Western firms face growing emerging spy threat

That in itself is not a surprise. Authoritarian states have long been renowned for spying on their citizens. But the growing threat for international companies is that this would skew the playing field against them as the West's economic primacy fades.

Security experts refuse to talk specifics, but say they know cases where international firms lost out because state-linked rivals appeared to have benefited from spy agency support.

"There is certainly some anecdotal evidence for that particularly with regards to both Russia and China," said Nigel Inkster, a former assistant chief of Britain's Secret Intelligence Service (MI6) and now head of transnational threats and political risk for the International Institute for Strategic Studies. "The world has changed with the rise of state capitalism and the economic rise of the east and south. The debate on how we react to that is only just beginning."

India in July became the latest country to prompt Canadian firm Research in Motion to give its security agencies access to encrypted Blackberry smartphones, on concerns that they might be used to aid militants or spread pornography.

The Blackberry's government-level 256-bit encryption has been at the heart of its appeal to confidentiality-hungry corporates, and the high-profile demands for access spooked at least some customers. Specialist consultancies took several calls from worried firms asking which countries might be next.

But it's not just BlackBerry. Emerging states are said to be putting more resources into electronic and cyber spying at home and abroad, and seeking more access to communications networks.

Earlier this year, tech giant Google pulled out of mainland China after cyber attacks Western analysts suspect originated in state agencies. China denied state involvement.

Some argued such attacks signaled a much larger shift that could define the coming decades.

GAME CHANGER?

"It's a key indicator of the biggest game changer in the global economy -- a liberal "free market" bloc being increasingly challenged by state capitalist economies," said Ian Bremmer, president of political risk consultancy Eurasia Group.

Russia and China demanded such access to BlackBerry messaging in return for accepting the phones on their territory, while Saudi Arabia and the United Arab Emirates want the same.

All face internal militancy issues of their own.

"It's difficult," said Ian McGurk, associate director for information security at London-based consultancy Control Risks. "No one questions that national security agencies should have the right to access information they need to prevent terrorism or criminal activity. The problem comes when it's used for other purposes. It can certainly be used for commercial reasons."

Key areas of focus seem to be high-value deals, debt renegotiations, mergers and acquisitions and sectors such as defense, high-tech industry and resource extraction.

Even simply getting a breakdown of a rival supplier or purchaser's profit margin on a particular deal could give a company the edge. Such information is frequently stored on BlackBerries, laptops and e-mailed around the world.

"You have some corporations that have really adapted -- they organize themselves almost like private intelligence agencies," said Fred Burton, a former U.S. counterterrorism agent and now vice president for Texas-based consultancy Stratfor.

"They compartmentalize, keep a tight hold of information, operate on a need to know basis. And there are others that don't get it and are really leaving themselves wide open."

McGurk says most firms focus cybersecurity efforts on preventing crime and private hacking and rely on commercial encryption which big espionage agencies can often read.

JUST NOT PREPARED?

"Most companies ... assume the systems they have in place are good against anyone. They simply aren't," he said.

The best solution, he says, is to make sure sensitive information is never physically carried into a risky country. But that simply is not always practical.

Even if it is, experts say several authoritarian states are increasingly hacking Western company networks inside the West.

"Much of our intellectual property as a nation has been copied and sent overseas," writes former White House cyber security adviser Richard Clarke in his 2010 book "Cyber War."

"Our best hope is that whoever is doing all this does not have enough analysts to go through it all and find the gems -- but that is a faint hope if the country behind it has, say, one billion people in it."

The threat raises a dilemma for Western spies, who have spent the last decade focusing on militancy but are increasingly being drawn back into state-linked counterespionage.

Western spies say they seek economic intelligence to aid policy-making or fight crime -- for example to reveal graft in a rival nation's defense dealings -- and must heed growing lawmakers' scrutiny. Some think their snooping goes further.

"It's essentially a philosophical question," says former senior MI6 officer Inkster.

"In the U.K. and U.S., the predominant belief has been that the private sector should look after itself, although security advice should be offered. The focus of national security will remain protecting human life. You may have a growing emphasis on economic security but I think it will always be limited."

And where does this leave the Western businessmen who simply wants privacy? Paranoia, some suggest, is the best answer.

"We've always assumed you shouldn't say anything over e-mail and that you wouldn't be happy appearing on the front page of the FT," said one banker working in a perceived sensitive sector. A second in a similar area added : "We always have to be very cautious... whether we are in Nigeria or west London."