Mr. KOHL. Mr. President, we have a problem in America today: The systematic pilfering of our country's economic secrets by our trading partners which undermines our economic security. It would not be unfair to say that America has become a full-service shopping mall for foreign governments and companies who want to jump start their businesses with stolen trade secrets.

Sadly, we are under-unequipped to fight this new war. Our laws have glaring gaps, allowing people to steal our economic information with vitual impunity.

So I introduce the Industrial Espionage Act of 1996 with Senator Specter. I am also pleased to cosponsor with Senator Specter the Economic Security Act of 1996. Together these laws will enable Federal law enforcement agencies to catch and vigorously prosecute anyone who tries to steal proprietary information from American companies. Our two measures should be read together as a unified approach to the problem. They are not panaceas, but they are an effort to deal with this problem systematically and comprehensively. The Department of Justice and the FBI have also been extremely helpful in drafting these pieces of legislation, and we look forward to working with them as we move these measures forward.

Mr. President, businesses spend huge amounts of money, time, and thought developing proprietary economic information--their customer lists, pricing schedules, business agreements, manufacturing processes. This information is literally a business's lifeblood. And stealing it is the equivalent of shooting a company in the head. But these thefts have a far broader impact than on the American company that falls victim to an economic spy. The economic strength, competitiveness, and security of our country relies upon the ability of industry to compete without unfair interference from foreign governments and from their own domestic competitors. Without freedom from economic sabotage, our companies loose their hard-earned advantages and their competitive edge.

The problem is not new. But with expanding technology and a growing global economy, economic espionage is entering its boom years. American companies have estimated that in 1992, they lost $1.8 billion from the theft of their trade secrets. A 1993 study by the American Society for Industrial Security found a 260-percent increase in the theft of proprietary information since 1985. And the theft of these secrets is not random and disorganized. The press has reported that one government study of 173 nations discovered that 57 of them were trying to get advanced technologies from American companies. The French intelligence service has even admitted to forming a special unit devoted to obtaining confidential information from American companies.

Let me give you a few examples. Just last year, a former employee of two major computer companies admitted to stealing vital information on the manufacture of microchips and selling it to China, Cuba, and Iran. For almost a decade, he copied manufacturing specifications--information worth millions of dollars. And armed with it, the Chinese, Cubans, and Iranians have been able to close the gap on our technology leads. Late last year, the FBI arrested this man and charged him with the interstate transportation of stolen property and mail fraud. It appears that the charges may be a bit of a stretch because he did not actually steal tangible property. He only stole ideas.

Not all of the theft is sponsored by foreign governments. Domestic theft is as reprehensible and as threatening as theft by foreign governments. For example, in Arizona, an engineer for an automobile air bag manufacturer was arrested in 1993 for selling manufacturing designs, strategies, and plans. He asked the company's competition for more than half a million dollars--to be paid in small bills. And he sent potential buyers a laundry list of information they could buy: $500 for the company's capital budget plan; $1,000 for a piece of equipment; $6,000 for planning and product documents.

Sadly, current civil remedies are inadequate to deal with these problems. Although many companies can privately sue those who have stolen from them, these private remedies are too little, too late. A private suit against a foreign company or government often just goes nowhere, and the company continues to use the stolen information without pause.

Similarly, our current criminal laws are not specifically targeted at protection of proprietary economic information. Most of our Federal theft statutes deal with tangible property and not intellectual property. Federal prosecutors have done a valiant job finding laws they can use against these people, but they need something stronger and more coherent than what they have gerry-rigged.

Mr. President, the Industrial Espionage Act and the Economic Security Act provide the solution we need. These measures are simple, straightforward, and effective. They carefully define proprietary economic information--the data that corporations privately develop and need to maintain in secrecy. People who steal that information in order to harm the business that rightfully owns and developed it are subject to criminal penalties. They can serve up to 15 years in jail. And if the theft is sponsored by a foreign government, the penalties are even harsher. Moreover, the bills include forfeiture provisions, so that people will not benefit from their illegal acts. They authorize the President to impose sanctions on countries that engage in these activities. And they assure companies that their proprietary information will not seep out during a criminal persecution.

We need to take steps to stem the flow of information out of our country. We need a new law that definitively and harshly punishes anyone who steals information from American companies. Over the coming months, these measures will provide a framework for our discussions about the best way to solve this problem, and we plan to hold hearings on them in both the Intelligence and Judiciary Committees.

