Spies Among Us

Spies Among Us

By Michel Juneau-Katsuya

Spies Among Us

By Michel Juneau-Katsuya

The head of the delegation could not believe what he had just experienced. Never in his long career had he ever seen anything like it. Sure, he had heard his Security Director warn him about possible attempts by Chinese Intelligence Services to watch him and his group—and even steal secrets—but this was almost unbelievable.

As soon as his plane touched the ground in Vancouver for a short refuel, he called his Security Director and requested a meeting with the CEO. What he had to share still had him shaking. But could they afford not to do business with the Chinese? After all, they had felt lucky when this Chinese company came knocking at their door—such a partner would give them access to the world’s largest single market.

Sun Tzu, the Chinese general and world famous strategist who wrote The Art of War in 600 BC, teaches,  “All warfare is based on deception.” If you want to trap an enemy, “hold out baits to entice the enemy and then crush him.” An enlightening little book with only 13 chapters, the last section in The Art of War concerns the art of using spies. When you deal with a country that has this level of experience in the game, you’d be well-advised to respect it and approach with caution.

In reality, the true motive for the Chinese company was to get access to new technology the Canadians had discovered in their research on airplane fuselages. What the Canadians had not known was that this Chinese company had been mandated by the Communist Central Committee, the supreme centre of government for China, to build the country’s next generation of stealth bombers.

During their stay in China, his delegation noticed they were being followed everywhere by not-so-discreet individuals. More troubling, they had found listening devices—“bugs” —in their hotel rooms. Their rooms had obviously been searched, and one of the male engineers even received a visit late at night from a beautiful young lady who, despite his polite refusal, insisted on coming into his room for “a drink.” The Security Director recognized this to be a “Honey Pot,” a classic technique used by Chinese Intelligence to trap a person in a sex scandal and eventually blackmail him with compromising evidence. What was going on? Were the Chinese so self-confident that they could show such arrogance? This seasoned executive never imagined feeling so vulnerable and violated.

The company is not named here because this is a true story, only one case in the many hundreds known to the Canadian Security Intelligence Service (CSIS). And this government-sanctioned economic espionage is not the only form of espionage in action. There is company-against-company industrial espionage, foreign interference, by which authoritarian regimes send goons to intimidate and threaten dissidents and ethnic communities abroad, political bribery, where elected officials are swayed to act in favor of a foreign country, and military espionage. All-told, Canada has become such great hunting ground for foreign spies that espionage has quietly become one of the most important and pressing national security issues threatening the future of Canadians.

The problem is that nobody other than CSIS seems to know anything about it. Certainly not Canadian business leaders—all past and current federal governments have been practicing the policy of “See no evil, speak no evil.” A copy of an official report prepared by CSIS in 2006 clearly warned that espionage activities in Canada had reached a level not seen since the Cold War. The sad reality, however, is that Canada might be the hardest-hit member of the G-20, and paying the dearest price for not protecting its national economy. A previous study conducted by CSIS in 1995 found that Canada was losing an average of $10 to $12 billion per year. A similar study done the same year in the USA by the American Society for Industrial Security (ASIS) stated that their country was losing an average of $24 billion per year. Considering that Canada’s population is 10 times smaller than its neighbor to the south, this means that Canada is, in reality, losing five times more per capita. The Americans continued to monitor the situation and, in 1996, adopted the Economic Espionage Act. Despite their efforts, the FBI realized the problem continued to increase at warp speed. In a public presentation in 2003, FBI Director Robert Mueller told the Detroit Economic Club that “theft of trade secrets and critical technologies—what we call economic espionage—costs our nation upwards of $250 billion a year.” Last year the FBI revealed they were investigating over 500 major cases of espionage. If they experienced such a sharp increase in under 10 years, it is reasonable to assume that Canada’s losses also increased significantly in the same period. Now the only question is, can we afford not to talk about this anymore?

Who Spies?

