White House Chief Of Staff

Issue Paper # 1

Topic:                         Economic Espionage and Theft

Author:                      Black White

                                    National Security Advisor

                                    U.S. Intelligence Service

About the Issue:

Following a case of economic espionage and theft, the DNI in Pan American International Bank, Members of the Intelligence Community Executive Committee and the representative of the Office of Personnel Management seek to find a solution to the issue.



The Pan American International Bank (PAIB) has fallen prey to a malicious attack orchestrated by its industrial rival leading to electronic theft of client documents. The cost of the theft has not been precisely ascertained due to document modifications and the projected figure is fixed at hundreds of million dollars. The PAIB Information Technology (IT) department concerned with security issues has ascertained that the electronic attack was used as a pawn for an actual infiltration into the records of clients that are all practicing employees of renowned technology companies. This has been achieved through the insertion of Trojan Horses in the documents of the targeted clients.


The IT department has been able to isolate a single Trojan program and upon analysis discovered that upon salvaging the clients’ information, it forwarded it to an IP address reflecting in Netherlands. Further case analysis with the aid of Dutch law enforcers indicates that the address is used as a link for further information dissemination to other various nations whose IP addresses are modified in a frequent manner. The IT department has accorded various efforts to overcome the present problem to no avail. Pooling of IT aid with the issue from other professional practitioners has also been highly unsuccessful. PAIBs senior management and officials have resorted to the solvency option to avert any further monetary losses.


The National Deposit Insurance Corporation (NDIC) has salvaged the bank’s records and has initiated its own inquiry with regard to the issue with the sole objective of succeeding the present management and becoming the sole owner of the institution. With the dissension, Senator Jones (D-NY), an affiliate of the Senate Finance Committee (SFC) and the Senate Select Committee of Intelligence (SSCI) has personally sought to obtain a lasting solution to the issue. The senator has revealed that his preference would be the involvement of the government’s resources in the matter by the adoption of its offensive cyber techniques in tracking and annihilating the criminal executors. His justification of the government’s intervention is because PAIB is an economic pillar in the US Wall Street market with a vibrant global market especially in Latin America.


The senator has requested for a meeting with a few members of the current PAIB management team to evaluate the current approaches that can be employed towards the issue and the following is a review of the issue’s implication, the merits and demerits of the various approaches and the best alternative for the problem.



Alternative 1: Bank Insolvency

Current bank insolvencies can be attained through three main approaches. The first approach is widely termed as the ‘work-out’, which comprises of a confidential arrangement involving a reorganization conducted between the institution and its present creditors, mainly comprising of other financial institutions and the shareholders. This process is conducted devoid judicial involvement but legal advisers are included for the drafting of the confidential contract governing the process.


The second technique is termed as the judicial reorganization that unlike the preceding method solely applies the judicial group in decisions regarding the continuation or freezing of creditor properties, liquidation appeals and debt restructuring until all players are served accordingly. The process is managed and enforced by law courts.


The third technique is referred to as final liquidation, which is also implemented by a law court with regard to the continuation of freezing of creditor possessions. The main difference between the third and second approaches is that, the former extends to the salvaging of the bank’s assets, auctioning of the same with the income being used to settle the creditors’ debts and a termination of the business institution. Besides law courts, the bank’s shareholders may initiate this process upon gathering seventy-five percent votes towards an adoption of the same.


Alternative 2: Change of Ownership

The advent of the internet and the computer technology in the banking sector has infused various challenges, majorly on cyber crimes. The bank is accorded the position of a lender in such a relationship while the clients are majorly termed as borrowers. Information accuracy in the bank is treated as the borrower’s liability. Once such information is relayed to the bank for trading purposes with bank and ascertained as being precise, the liability in terms of safeguard and preservations is shifted from the borrower to the lender.


PAIB clients disseminated truthful information to the bank, which is the lender, with the trust that the data would be accorded high safety guard measures against any form of crime. The espionage having occurred within the bank’s resources therefore places the whole liability on the institution. The most probable assumption given to the situation concerns the fact that, prior to the sharing of information between the two parties, the borrower had maintained a tight level of security against such cases. Despite whether the occurrence is attributed to negligence or not, the losses attached to the crime have to be carried by the bank.


Costs attached to espionage to the bank may be broadly categorized as monetary and non-monetary. Within the monetary category, it has been identified that the PAIB has incurred undetermined financial losses of bank clients during the electronic attack, projected as millions of dollars. On the non-monetary aspect, the information acquired bears a high probability of use against the clients from the perpetrators within the future periods, especially in acquiring technological information that may be used to undermine the competitive edge in the market. Accordingly, this translates to monetary losses for the companies and warrants a form of compensations.


