Russia, Others Spy Hard To Steal Business Secrets

Canadian firms vulnerable; US develops countermeasures

Laurie Lambert worked for a Toronto insurance company and her husband, Ian, in a photography plant north of the city.

The two were the picture of an ordinary Canadian couple - until last week when both were arrested and charged with being Russian spies.

Both deny spying. But the Canadian Security Intelligence Service (CSIS) says the pair entered Canada sometime in the 1990s using the names of two long-dead Canadian children.

At a Toronto court hearing slated for yesterday, prosecutors planned to argue that Ms. Lambert is actually Yelena Borisovna Olshanskaya and that Mr. Lambert is Dmitriy Vladimirovich Olshanskiy. Both, the government alleges, spied for Russia's foreign intelligence service and should be deported.

Canadians as well as Americans are learning that when the cold war ended, Russian spies simply shifted their focus from stealing Western military and diplomatic secrets to stealing its business secrets to gain economic advantage, experts say.

Just this year, Russian President Boris Yeltsin ordered his intelligence services to increase their theft of trade and business secrets, US Federal Bureau of Investigation Director Louis Freeh told Congress recently. "It's an ominous sign whenever a foreign intelligence service prioritizes in any way the theft or stealing by espionage.... American corporations aren't equipped to defend against that kind of an attack."

Neither are Canadian companies, say Canadian intelligence experts. "It's fair to say that Canada has been regarded as something of a soft target," says David Harris, former CSIS chief of strategic planning. "We have never regarded ourselves as part of the cold war. We have had a population that was less aware, less sensitive to the nuance of hostile ... foreign intelligence operations."

Canadians who were the Lamberts' neighbors were jolted by the accusations that the two seemingly ordinary citizens are spies. But Mr. Harris and other experts say nobody should be too surprised: "We're dealing with a situation where Russia has the resources and the motive [to conduct economic espionage] - especially given the stringencies of the Russian economic situation."

It's not just Russia

Yet the Russians are hardly alone. China, and even military and diplomatic allies such as France, Japan, Germany, and Israel have put spies into North America to steal corporate technology and sensitive data of all kinds, say US and Canadian intelligence experts.

In his report, Mr. Freeh said current FBI investigations show 23 countries engaged in economic spying against largely unsuspecting American companies. According to a White House assessment last year, US businesses are losing billions to foreign electronic surveillance and the theft of computer data. Some estimate the loss at between $50 billion and $240 billion annually.

"Globally this spy-versus-spy game for economic gain is going to be much more important than political maneuvering," says Peter St. John, a professor of political studies at the University of Manitoba in Winnipeg. "It will determine who the world powers are. Stealing technology will be seen as absolutely mandatory if you are going to get a lead."

This dog-eat-dog syndrome is already leading allies into spying on one other, he says. France's intelligence service, for instance, is by all accounts one of the most aggressive practitioners of economic espionage. In early 1993, a list surfaced in France of foreign companies whose technology had been targeted by the French. Hughes Aircraft - a US company on the list - pulled out of the Paris Air Show in protest.

Japan is also said to be on the cutting edge of economic espionage - although its corporations are more active than the government. In 1992, authorities arrested Ronald Hoffman, manager of Science Applications Inc., a small US-based software company. He was convicted of taking $750,000 from four Japanese corporations in return for software the company developed for the Strategic Defense Initiative or Start Wars. The Japanese reportedly wanted it for their own space program.

Reacting to the growing threat, the FBI began beefing up economic counterintelligence capabilities in 1991. The Clinton White House added impetus with a 1994 order to US intelligence agencies to coordinate efforts against economic espionage. The National Counter Intelligence Center (NACIC) was created to help convince disbelieving US businesses that they are targets and to protect themselves against foreign economic espionage.

Yet only 58 percent of companies reported foreign economic espionage, the NACIC says. This is either because they are embarrassed at their loss or unaware of it, experts say.

"Both Canadian and US citizens and businesses can be a little bit naive," says Richard Heffernan, who runs a Branford, Conn., consulting company. "We generally operate with a different set of rules than most of the rest of the world. The theft of information is quite distasteful to Americans and Canadians, but quite acceptable elsewhere."

Maybe not so distasteful. There are signs the US may be moving away from a purely defensive counterintelligence role.

In January, a US operation to spy on the French was exposed. Last October news reports also suggested that US intelligence services had actively assisted US policymakers, eavesdropping on Japanese officials to gain an advantage in negotiations over car import quotas.

Some examples

Set against this backdrop, Canada's CSIS began in 1991 to intensify its counterintelligence. Canadian police, working with the CSIS, say they began to notice crimes that looked small-time really were not.

In April 1993, for example, burglars broke into a small, electronic-safety equipment developing company in Mississauga, Ontario. A door was forced, but nothing appeared to have been taken. More careful scrutiny showed, however, that a contract had been stolen. The document had crucial information related to a $5.1 million bid on work for a foreign company.

"A lot of countries figure if you want something that originates in the US, it's probably easier to steal in Canada," says Archie Barr, former chief superintendent of counterespionage for the Royal Canadian Mounted Police. "You don't have to steal from the parent country if you can steal from less-well-guarded subsidiary."

Canada ranked third among the top five nations in the world where economic espionage occurs, according to a 1995 survey released in March by the American Society of Industrial Security. Mr. Heffernan, who helped conduct the survey, says he was "surprised" at Canada's sudden emergence alongside the US, Britain, Germany and Japan.

The two "Lamberts" might not have been actively spying just yet, Harris suggests. Instead, he says, they might have simply been building a "legend" - spy jargon for a background identity - that would have enabled them to go to the US and other places and be welcomed as Canadians.

"Canadians are peacekeepers," says Mr. St. John. "They have this reputation that opens doors. The spy, if he can get Canadian status, it is like having a card into the confidence of other people. If you are a Canadian, you can get into almost anything."

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