CSIS recently revealed that 15 to 20 countries are actively engaged in economic espionage against Canadian interests—that is, using national intelligence services to actively steal Canada’s economic secrets—and that’s only the tip of the iceberg. Chen Yonglin, a Chinese official who defected to Australia in 2005, estimated then that there were at least 1,000 Chinese spies in Canada. During a visit to Ottawa, he shared in an interview that Canada is one of the most important countries for China because it is easy to steal technology and monitor dissidents here. But China is not the only culprit. There are not only the “traditional villains” like Russia, North Korea and Iran, but also so-called “friendly” countries like the USA, England, Israel, and France (which is particularly aggressive in Québec), to name only a few.

In 2009, the Financial Transaction Reports Analysis Centre of Canada (FINTRAC), the federal agency responsible for monitoring all financial transactions in Canada, revealed in its annual report that it helped stop a foreign front company that had been operating in Canada for over five years. During that period, foreign agents had been able to buy more than $35 Million of restricted technology for a nuclear program from Canadian companies. None of those companies ever bothered to check the validity of that suspicious company. FINTRAC did not want to mention the specific country, but many concluded it was probably Iran.

Yesterday’s Friends are Today’s Foes

At the end of the Cold War, all countries moved from a military confrontation to an economic war. From then on, it became every man for himself, and the old alliances surfaced only on occasions of shared military or (later) anti-terrorist initiatives. All G-8 countries except Canada immediately adopted laws to not only protect themselves against economic espionage but also give additional powers to their national intelligence services to actively defend their national interests—doing so by stealing economic secrets to pass on to their own nations’ companies. Meanwhile in Canada, trusting “peaceniks” debated whether maintaining an intelligence service was justified, and resources for CSIS were cut by almost half in the mid ‘90s. Since 9/11, budgets have returned to previous levels, but the main focus has shifted predominantly to counter-terrorism, continuing to leave the Service at a handicap when it comes to protecting our economy.

This situation has more than ideological and political ramifications—it translates into severe loss of national revenue, jobs, and ultimately, competitiveness in the international market. Because the government has refused to examine and discuss the problem openly, business leaders remain totally oblivious to the threat until it is too late, after they have already lost important intellectual property or a crucial contract. They cannot even comprehend that some major players are not playing by the same rules. Many companies receive direct help from their national intelligence services, who steal trade secrets about contract proposals or new technologies and deliver the information directly to them. For example, the German engineering giant Siemens has for decades allegedly used a special budget estimated to be more than $2.1 Billion USD to bribe and spy on the competition. It maintained a close relationship with the German Foreign Intelligence Service (BND) in order to gain and maintain a competitive advantage. And that’s only the tip of the iceberg.

Why Canada?

Because Canada is a knowledge-based society and, despite our famous national inclination to diminish our capabilities and successes, we have world-class universities and private research centres at the cutting-edge of technology in many different fields. Contrary to other countries, we do not have a significant piece of legislation to protect us and deter foreign spies; thus, our federal law enforcement agencies do not pay as much attention to the issue as they should. Nobody wants to admit when they’ve been had, but with the “well intentioned ignorance” we are guilty of, Canada is losing billions every year to foreign spies. By not talking about it, it doesn’t get the attention it needs from our government, and Canadian companies remain open to the threat, unable to protect themselves.

The sobering reality is that with the current world economic crisis, all countries practicing foreign espionage have increased their budgets and activities. For any country, the returns on investment when investing in R&D are dividends at medium or long term. But if you steal “ready-made” intellectual property or a potential major contract, you reap the rewards immediately. In a period of time when all countries are struggling to cope with the economic crisis, the immediate gains from spying are irresistible to many in their efforts to gain a strategic advantage.

How much damage are we talking about?

