What Is Economic Espionage?
Economic espionage is the unlawful targeting and theft of critical economic intelligence, such as trade secrets and intellectual property. The term refers to the clandestine acquisition or outright theft of invaluable proprietary information in several areas, including technology, finance, and government policy. Offenders get cheap access to critical information, leading victims to suffer steep economic losses.
- Economic espionage is the unlawful targeting and theft of critical economic intelligence, such as trade secrets and intellectual property.
- It is likely to be state-sponsored, and have motives other than profit or gain—such as closing a technology gap.
- The Economic Espionage Act was signed into law in October 1996, criminalizing misappropriation of trade secrets and giving the government the right to pursue such cases in the courts.
- Economic espionage is estimated to cost the U.S. between $225-$600 billion annually.
- China has been accused of being the world’s “most active and persistent” perpetrator of economic espionage.
Understanding Economic Espionage
Economic espionage differs from corporate or industrial espionage in several ways. It is likely to be state-sponsored, have motives other than profit or gain (such as closing a technology gap), and be much larger in scale and scope.
The U.S. recognizes the threat from such activity and responded by signing the Economic Espionage Act into law in October 1996, criminalizing misappropriation of trade secrets and giving the government the right to pursue such cases in the courts.
Many cases of economic espionage may go unreported, as companies who fall victim to it may suffer a loss in stock value if they report such a breach.
The Federal Bureau of Investigation (FBI) defines economic espionage in the following way:
“Economic espionage is foreign power-sponsored or coordinated intelligence activity directed at the U.S. government or U.S. corporations, establishments, or persons, designed to unlawfully or clandestinely influence sensitive economic policy decisions or to unlawfully obtain sensitive financial, trade, or economic policy information; proprietary economic information; or critical technologies. This theft, through open and clandestine methods, can provide foreign entities with vital proprietary economic information at a fraction of the true cost of its research and development, causing significant economic losses.”
Economic Espionage Methods
According to the FBI, foreign competitors conduct economic espionage in three main ways:
- By recruiting insiders working for U.S. companies and research institutions that typically share the same national background.
- Using methods such as bribery, cyber-attacks, “dumpster diving”, and wiretapping.
- Establishing seemingly innocent relationships with U.S. companies to gather economic intelligence, including trade secrets.
To counter this threat, the FBI advises companies to stay alert. Some steps are recommended, including implementing a proactive plan to safeguard trade secrets, securing physical and electronic versions of intellectual property, and training employees.
The Intellectual Property Commission Report estimates that between $225 billion and $600 billion is lost to economic espionage, while the Office of the Director of National Intelligence believes somewhere in the middle—$400 billion—is more accurate. However, all agree that more than 80% of this loss is attributed to Chinese economic espionage.
The amount the U.S. loses annually due to Chinese economic espionage.
In November 2011, the U.S. accused China of being the world’s “most active and persistent” perpetrator of economic espionage. A report by the U.S. International Trade Commission claimed that intellectual property-intensive firms in the U.S. lost $48 billion in 2009 because of Chinese infringements. Russia was also identified as one of the most aggressive collectors of U.S. economic information and technology.
The problem's scale was evident in subsequent media reports that said hundreds of leading U.S. companies had been targeted by overseas entities for economic espionage.
Criticism of Economic Espionage
In recent years, the number of defendants indicted under the U.S. Economic Espionage Act has surged, and many of those charged are Chinese. From 2000 to 2020, 152 cases of Chinese economic espionage were reported. Of those cases, 45% were government or military personnel, 33% were U.S. citizens recruited by Chinese nationals, and 30% were private citizens.
According to a Cardozo Law Review study, 21% of Chinese defendants are never proven guilty. For those convicted, their sentences are twice as long as Western society defendants. The study also found that approximately 48% of defendants with Western names receive probation, whereas only 22% of Chinese or Asian defendants receive probation. These findings have fueled allegations that federal agents and prosecutors are unfairly profiling ethnic Chinese people as spies and issuing stiffer punishments.
Economic Espionage FAQs
In What Industries Is Economic Espionage Most Likely to Occur?
Economic espionage most often occurs in the private sector. The most vulnerable industry is the technology sector, followed by industries that heavily rely on technology: computer, biotechnology, energy, and chemical.
Why Is China Considered to Be the Most Active Perpetrator of Economic Espionage?
The U.S. Department of Justice reports that China is involved in more than 90% of economic espionage cases and costs the U.S. more than $320 billion annually. Over the years, the Chinese government has advanced its economy with Western technology and resources. It is believed that Chinese economic espionage is fueled by China's desire to be the economic and technological leader of the world, displacing the United States.
Why Should Academic Institutions Be Concerned About Economic Espionage?
The FBI claims that there are attempts to steal research findings and other intellectual property from U.S. colleges and universities. They urge these institutions to have a watchful eye over what they share, including their research findings, and work with the FBI to address threats. The FBI director Christopher Wray believes that China uses graduate students and researchers to steal innovation from universities.
What Is the Punishment for Economic Espionage?
The punishment for economic espionage varies but is severe. For example, stealing trade secrets for the benefit of a foreign government could cost the perpetrator up to $500,000 and 15 years of their time in federal prison. Companies found guilty of economic espionage could face monetary penalties of up to $10 million.