University of Stellenbosch

Faculty of Law
Department of Public Law

Research proposal: LLM (thesis)

Louis van Niekerk

A critical analysis of the criminal phenomenon of commercial information

espionage – South African and comparative perspectives

Supervisor: Prof G Kemp

First registration: February 2013

Contents

1 The Research Problem ........................................................................................ 1

2 The Research Question ....................................................................................... 2

3 The Research Aims.............................................................................................. 2

4 Research Hypotheses .......................................................................................... 4

5 Methodology ........................................................................................................ 5

6 Motivation............................................................................................................. 7

7 Chapters .............................................................................................................. 8

8 Schedule ............................................................................................................ 11

9 Bibliography ....................................................................................................... 12

i
Glossary of terms and Abbreviations used

Economic activity see section 3(1) of the Competition Act 89 of 1998

DSO Directorate of Special Operations

NPA National Prosecuting Authority

BRICS Brazil, Russia, India, China, South Africa

POCA The Prevention of Organised Crime Act 21 of 1998

TRIPS Trade Related Aspects of Intellectual Property Rights

FBI Federal Bureau of Investigation

IDSA The Institute of Directors, South Africa

IFAISA Institute for Accountability in Southern Africa

BUSSA Business Against Crime (South Africa)

FATF Financial Action Task Force

SARS South African Revenue Service

SSA State Security Agency

DIPCI Directorate of Priority Crimes Investigation (Hawks)

ii
1 The Research Problem

The threat that organised crime in the form of commercial information espionage
presents to the economic integrity of business, the rule of law in South Africa and the
country’s international standing poses a formidable challenge that requires creative,
determined and sophisticated strategies to address1. The same view applies to
commercial information espionage as a form of white-collar crime.

South Africa is in the midst of a transitional phase in the leadership of the SAPS and
the NPA that poses huge strain on the results of its detective and prosecution
components trying to combat rising organised crime such as commercial information
espionage. South Africa is a transitional and relatively new democracy that belongs
to the BRICS2 countries of developing economies, despite which it has serious
capacity and delivery constraints3.

Numerous measures are being put in place in South Africa and more measures will
be put in place in the future, but it seems that the best deterrent of crime such as
commercial information espionage would be to hold those guilty of the crime
accountable for their actions and to follow through with the punishment prescribed in
the applicable laws4.

Various definitions used when referring to the concept of commercial information

espionage (or economic, industrial or corporate espionage). For example, economic
espionage is conducted or orchestrated by governments and is international in
scope, while industrial or corporate espionage is more often national/domestic in
scope and occurs between companies or corporations5.

This research proposal uses the following working definition of commercial

information espionage: the illegal procurement of knowledge in order to gain an
unfair advantage over competitors in commerce.

1
Asset Forfeiture Unit’s Head, Willie Hofmeyer, on organised crime, white-collar crime, corruption and
fraud, as quoted in Business Day, 5 September 2012
2
Brazil, Russia, India, China and South Africa – more on this grouping later in the proposal
3
Ibid
4
Editorial of in www.politicalanalysis.co.za on the political will to fight corruption, 18 September 2012
5
Nashari, Hedieh Economic Espionage and Industrial Spying, Cambridge University Press, p270,
2005

1
“Knowledge” in the above working definition will refer to proprietary information that
consists of different categories, such as manufacturing capacity, client detail,
strategic plans, etc6. This is not an exhaustive list.

2 The Research Question

Do we in South Africa have sufficient legal remedies (and in particular, criminal law
remedies) to counter acts of commercial information espionage?

Can South Africa benefit from a critical comparative analysis of similar/comparable

legal remedies in the BRICS countries (the Federative Republic of Brazil, the
Russian Federation, the Republic of India and the People’s Republic of China), the
Federal Republic of Nigeria, the United States of America, Canada, the United
Kingdom of Great Britain and Northern Ireland, the Federal Republic of Germany and
South Korea (Republic of Korea)?

3 The Research Aims

This study will critically and comparatively evaluate current South African legislation
(see Addendum A) and common law crimes that criminalise actions associated with
commercial information espionage with similar or comparable legislation and legal
remedies in the BRICS countries, the Federal Republic of Nigeria, the United States
of America, Canada, the United Kingdom of Great Britain and Northern Ireland, the
Federal Republic of Germany and in South Korea (the Republic of Korea).

