National Security

Spycraft for Hacks

A veteran FBI agent's rules for how to get a juicy leak in the Obama era -- and not get caught.

The Department of Justice case against Fox News journalist James Rosen took an ugly turn last week when it was revealed that three years ago, in an application for a search warrant targeting his Gmail account, an FBI affiant alleged that Rosen was a "co-conspirator and/or aider and abettor" in the crime of espionage. Having read the affidavit, I personally think that the allegation and the evidence presented as probable cause is a bit of a stretch. And taken on top of the revelation that the same DOJ attorneys subpoenaed the telephone records of the Associated Press, along with those of White House and National Security Council staff, the paranoia and outrage being expressed by the Washington press and across the nation is palpable, to say the least.

Rosen has been described in the media as an expert on Watergate and an aficionado of Bob Woodward's tradecraft in meeting with "Deep Throat," revealed by Vanity Fair in 2005 to have been FBI Associate Director Mark Felt. In arranging their meetings, Woodward would signal Felt that he wanted to meet by placing a flowerpot on his balcony, which could be seen by Felt as he walked by. Conversely, Felt would signal Woodward by making a note on page 20 of the copy of The New York Times delivered to Woodward's door in the morning. They would then meet in an underground garage, often at 2 a.m. Not bad tradecraft for its time.

Things, however, have changed. National security reporting in Washington is a cat-and-mouse game. Reporters try to develop sources to provide information about controversial government programs so that they can write about them. Classified information is, of course, the sexiest and most valued of all national security information. When stories containing classified information are published, however, a massive counterintelligence enterprise is sometimes set into play by the government's house cat to catch the mouse and determine if the information was leaked at the behest of a hostile foreign intelligence service. Reporters are often caught in the middle, targeted by the FBI because they are easier to catch than the leakers and the foreign spies. In the past, the point of catching the reporters was to prosecute the leakers, not the reporters, and embarrass the papers into future voluntary compliance with the law. It appears the present administration has changed the rules of the game.

As a public service to enterprising journalists, below are my top ten tradecraft lessons for those interested in protecting contact with their sources. They are based on my 28 years in the FBI as a counterterrorism/counterintelligence agent and are not meant as a primer for aspiring spies, because spying is illegal and all of the techniques described can be overcome though perseverance and enterprise by the FBI. But if you want to make the FBI earn its pay as it tries to determine where you got your information, here are some words to live by:

1. Take a lesson from the Mafia and never use phones for anything other than the most innocuous conversations -- i.e., "Meet me at our usual spot" or "We need to talk." Better yet, "I'm going out for pizza, so I won't be around to meet you today " -- the last part being previously arranged code for "Meet me at our usual spot."

Members of La Cosa Nostra are notorious for suspecting that the FBI has everything around them bugged, and modern-day gangsters typically go for public walks to discuss mafia business. John Gotti was famous for his walks with his consigliore Salvatore "Sammy the Bull" Gravano. Others, like Bill Bonanno, would only call from public phones to other pre-designated banks of public phones so that law enforcement would never know which phone was going to be used.

Some, like Paul "Big Paul" Castellano, head of the Gambino family, would only conduct business at the kitchen table of his well-guarded Long Island mansion. All of these techniques can be defeated, of course, but it takes a much higher level of investigative activity on the part of the FBI. Houses, cars, kitchens, restaurant tables, and individuals can all be bugged. Castellano's Rottweilers succumbed to a daily bribe of cheeseburgers offered by an enterprising agent, proving that even highly trained guard dogs cannot resist a dose of grease.

2. Like the phone, the Internet is a sieve, and a goldmine for lawful and unlawful penetration through technical means by law enforcement. Never use the Internet or email for any kind of contact with a source if your beat is national security because it creates too many electronic trails, all of which are traceable and usually recoverable by even the newest rookie FBI cyber-agent. Social media outlets like Twitter and Facebook are the worst because they are public, and even though you may direct message your source or delete a contact tweet, it can be recorded by any number of interested followers, including the FBI, and preserved for all time on Google.