Additionally, the bank’s image to its clients tends to decrease and this may result into consumer shifts to other banks that are more stable resulting to a significant decrease in the market share. A monetary aspect is also attached to this movement, as the shift would relay to investment reallocations affecting the reservoir base used for lending purposes. With the NDIC striving to acquire the bank’s properties and management, it means that all the above outlined liabilities are shifted to the new owners with the property change. The current bank owners would therefore bear a minimal amount of current losses in terms of fines with the bulk moving to NDIC.


Alternative 3: Government Intervention

1n the latter period of the 1990s, the US government offered public information revealing the extent in which economic espionage was had advanced both within the micro and macro levels. During the Clinton’s regime, research revealed a strong correlation between national and economic safeguards as the former attains a superior form of electronic protective mechanism to the nation reaching down to local networks. In 1992, the Federal Bureau of Investigations (FBI) was accorded legal authority towards the development of a counterintelligence plan that was launched within a two-year period as the Economic Counterintelligence Program (ERP).


The main objective of the ERP was to develop and accord a higher sense of network protection to the American continent. In the period 1996, the program received extensive publication under the National Security Strategy of Enlargement and Engagement (NSSEE) where it was adopted in the business world. The program has been applied to significant modifications in terms of technology since the adoption phase to the present, making the tools and techniques used for network surveillances superior when compared to the rest.


Government involvement in the investigation process would definitely enhance the probability of capturing and destroying the illegal programs due to the superior resources in terms of surveillance technology as well as the intelligence workforce. With the FBI being a government body, it commands a higher authority in the investigation that can overcome the challenges and inhibitors that may be instituted by the Dutch powers. Additionally, the government agency is well able to penetrate levels within the Dutch authorities that the PAIB bank cannot attain. Being a federal body bearing the motive of enhancing social welfare, the inquiry will be accorded high priority and execution for the overall benefit of the clients and the nation.


Merits of the Alternatives

Alternative 1: Bank Insolvency

Workouts are very effectual processes of bank insolvency accounting for the second most employed form of solvency in the financial sector. This is attributed to its promptness in time spending due to lack of court procedures and with the lack of formality, both players have a higher flexibility with regard to problem solving. Notably, the technique involves low overheads unlike court processes as attorney and other legal fees are not included. Upon the creation of the payment contract, the regulations cannot be varied unlike in court cases where revisions are made frequently with the case advancement.


A judicial reorganization overcomes the challenge of unanimity in the work-our procedure, as the court holds the final authority of the accorded decision, regardless of whether the creditors concur with it or not. The creditors’ liabilities are legitimately safeguarded by the court eliminating any form of repression that may be caused to the lenders attributed to ignorance and lack of knowledge on legal proceedings. Unlike the workout, the involvement of courts in judicial reorganization tends to command an enhanced level of credibility and acknowledgment within the global environment and market.


The final liquidation technique is highly advantageous to the bank institutions. The personal liability of the management team is mostly excluded from the debt payments overcoming the issue of personal losses. Majorly, courts tend to share the liability of the liquidation to both the creditors and the bank institute reducing the cost incurred in the process to the latter players. Therefore, with the non-inclusion of the creditors in the decision process averts further losses and risks that the process of trade continuation may entail.


Alternative 2: Change of Ownership

The current management would reduce its liability margin in the loss accorded to the bank. This is attributed to the fact that only current losses are charged with any form of futuristic losses being a problem to the new owners. Additionally, ownership changes are highly treated as private undertakings, which would save the bank embarrassment that is attached to the application of judiciary help as attributed to media coverage. The costs of ownership substitution are therefore very effectual. Time spent in the processing of the company ownership is vey minimal as it does not involve bureaucratic judicial participation.


Alternative 3: Government Intervention

Government involvement in the bank accords the provision of resources in manner that is beneficial to the institution. This is achieved through cost effectiveness accounted by the investigation process, leading to higher profitability margins. Additionally, with the superior technology, the risk attached to the program failure is reduced. The government often resorts to its payments in form of company shares for the given services, and this would involve the division of the existing losses and liabilities in accordance to the number of shares that each of the players attains in the legal accord applied.


Demerits of the Alternatives

Alternative 1: Bank Insolvency

Workouts involve a large number of the affected individuals in making the required decision. This infuses the problem of unanimity in the issue arising in the situation. Unless a given certain number is realized, the process of idea analysis has to be repeated until a concession is created. This is very tasking. With the intricacies involved with the process of solvency, it may become hard for the involved groups to acquire a decision that fits the whole players.


Judicial reorganizations are time intensive due to the various proceedings and investigation accorded to the matter before a final decision is realized. The costs attached to this technique have a positive association with the level of overheads making the process expensive. Judicial proceedings tend to have a higher level of media coverage, with the capability of airing each session unlike in a workout where the process is treated as a private affair, mandating only the final decision to the public. Consequently, the image accorded to the organization is greatly damaged in the process.


