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A Counterintelligence Reader, Volume 4 Chapter 3

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A Counterintelligence Reader, Volume 4 Chapter 3 CHAPTER 3 INTRODUCTION In its 1998 report entitled “Technology Collection Spying by other nations within the United States Trends in the US Defense Industry,” the Defense also came to the surface during this period. The Security Agency (DSS) reported that the number of most notable of which was Cuba when it suffered suspected industrial intelligence-gathering attempts setbacks with the arrest of seven members of its against the US defense industry tripled since Wasp Spy network in Florida, its spy within the US 1995. It also said that 37 nations were engaged in Defense Intelligence Agency, and another in the US industrial espionage to gain information about US Customs Service. Five Americans were also arrested Department of Defense technology. In its 2001 for selling or trying to sell US classifi ed information report, the number of countries had grown to 63. to foreign intelligence services or nations. While the DSS study focused on foreign Collection by the National Security Agency (NSA) collection of classifi ed or sensitive information came under the foreign microscope when the on US weapons systems, emerging technologies European Parliament alleged that NSA operates an with military applications, and related technical international SIGINT collection effort—identifi ed methods, intelligence collection against US as ECHELON—that intercepts communications economic, commercial, and proprietary information worldwide to provide economic intelligence to continues vigorously. This collection effort allows US corporations. On 5 July 2000, the European foreign nations and corporations to obtain shortcuts Parliament voted to launch a further investigation to industrial development and to improve their of ECHELON; the resultant draft report on competitiveness against US corporations in the ECHELON was made public on 18 May 2001. global marketplace. Maintaining that NSA operates in accordance with existing statutes and executive orders, senior US At the same time, some foreign scientists and offi cials strongly disputed claims that intelligence businessmen working with US fi rms or research agencies assist US corporations competing with institutes try to circumvent US laws to steal or foreign fi rms. They acknowledged, however, that illegally transfer embargoed American technology. intelligence agencies collect information regarding There were several notable cases involving theft the use of bribery and other illegal efforts by of American proprietary information. The fi rst foreign fi rms in competition with US corporations. involved several Taiwanese nationals charged with allegedly trying to steal the secret formula for an anticancer drug made by the Bristol-Myers Squibb Company. Another was an Avery Dennison employee who supplied a Taiwanese fi rm some of his company’s most closely held secrets. In a third case, two Japanese stole genetic materials from Lerner Research Institute and made it available to an institute in Japan. 187 Kai-Lo Hsu, Chester S. Ho, recommended under sentencing guidelines will be and Jessica Chou encouraged. Hsu was released on $1 million bail, awaiting sentencing. Kai-Lo Hsu, Chester S. Ho, and Jessica Chou, all Taiwanese nationals, were charged with allegedly Hsu was one of three people charged two years ago trying to steal the secret formula for Taxol, an in an FBI sting operation. Also of the three, Jessica anticancer drug made by the Bristol-Myers Chou, Yuen Foong Paper’s business manager, is Squibb Company.1 In October 1997, a Federal considered a fugitive by US authorities and is judge ordered prosecutors to turn over to the believed to be in Taiwan. The other defendant, defendants and their lawyers the very documents Chester S. Ho—an MIT-trained biochemistry the defendants are accused of trying to steal. The professor at two Taiwanese universities—was judge ruled that they needed the information to released last January after Federal prosecutors prepare their defense and that their right to a fair dismissed the charges against him. trial overrides the rights of a company to protect its trade secrets. Prosecutors appealed the ruling. According to the sentencing transcript produced in the US District Court for the Eastern District In a closely watched economic espionage case, the of Pennsylvania, Hsu was sentenced to two years’ Third US Circuit Court of Appeals in Philadelphia probation and fi ned $10,000 on 13 July 1999 for ruled on 27 August 1998 that Federal prosecutors conspiring to buy information regarding Taxol. did not have to turn over trade secrets to defendants. The drug had earned the company almost $1 billion The ruling reversed the lower court’s decision. in revenue. The three-judge appeals panel said the defendants do The US Government took the position that, due to not need to see the purported trade secrets because Hsu’s cooperation, he was entitled to a