The study will propose law reform to the extent that it is necessary.

This research will focus on three aspects: substantive elements necessary for the
criminalisation of “commercial information espionage” (primary focus); procedural and
institutional context (secondary focus). The three aspects will form the basis of a
coherent “package” of proposals.

6
With acknowledgement to Michael Kűhn, a South African Strategic Environmental Analyst, from IBIS,
Business and Information Services (Pty) Ltd. Other categories are technology, product costing, price
structures/rebates to various clients, marketing plans and budgets, product distribution channels,
market share, supplier detail, financials and market entry strategy.

2
It is essential that strategies to answer the research problem include the effective
usage of all the different procedural processes7. What is required is how, where and
when can the substantive law be applied without fear or favour.

For this to be achieved, the best in South African substantive law, compared to what
is done internationally, must be identified.

An evaluation will then take place on how best the knowledgeable co-operation of
various institutional structures8 can be utilised, keeping in mind the outcome of
prevention, deterrence and/or prosecution of acts of commercial information
espionage.

The conclusion of the research is intended to be practical and is aimed at adding

value for businesses in South Africa when seeking protection against malicious and
harmful conduct by their competitors, and for businesses trying to understand the
ethical and legal parameters of competitive intelligence.

Not only will existing South African and comparative legislative measures be
evaluated, but also, common law crimes in South Africa; these include theft
(primarily), fraud, conspiracy, attempt, malicious damage to property, housebreaking,
and trespassing.

As such, and due to the progressive and transformative structure of South Africa’s
Constitution, the possibilities of developing the common law of theft will be
examined, in particular the theft of incorporeal property9. Can a new application of
old common law principles be a solution? This aspect of the research will look at
the role of the common law in a fast-changing technological and economic
environment.

The common law definition of theft will be critically reviewed to determine whether it
can be expanded to deal with situations where there is no handling of a physical
object. For instance, where the contrectatio is constituted by obtaining of proprietary
information to which the person obtaining it is not legally entitled, it is not a

7
See Addendum B
8
ibid 6
9
State vs Ndebele 2012 (1) SACR 245 (GSJ). See further section 39 of the Constitution
(Interpretation of the Bill of Rights)

3
contrectatio constituted by a physical removal of something from the owner of a
thing, yet information is illegally obtained.

It might be that the contrectatio is constituted by an appropriation of a characteristic

that attaches to a thing, thus depriving the owner of that characteristic. The
characteristic is the unique proprietary information that results in a new product
and/or a service being developed. Research will be done to determine whether that
characteristic and the extent to which it has been used in a new product and/or
service, can be identified and quantified. In most instances, it is assumed that the
quantification will be complex, even problematic.

It might be argued that once that characteristic is evident in the new product and/or
the service and it has been introduced to the market, the advantage in capturing a
market share with a new product and/or service is lost to the legal entity and/or
person it was obtained from. Thus, a permanent loss can occur once the advantage
has been obtained in the market with a new product and/or service.

From a statutory perspective, one can ask whether “data” as defined as “data
message” in Act 25 of 2002 (the Electronic Communications and Transactions Act)
assists meaningfully. To the extent that the common law and statutory law (eg Act 25
of 2002) fail to provide answers or are inadequate, the critical comparative analysis
of foreign jurisdictions may be helpful.

4 Research Hypotheses

Commercial information espionage is a growing national and international

phenomenon that many businesses are not aware of or do not know how to
approach; one of the main reasons being that the concept has not been defined with
sufficient clarity from a legal (especially criminal law) perspective.

Business entities and countries need to protect commercial information. In South

Africa, various existing statutory crimes can be used to prosecute at least some
constituting elements of “commercial information espionage”10 However, no proper

10
The Prevention of Organised Crime Act, Act 21 of 1998 (POCA); the Protection of Constitutional
Democracy Against Terrorist and Related Activities Act, 33 of 2004; the Copyright Act 98 of 1978; the
Trade Marks Act 194 of 1993; the Patents Act 57 of 1978; the Electronic Communications and
Transactions Act 25 of 2002; the Competition Act 89 of 1998; the Electronic Communications Act 36 of
2005 and the Prevention and Combating of Corrupt Activities Act 12 of 2004.

