Seeking to Retain Its Budget, NSA Wants to Spy (Shhh!) on Allies : Intelligence: The NSA is ready to steal competitive economic secrets from U.S. allies, but it should concentrate on protecting what we have.

<i> James Bamford, a producer with ABC News, is the author of "The Puzzle Palace" (Houghton Mifflin), an analysis of the National Security Agency</i>

It was a typical Chamber of Commerce luncheon. The man at the podium was the head of the largest business in the county, possibly the state. He had come to impress his audience with the contribution his organization was making to the area. Statistics flowed faster than coffee: from the number of square feet of leased office space (1.5 million) to the monthly electric bill ($1.2 million) to the annual state taxes paid by his employees ($50 million) to the amount of water evaporated daily from huge air conditioners (160,000 gallons).

Under most circumstances, such a speech would be of little interest--but in this case it bordered on the extraordinary. It was a rare, candid talk to a small group of local business people by the federal government’s official recluse: Vice Adm. William O. Studeman, director of the supersecret National Security Agency. Largest and most expensive of all the intelligence agencies, the NSA is responsible for eavesdropping on worldwide communications channels and keeping official U.S. channels secure. Now, Studeman warned, the NSA may be asked to begin turning its giant ear toward a new target: the economic and corporate affairs of our friends and allies.

Since its birth in 1952, the nearly invisible NSA has been America’s principal source of intelligence on the Soviet Union and the East Bloc. Currently, however, with the near death of communism in Eastern Europe and the liberalization within the Soviet Union, the NSA is facing its first major cutbacks since the end of the Vietnam War. In military construction alone over the past year, the agency has cut back by 40%--from a projected $189 million to $112 million. In addition, according to Studeman, it has now begun aiming its antennae in new directions, such as India, Pakistan and the Philippines. But the most controversial new target, and one still in the discussion stage, is competitive economic intelligence.

Unlike general economic intelligence, such as how much Saudi or Japanese money is flowing in and out of Switzerland--something the NSA has always targeted--competitive intelligence includes targeting specific foreign companies to secretly learn everything from new product lines to sealed bids to new technologies. Most of these new targets would be in friendly, allied nations or neutral countries.


But just as the NSA has unique abilities to tap into the commercial secrets of friend and foe, it also has extraordinary techniques to protect U.S. communications from foreign ears. A few years ago, working with several outside contractors, the agency developed a reasonably priced, highly secure telephone system to be used in the half-million most sensitive offices in the U.S. government. Several contractors have developed unclassified, commercial versions of these phones, and they will soon be within a price range corporations can afford. Other techniques, such as automatic encryption of satellite communications, are also feasible.

In many countries, competitive intelligence has been going on for decades. During much of the first half of the century, for example, the British had a near world monopoly over the international telegraph cable business. Since virtually every company had to communicate over these cables, the British took full advantage of the situation and eavesdropped on who was selling what to whom for how much.

As recently as last year, the French intelligence service, Direction General de la Securite Exterieure, recruited spies within such U.S. computer companies as IBM and Texas Instruments to gather competitive secrets for its struggling, largely government-owned computer firm, Compagnie des Machines Bull. The Japanese also have a separate intelligence unit for competitive spying and are known to be quite active.

Although competitive intelligence might seem a worthwhile new target for NSA code breakers and eavesdroppers, the prospect is fraught with dangers. The chief argument in favor of turning the NSA’s sensitive ear toward Sony and Nissan and Bull, and any number of other companies, is that other countries are doing it toward us. But there is no real comparison. When it comes to eavesdropping, the NSA has the world wired.


For decades, many countries in Europe and the Far East have hosted U.S. listening posts. In the past as well as today, these platforms offer unique insights into Soviet as well as Chinese activities. Once the European Community, Japan and other countries learn that they have become the NSA’s new key targets, future cooperation may be in great jeopardy. “My allies . . . are asking me lots of questions on a day-to-day basis about . . . NSA spying on our friends,” said Studeman.

Another problem with getting into this new form of espionage, according to Studeman, revolves around basic questions of law and ethics. “There are a substantial number of . . . legal and ethical problems associated with the concept of trying to provide intelligence information directly to business in the United States,” Studeman said. “This country does not have, if you will, the business ethic and the arrangements that some of the other Western countries have that do engage in economic intelligence collection. We do not have a large, vertically integrated support structure in the sense that the Japanese have. And we certainly don’t have, let’s say, the structure that the French have in terms of the close affiliation that exists between the government and a lot of their major industries.”

There is also the problem of which U.S. companies should receive NSA intelligence. For years, the NSA has gone to great lengths to protect its “sources and methods” of collection. With so many major corporations now multinational, or with hidden offshore interests, the risks of sharing the sensitive secrets may cancel out any benefits. “There isn’t any use to collecting it,” said Studeman, “if it cannot be used.”

Studeman pointed out, “the area of economics is now becoming the area of principal concern to the American citizen . . . (and) more people are concerned about economic competitiveness than they are concerned about military problems.” Nonetheless, it is questionable how many would want the Army, Navy, Air Force and Marines, which do most of the eavesdropping for the NSA, to spend their time--and taxpayers’ money--helping General Electric steal a new idea or cheat on a competitive bid.

Rather than escalate the economic espionage war by turning the NSA into a corporate spy, the agency and industry should work together to protect their secrets from foreign intelligence organizations. Just as many companies annually budget for security against shoplifting, embezzlement and pilferage, those worried about foreign eco-spies could dedicate additional resources toward a comprehensive communications and computer security program.

In any case, the question of whether the United States should throw its cloak into the circle of competitive espionage should not be decided in some windowless secure room, but in Congress and on newspaper Op-Ed pages. Studeman took a brave first step by making the debate public--and the open debate should continue. Nonetheless, the spy chief was well aware of the risks. “We’ll see how much my butt gets burned as a result,” he said quietly as he was leaving.