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Mr. SPECTER. Mr. President, I am pleased to join Senator Kohl as a cosponsor of this bill to make theft of proprietary information a crime. Senator Kohl is also a cosponsor of a bill I have introduced to cover economic espionage by foreign governments or those acting on their behalf and this bill is designed to protect that same vital economic information from theft by nongovernmental entities and individuals.

While economic espionage by foreign governments presents a clear issue of national concern, the economic cost of industrial espionage by domestic and nongovernment-owned foreign corporations may be even greater. Federal law already provides some sanctions to protect technology and innovation within the United States. For example, we accord protection to patents, trademarks, and copyrights. The Federal Government will not enter into a contract with a bidder who has inside information of another bidder's price. There are also laws in some States that specifically address the theft of proprietary information.

These laws may not, however, be adequate. Thus, I am also joining Senator Kohl in cosponsoring legislation to provide criminal penalties in title 18 of the United States Code for cases in which corporations and individuals, foreign or domestic, steal proprietary information from U.S. entities. While the bill I have introduced amending the National Security Act of 1947 focuses on our Nation's economic security against foreign governments, similar arguments can be made that protection is also needed for domestic economic interests from theft by nongovernmental sources. Moreover, even where there are strong indications that a foreign government is behind the theft of proprietary information, it may not be possible in all cases to prove such government involvement.

The normal recourse for protecting proprietary information from theft by private sector sources is through civil remedies governed by State law. Some businesses and Federal law enforcement agencies, however, believe that current State laws are inadequate and fail to provide remedies, particularly with respect to the kind of intangible proprietary information that is typical in today's computer age. They argue that comprehensive federal criminal sanctions are needed at this time to provide an adequate deterrent.

While I believe there are legitimate questions about the need for federal criminal penalties in this context, I am also convinced the issue needs to be considered. It may be that after thorough review, criminal penalties are the best means of deterring the misappropriation of proprietary information by individuals or business competitors. On the other hand, we may determine that a more efficient response would be to create a federal civil cause of action or to leave it to State law to develop sanctions against such theft if not committed by, or done on behalf of, a foreign government.

As part of this effort to address the economic threat from the theft of proprietary information from U.S. businesses, I therefore believe we need to consider how to address such thefts when carried out by the private sector. As a result, I am cosponsoring this second bill, with the expectation that it will generate discussion and debate and assist us in developing the best approach to this problem. I look forward to working with all interested parties to reach such a result.


By Mr. SPECTER (for himself and Mr. Kohl):

S. 1557. A bill to prohibit economic espionage, to provide for the protection of United States vital proprietary economic information, and for other purposes; to the Select Committee on Intelligence .


Mr. SPECTER. Mr. President, I am introducing a bill today, along with my colleague, Senator Kohl, entitled the `Economic Security Act of 1996,' which amends the National Security Act of 1947 to protect against the theft of vital proprietary economic information by or for foreign governments.

The bill would punish those who steal vital proprietary economic information from a U.S. owner for the benefit of a foreign government or a corporation, institution, instrumentality, or agent that is owned or guided by a foreign government. It provides penalties of up to $500,000 in fines or 25 years in prison, except that corporations working on behalf of a foreign government can be fined up to $10,000,000. The law would ensure that fruits of the espionage would be forfeited, and that victims would receive some restitution from funds recovered. This bill also provides for a ban for up to 5 years on the importation into, or export from, the United States of any product produced, made, assembled, or manufactured by a person convicted under this provision.

To address concerns by industry that criminal proceedings might result in the disclosure of the very trade secret the prosecution is aimed at protecting, the bill also gives courts authority to enter protective orders and take any other such measures as may be necessary, consistent with the applicable rules and laws. It also provides for an interlocutory appeal by the United States from a decision or order of a district court authorizing the disclosure of vital proprietary economic information.

The bill provides for extraterritorial jurisdiction where the offender is a U.S. person or the victim of the offense is a U.S. owner and the offense was intended to have, or had, a direct or substantial effect in the United States. In addition, the bill adds this newly created crime to the list of offenses in title 18, chapter 119, of the United States Code--Wire and Electronic Communications Interception and Interception of Oral Communications--so that it may be investigated with authorized wire, oral, or electronic intercepts.

We have drafted this new provision as an amendment to the National Security Act of 1947 to emphasize the importance of this issue to the national security of our Nation. Anyone who doubts that this is a national security issue need only stop to consider why foreign governments would devote so much effort to obtaining this information from U.S. companies. The reality is that U.S. economic and technological information may be far more valuable to a foreign government than most of the information that is classified in the United States today. The March 1990 and February 1995 national security strategies published by the White House focus on economic security as an integral part not only of U.S. national interest but also of national security.