4
statistics have been compiled based on information supplied by either the South
African Police Services (SAPS) or the National Prosecuting Authority (NPA) to
determine the effectiveness of the listed statutory crimes in preventing commercial
information espionage.

The common law crime of theft does provide a possible avenue for effective
criminalisation of commercial information espionage. Criminal law theory and
doctrine, combined with the attitude of the courts regarding the scope of the crime of
theft, pose potential possibilities but also pitfalls.

The apparent lack of prosecutions and crime statistics can be attributed to the lack of
substantive law, procedural mechanisms and institutional capacity.

A comparative study of the existing remedies in South Africa with those found in the
ten countries under consideration in this study will significantly contribute to an
understanding of what needs to be done procedurally, both within in the substantive
field of law and within the existing institutional entities.

5 Methodology

The research will follow a deductive, logical and descriptive approach. Hypotheses
will be derived deductively from theories, observations and premises, or just
intuitively. The research aim is to reach clear operational definitions for all the
concepts in each of the research hypotheses.

The methodology will not only be normative, it will also be descriptive and
comparative. Data will be described, compared and brought into a more
comprehensive context, and then evaluated, with certain reservations being either
recommended or rejected.

Data will initially be gathered by conducting a literature review of the existing legal
remedies in South Africa and the ten other countries to deter and prevent and, if
detected, to investigate and prosecute incidents of commercial information
espionage.

There will be four stages to the research. First, an orientation will take place; the
research proposal document already encompasses an initial overview of related
theory, legislation specific to South Africa, a methodology and some literature.

5
The second stage will be to identify and conceptualise the problem in greater depth.
Further formulation and refining of the existing definitions and hypotheses will take
place and, where necessary, sub-hypotheses will be defined. These hypotheses will
then be tested or verified.

The third stage is a technical stage. Collation of all data will be done to ensure
reliability. A generic questionnaire will be compiled. Each country will be subject to
the same questions to fulfil the principles and methodology of a comparative study.
The questionnaire will incorporate all hypotheses and sub-hypotheses.

The questionnaire will be followed by an analytical stage during which all the data will
be analysed and conclusions will be drawn.

The explanation of the choice of comparative jurisdictions is as follows:

The BRICS countries form a new comparative unit with its own dynamics and
rationale, distinguished by its large, fast-growing or newly industrialised
economies, with the possible exception of Russia (which some observers
consider a developed country). South Africa officially became a member
nation on 24 December 201011.
The Federal Republic of Nigeria and South Korea are prominent economic
players in their regions and in the case of South Korea, also globally to a
growing extent. South Korea is also one of the few countries that has
promulgated specific legislation to address commercial information espionage.
The United States of America has case law resulting from prosecutions in
terms of the Economic Espionage Act 1996. Contact with the United States of
America’s National Attorneys General Training & Research Institute12 was
made informing them of my intended research. Opportunities presented by
collaboration will be used to benefit this thesis.

11
Graceffo, Antonio (2011-01-21). "BRIC Becomes BRICS: Changes on the Geopolitical Chessboard".
Foreign Policy Journal.http://www.foreignpolicyjournal.com/2011/01/21/bric-becomes-brics-changes-
on-the-geopolitical-chessboard/2/. Retrieved 2011-04-14.
12
One of its aims is the running of a Cyber Crime Project to provide the necessary training and
technical assistance to prosecutors in Attorney General Offices to enable them to successfully
investigate and prosecute computer-based crimes.

6
 The United Kingdom of Great Britain and Northern Ireland and the Federal
Republic of Germany are advanced democracies and therefore well worth
looking at.
I hold Canadian citizenship, which makes it useful when contacting universities
and government institutions in Canada. A further reason to examine Canadian
law is the structural and normative value of Canadian constitutional
jurisprudence for South African law – as evidenced by the impact of Canadian
jurisprudence on the developing South African constitutional criminal justice
jurisprudence post 1994.

6 Motivation

There is a scarcity of research on the concept commercial information espionage in a

South African context to the extent that it is safe to say that this phenomenon has
largely been ignored by our criminal justice system up to now.

