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reported losses of $151,230,100 in trade secrets, as opposed to 21 percent who reported losses of $92,935,500 in fraudulent financial transactions.33
Such compromises are hardly new. The 1995 Annual Report to Congress on Foreign Economic Collection and Industrial Espionage revealed that many of the techniques used to improperly obtain such information were simply slight versions of classic intelligence collection methods, to include agent recruitment, soliciting volunteers, surveillance and surreptitious entry, specialized technical operations (wire-tapping and interception of other communications), economic disinformation, tasking of foreign students, tasking foreign employees, debriefing of foreign visitors to the United States, recruitment of emigres and ethnic targeting, elicitation during international conferences and trade fairs, commercial databases and journals, private-sector organizations and front companies, joint ventures, corporate mergers and acquisitions, head-hunting, technology agreements, sponsorship of research activities, and use of information brokers and consultants.34 To the degree an employee of the organization knowingly participates in any of these activities for money or compensation, occupational fraud has been committed.
A sense of the scope of such activities is likewise long established. In September 1996, John Harley, Deputy Assistant Director of the FBI’s National Security Division, outlined some of these techniques in a speech to a National Seminar sponsored by the American Society for Industrial Security (ASIS). They include biotechnology; telecommunications; computer software and hardware; advanced materials and coatings; energy research; defense and armaments technology; manufacturing processes; semiconductors; proprietary business information, such as bids, contract, customer, and strategy information; and governmental and corporate financial and trade data. FBI investigations, at that point, had identified 23 countries actively engaged in the collection or attempted collection of such data from U.S. organizations and interests.35
In 1997, the ASIS conducted a survey regarding loss of intellectual property and reported, in part, the following findings:36
• Dollar losses from compromise of intellectual property may exceed $250 billion annually.
• 56% of companies responding reported one or more attempted or suspected information misappropriations.
• 62% of companies have no procedures for reporting information loss, and 40 percent do not have a program in place to protect proprietary information.
• Five times as many companies feel the issue of intellectual property loss is increasing.
• Persons with a trusted relationship pose the highest risk to a company’s intellectual property.
• Employees stealing secrets and divulging secrets at a future employment are the two greatest risks to intellectual property.
• On average, companies spend less than 3 percent of their security budgets protecting intellectual property.
As indicated by the definitions, the threats to such information may come from a foreign government, a foreign company operating with the assistance of its government, or an individual, U.S. or foreign. Because of such threats, Congress passed the Economic Espionage Act of 1996 (Title 18 U.S.C. Section 1831). For our purposes, we need not discriminate as to whether the source of a threat to proprietary information is a foreign government or an American citizen. If the compromise of the information is knowingly aided by an employee of the organization in exchange for some monetary consideration, it is a form of occupational fraud, identical to that committed by Walker, Pelton, Ames, Hansenn, and others. Such threats and compromises were estimated to cost U.S. businesses between $100 to $250 billion in lost sales in 2000.37 Some portion of this amount is surely occupational fraud.
That these issues are interesting and challenging is not the entire point. Just as changes in the motivations for spying have apparently driven espionage into the occupational fraud arena, so too will other changes in technologies, motivations, and methods. Ours is a problem not only of definition, but also of evolution, and we must be prepared to deal with it.
Finally, let us examine the great underbelly of occupational crime—that which never makes it to the official record. We have discussed the problems in trying to use public statistics, such as arrests and convictions, when attempting to assess the size of the occupational fraud problem. Let us now examine the process that leads up to these public records and begin to understand why so much of the wheat falls out of the basket at each step.
First, some employees commit occupational frauds. If they are never discovered, we never know about it. Some wheat is lost. Second, some frauds are discovered, but the company may decide to dismiss the employee and write it off. More is lost. Third, the company may or may not decide to refer some matters for investigation. More is lost. Some matters are accepted and actively investigated, and others are not. More is lost. Fourth, the investigators present the matter to the prosecutor, who may or may not choose to accept the case. A technical violation of law may exist, but the amount involved is not sufficient to meet the standards set by the guidelines most prosecutor’s offices use. More is lost. Then, there may or may not be a conviction. More is lost. Finally, the conviction is duly recorded in a public records system, where we may find it if we can determine which Mail Fraud violation is an occupational crime and which is not.