New 'Bugs' Make Spying Easier
(BUSINESS WEEK - July 12, 1982 - Technology Section)

Ten years ago, five 'plumbers' broke into Democratic National Headquarters in Washington's Watergate Office Building to replace a defective electronic listening device. They came in the dead of night because they wanted to plant another eavesdropping device disguised as a smoke detector-difficult to do when anyone was around. Today, though, advanced 'bugs' are so small that they can casually be salted in an office by a daytime visitor with little risk of detection. Had the White House plumbers squad used such bugs, Richard M. Nixon might have finished his term as President and G. Gordon Liddy might not now be associated with a Niles (Ill.) company that bears his name and specializes in debugging corporate offices.

Counterbugging services are a fast-growing business, trading on the fears of executives and corporate security officers that modern microelectronics technology is being increasingly exploited to steal company secrets. With today's semiconductor technology, tiny radio transmitters with microphones the size of a match head can be hidden in pens, book spines, coat hangers, even picture hooks in a wall. "The trick to bugging is to make it look as if it's not a bug," says Harry A. Augenblick, the president of Microlab/FXR, which makes a bug-spotting system called SuperScout. Adds Carmine O. Pellosie Jr., vice-president of CCS Communications Control Inc., a New York-based marketer of "high-tech" security devices: "Bugging is a very safe thing to do."

Hard to prove. No one knows for sure how much industrial bugging really goes on, but many security consultants-whose options are perhaps biased-maintain that it is spreading swiftly. Field agents of the Federal Bureau of Investigation agree to a point, although agent Johnnie Gibson at FBI headquarters cautions that it cannot be proved because no specific data on bugging crimes exist. In a recent survey, corporate security executives overwhelmingly termed bugging a threat, and almost half of them felt that at least 50,000 to 100,000 bugs had been planted in businesses within the last five years.

"Industrial espionage [has been going] up steadily over the years," asserts David L. Watters, an aerospace consulting engineer and former communications researcher at the Central Intelligence Agency. He believes that as much money is spent on industrial espionage as on the combined surveillance efforts of federal, state, and local law enforcement agencies. For industry, Watters figures that the total yearly bill for salaries, equipment, and expenses comes to "hundreds of millions of dollars."

On the other hand, just as many company security officers believe that there has not been any dramatic growth in bugging, despite the advent of ultraminiature transmitters. The perception that it has grown, these officers contend, is the result of better counterespionage measures that are catching more industrial spies. But the claims of corporate security people also may be biased, since an upward trend in industrial espionage could be taken as evidence that they were not doing their jobs.

Souvenirs and cigars. Not surprisingly, no corporate security officer interviewed by BUSINESS WEEK would discuss his own experiences, and many refused to be interviewed. But some of them did relate "sanitized" case histories that have become folklore in the world of corporate security:
• Companies often commemorate special events and successful ventures with plaques or other souvenirs. One entrepreneur figured the mementos could do double duty: In plastic statures given to erstwhile partners who might compete for future business, he secreted a bug.
• The president of one company grew increasingly suspicious when his competitor kept submitting bids a sliver below his own. One day he emptied his humidor, looking for a bug, but found nothing. Later, he learned that it was in the cigar on the bottom.
• It can be almost impossible to discern individual comments during a crowded meeting because conventional bugs relay monaural signals. So one eavesdropper planted a stereo transmitter in his competitor's boardroom.

Although it is illegal to make, sell, or even possess eavesdropping devices in the U.S., they are not hard to obtain from overseas manufacturers. In West Germany, for example, using hidden listening devices is also forbidden-but making them is perfectly legal. A half-dozen companies sell 12,000 to 14,000 bugs a year, marked "for export only." Frankfurt-based Target Electronics supplies the duty-free shop at the nearby international airport with sophisticated bugging devices that list for as much as $300. Experts estimate that up to half of all the bugs used by U.S. industrial spies come from abroad.

Even in the U.S., one can legally buy wireless transmitters that are only a bit bigger than real bugs. Radio Shack stores, for instance, carry a model about the size of a small cigarette lighter for $35. As long as such transmitters are billed as "wireless microphones" or electronic "babysitters," selling and owning one is legal. An accompanying brochure warns against surreptitious use. Even without a ready-made unit, says Pellosie of CCS, "a high school electronics student could build one for $12," using off-the-shelf parts.

While security experts debate whether the growth of bugging is real or an illusion, no one disputes that the fear of being bugged is soaring-sometimes to the point of paranoia. "Everyone is concerned about the possibility," says the security officer of one multinational corporation. "We have never found a bug," he adds, "but we're sure they're there."

'Insurance policy.' That sense of insecurity has spawned a booming antibug business. Five-year-old CCS notched $30 million in revenues last year from such equipment as 'bionic briefcases" crammed with counterbugging gear. Among the buyers were 50 foreign governments. G. Gordon Liddy Associates, formed 17 months ago by Thomas E. Ferraro, has already branched out to six more cities and expects to collect $10 million on debugging equipment and consulting fees this year. "Ten years ago hardly anyone was in this business," muses Francis G. Mason, president of F.G. Mason Engineering Inc., a Fairfield (Conn.) antibugging specialist. "Now there are hordes."

Although bug-detection technicians admit that they find evidence of eavesdropping no more than 20% of the time-even 1 bug in 100 sweeps, at $800 to $20,000 each, is not uncommon-many companies believe the expense is a necessary prevention. "It's an insurance policy," says the chief security office at a major bank.

Among the more sophisticated systems is Microlab's $18,000 SuperScout. It broadcasts a special signal that causes any semiconductor near the "vacuum cleaner" head to resonate; the unit then detects the resonant signal from the chip. Microlab hails the SuperScout, originally developed for the government, as the first sweeper capable of spotting bugs that are not transmitting-even those whose batteries are dead.

Other companies specialize in counterintelligence equipment, designed to prevent or deter eavesdropping. Dektor Counterintelligence & Security Inc. in Savannah, Ga., sells a machine that picks up the presence of hidden tape recorders. For about $300,000 Keene Corp., of Norwalk, Conn., will install electronically shielded walls around a conference room or office. There are "pink noise" or "white noise" machines to mask conversations by showering a room with background noise resembling gently falling rain.

False confidence. Many debugging experts feel that anxious, uncritical executive are often being bilked. Roger Tolces (of Advanced Electronic Security), an industrial security expert in Hollywood, Calif., notes that several security-hardware companies sell a gadget for telephones that is supposed to signal a phone-line tap by light up. "But I could bug your phone all day, and your light wouldn't go on," Tolces insists. "Seventy-five percent of the equipment being sold is junk."

Even good equipment may give a false sense of confidence. A determined eavesdropper can break through an electronic room shield simply by drilling a hole in the wall. He could foil the SuperScout by wrapping the bug in aluminum foil or sticking it inside a word processor where its presence would be masked by the machine's own semiconductor chips, notes Joe Wilson Elliot, a former Army intelligence officer who now runs a Los Angeles security company. And the most thorough antibug sweep is negated if someone plants a bug five minutes later.

Still, even jaundiced security experts admit that the new technology has improved their end of the cat-and-mouse game of industrial espionage. "We probably could not have picked up the Watergate bug with 10-year-old technology," says Ferraro of Liddy Associates, whose famous partner was off on the lecture circuit when BUSINESS WEEK called. So what would Ferraro advise the Democrats now? "Sweep their offices every day." The cost? "We'd give then a special deal: only about $100 a day."

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