Final liquidation unlike the other insolvency approaches leads to trade closure reducing the probability to salvage debt equity. Foreign creditors tend to bear a risk for their repossessions with the mandate of translation of the debts into the domestic currency leading to considerable losses when exchange depreciation occurs. Other risks attached both to the bank and to the creditors are tax-related. With the process inclusive of court procedures, the technique tends to be costly and time intensive.


Alternative 2: Change in Ownership

The NDIC has to bear a large share of the monetary overheads and the risks attached to the dealing. With the negative imagery of the institution to the existing clients, a modification in terms of ownership does not necessarily guarantee the consumers persistence in the bank due to the speculative idea of business normalcy and expansion attributed to new management. Additionally, NDIC has to bear the risk of losing the potential investors into the institution.


Alternative 3: Government Intervention

Economists argue that government involvement in such espionage cases is highly disproportionate as it leads to unequal forms of competition within the given trade industry. Aiding the bank against its rivals will be relatively cheaper for the bank when compared to the overheads incurred by other financial institution and this will create an induced form of market imperfection. To the economists, this is a contravention of the main objective of government involvement within the trading environment as it enhances formation of inequalities.


The other demerit is attributed to information security with most clients not supportive of the revelation of their private information to government officials. This creates a divergence of preferences, with the marketing principle mandating the superiority of client perspectives due to the customer-centric approach that accords the highest prevalence to the consumers needs. Therefore, with the bank leaning towards government involvement, it would mean deposing the customers’ preferences amounting to unethical behavior.


Offsets and Conclusions

Alternative 1 presents the easiest form towards solving the issue with workout and judicial reorganization both geared towards mutual preservation of the institution and the clients. This is attributed to the fact that, upon the solving of the issue, both players are liberalized to continue with the trade. However, final liquidation leads to full closure of the institute with the clients mandated into an association with other financial institutions. Current statistics have indicated that judicial reorganizations only account for a meager five percent of all bank insolvency cases therefore limiting the success level. The failure of workouts has not been ascertained and this has imparted a level of uncertainty for the given approach. Final liquidation is the most used approach yet it has a high loss level due to the auctioning of current assets all towards debt clearance and the unemployment created.


Alternative 2 accords an effectual from of cost and loss allocation stratagem in warding off the negative media coverage through a private accord. Nonetheless, the opportunity cost attached to the idea is high with the ability of the firm to become profitable in the future outturn. With the bank having been salvaged at very low prices, it would increase the amount of cost that the former management would have undergone within the dealing.


Alternative 3 offers a sober decision towards the situation as the bank is well able to maintain a bit of institution control together with the government while simultaneously sharing the overheads as trading partners. Additionally, the probability of discovering the criminals is enhanced and this would mean a retrieval of the incurred losses through suing and penalizing the perpetrators.


Proposed Recommendation

Alternative 3 would be the best solution to PAIBs situation. A private arrangement can be attained between the bank and the government in reviewing the level of damages created by the Trojan programs and the best method forward towards the solving of the same. An appraisal of the bank’s security system should be performed for a refinement towards the creation of a strong safeguard against further attacks.


Rationale for Recommendation

Previous researches have indicated that espionage cases conducted by foreign institutions towards business institutions in the US are a common occurrence. However, employees within the intelligence institutes like the FBI and the Central Intelligence Agency (CIA) have noted that the rate of occurrence has gradually increased over the years in terms of occurrence and complexity instituting a considerable inhibitor to sole institution within the micro environment due to lack of enough financial bases to support superior tracking programs. Consequently, this enhances the susceptibility to such malicious wares as the crime organizers tend to be well connected in terms of resources.


Reviewing our case, the Trojan program revealed that upon information assembly in the Netherlands, it is further disseminated to various nations, an inference a syndicate where resource pooling is highly achievable for superior programs. Therefore, employing state aid in the issue would be the best alternative into matching the criminal organizations and ensuring an advanced form of reiteration. Even with the NDIC replacement, the new owner would still face the same challenge. Additionally, the solvency of such a bank would create a significant turmoil in the US financial market as well as the global sector, with solvency overheads being higher than those attached to government involvement are.











Joyal, P. M. (1996). Industrial Espionage Today and Information Wars of Tomorrow. Washington, DC: Integer Security Inc.

Nasheri, H. (2005). Economic espionage and industrial spying. Cambridge, UK: CambridgeUniversity Press.

Salinger, L. M. (2005). Encyclopedia of white-collar & corporate crime: A – I, Volume 1. Thousand Oaks, CA: SAGE.

Wood, P. R. (2007). Principles of international insolvency. London, UK: Sweet & Maxwell.




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