July 23, 2015
Economic espionage—the stealing of trade secrets for the benefit of a foreign government—is on the rise.
Mollie Halpern: Economic espionage—the stealing of trade secrets for the benefit of a foreign government—is on the rise. It’s impossible to determine an exact dollar figure on the costs of economic espionage to the U.S. economy, but a 2013 report estimated the losses to be in the hundreds of billions each year. Those numbers do not take into consideration the companies that either doesn’t report or under-report losses tied to the crime. Assistant Director of the FBI’s Counterintelligence Division Randy Coleman.
Randall Coleman: It’s a major economic threat to the United States, and as a result, the FBI is responsible for mitigating that threat.
Halpern: I’m Mollie Halpern of the Bureau, and coming up on this edition of Inside the FBI, find out which countries pose the threat on American companies, what techniques our adversaries use to commit the crime, and what the FBI does to mitigate it.
But first, hear about an FBI economic espionage case that became the inspiration for an FBI training video entitled The Company Man: Protecting America’s Secrets.
The case began when an American company called the FBI’s complaint line to report that two male Chinese citizens broke into their manufacturing plant and took photographs of their equipment. Case Agent Jeremiah Crabtree.
Jeremiah Crabtree: So they could have been inside that factory doing that for anywhere from 15 to 45 minutes before an alert company employee saw them.
Halpern: Chinese business owner Ji Li Huang and his employee, Xiao Guang Qi, not only broke in once—they did it a second time. The FBI suspected that the Chinese men were trying to steal the American company’s formula for its cellular glass insulation.
Crabtree: The secret sauce for this particular company and what, in legal terms, we call a trade secret is their formulary process, the ingredients that make this cellular glass insulation. And it’s really that process, the manufacturing equipment they use in the actual formula, that they consider the crown jewels for their particular company. That is what makes them an industry leader for that particular product and makes them millions of dollars every year.
Halpern: China’s need for the American company’s fire-retardant and dense product was fueled when 58 people died and another 70 were injured in a mass inferno at a high-rise apartment building in Shanghai. The American company’s product was an answer to the faulty combustible construction material used in the Shanghai building.
Using social media and online print ads, the pair also tried to lure employees with knowledge of the formula with lucrative job offers in China.
Crabtree: They were extremely brazen in how aggressive they were and the amount of techniques they tried.
Halpern: The FBI worked with the victim company to identify an employee who would respond to an ad and pretend to cooperate with the men. At first, the victim company’s corporate attorney says they were concerned about involving a co-worker, but…
Corporate Attorney at Targeted Company: In this situation, we did have an employee who was willing to do it. Through the work with the FBI, the coaching was there, all of the specifics were put forward to allay those fears.
Halpern: Agent Crabtree…
Crabtree: Within two weeks, we had exchanged probably 18 to 20 e-mails and we had come to terms. And Ji Li Huang and Xiao Guang Qi Huang agreed to fly to the United States to meet this particular cooperator employee. They agreed to exchange $200,000 for the trade secrets.
Halpern: Once in the United States, Huang and Qi met with the employee at a hotel to exchange the money for the documents and drawings.
Crabtree: We faked documents and stamped "Confidential," "Proprietary," and "Secret" on the victim company’s trade secret information. We actually didn't use the real trade secret. We never wanted to put that at risk.
Halpern: What the pair did not know is that the meeting was a sting operation, and the FBI was in the adjoining room recording the exchange.
Crabtree: That’s when we decided to go ahead and execute an arrest. We actually pretended to actually arrest the employee also.
Halpern: Nearly four months later, on January 25, 2013, Huang and Qi pleaded guilty. The men’s guilty pleas were an admission that they tried to illegally buy the company’s trade secrets so that they could open a plant in China to compete with the victim company.
Crabtree: The company estimated that if they were to lose this particular product, within three to five years they would have been out of business.
Halpern: The estimated economic value of the product’s trade secret was worth nearly $300 million. That number is based on the potential sales to the Asian market that would have been lost if an Asian competitor was able to produce the same product locally.
During the prosecution, the company never had to reveal its trade secrets in court, since they are protected under federal law from disclosure.
Crabtree: Within a very short time, we were able to develop a relationship with the company, garner their trust, and be able to put forth a plan that was a successful arrest and a prosecution. The victim company was very happy with the result of that.
Attorney: What we had was a partnership. And the FBI wanted us to be involved with this investigation. We worked with them every step of the way. They guided us, they coached us, they listened to what our concerns were, and they addressed those concerns. We appreciated being part of it. I can't say it enough times how important it was to us that they gave the resources and the technology to help us with our situation.
Halpern: Huang was sentenced to 18 months in federal prison and was ordered to pay a $250,000 fine. Qi was deported and fined $30,000.
The case ended, but the threat from economic espionage continues. Just weeks later, new job postings appeared on the Internet seeking people for the exact same technology.
The FBI continues to counter this threat in many ways, including proactively building relationships with American companies—just like it did with the victim company in this case.
Crabtree: And it’s incumbent on the FBI to really get to know companies that are out there so they have a person that they can call when suspicious activities do happen.
Halpern: As a result of working with the FBI on this case, the victim company says it enhanced its physical security and held training on how to protect its proprietary information.
Attorney: The culture shift from this experience has been that it’s everybody’s job to protect the intellectual property. The ramifications will be felt throughout the whole organization whenever these secrets leak out. So I think that everybody needs to be vigilant about protecting this information.
Halpern: To foster relationships between the FBI and private industry and academia, a network of more than 80 special agents experienced in counterintelligence conduct in-person classified and unclassified threat briefings. These agents, known as strategic partnership coordinators, are also showing The Company Man video to help educate these groups and increase their awareness about economic espionage.
As a result of the increased awareness from the video’s limited release, the FBI’s economic espionage case load jumped more than 50 percent between the summer of 2014 and this summer. Incidentally, the FBI was seeing a 15 percent increase in cases every year since 2009—even before the video was released last spring.
No companies nor academic institutions with intellectual property or research are immune from this crime. Neither are proprietary products—anything from sprinkler heads to glass insulation is susceptible to this threat.
Those targeting America’s secrets come from countries such as China, Russia, and many others. The preponderance of the FBI’s economic espionage cases originate from China. They use techniques such as attempts at joint ventures, online job ads posted on popular websites, social media to spot potential recruits, and bribery. And, as you heard from this case, they’ll use aggressive techniques such as physically trespassing on property. They’ve also used headhunters to identify potential insiders.
Assistant Director Coleman says the FBI can assist organizations detect indicators of the insider threat.
Coleman: If a company has or is involved in any type of research and development and they want to protect that intellectual property, contact the FBI and we’ll help them protect it.
Halpern: If you suspect economic espionage, call your local FBI field office or report it online attips.fbi.gov.
To watch The Company Man: Protecting America’s Secrets—the video based on this case—visit www.fbi.gov.
I’m Mollie Halpern of the Bureau. Thanks for listening to this edition of Inside the FBI.