Page 2

BOX ES.1 The Foreign Threat to U.S. Business Interests Of the wide variety of information risks facing U.S. companies operating internationally, those resulting from electronic vulnerabilities appear to be the most significant. The National Counterintelligence Center (NACIC), an arm of the U.S. intelligence community established in 1994 by presidential directive, concluded that ''specialized technical operations (including computer intrusions, telecommunications targeting and intercept, and private-sector encryption weaknesses) account for the largest portion of economic and industrial information lost by U.S. corporations." Specifically, the NACIC noted that [b]ecause they are so easily accessed and intercepted, corporate telecommunications—particularly international telecommunications—provide a highly vulnerable and lucrative source for anyone interested in obtaining trade secrets or competitive information. Because of the increased usage of these links for bulk computer data transmission and electronic mail, intelligence collectors find telecommunications intercepts cost-effective. For example, foreign intelligence collectors intercept facsimile transmissions through government-owned telephone companies, and the stakes are large—approximately half of all overseas telecommunications are facsimile transmissions. Innovative "hackers" connected to computers containing competitive information evade the controls and access companies' information. In addition, many American companies have begun using electronic data interchange, a system of transferring corporate bidding, invoice, and pricing data electronically overseas. Many foreign government and corporate intelligence collectors find this information invaluable. SOURCE: National Counterintelligence Center, Annual Report to Congress on Foreign Economic Collection and Industrial Espionage, July 1995, pp. 16-17.

customers, and foreign governments (Box ES.1). Private law-abiding citizens dislike the ease with which personal telephone calls can be tapped, especially those carried on cellular or cordless telephones. Elements of the U.S. civilian infrastructure such as the banking system, the electric power grid, the public switched telecommunications network, and the air traffic control system are central to so many dimensions of modern life that protecting these elements must have a high priority. The federal government has an important stake in assuring that its important and sensitive political, economic, law enforcement, and military information, both classified and unclassified, is protected from foreign governments or other parties whose interests are hostile to those of the United States.