Corporate Espionage, American-Style
SUDDENLY, Washington is extremely concerned about Chinese espionage.
Last month, the White House blocked a Chinese company from operating a wind farm near a sensitive Navy base in Oregon. Next, the House Intelligence Committee said two Chinese telecommunications firms were manufacturing equipment that could be used to spy on the United States, and Defense Secretary Leon E. Panetta told business leaders that the country faced the risk of a “cyber-Pearl Harbor” — an attack that could come from terrorist groups or a country like China. Finally, during Monday’s presidential debate, Mitt Romney warned that the Chinese were “stealing our intellectual property, our patents, our designs, our technology, hacking into our computers.”
There’s no question that American companies today are under surveillance: I’ve learned that the F.B.I. has obtained a video taken inside a hotel in China that shows Chinese agents rifling through an American businessman’s room, according to two sources familiar with the tape, which the F.B.I. has been playing as a warning for corporate security experts. But while the Chinese spying push is aggressive, American companies have been tapped, bugged and spied on for more than a hundred years. As often as not, the perpetrators have been other Americans — motivated not by patriotism for a foreign flag, but by simple profit.
In Placerville, Calif., a stockbroker named D. C. Williams took advantage of the latest high-tech telecommunications gear in an insider trading scam. The year was 1864. Mr. Williams, claiming to be in the stagecoach business, rented a room at a hotel called the Sportsman’s Hall, where the State Telegraph Company had offices. Sitting in his room, within earshot of the receiving equipment, Mr. Williams simply decoded the messages about business deals as they clattered in. When he tried to bribe the telegraph agent for exclusive access to news on an important mining lawsuit, the agent turned him in, and Mr. Williams was arrested.
Or take the case of John Broady, an audacious wiretapper who in the mid-1950s set up an eavesdropping nest at an apartment in Midtown Manhattan. Working with a source inside the phone company, he set up equipment capable of tapping and simultaneously recording 10 phone lines in the area. Among Mr. Broady’s clients was the drug company Pfizer, which hired him to tap the phones of its own employees and those of a competitor, Squibb.
Mr. Broady was ultimately undone by an anonymous tipster, most likely someone inside his organization. Bizarrely, at his trial he claimed there was a nefarious Chinese angle to his scam — he said he’d used the equipment to spy on a rogue Chinese Air Force general who’d stolen millions from his government. Mr. Broady said that someone who wanted to stop the investigation had killed one of his own agents in Mexico. “I didn’t want them to knock me off, like they did my man,” he said, breaking down in tears. “I have a wife and kids.” The jury thought it was an act, and Mr. Broady received a two- to four-year prison sentence.
Spying for profit continued in more recent times. In the late 1990s, the candy companies Nestlé and Mars engaged in an epic corporate war that included a confidential source nicknamed “Deep Chocolate.” Former government agents, working through a subcontractor for Nestlé, snatched garbage bags from the Mars headquarters, replacing them with dummy trash bags so the custodial staff wouldn’t catch on. Picking through coffee grounds and stale food, they found shredded documents that they were able to painstakingly reconstruct into readable corporate records.
In London in the fall of 2008, I met with Nick, a former British Special Forces soldier who has gone into the private espionage business — working for companies around the world to dig up dirt on their competitors or their own employees. Nick, who asked that I not use his last name, told me that they often used a simple strategy: they hired subcontractors to rent space in a building across the street from their competitor, and pointed laser microphones at conference rooms across the way. Voices in the rooms made slight vibrations in the windows, and Nick’s microphones could translate those back into sound that he could record.
Technology has changed the volume of information spies can purloin from corporate files, as well as the types of attacks possible from a distance. But the principle remains the same: spying is often easier than conducting one’s own research and development. This is certainly true from China’s perspective.
What has people in Washington really worried is the idea that such passive theft could turn into an active threat — not just snooping, but knocking out elevators or communications at a presidential event, or shutting down software controlling water supplies, electrical grids and nuclear power plants.
But while we deal with this new generation of spies, we shouldn’t forget the lessons learned battling the old. The best way to fight technology is not always with more technology — it’s with human beings. As Mr. Williams and Mr. Broady learned, the most dangerous threat to a high-tech snoop is an inside source who’s willing to come forward and expose the scheme. Law enforcement officials in the 19th and 20th centuries found ways to motivate those whistle-blowers. We must do the same.
Eamon Javers is a Washington correspondent for CNBC and the author of “Broker, Trader, Lawyer, Spy: The Secret World of Corporate Espionage.”