South Africa, through its membership of the BRICS grouping of countries and vying
for a permanent seat for the continent of Africa on the United Nations’ Security
Council, wishes to establish itself as a serious country on the world stage by taking a
leadership role on the African continent and in wider international politics.
Furthermore, South Africa also has various international responsibilities, which inter
alia include South Africa’s United Nations obligations through treaties and
agreements with multinational and international organisations. Some of the important
treaties and organisations are listed below13.

The development of international trade through multinational entities and the

globalisation of communication over the past few decades have contributed to the
imperative for countries and businesses to guard their commercial information. Even
more so in South Africa, which faces huge economic disparities among its population
and its neighbouring countries and which needs to grow an economy within an ethos
of respect for the rule of law although not at the expense of business integrity.

13
The 1988, Vienna United Nations Convention against Illicit Traffic in Narcotics, Drugs and
Psychotropic Substances; The 2000, Palermo United Nations Convention on Transnational Organised
Crime; The 22 November 2001, Convention on Cyber Crime, Budapest; The Berne Convention for the
Protection of Literary and Artistic Works; The World Intellectual Property Organisation, Geneva; The
Agreement on the Trade Related Aspects of Intellectual Property Rights (TRIPS), Uruguay 1994; The
Organisation for Economic Cooperation and Development; The United Nations Convention against
Corruption 14 December 2005; The International Association of Prosecutors (IAP).

7
South Africa appears to lack successful prosecutions and compliance guidance in the
field of commercial information espionage. A study of this nature will take stock of the
existing answers and provide possible solutions for the immediate future.

Comprehensive anti-bribery legislation introduced by Africa’s major trading partners

has led to greater respect for the rule of law and greater awareness of the benefits of
good governance, according to Femi Tairu, manager at PwC’s advisory service office
in New York14. In a similar way, a re-assessment of measures against commercial
information espionage may lead to positive spin offs and benefits for the South
African economy.

7 Chapters

Chapter 1 – Introduction

An overview and orientation will be given and further expansion provided of the
research problem, the research question and the motivation for such research.

The chapter will further introduce the concept of commercial information espionage
and provide a comprehensive definition thereof, concluding in a thoroughly
developed working definition to form the basis for Chapter 2, which reviews the South
African position.

This will be followed by a practical explanation of the comparative methodology to be

employed in each of the following chapters.

Chapter 2 – The Republic of South Africa

This chapter will present an evaluation of current South African legislation (see
Addendum A) and common law crimes that criminalise actions associated with
commercial information espionage in South Africa and the legal remedies available,
including the institutions through which this can be achieved.

Chapter 3 – the BRICS countries (other than South Africa)

Chapter 3 will present a brief history of the applicability of the Brazilian Penal Code,
the Code of Penal Procedure and the Federal Constitution in safeguarding

14
Reported in Business Day Live on 8 January 2013

8
commercial information. Relevant case law and the definitions surrounding the
concept will be discussed and the two bills currently in the parliamentary process will
specifically be evaluated: the Azeredo law limits freedom on the Internet and the so-
called Carolina Dickman law criminalising unauthorised access to emails and
sensitive information online.

An overview of the applicability of the Russian Constitution, statutes, the Russian

Civil Code and of Presidential decrees and directives will be given to provide the
context of explaining to what extent commercial information is dealt with and
protected in the Russian Federation.

The main sources of law in India are the Constitution, statutes (legislation),
customary law, and case law. All applicable statutes such as the Copyright Act of
1957, the Patents Act of 1970 and the Trade Marks Act of 1999 will be discussed to
ascertain whether these are sufficient to protect commercial information.

In terms of China, a discussion will be undertaken on the development of its legal

system and applicable legislation (focusing on the protection of commercial
information), incorporating Hong Kong and Macau based on the One Country, Two
Systems principle.

Chapter 4 – The Federal Republic of Nigeria

All the sources of law i.e. the Constitution, Legislation, English law, Customary law,
Islamic law, and Judicial precedents will be analysed to establish the extent of the
protection of commercial information in Nigeria.

Chapter 5 – United States of America and South Korea (Republic of Korea)

These two countries will be put together as both have relatively complete and
detailed legislative frameworks in terms of commercial espionage.

