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May 10, 2004
Spy catcher focuses on economic espionage
By Edward Iwata, USA TODAY

MOUNTAIN VIEW, Calif. - The former Cold War warrior was fired up. His mandatory retirement at 57 had been waived, and FBI Director Robert Mueller had asked him to strengthen the counterintelligence operation, which had lost much luster in recent years. Decades ago, the biggest danger to U.S. national security came from the Soviet Union, said 60-year-old David Szady, the FBI's top spy catcher and assistant director of counterintelligence.

Now, he warned, some of the worst threats involve economic espionage from dozens of enemy and ally nations spying quietly on U.S. companies and swiping technology and trade secrets.

"We can put an umbrella around our national assets," said Szady, speaking last week in Silicon Valley at the FBI's first conference on economic spying. "We can prosecute criminally if we have to. We can neutralize it if we have to. It's crucial that we do this."

What spies are after Economic spying by foreign nations - enemies and allies alike - is on the rise. Here's what they were after in 2003: Technology Countries targeting Pct. of reported suspicious incidents
Information systems 63 22%
Sensors and lasers 46 17%
Electronics 32 9%
Armaments, energetic materials 44 9%
Aeronautics 35 10%
Source: Office of the National Counterintelligence Executive

The event at Moffett Federal Airfield drew 250 corporate security and law enforcement officials nationwide. After his talk, Szady sat down with USA TODAY for an hour-long interview.

In the past, corporations feared investigations and bad publicity, or worried that trade secrets might emerge in court. But now more high-tech firms and other companies are starting to work with the FBI, the CIA, the military and other government bodies to choke espionage cases before they worsen.

Economic spying by foreign industries and governments - such as China, South Korea, India, Pakistan, France, Israel, Japan and others - has increased in recent years and is costing U.S. firms billions of dollars, say Szady and other experts.

Spies are targeting defense firms, research centers and universities in California, Texas, Arkansas, Colorado, Iowa, Kansas, Connecticut and other states where military and commercial trade secrets can be found.

"The threat is huge," Szady says.

Their favorite spy methods? Posing as foreign business people and scientists. Paying off U.S. citizens who are already inside corporations and research centers. Hacking into computers to steal data. Or setting up bogus companies that export technology.

China has the largest spy program, Szady says, with 3,500 suspected front companies and many business and academic delegations visiting the USA.

Take the federal sting operation disclosed last week by the Department of Homeland Security and the Justice Department. According to criminal complaints, a California man and a Chinese national were arrested Thursday at a Los Angeles airport and charged with conspiring to buy and export to China electronic parts used in radar and satellites.

John Chu, a 44-year-old Pasadena resident, and Zhu Zhaoxin, 55, of Shenzhen, China, were charged in federal court in Boston after meeting with undercover agents who posed as arms dealers. Chu and Zhaoxin allegedly had negotiated for several months to purchase the parts, called traveling wave tubes.

The lanky Szady joined the FBI in 1972, investigating murder and gambling cases in Alabama.

Over the next three decades, Szady became an expert on Soviet espionage and other intelligence subjects in Washington, Silicon Valley, San Francisco and Portland, Ore. He also served as a CIA counterespionage chief seven years ago. His biggest FBI case: the investigation of John Walker, the American who spied for the Soviet Union's KGB for nearly 20 years.

Now, Szady is sweating to revive the FBI's counterintelligence, which has taken hits in recent years.

Critics have blasted the FBI for bumbling the case of Wen Ho Lee, the Chinese-American scientist wrongly accused of espionage.

And since the Sept. 11 terrorist attacks, the FBI, other law enforcement agencies and the White House have come under fire for not anticipating the attack on the World Trade Center.

Funding and staffing were cut for counterintelligence in recent years. Morale was low, and intelligence was seen as a dead-end career move for FBI agents, who favored hunting killers and bank robbers.

But now counterintelligence is hot, with squads in every FBI field office.

About 270 agents have been transferred or hired to work intelligence, and the FBI is recruiting analysts and experts on foreign cultures. Szady estimates the FBI needs an additional 800 agents to handle counterintelligence matters. "Counterintelligence is our No. 2 priority after terrorism," he says. "If we need the resources, we will get them."

A ChevronTexaco security official who attended the Silicon Valley conference says that most companies are very concerned about espionage and terrorism.

Since the Sept. 11 attacks, ChevronTexaco has doubled its security against spy and terrorist threats worldwide. The oil giant also works closely with the FBI and Homeland Security to strengthen security at its refineries, R&D centers and other facilities, says Steve Steinhauser, a ChevronTexaco manager of global security and a former FBI agent.

Szady says that companies teaming with law enforcement won't totally stop economic espionage. But they can slow the spies and nab more of them.

Meanwhile, Szady, who shares a Washington apartment with another FBI agent, plans to retire one day with his mathematician wife at their Cape Cod home.

Says Szady, grinning, "I think I'm the oldest, gun-toting agent at the FBI."

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