Canada: The hidden costs of espionage

Photo: Stuart Mackenzie/Getty)

In 2008 Brian Shields made a disturbing discovery. The security adviser to Nortel Networks, which would soon file for bankruptcy, had been investigating just how badly the company’s internal systems had been infiltrated by hackers. It couldn’t have been much worse—the hackers had even accessed the files of the company’s CEO, Mike Zafirovski. A group based in China, according to Shields, had been rifling through Nortel’s confidential material for about a decade, making off with proprietary information. His attempts to warn his superiors about the extent of the problem, he’s said, were mostly brushed aside. Shields went public about the extent of hacking at Nortel last year, speaking with the Wall Street Journal and then others, and has since given many talks at security conferences about the ordeal. He’s not shy about blaming the widespread hacking plot for contributing to the company’s demise, pointing out that China’s Huawei Technologies arose as a serious competitor soon afterward. (Huawei has repeatedly rejected any connection as false.)

The hacking at Nortel isn’t unique. In recent years Coca-Cola has been infiltrated by a group of hackers connected to the People’s Liberation Army in China, according to Mandiant, a security firm. The company said more than 100 of its clients had information stolen, and other companies, such as Google, have been vocal about similar problems. With each new revelation, governments must take these long-simmering risks more seriously. Which helps to explain a recent bombshell decision by Industry Minister James Moore: in a brief press release, the government announced that after conducting a national security review, it would not allow the proposed sale of Allstream, a division of Manitoba Telecom Services, to Accelero Capital Holdings. The only explanation for quashing the $520-million deal was a cryptic reference to a fibre-optic network operated by Allstream that services governments. Naguib Sawiris, the man behind Accelero, is based in Egypt and has business interests in North Korea, which may have raised red flags.

The rejection demonstrates just how important national security concerns are becoming in mergers and acquisitions, and how they crash headlong into the federal government’s stated openness to foreign investment. Nowhere is this tension greater than when telecommunications equipment is involved. It provides a gateway to track phone calls, e-mails, documents—essentially all kinds of data that reveal what a government or a company is up to. While 20 years ago protecting sensitive military outposts was necessary to deal with threats from other countries, safeguarding digital information is just as important today. So far, the government’s attempt to juggle security and foreign investment has only resulted in confusion. Sawiris, for one, has had it. “I am finished with Canada,” he told an English-language Egyptian news website recently. “The world is big, and my money can go anywhere.” With BlackBerry now courting bidders, finding a balance has never been more crucial. Erring in either direction could cost the country billions in either lost deals or lost intellectual property. Just a few careful tweaks to current vetting policies could be make-or-break for deals in the future.

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