Company Spies

The CIA has opened aglobal Pandora's box by spying on foreign competitors of American companies.

Sometime in the not too distant future, you will probably drive a stolen car.

But the thieves won't be a neighborhood gang, nor will they be part of an organized crime ring. You will have papers to prove that you bought the car, and every month you will make payments to a bank. The bank, in turn, will show that it bought title from Ford, General Motors, or Chrysler.

But the Big Three U.S. auto companies will nonetheless be the recipients of stolen goods. And the perpetrator once again will be that expert at black-bag jobs, the Central Intelligence Agency.

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When President Clinton announced last September that the federal government would join the Big Three in a cooperative research effort to improve U.S. automotive technology, he left out the fact that the CIA may be a silent partner. According to administration officials and sources in the intelligence community, the CIA has already begun a clandestine effort to help the American auto industry.

Since the end of the Cold War, Washington has been abuzz with talk about using the CIA for economic espionage. Stripped of euphemism, economic espionage simply means that American spies would target foreign companies, such as Toyota, Nissan, and Honda, and then covertly pass stolen trade secrets and technology to U.S. corporate executives.

R. James Woolsey, President Clinton's CIA director, has said repeatedly that the CIA will not engage in corporate spy work. Targeting foreign companies and giving that information to American companies is "fraught with legal and foreign policy difficulties," Woolsey says. But there is not the slightest hesitation among other top CIA officials that such information, when obtained, ought to be shared with American automakers.

The idea of using the U.S. intelligence community to give American companies an edge is an explosive subject that has divided the CIA and provoked bitter debate in Congress. It also raises troubling questions about whether a free society can accept the kind of help that the CIA provides when the question is not one of national defense but simply dollars and cents.

What's good for General Motors . . . On Sept. 29, 1993, flanked by the CEOs of General Motors, Ford, and Chrysler, President Clinton announced that the U.S. government had joined the Big Three in an effort to build a car with three times the fuel efficiency of current models.

Describing the venture as a model for a "new partnership between government and industry," the White House said that at least six government agencies, 11 research laboratories, and the Pentagon would open their doors to the automakers. "This means that superstrong, lightweight materials developed for advanced weapons systems, ultracapacitors from 'Star Wars' projects, superefficient motors and fuel cells from the [Pentagon's] Advanced Research Projects Agency, virtual design and prototyping from the Army Tank Command, and many other technologies will be available for the project," according to a White House paper.

President Clinton made no mention of the CIA. But in interviews, three separate U.S. officials acknowledged that the CIA is already providing the government with information about Japanese auto technology. And since the formation of the Partnership for a New Generation of Vehicles, such information may be readily available to Chrysler, Ford, and GM.

Susan Tierney, assistant secretary of energy, coordinates the Department of Energy's role in the car project, including the work of the DOE's high-tech laboratories. She says that U.S. officials "get economic intelligence reports frequently about what areas of research other governments are sponsoring." Asked whether the CIA provides data on foreign automakers, she replies, "We've been analyzing what they're doing. It should be no surprise to anybody."

Ellen Seidman, an official at the White House's National Economic Council, says that the White House is concerned that Japanese auto companies may have already taken the lead in some technologies. "There's a lot going on in Japan, and we think the CIA knows something about what [Japanese automakers] are doing," she says.

"We hear rumors on that. I really don't know what [the CIA] knows, but I do have a pretty good idea that they're paying attention to it," Seidman says. "Every once in a while people tell me that there's a report from the CIA that you've just got to read, and when that happens you're just seeing the tip of the iceberg."

Asked whether she has read some of the CIA reports on Japan's auto technology, Seidman replies, "Yeah." But she declines to comment further.

Discussing Japanese auto technology, Cary Gravatt, a special assistant to Undersecretary of Commerce for Technology Mary Good, whose office is coordinating the auto project, confirms that the CIA "is a good source of information about the current state of technology in a foreign country." While much of that information is drawn from publicly available data, at least some is gathered clandestinely and remains classified, Gravatt says.

According to U.S. officials, the key technologies under study by the partnership include the search for the chemical catalyst that will minimize nitrous-oxide emissions in lean-burn engines; strong, lightweight materials that can reduce vehicle weight; advances in ceramic engine technology; and the pursuit of a battery with sufficient storage capacity to power a hybrid or all-electric vehicle.

It is in the latter two areas that Americans have the most to gain by economic espionage. Matt Dzieciuch, a project engineer at the U.S. Advanced Batteries Consortium, a cooperative between the government and the Big Three, says, "Some of the spook agencies have been able to find some things out" about battery technology in Japan. He adds that he has seen "things," but refuses to discuss their content.

