Japan Business Has a Lot of Bugs to Work Out as Wiretapping Rises : Surveillance: Economic espionage becomes a fact of life as competition heats up.

During his stint as a U.S. Commerce Department trade negotiator during the mid-1980s, Clyde Prestowitz wondered why the Japanese side seemed to know about the divisions within the American team over semiconductor talks and about the contents of his briefing book.

Prestowitz never learned how Japanese officials acquired their knowledge. But he and other U.S. officials assumed they were being bugged and took care to make important calls only over secure lines in the U.S. Embassy in Tokyo.

For one U.S. businessman here, the case was clear-cut. During a recent high-profile trade negotiation, his firm’s security team insisted on sweeping his hotel room--and discovered a listening device in an electrical outlet.

“I was pretty naive,” the businessman said. “The security people said they needed to sweep the room, and I thought, ‘What is this? The Cold War?’ But they were right.”

Amid recent reports that the CIA bugged Japanese officials during auto trade talks, U.S. business executives say that wiretapping, spying and other forms of economic espionage are a daily fact of life in Japan and elsewhere.

Officials here say they routinely avoid making important phone calls in Japanese hotels, and they assume that fax transmissions are monitored by the public telephone system. They also assume that local cleaning staff and other employees could be pilfering information. The careful firms lock up sensitive documents at night.

Japan is believed to possess one of the most comprehensive business intelligence-gathering operations in the world, although France, Israel and South Korea have mounted more extensive efforts, experts say.

As economic competition heats up amid the Cold War’s end, business espionage is said to be on the rise.

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U.S. business--still seen as the world’s leaders in cutting-edge technology--may be losing as much as $100 billion annually in pilfered information, according to an estimate by the White House Office of Science and Technology.

“There is generally more bugging out there than the average businessman realizes,” said David Bong, managing director of the Tokyo office of Kroll Associates, an international investigative and crisis management consulting firm.

He added that the end of the Cold War has flooded world markets with bugging technology, ranging from laser beams to special computer screens to cheap devices concealed in wall mirrors and calculators.

Some Japanese firms, such as Hitachi Ltd., have been caught trying to illicitly buy U.S. corporate secrets. In 1982, Mitsubishi Corp. was intercepted transmitting top-secret U.S. intelligence reports to Japan’s Foreign Ministry, according to Peter Schweizer, author of the 1993 book “Friendly Spies.”

But most of Japan’s intelligence operations in the United States are legal, he said.

Japanese researchers, for instance, have made extensive use of the U.S. Freedom of Information Act to acquire vast knowledge about the space shuttle program.

Japanese trading firms and such quasi-governmental organizations as the Japan External Trade Organization also systematically collect information.

The trade organization, which maintains seven offices in the United States and others around the world, collects a vast array of public reports, subscribes to various journals and news publications, conducts personal interviews of everyone from university professors to business executives and participates in seminars and other public activities, a spokesman said.

He said that the organization does not engage in covert activities and that most information it collects is available to the public.

Foreign businesses are not the only intelligence targets in Japan, however; there are domestic targets as well.

As many as 240,000 bugging devices are manufactured annually here, making Japan the “spy paradise” of the world, as one security expert put it. Half of the devices are sold domestically, and half are exported--mainly to Hong Kong, said Kosaku Hotta, president of Pegasus, a Nagoya-based debugging firm.

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Japanese firms, using their world-famous talents at miniaturization, have developed a whole line of bugging devices concealed in pens, calculators, business-card holders, even teddy bears. They have also managed to bring prices down to affordable levels for the average consumer--a calculator bug costs $450, and a wall plug device sells for $300.

The boom in bugging devices--whose sale is not illegal and whose use is allowed under certain circumstances--has been fueled by the recession, which has driven more firms to desperate measures to win business, said Masayuki Fuji, who removes bugs and develops anti-bugging devices.

In one recent case, a Japanese pinball machine maker found bugs on 21 different phone lines--placed by a competitor trying to get leads on potential customers.

Fuji said a law recently passed against organized crime has also fueled the bugging boom by forcing gangsters to offer concrete information for sale to firms instead of simply extorting money as in the past.

Other cases include bureaucrats bugging each other to gain the upper hand in power struggles--several cases have been discovered in the Ministry of International Trade and Industry, Fuji said--and jealous husbands and wives trying to find out about each other’s affairs.

Fuji said his business has taken off in the past three years; he now handles 300 cases of debugging annually. Hotta, in Nagoya, said he gets 80 inquiries a day but can manage only three cases a week--a tripling of his business in the past few years.

Even as espionage increases, however, security experts say the Japanese are relatively unschooled in how to protect themselves.

The use of shredding machines, a system of classifying documents, protecting access to buildings, encoding sensitive information and other techniques routinely used abroad are still not widely practiced here, Bong said.

“I think there is a much greater level of naivete and lack of preparedness on the part of companies in Japan, foreign or Japanese,” Bong said. “They are not geared up to be secure, because their society has always been so safe.”

Unconvinced of the need and afraid that too many security measures might offend customers, few firms are willing to install extensive security systems, experts say.

As economic competition intensifies, however, both Japanese and foreign firms are becoming more aware of the need for security.

“You have to assume [espionage] is being done,” said one U.S. businessman in Tokyo. “Gentlemen don’t read each other’s mail--but businessmen and diplomats sure do.”

Megumi Shimizu of The Times’ Tokyo Bureau contributed to this report.