Mr. COHEN. Mr. President, when France, Germany, Japan, and South Korea are included in a list of nations, we automatically assume that this must be a list of America's allies--our military and political partners since the end of the Second World War. Unfortunately, this is not only a list of America's trustworthy friends, it is also a list of governments that have systematically practiced economic espionage against American companies in the past--and continue to do so to this day.

The term `espionage' evokes images of the cloak-and-dagger side of the United States-Soviet confrontation in the cold war. Since the end of the East-West struggle, however, an equally damaging and pervasive form of spying has received increasing attention--the spying that nations undertake against foreign-owned corporations in order to give their own firms an advantage in the increasingly cut-throat world of international business.

Unlike the politico-military espionage of the cold war, economic espionage pits friendly nations against each other. Instead of military strategy and weapon technologies, the sought-after secrets in economic espionage are marketing strategies and production technologies. While the cost of politico-military espionage was reduced military security, and damage from economic espionage comes in the form of billions of dollars annually in lost international contracts, pirated products and stolen corporate proprietary information. The direct cost of this espionage is borne by America's international corporations. The indirect costs are borne by the American economy as a whole--jobs and profits are lost; the competitive edge is stolen away.

The 103d Congress adopted an amendment I sponsored requiring the President to submit an annual report on foreign industrial espionage targeted against U.S. industry.

The unclassified version of the President's first annual report, which is very understated compared to the classified version, acknowledged `the post-cold-war reality that economic and technological information are as much a target of foreign intelligence collection as military and political information.' The report goes on to state:

In today's world in which a country's power and stature are often measured by its economic/industrial capability, foreign government ministries--such as those dealing with finance and trade--and major industrial sectors are increasingly looked upon to play a more prominent role in their respective country's (economic) collection efforts. While a military rival steals documents for a state-of-the-art weapon or defense system, an economic competitor steals a U.S. companies proprietary business information or government trade strategies. Just as a foreign country's defense establishment is the main recipient of US defense-related information, foreign companies and commercially oriented government ministries are the main beneficiaries of US economic information. That aggregate losses that can mount as a result of such efforts can reach billions of dollars per year, constituting a serious national security concern.

According to Joseph Recci of the American Society for Industrial Security, `American corporations are losing billions of dollars each year in valuable technology and proprietary information to foreign espionage.' In a recent survey of Fortune 500 companies, the society notes that the number of corporations reporting that they have been victims of economic espionage has grown by 260 percent since 1985. Peter Schweizer, in his 1994 study of state-sponsored economic espionage, `Friendly Spies,' estimated that such espionage costs American business upwards of $100 billion annually.

This alarming trend in foreign corporate and state-sponsored economic espionage will continue in coming years. Intelligence agencies in industrialized nations have found themselves with a lot of time on their hands since the end of the cold war, and the governments of these nations have come to see economic competition as the new central threat to their national security. In testimony before the Senate Select Intelligence Committee earlier this year, then acting Director of Central Intelligence Adm. William Studeman predicted, `the threat to U.S. economic interests will absolutely increase as foreign governments attempt to ensure the success of their companies.'

A few examples of actual cases should illustrate how pervasive the problem has become:

Pierre Marion, the former head of the French intelligence agency, the DGSE, has admitted that up to 15 hotel rooms of foreign business executives are broken into in Paris every day by DGSE agents. Proprietary papers are copied, and this information is then passed on to French companies to give them an edge in competition and negotiation.

Japanese, Korean, and German intelligence agents and corporations have been known to recruit as spies midlevel managers and scientists at American high-technology corporations. In exchange for money, these Americans have provided the foreign agents with valuable trade secrets and formulas, destroying American companies' market leadership.

The foreign offices of American corporations are often subjected to wiretaps on their phones and infiltration of their foreign national staff by agents of the host country's intelligence service. American competitiveness, profits, and jobs are the cost.

I refer my colleagues to a statement I made on March 10, 1994--140 S 2731-38--for further examples of the foreign corporate and state-sponsored economic espionage that American firms face.

The United States has taken some steps to counter this pervasive problem, but action has been neither strong enough nor smart enough to make a real dent in foreign corporate and state-sponsored economic espionage in the United States and against Americans abroad. Admiral Studeman testified in January, `the private sector's concerns about increasing signs of `economic espionage' * * * are well founded. Despite the continuing necessity to protect sensitive sources and methods, more can and must be done against state-sponsored economic espionage.' As the President's report delicately puts it: `efforts across the government to investigate and counter economic and industrial intelligence collection activities were fragmented and uncoordinated * * * resulting in many partially informed decisions and diverging collection and analytical efforts.' U.S. efforts, in plain English, are chaotic and largely ineffective, which is why I wrote last year's legislation requiring the President to report not only on the threat but also on how the Federal Government is organized to counter the threat and what changes in Federal organization and law could improve that effort.