Public examples are rare because, of course, companies do not reveal their damages for fear of losing trust among shareholders and other partners. But one case revealed how quickly the costs can add up. In 1998, the Ottawa-based telecom giant Mitel was hit by one of its own employees. After 16 years with the company, To Van Tran stole a cutting-edge new PBX (private branch exchange) telephone-switching system and went to Vietnam to sell it to their government. Within a month, the Vietnamese military (who, like the Chinese military, are allowed to conduct business) were able to put the new product on the market at a price Mitel could not compete against. Of course, they did not have the cost of research to recoup. Tran was eventually arrested by the Ontario Provincial Police in March 1998, but he could only be charged with fraud and possession of stolen property because the Canadian Criminal Code has no specific section covering economic espionage. He received a $25,000 fine and a 6-month suspended sentence, not much for Tran, since he had received $50,000 from the Vietnamese Government in the sale. Mitel estimated that they had lost 10 years of research, $40-$45 million in R&D, and $200 million to $1 billion in market share. When one considers the damage that can be done by one guy, in one case, selling one gadget, the potential for damage on a national scale becomes frighteningly clear. Ridiculous sentencing like this does not even come close to deterring spies.

Take the case of Paul William Hampel (at least, this is the name he gave to CSIS.) He is the most recent Russian spy to be apprehended, taken into custody as he was boarding a plane at Trudeau Airport in Montreal on November 14, 2006. Identified as an SVR agent (the old KGB), he argued is innocence in court just enough to find out where his agency had screwed up, so they could be better next time. When it became clear that the documents he had used were the cause of his downfall, he suddenly made arrangements with the judge to stop the procedure and to be sent back to Russia. In most countries those arrested for spying go to jail—and in some places are even executed. In Canada, spies have routinely been allowed to return to their home countries without so much as a fine.

Companies are constantly assailed. Take the case of a foreign delegation that came to Canada to discuss a specific product. No cellular phones, cameras or electronic devices were allowed in the meeting, but when the technical details were shown, each member of the delegation had been tasked to remember their assigned part of the blueprints. When they returned to their hotel, they had enough information to reverse engineer the product. Similar situations are exploited when companies involved in a joint-venture trade technicians and engineers for a certain period of time. Some of those technicians’ secret task is to quickly gain access to sensitive information. This is a scenario similar to one found in various university departments, such as one case at a Quebec university. An engineering professor returned to his office late one night after forgetting something important, only to discover a masters degree student from India photocopying some of his confidential notes on classified research. Further investigation revealed that this “student” actually had a post-doctorate degree and had been sent by his government to acquire sensitive information. Tuition fees from foreign students are big money for all universities, and in fear of losing substantial revenues generated by Indian students, the university did not pursue criminal charges in court, and only asked the student to leave after his term. When it comes to developing schemes to achieve their goals, spies have no lack of imagination.

How to fight it

Espionage has continued to evolve for the last two decades. New techniques like cyber-espionage have appeared, but in the end, it is still a human story and the human factor remains the weakest link. It is estimated that 80% of all economic or industrial spy cases are committed by an insider, either intentionally, for personal motives, or unintentionally, sometimes oblivious they have even been manipulated in the process.

In order to protect ourselves, we must first acknowledge the problem. Under the current circumstances, business leaders are left to protect themselves, their enterprises, and their trade secrets on their own. Prevention is the only game in town, and it has much more to do with the business culture of a company and how you manage sensitive information than how many cameras, locks or access passes you have. Though legislation is not in place for authorities to help companies protect our economic secrets, CEO’s and CFO’s still have the power and authority to act within their own enterprises by implementing a security conscious business culture throughout the company. Protection of intellectual assets must be a reflex for employees. Awareness is 50% of the battle, but thorough assessment to determine actual threats against the company would enable optimal use of the budget for security and implementation of more refined business practices and processes. Ultimately, more security does not mean better security. Catching up to the way business is done does not necessarily mean playing dirty like the competition—it means being aware and being prepared. A strategic outlook is crucial for companies—and Canada—to survive in the business jungle.

Michel Juneau-Katsuya is the former Asia-Pacific bureau chief for CSIS and is the co-author of Nest of Spies: The Startling Truth About Foreign Agents At Work Within Canada’s Borders (Harper Collins).