Covert Currency: State and Non-State Actors in Espionage Financing
Part of the illicit financing landscape
In the world of illicit financing, we often analyze terrorist financing, sanctions evasion, and money laundering, but we rarely discuss foreign interference/influence financing or espionage. Over the last few years, we’ve seen quite a number of court cases and arrests relating to espionage, so today, we’re going to unpack the money behind these threats.
Updated August 2024Espionage is the act of collecting secret information, usually through illegal means. It often involves state actors who use spies, agents, and technology to acquire secrets against target countries (or, in some cases, private sector assets). Espionage financing refers to the ways that espionage activities are financed. This can include the amounts of money paid for secrets, how the funds were transferred, how the technologies used for espionage are funded and developed, and even how the money was raised in the first place. This article provides an update on recent events in the espionage finance world and contextualizes it within the broader landscape of illicit finance.
Relatedly, foreign influence or foreign interference is how states deploy spies, agents, or even regular citizens to influence a country’s policies and politics in their favour or interfere in the normal course of politics or life in a country. While just as serious, foreign interference/influence financing looks a bit different from espionage financing, so we’ll deal with that threat in another issue of Insight Monitor.
Espionage requires money, which is often provided through state budgets via embassies, electronic funds transfers, or cash. However, we are increasingly seeing espionage activities undertaken and financed through cryptocurrencies.
No country is immune to espionage, and individuals in sensitive positions provide information for a variety of reasons, but most of all for financial need. On average, espionage cases involve payments of around $480,000, but there’s a lot of variation: in some cases, perpetrators of espionage were paid as little as $25,000 for the information or access they shared, while in other cases, perpetrators were paid as much as $2 million.
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Canadian Cases
On the lower end of this spectrum was one of the most recent espionage cases in Canada: Cameron Ortis. He was convicted of security of Information Act offences for transmitting classified information to a criminal organization and offered to provide full documents for $20,000. (As far as we know, no money was actually transmitted.)
Somehwere in the middle of the spectrum of espionage payments is Jeffrey Delisle, a Canadian sailor convicted of spying for Russia. He was also paid in cash, prepaid cards, and by transfers from Russia, which occurred between 2007 and 2011. He might have received as much as $144,000 or possibly more.
On the other end of the spectrum is the case of a Canadian doctor who is alleged to have been part of China’s Thousand Talents Program. Dr. Qiu worked at the National Microbiology Lab in Winnipeg and had an employment agreement with Hebei Medical University. She was compensated with funding of approximately CAD$1.2 million for science and research and was personally compensated CAD$ 15,000 per month and an additional $30,000 for leading laboratory operations when offside. Dr. Qiu and her husband had undisclosed bank accounts in China’s Commercial Bank. In total, she was likely paid at least $210,000 (on top of her Canadian government salary and research funding), and possibly much more, for sharing information with Chinese research institutes.
Sometimes, no money appears to change hands. In 2022, Yuesheng Wang was arrested by the RCMP and charged with economic espionage under the Security of Information Act. He faces three charges under the criminal code as well and is alleged to have given sensitive research and corporate information to a Chinese university and Chinese research centres, published scientific articles and filed patents with them. To date, there has been no information released about what, if any, financial compensation he received.
US Cases
Many cases of espionage in the US and plenty involve payment for services and information. For instance, an FBI official recently pled guilty to offences related to services he provided to Russian oligarch Oleg Deripaska to investigate a rival Russian oligarch and hid $225,000 in payments from an Albanian agent while still working for the FBI. In another case, Sgt. Korbein Shultz was arrested for providing sensitive security records in exchange for $42,000 to a contact believed to be living in Hong Kong. He appears to have been motivated by financial concerns and pled guilty to selling sensitive information in August 2024.
In 2018, a former CIA officer was indicted on a charge of conspiring to commit espionage. Jerry Chun Shing Lee was approached by two Chinese intelligence officers who offered to pay him for information. The intelligence officers provided Lee with a series of email addresses through which they would communicate. The information Lee provided is believed to have helped China unravel the CIA's spy network in the country. Reports provide little insight into how much, or how, Lee was paid for the information he provided, although he 'made numerous unexplained cash deposits'’, which could potentially have been cash payments for his services.