3. Take a tip from the Mossad and never meet or recruit a source in a public place where you can be observed by law enforcement, fellow journalists, or jealous spouses. The only exception to this rule would be large-scale public events where meeting a source could be described as a random chance encounter, like at a sporting event.

Hotels are only marginally better, particularly if you use the same hotel or pre-book a room. If the FBI knows the hotels you like to use, there are ways to ensure that you get the room that the bureau wants you to get -- i.e., the pre-wired room.

That goes for bars and taverns as well. Some of my best sources while in the FBI were bartenders, but then I was of a different generation. Today's FBI agents tend to develop sources at gyms, not bars. So perhaps random bars wouldn't be so bad after all. Just watch for the lone 28-year-old in a cheap suit drinking soda water all alone.

4. Use the U.S. mail. Many journalists are unaware of the existence of mail covers, which are formal requests to the Postmaster that allow the postal service to record certain information -- but only that information on the outside of the envelope. To get at its contents requires probable cause that evidence of a crime is contained within the envelope and a search warrant. Of course, "accidental" openings can and do occur. So be careful what you say in your letter. See rule #1.

5. Variety is the spice of life. If nothing else, vary your routine. Every day. All day long. The technical term for directed or dedicated random activity designed to spot surveillance is a surveillance detection route, or SDR.

6. Look over your shoulder occasionally. Surveillance comes in a variety of levels of sophistication and expertise. Routine criminal surveillance might be conducted by detectives in their G-rides, or even uniformed police officers in a marked patrol car. The highest level of national security surveillance is conducted by teams of agents and specialists who do surveillance for a living and will generally not be detected, except possibly by trained foreign intelligence officers. Criminals are notorious for acting "hinky" when engaged in illegal activity, so try not to look obvious or uncomfortable. You should assume you are being photographed, so dress well.

7. If your source is engaged in illegal activity, such as the dissemination of classified defense information, STOP AND THINK. There are a lot of reasons why leakers leak classified information to the press. Be careful that you don't get caught up in someone else's criminal fantasy of getting back at the government through you, all for the sake of a story. Even if you believe that the documents deserve to be published, I would caution you to think long and hard, in consultation with corporate counsel, before you do so. You could wind up in jail. Even if you are ultimately vindicated and hailed as a hero for your actions, you may first have to go through many years of (expensive) litigation.

Anger at the government, disagreement with foreign policy, revenge, and ideology are all possible motives for providing classified information. While the lure of a story may overwhelm common sense, take a moment to evaluate the source's true motivation, and if you and your editor/publisher think you can "fade the heat," then go ahead and publish. But don't express moral outrage when you are accused of a crime and threatened with prosecution. It is part of the dangerous game you are playing. After all, unauthorized possession of classified information, even without publication, is still a crime.

8. Don't wear wigs or disguises, carry recruitment letters offering money in exchange for information, or use electronic surveillance detection equipment. These things don't work and will just subject you to ridicule from the FBI, your colleagues, and many others if you are caught. (My apologies to my friends in other government agencies who use and believe in these techniques. We still make fun of you.)

9. If you don't want to be charged with conspiracy, then don't conspire with your source. Legal opinions differ on what constitutes criminal conspiracy, but the threshold is much lower than actual commission of the crime being planned -- in fact, the overt crime need never be committed at all. (Think bank robbery. If you and a source talk about robbing a bank, and then the source actually robs a bank and says you talked him into it, you can be charged with conspiracy to rob a bank.) And, once you become a criminal target, the rules for the DOJ and FBI change, and they can utilize the full force of the U.S. government to investigate the leak. Make sure you know the law and what you are willing to risk before you publish.

10. Finally, remember that publishing articles on national security can often have unintended consequences. The danger of revealing a sensitive source or method is very real and can have deadly consequences for the human source at the other end. It is my personal opinion that there is a classified backstory that remains untold in both the Rosen and the AP cases that would explain the aggressive pursuit of the leaks. I don't know what it is, but I look forward to the day when I can hear the story reported by James Rosen, Matt Apuzzo, Adam Goldman, and others at Fox, the AP, and the New York Times. Go get ‘em, fellas.