departure they can be guilty of conspiracy and attempted theft under the sentencing guidelines. However, due of trade secrets “even if the documents contained to the seriousness of the offense, the prosecution no confi dential information at all.” The appeals argued that some period of incarceration was panel also said that the district judge’s analysis was warranted in order to send a signal to those who are mistaken, since it was based on the belief that the inclined to violate the Economic Espionage Act. defendants were charged with the actual theft of Noting that technology has made the United States trade secrets. In fact, since they were charged with what it is today, the US Government also argued only an attempted theft, the defendants were not that it was important to prevent this kind of theft entitled to the documents because they were not an so that companies like Bristol-Myers Squibb will essential element of the prosecution’s case. remain willing to take the risks and invest millions of dollars in developing technology that might The appellate court ordered the district judge to ensure or might not work. Despite this urging, the court that the trade secrets were edited out of the documents sentenced Hsu to time served (14 days), two years before they were turned over to the defendants. of supervised release, and a $10,000 fi ne. On 31 March 1999, Kai-Lo Hsu, the technical A separate civil settlement was negotiated between director of the Yuen Foong Paper Co., Ltd., in Hsu’s company, the Yuen Foong Paper Co., Ltd., in Taipei, pleaded guilty to one count of conspiracy Taipei, and the US Government in the amount of to acquire a trade secret. Under the plea, Hsu $300,000. was to cooperate with Federal authorities who were investigating the extent of the conspiracy. In exchange for his cooperation, 10 other criminal Endnote 1 charges against him were dropped, and a sentence See Counterintelligence Reader, Volume III, pp. 414- below the 10-month prison term that was 415, for previous information on their arrest. 188 Theresa Squillacote, Kurt Stand, On 17 February 1998, Squillacote, Stand, and and James Clark: The Espionage Clark were indicted by a federal grand jury on Careers of Three Americans charges of conspiring to spy for the former GDR, the former Soviet Union, the Russian Federation, Three people were arrested on 4 October 1997 and South Africa. All three were held without bond and charged with spying for the former German until their trial on 20 July 1998. According to press Democratic Republic (GDR) and Russia in an reports, the US Justice Department reviewed the espionage operation that began in 1972: the allegations to determine if special circumstances three coconspirators were Theresa Squillacote; existed that warranted seeking the death penalty. her husband, Kurt Stand; and their friend James Clark. The three were described in court papers as Kurt Stand’s parents fl ed Germany for the United Communist Party sympathizers who had met at the States during Hitler’s regime. After the war, his University of Wisconsin in Milwaukee during their family maintained contact with friends in eastern student days in the 1970s. Germany, which became the German Democratic Republic in 1949. When Stand was approximately Theresa Marie Squillacote, 39, was a senior 18 years old, his father introduced him to Lothar staff attorney in the offi ce of the Deputy Under Ziemer, an offi cer in charge of Section 3 of the Secretary of Defense for Acquisition Reform Main Administration for Intelligence’s (HVA) until January 1997. According to court papers, Department XI. HVA was the foreign intelligence Squillacote got her job at the Pentagon after the arm of the Ministry of State Security (MfS),1 East German reunifi cation in 1990 to gain access Germany’s intelligence service. The primary to government secrets. She had also sought a mission of Department XI was the operational job at the White House Offi ce of Management reconnaissance of North America. Its purpose and Budget, which she had hoped to use as a was to acquire data of signifi cance to the GDR that springboard to a position at the National Security could not be acquired by legal means. Council. Before her Pentagon assignment as a senior staff attorney, Squillacote had worked for the On an HVA codename agent data sheet, “Junior” is House Armed Services Committee. listed with fi le number “VX2207/73” and is listed as a source with direct access. The origin of the Kurt Alan Stand, 42, was a regional representative case is listed as “Agent in the West,” and Junior of the International Union of Food, Agricultural, is listed as having been recruited in 1972 in the Hotel, Restaurant, Catering, Tobacco and Allied GDR on an “ideological” basis by an MfS offi cer. Workers Association. He was accused of starting Junior is listed as a married American male born in his spy activities in 1973 when he was recruited 1954 who lives in New York and is a trade union by the GDR (East Germany) to develop spies in employee.
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