Economic espionage by foreign governments targeting U.S. industry and innovation is an issue the Senate Select Committee on Intelligence has been examining for some time. The Committee has held a number of hearings which addressed this issue and has met extensively with the intelligence and law enforcement communities. In 1992, then-Director of Central Intelligence Robert M. Gates told the Committee:

We know that some foreign intelligence services have turned from politics to economics and that the United States is their prime target. We have cases of moles being planted in U.S. high-tech companies. We have cases of U.S. businessmen abroad being subjected to bugging, to room searches, and the like * * * [W]e are giving a very high priority to fighting it.

This reflects a shift from the traditional counterintelligence efforts directed at military, ideological, or subversive threats to national security. Beginning as early as 1990, the Intelligence and Counterintelligence Communities have been directed to detect and deter foreign intelligence targeting of U.S. economic and technological interests, including efforts to obtain U.S. proprietary information from companies and research institutions that form our strategic industrial base. These counterintelligence efforts, however, must be complemented by, and carefully coordinated with, a coherent and rigorous law enforcement effort. It is to strengthen this aspect of the fight against economic espionage that I introduce this bill today.

Some foreign governments have been quite open about the importance they attach to obtaining U.S. commercial secrets. Former French Intelligence Director Pierre Marion, for example, was quoted in a recent Foreign Affairs article as saying about the French-United States relationship: `In economics, we are competitors, not allies. America has the most technical information of relevance. It is easily accessible. So naturally your country will receive the most attention from the intelligence services.'

It is important to emphasize that no one country can be singled out for engaging in economic espionage. While there are a handful of well-publicized incidents involving a few countries, the problem is actually much more widespread. FBI tells us that 23 countries are being actively investigated and that there has been a 100 percent increase in the number of investigative matters relating to economic espionage in the United States during the past year--from 400 to 800. Thus, this bill is not aimed at any one country, or even a handful of countries. It is designed to address a widespread threat from a broad spectrum of countries, including traditional counterintelligence adversaries and traditional allies.

Last year, the Congress included in the Intelligence Authorization Act for fiscal year 1995 a requirement that the President submit an annual report on the activities of foreign governments to obtain commercial secrets from U.S. companies and how the U.S. Government counters this threat. The Intelligence Committee received the first report in July 1995, accompanied by a classified annex.

According to the report, prepared by the National Counterintelligence Center in coordination with relevant agencies, `economic and technological information is often not specifically protected by Federal laws, making it difficult to prosecute thefts of propriety technology or intellectual property. Law enforcement efforts instead must rely on less specific criminal laws--such as espionage, fraud and stolen property, and export statutes--to build prosecutable cases.' At our request, the FBI has provided some examples of the difficulties caused by this patchwork of laws.

According to the Bureau, there have been three specific declinations of prosecution over the past year. In the first, passage to a foreign power of proprietary economic information was declined for lack of a specific statute. In the second case, the unauthorized disclosure of a confidential U.S. Trade Representative document was not prosecuted because the document was not considered to contain `national defense information' as required by the espionage statute. In a third case, a foreign government-owned corporation attempted to use its position of power after a merger to gain access to proprietary economic information despite a specific prohibition in the sales agreement which would have provided for a `Chinese wall' between the foreign government corporation and the information. Again, the U.S. Attorney declined to prosecute because of the lack of a specific statutory basis. These examples do not include cases that were not fully investigated because of the lack of adequate statutory basis.

A legal review by the Administration has shown that there is currently no specific criminal statute that would apply to many of the 800 cases involving 22 foreign countries currently being investigated.

The National Counterintelligence Center Report states that `the aggregate losses that can mount as a result of [Foreign economic espionage] efforts can reach billions of dollars per year constituting a serious national security concern.' Determining the full qualitative and quantitative scope and impact of economic espionage is difficult. Industry victims have reported the loss of hundreds of millions of dollars, lost jobs, and lost market share. However, U.S. industry may in fact be under-reporting these occurrences because of the negative impact publicity of a loss could have on stock values and customers' confidence, as well as the risk of broader exposure of the trade secret itself.

The industries that have been the targets in most cases of economic espionage, according to this report, include those `of strategic interest to the Untied States because they produce classified products for the Government, produce dual use technology used in both the public and private sectors, and are responsible for leading-edge technologies, critical to maintaining U.S. economic security.'

Mr. President, these are complex issues and I do not assume that this bill represents the perfect solution. However, I believe this bill represents a reasonable and carefully tailored approach to addressing an issue of tremendous importance.

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