The USA Economic Espionage Act and case law developed will be critically
examined because of prosecutions done thereunder. The National Attorney Generals
Training and Research Institute will inter alia be used as a source to provide context
to commercial information espionage from an American global business perspective.

9
The Korean Act on Promotion of Information and Communications Network Utilisation
and Information Protection15, which prohibits circulation of information the content of
which is intended to commit, solicit or aid a crime will be the point of departure for
looking at all relevant South Korean legislation. In this case, the Constitutional Court
held that Article 44–7 Section 1 Item 9 of did not violate the principle of clarity or the
principle against excessive restriction and thus is constitutional. The question will be
answered whether this legislation and other legal remedies deals sufficiently with the
protection of commercial information.

Chapter 6 – Canada

Canada has no specific legislation prohibiting the committing of acts of espionage of

commercial information. A discussion will be done of the possible legislative and
other remedies in existence, based on the two legal systems, being the civil law
(based on the Quebec Act of 1774) and the common law that exists in Canada.

Chapter 7 – the United Kingdom of Great Britain and Northern Ireland and the
Federal Republic of Germany

A history of the legal theory underlying the United Kingdom’s Theft Act of 1968 will be
provided, more specifically its definition of ‘property’ that includes money and all
other property, real or personal, including things in action and other intangible
property, as well as an analysis of applicable case law and examples providing
context for acts of commercial information espionage.

Against the background of a brief overview of the relevant provisions in the German
Criminal Code, specific evaluation will be done whether commercial information is
sufficiently protected by cybercrime offences such as illegal interception, data
interference, computer fraud and copyright infringement.

Chapter 8 – Conclusion

All the data collated will be analysed for parallels and conclusions to be drawn
between the ten jurisdictions with common guidelines from all the considered
jurisdictions to be highlighted. This will be followed by examining the South African

15
The Ban on Use of Communication Networks for Criminal Purposes 2008 Hun-Ma 500, February 23
2012
Constitutional Court South Korea

10
common law and legislative remedies available against this body of law, practices
and institutions from each of the other ten countries.

The question as to what should be done procedurally in the substantive field of law
and within the existing institutional entities and offices in South Africa will then be
answered.

The conclusion will effectively be a ‘package’ of proposals on how South African law
and law enforcement agencies can best deal with commercial information espionage.

8 Schedule

The table below outlines the proposed schedule of work.

Chapter Proposed date of completion (month end)

Chapter 1 May 2013
This will also include the compilation of a generic questionnaire.
Chapter 2 June 2013
Chapter 3 August 2013
Chapter 4 September 2013
Chapter 5 October 2013
Chapter 6 November 2013
Chapter 7 January 2014
Submission June 2014

11
9 Bibliography

Literature

1 Reyburn, Sutherland and Kemp, Competition Law of South Africa, 2000

2 Mitchell, Taylor and Talbot, Confiscation and the Proceeds of Crime, United
Kingdom
3 Zimmermann, Visser and Reid, Mixed Legal Systems in Comparative
Perspective, 2004
4 de Koker, SA Money Laundering and Terror Financing Law
5 Albanese and others, Transnational Crime, 2005, specifically chapter 3:
Intellectual Property Theft, Organised Crime and Terrorism; chapter 6:
Comparative Methodology; Chapter 7: American and European paths to
International Law Enforcement Cooperation
6 Dugard J, International Law , a SA Perspective, 2011
7 Reichel, Comparative Criminal Justice Systems, 2004
8 Venter, Constitutional Comparison Japan, Germany, Canada & South Africa,
2000
9 Buys, Cronje, Cyber law, 2004
10 The SA Law Commission Discussion Paper 99, project 108
11 King II report on Corporate Governance
12 Punch, Dirty Business, exploring corporate misconduct, 1996
13 Koletar, Fraud Exposed, 2003
14 Bachman, Schut, The Practise of Research in Criminology and Criminal Justice,
4th edition 2011
15 S A Law Commission Annual Report 2010 – 2011
16 SA Law Commission Project number 108: Computer related crime: Options for
reform in respect of unauthorised access to computers, unauthorized
modification of computer data and software applications and related procedural
aspects
17 SA Law Commission Project number 106