Prepare to Start Making Things Again

Why America's natural gas boom is good news for U.S. manufacturing and bad news for China.

China's march to global dominance in manufacturing is slowing down. By Chinese standards, its official claim of 14.7 percent year-to-year growth in exports for April is relatively lackluster -- and the physical trade flow data suggest that it may be overstated by as much as 60 percent. The image of the robotic "blue ant" Chinese worker-hordes is long out of date. The country's spectacular economic growth has vaulted large segments of its population into the middle class, and they want better pay and benefits, shorter work weeks, and other perquisites that their Western peers enjoy.

As China's momentum slips, U.S. manufacturing fortunes are on an upswing. U.S. corporations made unusually high profits in the wake of the Great Crash: During the weak recovery years of 2010-2012, after-tax corporate profits were 43 percent higher than during the stronger recovery of 2003-2005, according to my calculations. Workers took the brunt of the decline, while corporations invested their savings in a brutal restructuring of production operations. Cruel as that was, the United States has emerged from the crash as one of the world's most cost-competitive manufacturers.

According to the Boston Consulting Group (BCG), Chinese worker productivity is still growing at about 8 percent a year, an extraordinary rate -- but worker compensation is growing more than twice as fast. From 2000 to 2010, average wages in south China's Yangtze delta, a manufacturing hotbed, jumped from $0.72 an hour to $8.62. Factoring in worker output, land costs, and the rising costs of long-distance shipping (as well as the relative lack of corruption), U.S. manufacturing is approaching competitive parity with China. BCG also estimates that the United States can undersell firms in Japan and Europe by as much as 25 to 45 percent, and that it may also have the world's best trade logistics capabilities.

The hidden costs of outsourcing often loom the largest, but they don't show up on profit statements. For example, when General Electric, a pioneer of offshoring among U.S. flagship companies, began moving its multi-billion dollar appliance manufacturing back from China as costs converged, they discovered that the lack of contact between their design and production teams had caused their designs to stagnate. The company realized a 20 percent overall savings on their first "reshored" appliance, a water heater, just by re-engineering it to reduce material costs and labor inputs. Onshore production also makes it easier to keep up with today's just-in-time delivery mandates and ever-more-rapid product cycles. (And like all U.S. companies, GE has become very wary of the Chinese propensity to knock off market-leading product designs.)

The data supporting the manufacturing recovery story are still mostly anecdotal, but the anecdotes are coming in floods, not as straws in the wind. Recent surveys show that up to a fourth of U.S. companies offshoring in low-income countries have been moving some or all of their production back home, while a third are researching the question. Meanwhile, at home, factory automation keeps labor-force costs in check, and U.S. manufacturing unions are far less militant than they once were. Caterpillar, Ford, and Whirlpool have been reshoring major product lines as well, and other major manufacturers will likely follow.

Meanwhile, an impressive list of foreign companies is relocating factories to the United States: Samsung is building a semiconductor plant in Texas; Airbus will make planes in Alabama; Toyota is outsourcing production of minivans to Indiana for export to Asia. Rolls-Royce has been expanding its U.S. airplane engine parts production operations to service its global customers.

The nascent manufacturing reshoring boom has gotten a big shot of adrenaline from the rebirth of U.S. gas and oil sectors. Wholesale prices for U.S. natural gas are now by far the lowest in the world, while U.S. oil prices have consistently hovered at about 15-20 percent less than world prices. Some of that price advantage will erode as new pipelines ease transport bottlenecks, but it will continue to be substantial, especially in natural gas. Low U.S. energy costs will work their way through the entire productivity chain. Freight rail lines, for example, are exploring switching from diesel fuel to much cheaper, and cleaner, natural gas. China, by contrast, is heavily dependent on highly polluting coal, and is faced with a tradeoff between massive investments in clean-coal technology, or damaging the health of its populace.

