Statement of Judiciary Committee Chairman Lamar Smith Full Committee Markup of H.R. 6029, the "Foreign and Economic Espionage Penalty Enhancement Act of 2012"

Statement of Judiciary Committee Chairman Lamar Smith
Full Committee Markup of
H.R. 6029, the “Foreign and Economic Espionage Penalty Enhancement Act of 2012”

Chairman Smith: In 1975, tangible assets, such as real estate and equipment, made up 83% of the market value of S&P 500 companies. Intangible assets, which include trade secrets, proprietary data, source code, business processes and marketing plans attributed only 17% of these companies’ market value. 

By 2009, these percentages were nearly reversed. Tangible assets accounted for 19% of these companies’ market value while intangible assets accounted for 81%. 

In a dynamic and globally-connected information economy, intangible assets are important to the success of individual enterprises and to the future of entire industries, economies and nations.

A global study released last year by McAfee, the world’s largest security technology company, and Science Applications International Corporation concluded that corporate trade secrets and other sensitive intellectual capital are the newest “currency” of cybercriminals. 

The study found that the motivations of criminals in “[t]he cyber underground” are almost always financial.  There has been a shift from a focus on the theft of personal information such as credit cards and social security numbers to the theft of corporate intellectual capital.

Corporate intellectual capital is frequently vulnerable, of great value to competitors and foreign governments, and its theft is not always immediately or easily detected by victims.

The Intelligence community warns us that foreign interests place a high priority on acquiring sensitive US economic information and technologies.  Targets include: information and communications technologies; business information; military technologies; and rapidly growing civilian and dual-use technologies such as those that relate to clean energy, health care and pharmaceuticals. 

The most recent report from the Office of the National Counterintelligence Executive identifies Chinese actors as “the world’s most active and persistent perpetrators of economic espionage.” 

Also, it describes Russia’s intelligence services as responsible for “conducting a range of activities to collect economic information and technology from US targets.”   

Of seven Economic Espionage Act (EEA) cases resolved in Fiscal Year 2010, six involved links to China.  More recently, five companies were accused of the theft of trade secrets from DuPont.  Four of these companies are Chinese state-owned enterprises or subsidiaries.

In the US, the EEA serves as the primary tool the federal government uses to protect secret, valuable commercial information from theft.  

The EEA addresses two types of trade secret theft.  Section 1831 punishes the theft of a trade secret to benefit a foreign entity. Section 1832 punishes the commercial theft of trade secrets carried out for economic advantage, whether or not the theft benefits a foreign entity.  

Since enacting the EEA in 1996, Congress hasn’t adjusted the penalties to reflect the increasing importance of intellectual property to the economic and national security of the US and to our businesses.

H.R. 6029, the Foreign and Economic Espionage Penalty Enhancement Act of 2012, focuses on this aspect of the EEA.

It increases the maximum penalties for an individual convicted of committing espionage on behalf of a foreign entity.  Currently, the maximum penalty for someone convicted under section 1831 of the EEA is up to 15 years imprisonment and a fine of only up to $500,000. This bill increases the maximum penalty to up 20 years imprisonment and a fine up to $5 million.

It also provides a new means of calculating the maximum fine for a convicted organization.  

Earlier this year, the FBI estimated that companies had lost $13 billion to trade secret theft in just over six months.  In several cases over the past six years, losses to individual US companies were reported up to            $1 billion. 

Our Intelligence community has recognized “the significant and growing threat to [our] nation’s prosperity and security” posed by criminals - both inside and outside the US - who commit espionage. 

We should also recognize this increasing threat by enhancing deterrence and more aggressively punishing those criminals who target US companies for espionage. I urge my colleagues to support H.R. 6029.