12
18 The Khampepe Commission of Inquiry into the mandate and location of the
Directorate of Special Operations (the ‘DSO’) – Final Report February 2006
19 Hedieh Nasheri, Economic Espionage and Industrial Spying, 2005
20 Snyman, Strafreg (2012)
21 Burchell, South African Criminal Law and Procedure: General principles (2011)
22 Kemp et al, Criminal Law in South Africa (2012)
23 Kruger, Organised Crime (2008)

Case law

South Africa

1 State vs Ndebele 2012 (1) SACR 245 (GSJ)

South Korea

1 Constitutional Court decision, The Ban on Use of Communication Networks for

Criminal Purposes 2008 Hun-Ma 500, February 23, 2012

13
Addendum A

Legislation

1 The Prevention and Combating of Corrupt Activities Act 12 of 2004

2 The Prevention of Organised Crime Act 121 of 1998 (including money laundering
and asset forfeiture)
3 The SA Police Service Act 68 of 1995
4 The Financial Intelligence Centre Act 38 of 2001(suspicious transaction reports)
5 The Drugs and Drug Trafficking Act 140 of 1992
6 The Extradition Act 67 of 1962
7 The Regulation of Interception of Communications and Provision of
Communication – Related Information Act 70 of 2002
8 The Electronic Communications and Transactions Act 25 of 2002
9 The Competition Act 89 of 1998
10 The Electronic Communications Act 36 of 2005
11 The Promotion of Access to Information Act 2 of 2000
12 The Financial Intelligence Centre Act 38 of 2001
13 Copyright Act 98 of 1978
14 Trade Marks Act 194 of 1993
15 Patents Act 57 of 1978
16 The Intellectual Property Laws Rationalisations Act 107 of 1996
17 The Protection of Constitutional Democracy Against Terrorist and Related
Activities Act 33 of 2004
18 International Co-operation in Criminal Matters Act 75 of 1996 (Mutual Legal
Assistance)
19 Telecommunications Act 103 of 1996
20 Trespass Act 6 of 1959
21 Criminal Procedure Act 51 of 1977
22 Laws Rationalisation Act 107 of 1996

14
International Treaties

1 The Vienna United Nations Convention against Illicit Traffic in Narcotics, Drugs
and Psychotropic Substances 1988
2 The Palermo United Nations Convention on Transnational Organised Crime 2000
3 The Convention on Cyber Crime, Budapest 22 November 2001
4 The Berne Convention for the Protection of Literary and Artistic Works
5 The Agreement on the Trade Related Aspects of Intellectual Property Rights
(TRIPS), Uruguay 1994
6 The United Nations Convention against Corruption

15
Addendum B

Institutions and offices

1 The SA Police Service, specifically including the Directorate of Priority Crimes

Investigation (DIPCI), the Financial and Asset Forfeiture Investigations (FAFI)
2 The National Prosecuting Authority (NPA)
3 The State Security Agency (SSA). The SSA comprises of the former National
Intelligence Agency, the South African Secret Service, the National
Communications Centre, the Electronic Communications (Pty) Ltd and the South
African National Academy of Intelligence
4 The Financial Intelligence Centre (FIC), the Financial Services’ Board
5 The South African Revenue Service (SARS)
6 The SA Reserve Bank
7 Director-General of the Department of Justice and Constitutional Development
8 Director-General of the National Treasury
9 The Financial Action Task Force (FATF)

Other stakeholders

1 SABRIC, the subsidiary of the Banking Association of South Africa, the NPC in
terms of the Companies Act
2 Business Against Crime (BUSSA)
3 The Institute of Directors, South Africa (IDSA)
4 Institute for Accountability in Southern Africa (IFAISA)
5 The Financial Intelligence Centre
6 The Counter Money Laundering Advisory Council
7 The Financial Services Board
8 The Financial Action Task Force; http//www.fatf-gafi.org/Members_en.htm
9 Alliance Against Counterfeiting and Piracy
10 Interpol
11 Europol
12 Federal Bureau of Investigation (FBI)

16
13 The United Nations Office on Drugs and Crime
14 The Institute for Security Studies
15 The National Development Plan 2012 – 2030, from the Office of the Presidency,
South Africa (specifically one of the nine challenges identified i.e. corruption that
is wide spread)
16 The United States of America’s National Attorneys General Training & Research
Institute

17