In 2021, a Harvard professor was found guilty of concealing his ties to China and is alleged to have contributed to Chinese economic espionage. Lieber worked as part of China’s Thousand Talents Program and was paid hundreds of thousands of dollars. He was paid as much as $50,000 per month, $150,000 in living expenses, and $1.5 million in research grants. He received half of this money in US dollars, and the other half was deposited into Chinese bank accounts. (This case is remarkably similar to the case in Canada described above.)
In another case (from 2019), CIA Case Officer Kevin Patrick Mallory sold classified documents to Chinese intelligence for $25,000. He was motivated to sell the secrets because of debt and being behind on his mortgage. After a trip to the PRC, he had $16,500 in cash.
Also in 2019, former DIA officer Ron Rockwell Hansen pleaded guilty to transmitting information to the PRC. He received as much as $800,000 over several years for the secrets he provided. He often carried cash into the US after his trips abroad.
Espionage and Cryptocurrency
While cash is still an important part of espionage financing, cryptocurrency is increasingly prominent (in line with broader trends in illicit finance). In a 2021 case, a US navy employee and his wife are alleged to have tried to sell secrets about US nuclear submarines to a foreign country (some suggest this was likely France). The engineer allegedly asked for US$100,000 in cryptocurrency and, over the course of an undercover operation by the FBI, received payments of $10,000, $20,000, and $70,000. The payments were made using Monero. The couple were interested in selling their secrets for $5 million.
This method of paying sources/spies can be anonymous(ish), fast, relatively secure, and, when combined with other financing methods, can be effective for obscuring (or severing) the money trail. However, other methods of paying espionage networks remain common, including cash. In fact, money appears to be one of the main motivating factors for modern espionage, so understanding the financial trail is critical for detecting and disrupting these networks.
Cash Payments Still Reign
Historically, cash has been the primary means of paying spies and foreign actors and remains a key component of espionage financing. More recently, two arrests in Germany in 2021 of individuals suspected of spying for Russia also involved cash payments.
A German intelligence officer is also on trial for high treason, suspected of espionage for Russia and providing classified information to Russian agents. Each man in the plot was compensated at least $400,000 Euros, paid in cash.
Tradecraft Issues with Cash Payments
Obscuring the money trail is important for spies who want to remain anonymous or have their activities be unattributable. Paying spies in cash also creates an issue—the individuals involved in the espionage activity have to figure out what to do with the cash and risk being exposed by anti-money laundering programs. For instance, a number of the cases detailed above involved cash payments of thousands of dollars. To use this money, the individuals involved would either have to pay for a lot of goods and services in cash (something that tends to raise alarm bells in an increasingly cashless society), or “place” the money into the financial system, which again, can raise alarm bells.
Funding Espionage Activities
Espionage isn’t free, and even well-funded intelligence organizations have reasons to fund their activities outside of the official budget, like removing oversight or further hiding their activities from adversary countries.
Russia is one country that has done this, including through the formal financial system. In 2013, Danske Bank was made aware of potential money laundering through its branch in Estonia. The whistleblower report suggested that the bank was being used by Putin's family and a group of accused money launderers to launder funds and that the Russian Intelligence Service, the FSB, was also using it for the same purpose. The bank may also have been used in sanctions evasion. Danske Bank is now examining a further $150 billion in transactions received between 2007 and 2015.
Sometimes, a cover can also be a source of funds. For instance, a Canberra cafe that serves Australia’s top spies, federal police, and intelligence officials was found to be co-owned by a Chinese politician honoured by Xi Jinping for work advancing the Chinese Communist Party’s ambitions at home and abroad. This cafe might have generated profits, while also serving as a front for intelligence collection.
And in Zimbabwe, the state’s Central Intelligence Organization enagages in private business as a source of off-budget financing. This includes mushroom farming, exporting baby elephants, and diamond mining. One entity involved is Terrestrial Holdings, a business conglomerate of companies involved in hemp, solar energy, coal mining, tourism, and golf. The funds generated from these business ventures are separate from their official budget, meaning they can fund activities outside the normal budgetary (and oversight) processes.
Detecting espionage financing is just as difficult as detecting other forms of illicit financing, and possibly more so because of a lack of typologies and indicators of espionage financing. While there are a growing number of cases, we are still some distance from having reliable patterns that can be detected in financial transactions. However, these cases do provide important insight for individuals investigating suspected espionage financing: cash, bank transfers, and cryptocurrency transactions are all good places to start looking for the money trail.
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