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Freeh: Intellectual Property Infringements Costing Companies Billions
June 16, 2014
Companies, especially financial institutions, soon may be required to beef up their internal protections against intellectual property theft, former FBI Director Louis Freeh said in San Antonio on Monday.
"Corporate governance groups have enormous concerns over their companies not understanding the protection of intellectual property. It's a critical part of our economic and national security," Freeh told more than 3,000 people attending the 25th annual Global Fraud Conference at the Convention Center.
"The SEC (U.S. Securities and Exchange Commission) will be seeking guidance for how financial institutions can explain their intellectual property protections in place," Freeh said.
Estimated losses from intellectual property infringements - on copyrights and patents - already are running in the hundreds of billions of dollars yearly, said Freeh, now CEO of the Delaware-based Freeh Group International Solutions LLC.
Freeh was FBI director during most of the Clinton administration, from 1993 to 2001, a period in which the FBI reorganized to become a global security law-enforcement agency.
The trend is not new, and technology employed in the thefts often outraces the laws needed to stop the stealing, Freeh said during the conference, being held by the Association of Certified Fraud Examiners through Wednesday.
In the 1990s, the FBI started fighting intellectual property theft only to realize there were no federal statutes to stop the activity. The FBI at first tried to use existing stolen-property laws but lost a case when a judge threw it out by declaring the theft had been of an idea, not a thing.
It wasn't until the 1996 Economic Espionage Act became law, with the urging of the FBI and the anti-fraud industry, that the FBI could more effectively pursue intellectual property theft cases, he said.
The U.S. State Department at one point opposed the Economic Espionage Act, Freeh recalled. The reason: "The State Department said the countries that are most stealing our best ideas also are our best allies."
One member of the audience, Christiaan Hart Nibbrig of Pennsylvania, said Freeh was correct to emphasize intellectual property theft. "It's a growing part of the fraud investigation world," said Nabbrig, editor of FraudNewsAmerica.Com.
The newest generation of FBI agents will be conducting less investigation and more information analysis related to international organized crime and cybercrime, Freeh said.
But he urged the anti-fraud investigators in the audience to not forget about the old-fashioned practice of investigating by knocking on doors, which could yield faster results than analyzing large amounts of data over a year's time.
"Things don't always look like what they are," Freeh reminded the audience. Perceptions can be deceiving, citing the manufactured evidence of stock purchases presented to SEC investigators by Bernard Madoff's investment company that turned out to be a Ponzi scheme.
Company cultures also can be deceiving, Freeh said, noting that the defunct Enron Corp.'s ethics code was eloquently written by lawyers. "But no one believed it. No one followed it," Freeh said.
Companies can do a better job of due-diligence and making full disclosures to protect themselves from financial harm, even if their competitors do not spend the money to do the same, Freeh said.
"Some companies will say, 'Why do it if our competitors are not?' It's a hard question to answer even when asked by our clients," Freeh said of his consulting firm.