In the closing days of the Bush administration, the Justice Department confirmed to me that legislation was required to improve law enforcement officials' ability to investigate and prosecute foreign industrial espionage. But it was not until this past year that Federal officials, after consulting with industry representatives, were able to identify for me specific legislative changes to accomplish this objective, and we have spent several months refining bill language.

I rise today, Mr. President, to offer the product of these efforts, the Economic Espionage and Protection of Proprietary Economic Information Act of 1995.

The act is designed to counter this threat by creating a criminal offense for engaging in foreign corporate or state-sponsored economic espionage. The bill also clarifies existing provisions of criminal statutes relating to stolen property and racketeering to make clear that they apply to foreign corporate and state-sponsored economic espionage. Finally, the bill punishes individuals and/or corporations found guilty of practicing foreign-sponsored economic espionage by fining them and banning them from import-export activity in the United States for 5 years following their conviction.

This bill has been carefully crafted in coordination with Federal law enforcement authorities and industry representatives. In establishing this criminal offense, the bill provides for those officials ordering the espionage to be held liable, as well as those who commit the act. It provides for forfeiture of any proceeds of and assets used in such espionage in accordance with the provisions of the Comprehensive Drug Abuse Prevention and Control Act of 1970. These provisions would apply to espionage committed outside the United States if committed by a U.S. citizen or if committed against an American and resulting in an affect in the United States. Finally, the bill would allow a court to take appropriate measures to ensure that protection of proprietary information during the prosecution of economic espionage cases.

Mr. President, it is imperative that the United States send a clear message to individuals and foreign governments and corporations--both our friends and our foes--that this country does not accept international corporate and state-sponsored economic espionage as a legitimate business practice. We must demonstrate our resolve to combat this unfair economic practice, regardless of who engages in it.

The free market system has been the source of America's prosperity and her world economic might. I ask you all to join me in supporting this legislation to fight a practice which is polluting the international free market and robbing our Nation's firms and workers of the success that their technological innovation and marketing know-how has earned them.

In a report entitled `Economic Espionage: a Threat to U.S. Industry,' the GAO stated the situation clearly: `The loss of proprietary information and technology through espionage activity will have broadening detrimental consequences to both U.S. economic viability and our national security interests.'

I urge my colleagues to support the Economic Espionage Act to send a message to nations around the world that America will not tolerate unjust practices in international trade and the subverting of American firms' ability to compete fairly in the world marketplace.

[Page: S378]



S. 1526. A bill to provide for retail competition among electric energy suppliers, to provide for recovery of standard costs attributable to an open access electricity market, and for other purposes; to the Committee on Energy and Natural Resources.


Mr. JOHNSTON. Mr. President, I am pleased today to introduce the Electricity Competition Act of 1996. This bill is intended to establish a framework for the transition of the electric industry from a regulated industry to a competitive, and deregulated, industry. Where markets are competitive, society should be saved the costs of unneeded regulation. America's electric system is the most technologically advanced and operationally safe electric system in the world. There is no doubt today that electric service can be supplied to all consumers--even retail consumers--in a fully competitive market.

Our goal then, should be to ensure that electricity markets will become competitive so that regulation will be unnecessary. Our goal must be to ensure price competition for electricity, which will create savings, efficiencies, and innovation.

This is not pie-in-the-sky economic theory. This bill will mean real savings for real people. For American families in the lowest 20-percent income bracket, a household's total utility bills are about equal to the total of mortgage/rent payments, taxes, and maintenance costs. Utility bills take slightly less of a middle-class family's disposable income, but the fact remains--a decrease in the average electric bill for the majority of middle-class Americans could achieve even greater benefits than a middle-class tax cut, without the drain on revenue which a tax cut would mean. We have the potential to gain these benefits, and we must seize this opportunity to do so.

There are six main elements of this legislation:

First, retail access. It's essential to clarify that the States are not preempted from ordering retail access. This clarification will enable the States to go forward with retail access programs without the fear of Federal preemption. Overlooking this clarification will bring years of litigation, impeding American consumers from receiving the benefits of lower electricity prices.

Second, stranded costs. When this industry moves from regulation to competition, there will be created what industry insiders refer to as `stranded costs.' This means the high costs of serving all customers under the old regulatory system, which cannot be recovered in a competitive market.

It is true that similar predicaments faced firms in other once regulated markets--railroads, airlines, natural gas, and telecommunications, for instance. But the electric utility industry is completely unique, and therefore, we must account for this difference.