Russian Hijacking of U.S. Tech Didn’t Start With Facebook

(Bloomberg Opinion) -- The 2016 presidential election wasn't the first time Russia attempted to use Silicon Valley and its technologies against the U.S. During the 1980s, Soviet spies plied their trade up and down the San Francisco Peninsula, stealing technology, recruiting agents and infiltrating local banks. It's worth remembering that those efforts were ultimately thwarted and may have contributed in a small way to the collapse of the Soviet Union.

The episode almost 40 years ago even inspired an otherwise forgettable installment of the James Bond franchise, “A View to a Kill,” in which a rogue KGB operative tries to flood Silicon Valley. The movie ends as Bond, having foiled what would have been the “greatest cataclysm in human history,” is awarded the Order of Lenin from the KGB. Why? “I would have expected the KGB to celebrate if Silicon Valley has been destroyed,” Bond’s incredulous commanding officer tells a KGB official. “On the contrary, admiral,” explains his Russian counterpart. “Where would Russian research be without it?”

For all its 1980s campiness, “A View to a Kill” captured a largely forgotten story: Silicon Valley was a clandestine battleground in the twilight years of the Cold War. During the Reagan presidency, the U.S. regained its military edge over the Soviet Union, which had recently caught up in the production of intercontinental ballistic missiles, by modernizing its command, control, communications and intelligence systems with advanced microelectronics. Most of those semiconductors were designed in northern California.

Although the Soviet Union was a huge industrial power during the 1970s, it quickly fell behind as the digital revolution took hold. Innovating in the rapidly changing microelectronics industry required entrepreneurship, which was impossible within the centralized, hierarchical Soviet system. So the communist giant fell back on espionage instead.

Spies fanned out across Silicon Valley from their base at the Soviet consulate in San Francisco, which opened just a year after Intel commercialized the microprocessor. The facility was heavily staffed with intelligence officers from the KGB and the GRU chosen for their aptitude in science and technology (the consul general in the early 1980s had been chairman of the Soviet Union’s Committee on Science and Technology). Operatives spied on personnel at local technology companies and prominent universities like Stanford and the University of California, Berkeley, stole semiconductor manufacturing equipment, and tried buying stakes in local banks to gain access to borrowers’ intellectual property, a practice New York Senator Daniel Patrick Moynihan called a “new form of industrial espionage" that "doesn’t involve people stealing blueprints; they own the blueprints.”

U.S. spymasters were keenly aware of the threat. In 1984, William Casey, the director of the Central Intelligence Agency, told the Commonwealth Club of Silicon Valley that penetrating local industry was the KGB’s top industrial espionage priority. “U.S. microelectronics production technology is the single most significant industrial technology acquired by the Soviets since the end of WWII,” Casey said.  “Silicon Valley and your firms are the primary target of Soviet and East European intelligence services.

Predictably, the Soviets dissembled about their hostile activities in Silicon Valley. The vice consul at the San Francisco consulate once claimed, for example, that “we don’t have a specialist in this, in our consulate, who can really tell an Apple, you know, from an atom bomb.”  But in 1983, just a year earlier, the Soviets had started producing the Agat, a knockoff of Silicon Valley’s first commercially successful personal computer -- the Apple II. U.S. counter-intelligence officials aired public service announcements on local television and radio stations warning electronics companies to be vigilant, put the Soviet consulate in San Francisco under constant surveillance, restricted Soviet journalists and “diplomats” from traveling in the region and prosecuted people who violated the embargo on selling microelectronics manufacturing equipment to Eastern Bloc countries.

“High tech has both raised the stakes and broadened the game,” Time reported in 1985. “It has made Silicon Valley microchips as valuable as NATO war plans.”

But President Ronald Reagan and Secretary of State George Shultz also saw that Soviet misdeeds offered a strategic opportunity. They used Silicon Valley’s entrepreneurial success both as a cudgel to discredit the Soviets’ closed, failing system and as an example of the benefits the Soviets could gain through liberalization.

“Standing here before a mural of your revolution,” Reagan said in a speech at Moscow State University in 1988, " I want to talk about a very different revolution that is taking place right now, quietly sweeping the globe without bloodshed or conflict." This transformation is "called the technological or information revolution, and as its emblem, one might take the tiny silicon chip, no bigger than a fingerprint,” he said.

In public and in private, Reagan and Schultz promised that countries willing to apply market principles and embrace some degree of openness could leave the “industrial age” and enter the “information age,” without having to wholly reinvent themselves in the U.S.'s image.

This intrigued Soviet leader Mikhail Gorbachev. “We should have more of this kind of talk,” Gorbachev told Shultz after one such conversation.

Of course, neither Silicon Valley nor entrepreneurial capitalism “won” the Cold War. Yet Reagan, the most popular Republican president of the modern era, used them to convert Russian malfeasance into leverage for the U.S. with a strategic resolve that is conspicuously absent today.

To contact the editor responsible for this story: Max Berley at mberley@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Zack Wasserman is the head of global business development at Via.

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