Don Walkowicz, who heads the U.S. Council for Automotive Research in Detroit, says that whoever comes up with a vehicle that gets 80 miles per gallon will dominate the auto market in the 21st century. If Japan gets there first, he says, it could lead to a repeat of the 1970s, when smaller, fuel-efficient Japanese cars pushed American gas-guzzlers aside, devastating the U.S. auto industry.

The CIA, Walkowicz says, has long provided the Commerce Department with Japanese trade and technical reports on automobile technology. Asked whether the CIA might also provide classified information, the former General Motors executive replies, "It's been alluded to, the possibility that that could happen. [If] the government feels comfortable declassifying it, and it could help U.S. competitiveness, why not?"

CIA in search of a mission. That the CIA is getting into the business of spying on business shouldn't come as a surprise. The agency is on the lookout for new things to do.

During the 1980s, as the chess match with the USSR entered its endgame, the budget for the CIA, the National Security Agency, and the military intelligence agencies soared to record levels. But in the past three years the U.S. intelligence budget has been slashed by 14 percent, to around $28 billion. By 1997, CIA manpower is scheduled to decline by 17.5 percent. Since taking office last year, Director James Woolsey has made more than 180 pilgrimages to Capitol Hill to plead the CIA's case. But in Congress, some members question whether the CIA is needed at all.

Gathering economic data would give the CIA a new lease on life. Since the 1950s, the CIA has routinely monitored world economic trends, such as oil production, crops, world trade developments, foreign government economic policies, and key technology issues. At the start of the Cold War, customers for the CIA's economic intelligence were the president, the secretary of defense, and the then-equivalent of the National Security Council. The list was gradually expanded to include Treasury, Commerce, Energy, the Federal Reserve Board, and the U.S. Trade Representative's office.

But the CIA's role in economic intelligence has grown rapidly under President Clinton. With the formation of the National Economic Council in January 1993, the White House began edging into an industrial policy, throwing government support to selected industries to enhance U.S. competitiveness.

Since its formation, the NEC has been heavily dependent on the CIA for information on the world economy. "Just about every day, [NEC Deputy Director] Bo Cutter is asking the CIA for information on economic issues," says a senior CIA official. "The National Economic Council is treating the CIA like an extension of its own staff."

Using the CIA to provide information to U.S. officials on the world economy--even on very sensitive topics--is not controversial. What gets arguments going is the suggestion that the CIA target individual foreign companies, then share proprietary trade secrets and technology with private U.S. companies.

There are many objections to CIA economic espionage. Some intelligence experts and officials consider it a misuse of CIA resources, which ought to be directed at targets that threaten U.S. national security. Others worry that releasing classified information will compromise overseas operatives and intelligence-gathering methods. Critics argue that the agency lacks the necessary expertise, claiming that its field agents are not trained to gather economic data. Still others raise moral objections, since economic espionage involves spying primarily on allies, not enemies.

But the chief obstacle is a practical one: If the CIA collects valuable economic information, with whom does it share the spoils? With one company, a select few, or all? With American companies only? What constitutes an American company? In a world in which most corporations are becoming multinational, how would the CIA decide which should get extremely sensitive, classified intelligence?

An economic-intelligence arms race? To get a better perspective on the CIA's role in economic espionage, I went to see Edward Luttwak. A self-styled geostrategic thinker, Luttwak inhabits the netherworld between spook society and the private sector, having worked for many years as a consultant to both the CIA and private corporations. Articulate and cultured, Luttwak has written an instruction manual on how to stage a coup d'etat and another book analyzing the global strategy of the ancient Roman Empire. Currently Luttwak is director of geoeconomics at the Center for Strategic and International Studies in Washington, D.C., and, among other projects, he conducts sessions at the CIA on economic intelligence.

Luttwak ridicules the idea that there are practical problems associated with giving CIA data to U.S. automakers.

"The moment you form a consortium [like the Big Three partnership], you overcome the problem of not being able to disseminate classified information, because the consortium is only open to U.S.-owned, U.S.-headquartered companies," he says. "If you come across Toyota doing something, you no longer have to wonder who to give the information to. There is now something called 'the American automobile industry.'"

Asked whether the CIA is going to engage in industrial spying, Luttwak says flatly, "It's already beginning, I can assure you of that."

As an example of the kind of targeting the CIA might undertake, Luttwak cites the case of Kyocera, a ceramics-technology firm based in Kyoto, Japan. Ceramics technology is a lucrative area for automotive research because designs using ceramics are more efficient than their metal equivalents.

