SPECIAL REPORT-Renault's electric spy scandal


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* Government-corporate spying to rise, security experts say

* In the west, France has a lead in that thinking

* Some experts doubt China involvement in Renault case

* If China was involved, it might be a change of tactic

By Helen Massy-Beresford, Peter Apps and William Maclean

PARIS, Jan 28 (Reuters) - As Carlos Ghosn stepped onto the stage at the Paris motor show to unveil the near-street-ready version of the Zoe electric car last September, the Renault CEO knew investigators at his company were already probing an attempt to steal its secrets.

Digital displays on giant screens counted down to zero, pumping music rose to a crescendo and curved doors opened to reveal the small white vehicle, which will go on sale next year as the showpiece of the company's high-profile electric vehicle programme.

Earlier this month, the French automaker, which is 15 percent owned by the state, went public with its suspicions. It sacked three senior staff with more than half a century of service between them and has filed a legal complaint against "persons unknown" over organised theft, aggravated breach of trust and passing intelligence to a foreign power. The case swiftly took on wider geopolitical implications as French prosecutors looked into what one government source called a "China link" as part of their initial probe. China has emphatically denied involvement; the three Renault executives say they have done nothing wrong.

However the drama at Renault turns out, intelligence and security experts expect government-linked corporate espionage and data theft to increase in coming years. They say a lack of dividing lines between the state and corporations in countries such as China or Russia, coupled with the fact that digital technology makes stealing huge volumes of information so much easier, increase the risks companies face. In France, a country which has its own Economic Warfare School, companies like Renault may have even seen this coming years ago. France's industry minister Eric Besson, while careful not to point the finger at any country, underlined the case's importance to Paris by calling it a victim of "economic war".

Companies have always tried to steal secrets from each other. Carmakers and other manufacturers regularly buy up new models from rivals so they can study technical advances, a process known as reverse engineering. Sometimes they go further, poaching staff or persuading them to come across with key intellectual material, buying corporate secrets from third parties, even infiltrating their own spies into rival companies. In most cases, incidents of espionage stay hidden; victims don't want to let on that they've been duped. But such tricks happen "more commonly than people like to believe," says Dane Chamorro, North Asia managing director for security consultancy Control Risks.

Western firms, some with their own history of stealing secrets and uncomfortably close relationships with state spy agencies, face a particular threat from China and Chinese companies, security experts say. Many firms in Europe and the United States already deal with regular cyber attacks and other attempts at intelligence gathering, many of which appear to begin in China. Not every attack or infiltration is government-backed, the experts say. But some believe the threat is big enough that western firms will inevitably seek their own state protectors, raising the stakes again.

"It's structural," says Ian Bremmer, president of political risk consultancy Eurasia Group. "We're going to hear a great deal more about it. Multinationals most susceptible to intellectual property theft will increasingly align themselves with their own governments."

That's what makes the Renault case so important. The company, which together with its Japanese partner Nissan is investing some 4 billion euros ($5.5 billion) in electric vehicles, says it has uncovered misconduct detrimental to its "strategic, technological and intellectual assets". If French prosecutors prove that spying occurred and can pin the blame on a foreign power, then the "economic war" will get a whole lot more serious. The case resonates inside France, a former French official told Reuters on condition of anonymity, because "Renault is known to take security very seriously. They are not given to panicky or exaggerated gestures in matters of industrial espionage."


As usual, Paris was all but shut down for summer last August when Renault's compliance committee received an anonymous "ethical alert". CEO Ghosn, who also serves as chief executive of Nissan, says he was immediately informed. The tipoff alleged two senior executives had received bribes, a lawyer for one of the accused men said. The suspected involvement of the third, his client, arose during the subsequent internal investigation.

On the surface, the trio -- Michel Balthazard, senior vice president for advance engineering, his deputy Bertrand Rochette, and Matthieu Tenenbaum, deputy head of the electric vehicle programme -- seem loyal company men and unlikely corporate traitors. Balthazard, 56, began his career at Renault in 1980, and Rochette, 50, has worked for the company for 22 years.

Tenenbaum, 33, was a rising star at Renault. According to a profile in his name on the LinkedIn business networking website, he had worked as an engineer for Renault and Nissan in North America and South Korea before moving on to the fledgling electric vehicle program in 2007. Electric vehicles seemed to supercharge his career. He found himself at the forefront of the development of the tiny futuristic-looking Twizy -- a two-seater designed for urban drivers and part of Renault's electric vehicle range alongside the Fluence sedan, Kangoo small van, and Zoe four-seater. "Jumping in this challenge is the best decision I ever made," he wrote about his move to the electric vehicle project on LinkedIn.

According to a former military police officer who now runs his own security agency and is familiar with the security set-up at Renault, the most surprising thing about the case is the seniority of the men who have been charged. Balthazard in particular was "on the management committee, he earns a good living, people have confidence in him -- it's hard to see how he would betray that. Normally it's not people of this level who betray -- it's engineers, technicians who can be bought off with sums of money. It's not executives -- in companies like that, executives at that level are committed to the company."



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