Tuesday, January 1, 2013

Corporate Spying Undermines Capitalism

by Neil Chenoweth, Allen & Unwin, 402pp. 

Reviewed: December 2012

If you believe that democracy and private enterprise are, on the whole, better systems than others for the delivery of human welfare, it is always chilling to read how self-destructive uncontrolled capitalism can be.

A decade ago, Rupert Murdoch's News Corporation mobilised high-tech intelligence resources against its competitors in the global PayTV business.  Financial journalist Neil Chenoweth has hounded News Corporation for many years, and this latest chronicle of misdeeds reads like a spy novel.  But the combatants work for private corporations, not states.  There are no innocent parties, only winners and losers, in a world where law is seen as a tool and business ethics are for wimps.  And because it is true, the story raises serious questions over the ability of national governments to provide a business environment in which rule of law can be taken seriously.

The competition was for control of  the credit-card sized smart cards that give access to satellite PayTV.  The security of those cards is the key to billions of dollars in PayTV revenues.  Since the inception of pay television, independent hackers and organized pirate rings have repeatedly broken the codes to provide unauthorized access via a black market in forged smart cards.

PayTV companies fought back to defend their revenues, but then used the same capabilities to attack their competitors.  News Corporation's card security development company - News Datacomm (later NDS), was based in Israel and employed mainly ex-Israeli military and intelligence operatives.  

NDS infiltrated the internet chatrooms where hackers would boast about their achievements, developed contacts, and recruited agents.  They employed former police detectives and intelligence operatives for many nationalities, including a former head of Scotland Yard’s criminal intelligence bureau.  These agents used their contacts with state agencies, bugged phones, burgled homes, set traps, and employed every device familiar to readers of crime fiction – with apparent disdain for the law.  In the heat of it, some star European and American hackers seem to have been double agents, triple agents, or simply playing all sides for as long as they could.

Eventually two competitors, Canal+ and the US Echostar system, sued NDS for sabotaging their security codes.  The claims were for hundreds of millions in lost revenue, let alone any share price implications or criminal liability.  News Corporation had twenty lawyers in the California court-room, the plaintiffs had three.  Despite compelling evidence,  NDS was found guilty of only a minor misdemeanour with a $45 penalty.  By this time, News Corporation was a significant propaganda supporter of the Republican Party.

Tales like this explain why democracy is in decline in the developing world.  When high principle in Western societies is so undermined by corruption and political pragmatism, why should leaders of less stable societies behave any differently? We can learn more about realpolitik by reading 16th Century European histories than by believing the speeches of venal "democrats".

Richard Thwaites was working on broadcasting policy issues while Australia’s pay television system was being introduced.

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