Kyocera has worked on the development of high-temperature structural ceramics for the Department of Energy and has purchased U.S. companies to gain access to U.S. technological research. But Japan prohibits an American firm from buying ownership in a strategically important company like Kyocera. "The [Japanese] system is set up to evade legal means for us to acquire technology," Luttwak says. "So we have to use subterfuge."

Luttwak disputes those who say that the CIA will not engage in economic espionage. "It is similar to the situation after World War II, when it was said that the United States must not use subversion against the Soviet Union, that it was against American values and tradition. They said that the lady can't, the lady won't, the lady musn't--and the lady does."

Turning on the switch. Moving from economic intelligence (defined as spying to inform the president and other U.S. government officials) to economic espionage (spying to assist private American firms) is a snap. "It's just a matter of turning the unclassified switch on," says Stansfield Turner, CIA director under President Carter.

"If the CIA's got a lot of good information that can be released on an unclassified, no-harm-to-the-intelligence-community basis, and it informs the American public better, why not? What the hell's wrong with that?"

During Turner's tenure, the CIA routinely held briefings at the Commerce Department for U.S. corporate bigwigs. Once, for example, the CIA discovered information about China's plans to build hydroelectric plants, and it filled in a "couple of dozen" U.S. companies involved in electric power projects, Turner says. Other seminars were held on semiconductors and aircraft technology.

Herb Meyer, who worked as special assistant to then-CIA Director William Casey and later served as vice chairman of the CIA's National Intelligence Council, says that even without an official policy, there was an informal exchange. "We've always managed to get intelligence to the business community. There is contact between business people and the intelligence community, and information flows both ways, informally."

Such selective sharing, off the books, is far different from a deliberate, White House-initiated policy to include automakers--or drug companies, aerospace firms, and computer companies--in an effort to share stolen technology and trade secrets.

But there is a well-known precedent for even this kind of collaboration between the CIA and the business community.

For decades, U.S. defense contractors have had access, on a classified basis, to secret technological information in the CIA's possession. The Pentagon has routinely shared top secret information with companies such as Lockheed, TRW, Northrop, Martin Marietta, and dozens of others, including U.S. automakers--who are also major defense contractors.

"The technological intelligence that the [CIA] has acquired has always been shared widely with the military-industrial complex," says Kenneth Bass, a Washington lawyer who served as counsel for intelligence policy at the Justice Department under President Carter.

By following the Pentagon model, Bass believes, the intelligence community could make agreements with selected industries to share both classified U.S. intelligence and company trade secrets. It is exactly that model that is emerging with the development of the White House's automobile technology project. Scientists at labs such as Argonne, Lawrence Livermore, Oak Ridge, and Los Alamos have dealt with top secret information on weapons programs for decades. Now the labs are opening their doors to automakers, providing a perfect avenue for an exchange of secrets labeled "made in Japan."

Luttwak acknowledges as much. "At the very least, the involvement of the labs provides a nice conduit for classified information."

Harder than it looks. The CIA, of course, so badly misread the Soviet economy that it was caught flat-footed by the sudden implosion of the USSR. Should the president decide to unleash the CIA on the world's economic secrets, the agency would face a steep learning curve.

Robert Steele is a talkative, high-energy former Marine Corps intelligence officer and former CIA veteran. Bubbling with ideas about how to reinvent U.S. intelligence, Steele scoffs at the idea that the CIA would consider economic espionage. "I can get 80 percent of what you need for 20 percent of the cost, using open sources." Open sources include newspapers, radio and TV broadcasts, magazines, trade and technical journals, newsletters and other publicly available information.

Besides, Steele says, it would take years for the CIA to train officers and agents to gather significant economic intelligence overseas.

But it would be less difficult to redirect U.S. reconnaissance satellites and listening devices. A vast armada of such devices is currently operated by the National Security Agency and the National Reconnaissance Office. Since corporate communications are less carefully guarded than, say, Soviet military transmissions, they would be far easier to intercept.

Adding to the value of these so-called technical means of collection is that, while agents can be discovered and exposed, leading to an international scandal, the U.S. intelligence community's electronic spying apparatus can do its work virtually undetected. Telephone, fax, and computer communications among Japanese corporate executives, researchers, and technicians would be particularly vulnerable.

"The NSA is a big vacuum cleaner, capable of intercepting any kind of communications through the air," according to Mark Lowenthal, senior foreign policy specialist at the Congressional Research Service and a former intelligence officer at the State Department. "You just aim it at a region, and you pick up a lot of stuff. Any long-distance telephone call is liable to be picked up. If Toyota Japan wants to talk to Toyota Singapore, they're liable to be intercepted." By typing in "Toyota," an NSA analyst can then order a record of everything that the NSA may have gathered on the Japanese automaker.