Low natural gas prices are especially important for energy-intensive manufacturing, like making chemicals and steel. Natural gas is an ideal "cracking" fuel, generating the intense heat needed to break up and rearrange molecules to make usable chemicals. But it is also the raw material for plastics, Styrofoam, tires, sealants, adhesives, films, liquid crystal screens, nylons, polyesters -- nearly everything around us. Dow Chemical has restarted a long-mothballed Texas plastics plant and is building or rebuilding three others. Other big players, like Shell, Chevron, Exxon, Bayer, and Formosa Plastics are expanding current U.S. plants and starting work on new ones.

The importance of natural gas goes far beyond chemicals. Nucor began as a "mini-mill," melting scrap to make high-quality steel, and is now the nation's top structural steel vendor. But scrap steel is getting scarce and expensive, so Nucor has been locking up long-term supplies of natural gas so it can make its own iron using a highly efficient, but energy-intensive, "direct reduced iron" (DRI) technology, not feasible without low-cost gas. The company is opening a mammoth DRI plant in Louisiana, and is starting to build another. Within a few years, the company plans for all of its facilities to be run on natural gas.

The new energy sector is also a big consumer of manufacturing. Energy-bearing shale is typically quite deep, often two miles or more below the surface, and its retrievable hydrocarbons are thinly distributed. So collection well pipes must extend a mile, or even two miles, horizontally through the shale to access a meaningful amount of product. Each shale well requires up to 100 tons of high-quality steel pipe; fleets of specially adapted trucks and trailers; a small hangar of earthmoving, drilling, and other equipment; specialty chemicals, sands, and ceramics; and some very high-end seismic and other underground imaging gear. Much of these products are now U.S. specialties. According to the annual Oil & Gas Journal survey, U.S. energy industry investments will total $348 billion in 2013, equivalent to about 2 percent of GDP, with much of the investment sourced from overseas.

Recently, several Wall Street economists have raised doubts about the manufacturing recovery. Yes, the economy has added 550,000 manufacturing jobs since the Great Recession, they concede, but doesn't that always happen in a recovery? Well, no. Before this recent uptick, manufacturing employment has fallen, in good times and bad, since 1997 -- and this is an unusually weak recovery.

At the same time, foreign steel companies and chemical companies are moving operations to the United States to service the energy industry and to take advantage of low energy prices (although China is still far and away the world's largest steel producer.) Dow Chemical has compiled a list of 108 new energy-intensive manufacturing projects from more than 80 U.S. and foreign companies either under construction or in development in the United States, with total planned investment of nearly $100 billion. About one-third are already underway or due to start construction this year; 60 percent are scheduled to be under construction by 2015.

Reputable forecasting organizations, like Citi GPS, suggest a total gain of several million U.S. jobs, including both direct and indirect job creation. One of the great attractions of manufacturing, in contrast to, say, software and finance, is that it has a high employment multiplier. Manufacturing production requires raw material and machinery supply chains, physical shipping and distribution, intensive tracking, inventory, and warehousing operations.

At the same time, these are long-lead time projects. A manufacturing resurgence won't unfold with the speed of, say, a tech-stock boom. Dow Chemical's big new plastics plant will cost $1.7 billion, and take until 2017 to complete. Almost all the projects on Dow's 108-project list have similarly long lead times. But the scale of the commitments is a reason for confidence. These are permanent additions to U.S. production capacity that will fuel a recovery with much more staying power than, say, the housing boom in the 2000s.

The stars are in place for a long-lasting, well-balanced, manufacturing-driven, U.S. recovery -- one that could greatly improve prospects for the country's squeezed and struggling middle class. Meanwhile, a healthy and prosperous China is very much in the U.S. interest, and we should fear the consequences of a messy Chinese slowdown. But the twenty-first century so far has not been a joy ride for the United States. There would be no harm in taking quiet pleasure in a relative repositioning of trans-Pacific karmas.