISI are the Fauji Foundation, which has set
up factories for the manufacture of fertilisers and chemicals and the Shaheen Foundation,
which controlled the private Shaheen Airlines. It had also been permitted by the
Government to start a satellite TV channel.
In the past, the ISI's economic intelligence collection efforts were mainly focussed on
India. In 1997, its role was expanded with the creation of an economic intelligence
division to collect economic and financial intelligence all over the world, to monitor the
activities of foreign firms in Pakistan and to collect evidence of bribery and other
wrong-doings in connection with the signing of contracts with foreign firms.
The evidence regarding the secret Swiss accounts of Mrs.Benazir Bhutto, her husband and
her mother was reportedly collected by this division and not by the Federal Investigation
Agency (FIA), the Pakistani counterpart of India's Central Bureau of Investigation.
CORPORATE INTELLIGENCE
Western, Japanese and Israeli multinationals and other companies have always maintained
their own intelligence collection capability for monitoring the activities and R&D
efforts of their competitors, whether in their own countries or abroad.
These capabilities have now become more extensive and sophisticated because of the
availability of a variety of gadgetry in the open market and of the expertise of a large
number of ex-intelligence officers whose services have been terminated because of the
reduction in the size of the intelligence agencies of the West and Russia, after the end
of the cold war.
Many of these ex-intelligence officers have floated private companies to assist corporate
houses collect intelligence about their rival companies and their executives. These
companies are also used by government intelligence agencies for their purposes.
In July 1995, "L'Expansion" had identified the Kroll Associates, the Triangle
Partnership, the Futures Group and the SIS International as private economic intelligence
companies, which were allegedly helping the CIA and other US Government agencies.
Another allegedly similar outfit is the Business Research Group (BRG) of Geneva, started
by Mr. Douglas C.Bernhardt, author of the book "Perfectly Legal Competitor
Intelligence". He had reportedly been convicted and fined by a French court in 1991
on a charge of trying to sell parts of a British Blowpipe missile to South Africa, in
violation of the UN arms embargo against South Africa, then in force.
An organisation called the Society of Competitive Intelligence Professionals, with an
estimated membership of 5,000, has been functioning in Europe. It offers its services to
corporate houses not only for improving their competitiveness, but also for allegedly
poaching talented executives of rival companies.
Another similar organisation allegedly helping corporate houses is the Association of
Former Intelligence Officers.
The services of such organisations are coveted by corporate houses because of the contacts
of the ex-intelligence officers not only in various economic ministries of the government,
but also even in the intelligence and investigative agencies. The corporate intelligence
warfare, which was previously confined to the military and automobile industries, has
since spread to electronics and pharmaceuticals.
The economic intelligence division of the ISI is reported to have procured Xerox copies of
documents relating to the Swiss bank accounts of Mrs.Benazir Bhutto, her husband and
mother through the paid services of a private company run by an ex-CIA officer.
Two interesting examples of recent corporate intelligence covert actions could be
cited.
In 1993, Mr.Jose Ignacio Lopes, head of the purchase division in the German subsidiary of
the US General Motors, was allegedly persuaded to defect to the Volkswagen along with the
print-outs of 4,000 pages giving details of the companies from which General Motors
procured components. The General Motors filed a civil suit against the Volkswagen. Under
an out of court settlement in 1997, the Volkswagen agreed to pay the General Motors US $
100 million as damages.
In September 1997, business rivals of the US telecommunications company AT&T allegedly
tapped the telephone conversations of an executive of the American company with a senior
Argentine bureaucrat regarding tenders for a project and passed on the tapes to the local
media. It was alleged that the US company was pressurising the Argentine Government to
modify the tender specifications.
ACTION IN INDIA
Keeping in view the increasing importance of economic, industrial and technological
intelligence, from the collection as well as counter-intelligence angles, it would be
advisable to have the existing structure for the collection, assessment and co-ordination
of action in respect of such intelligence examined by a special task force of the National
Security Council Advisory Board in order to introduce the necessary changes.
Such changes should cover:
- Revision of briefs of organisations responsible for
economic intelligence collection and counter-intelligence.
- Structural re-organisation to improve collection,
counter-intelligence and assessment; and
Inter-ministerial and departmental
co-ordination to ensure systematic tasking of the collection agencies, evaluation of their
produce and per-formance and timely follow-up action.
B.RAMAN
2-5-99
(The writer is Director, Institute for Topical
Studies, Chennai. E-mail: [email protected] )
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