William Colby, who headed the CIA during the 1970s, believes that it is too risky to recruit agents to penetrate a foreign company. Deliberately assigning CIA stations to conduct economic espionage is not a good idea, Colby says. "One question is, when espionage is exposed, what is the impact? When it is disclosed that you consciously went after Toyota, what will be the impact?"

On the other hand, he says, "If you just happen to get something, if it falls into your lap, you do something with it."

Asked whether the NSA's more passive form of intelligence gathering might qualify as something that "just fell into our lap," Colby says quietly, "You're right on point on that."

One highly placed executive in the U.S. intelligence community currently, who spoke on background, was asked whether the CIA would provide information on Japanese technology to the auto project. "We'd share it," he says.

What about Congress? Those who believe that economic espionage by the CIA is a bad idea look to Congress to oversee the agency. But if the White House decides to forge ahead on economic spying, Congress may not have a role to play.

"If the president thinks it ought to be done, then immediately the issue becomes whether it can be done on his say-so," says Richard Helms, CIA director during the Vietnam War. "A decision has to be made as to whether the intelligence select committees of Congress get involved, or whether the agency just goes ahead and follows the president's bidding."

Interviews with numerous intelligence committee staffers in both the House and Senate indicate that the committees are handling the issue very gingerly.

But Stansfield Turner argues that it is a simple issue after all. "Don't get hung up on the ethics issue. That's one that everybody argues about, that it's against our ethics. Well, if it's against our ethics, we'd better not spy for military security. And don't get hung up on the this-is-against-free-enterprise issue. We're trying to skew the playing field to the American advantage, but that's not skewing the free enterprise system as such. It's just giving us the higher probability of winning."

Entering the new world order. Ethics, however, are not likely to decide whether the CIA goes beyond occasional economic spying toward a full-blown program of industrial espionage abroad. Instead, the CIA's role will likely be determined by the course of international relations in the post-Cold War era.

Two divergent paths loom ahead.

Down one path lies a world in which the major economic powers--the United States, Japan, and Europe--fall into a pattern of increasingly hostile competitiveness. Without the Soviet Union to provide a common enemy, such bitter economic relations could evolve into trade wars among rival economic blocs. To think the unthinkable, trade wars could shade into outright conflict, even war. Japan and Germany, seemingly content since 1945 to do without significant military power, have already begun to make noises about increasing their national security.

Under this scenario, virtually all elements of the American establishment would endorse using the CIA as a component of political-economic warfare.

Down the other path is a world whose relations are governed by trade agreements and where economic conflicts are ruled by the notion that free-flowing world trade is not a zero-sum game in the long term. While still remaining competitive, the major world powers would limit their hostility.

It is under this latter scenario that the debate over CIA economic espionage would be sharpest.

Hidebound--one wants to say "rock-ribbed Republican"--conservatives, who worship the free enterprise system, oppose any government interference in the marketplace. While endorsing CIA efforts to prevent economic espionage by other governments, notably Japan and France, the right vigorously opposes the CIA getting into any economic spying of its own.

But neoconservatives and so-called new Democrats, who are amply represented in the Clinton administration, are gravitating toward an economic "partnership" between government and industry typified in the New Generation of Vehicles project. Because European and Japanese industries often benefit from state-supported research and aggressive government promotion, these liberal free-marketeers are sorely tempted by the idea that the CIA, as Stansfield Turner says, can give us "the higher probability of winning."

Indeed, there are more and more signs that the federal government is joining hands with strategic industry groups to enhance their competitiveness. During the 1980s, Congress passed laws making it easier for American industries to work cooperatively without running afoul of antitrust rules and to avail themselves of the capabilities of U.S. government laboratories. In a number of industries--such as aerospace, semiconductors, flat-panel computer displays, and electric-vehicle batteries--the government began tiptoeing into an industrial policy. Now, ventures such as the Partnership for a New Generation of Vehicles have raised the stakes.

Robert Gates headed the CIA in the Bush administration. As William Casey's right-hand man during the Reagan years, Gates presided over CIA operations during some of its riskiest moments. But Gates is a vocal and vigorous opponent of economic espionage.

"We shouldn't start it, and we shouldn't do it even if other countries do it," he says. "If we do, it will lead to an escalation, an economic espionage arms race, and it will very quickly get out of control."

"That is so innocent," responds Edward Luttwak. "It is charming. Doesn't he [Gates] have kind of a baby face? It is remarkable that he can have headed the CIA while retaining his innocence.

"The reality," Luttwak says, "is that the CIA will get into this in a pragmatic, organic kind of way."

Robert Dreyfuss is a Washington, D.C., writer. Research for this article was supported in part by a grant from the Fund for Constitutional Government.