Avoid Investing in Repression

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Keeping tabs on an entire population is still reserved for the most financially dedicated despots, according to a Brookings Institution report. The catch, however, is that costs are dropping quickly. Dictators will soon find tracking every word and deed to be well within budget, but even at today's higher rates, there seems no shortage of companies willing to help.

If you pride yourself on owning a responsible portfolio, you should take a long, hard look at companies exposing any nation's people to Big Brother's watchful eye.

The tech behind the curtain
Last year's Arab Spring offered the world a dramatic, and often very personal, glimpse into repressive regimes. It's no surprise that Gadhafi's Libya had a heavy hand and watchful eye on the people's Internet use, but the dictator's fall opened the door to the control room, so to speak. Similar revelations have occurred on Syrian and Chinese spying efforts, and much of the technology behind the tracking is now publicly known.

Looking over your shoulder in Libya
Many Libyan-linked cyber-surveillance companies are foreign-based. Amesys, a unit of French firm Bull SA, provided technological and logistical support to the Gadhafi government, including training manuals and intrusive deep packet inspection software. Chinese telecom ZTE and South Africa's VASTech also figure prominently in the former regime's tracking efforts.

On the other side of the coin, freedom-loving Libyans made good use of Microsoft's encrypted chat service Skype to evade watchful eyes and curious ears. Many revolutionaries also posted calls to arms on YouTube, which became a prime Gadhafi censorship target. However, neither is immune to determined prying, and Skype's vaunted security might already be cracked.

Stalk like an Egyptian
One company fingered (but vindicated) for a Libyan connection was Boeing (NYSE: BA  ) through its Internet traffic monitoring subsidiary Narus. However, the company isn't off the hook. Narus, which supplies deep packet inspection equipment and monitoring software, has been tied to the deposed Mubarak government, Pakistani telecom operators, and Saudi Arabia, none known for championing openness.

Spy times in Syria
NetApp (Nasdaq: NTAP  ) found itself in a PR and legal imbroglio after its archival solutions (think storing your emails) were used by an Italian contractor to set up a spying op for Syria's al-Assad government. Recently acquired Blue Coat Systems (Nasdaq: BCSI  ) also found itself under the microscope when the U.S. government discovered that its tracking and censorship technology might have wound up in Syrian hands.

For their part, both companies deny they've sold to Syria, a smart legal move given that U.S. sanctions forbid it. The companies can only do so much to prevent their tools from falling into the wrong hands -- but the existence of such tools all but guarantees that they will, one way or another. Many will say that the only answer is no cyber-surveillance at all, but once the snowball starts rolling it becomes very hard to stop.

Censoring Chinese citizens makes cents
Last, and possibly most well-reported, is Cisco's (Nasdaq: CSCO  ) sale of surveillance equipment to the Chinese government. The networking company isn't making any friends with its cozy Chinese relationships, as it was sued a month prior to the megasale for what amounts to "accessory to snooping." No one can say with certainty what the cameras and equipment will be used for, but odds are against a Chinese Truman Show reenactment.

What can you do?
Freedom-conscious investors should take a long look at companies supplying such tracking and restricting solutions, whether or not they ultimately end up in a despot's hands. The plummeting costs of technology also make this a dubious windfall for any company over the long term. The Brookings research estimated that Syria would only need to spend $2.5 million to track every phone call made by every Syrian over the age of 14 for a year. Analyzing such data would be extra, but the cost of storage will be a tenth as much by 2016, and comparatively more sophisticated (and more oppressive) analytics are likely to be operating at rather lower prices.

As the old saying goes, you can spy on some of the people all of the time, or all of the people some of the time... but what happens when you want to spy on everyone 24/7? You're going to have to pay up -- at least for now. As costs keep falling, the only real winners in this race will be the dictators, both known and aspiring.

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Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter for more news and insights. The Motley Fool owns shares of Cisco Systems and Microsoft, and has created a bull call spread position on Cisco Systems. Motley Fool newsletter services have recommended buying shares of Vodafone Group, Microsoft and Cisco Systems. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (8) | Recommend This Article (19)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 05, 2012, at 12:25 PM, AvianFlu wrote:

    After reading the first paragraph I assumed this article would be about the United States. Turns out not to be the case.

  • Report this Comment On January 05, 2012, at 1:12 PM, TMFBreakerRob wrote:

    The Fool seems to have long advocated a position of amoral investment recommendations, under the theory that you can't make everyone happy with so many different moral standards out there...."so don't consider the morality of anything".

    Ultimately, that's a self defeating approach as some companies are involved in efforts that could in time take away the freedom to take such a stance. Your article is a refreshing view on the subject, indicating that some companies are engaged in activities that enable repression. Good job!

  • Report this Comment On January 05, 2012, at 1:22 PM, Hawmps wrote:

    Two thumbs up +1

  • Report this Comment On January 05, 2012, at 1:59 PM, talan123 wrote:

    I sincerely appreciate this article.

    My sister works in China and let's just say that our technology investments there has led to more than a few people being jailed for the "public good." The more times these are called out the better.

    A good investment scenario when taking morals into account is to do the least amount of evil for the shortest period of time.

  • Report this Comment On January 05, 2012, at 4:01 PM, srikli wrote:

    Some of the sentiments expressed in this article are fine, but what, exactly, would you propose that a company like NTAP or BCSI do?

    Should NetApp shutdown and put itself out of business because some of its storage products ended up in Syria? Would EMC? Or HP etc?

    And it's probably somewhat disingenuous to call BlueCoat products "censorship technology" -- they can admittedly be (ab)used in that fashion, but do you call your car a "road rage tool"?

    If any of these companies are proved to have sold anything to countries prohibited by law, then they should be prosecuted and let the chips fall. But I think this article is using recent headlines to paint with an overly-wide and scandal-colored brush, and Fools could do well to analyze with a critical eye.

  • Report this Comment On January 05, 2012, at 5:06 PM, DJDynamicNC wrote:

    +1 for a timely, important, and informative article. This is important work.

  • Report this Comment On January 05, 2012, at 5:10 PM, talan123 wrote:

    Think of it this way.

    If they are willing to arm dictators with the tools to suppress their own population, then what do you think they are willing to do scam money from investors?

  • Report this Comment On January 05, 2012, at 6:47 PM, srikli wrote:

    *If* companies are willing to arm dictators, by design and on purpose, then yes, they should be prosecuted according to the appropriate laws. As I said.

    But if companies make a product that dictators want, and are able to get their hands on without assistance from (or even against the wishes of) the company, how is that the company's fault?

    And for that matter, how far do you take it? We've all seen the news, with various dictators in their designer clothes, sunglasses, watches, etc. Do you not buy (or invest in) Ray-Ban or Rolex or whatever just because Gaddafi or Hussein wore them?

    The point is, NetApp, EMC, HDS, et al are storage companies, and I daresay they're not "arm repressive dictators" companies -- not in their 10K or business plan, anyway. To lump them in (so far without proof) with companies knowingly selling to terrorists or what have you, seems unjustified.

    That said, I'm cynical enough to believe that just about any company is willing to do things I find unsavory ("repressive"?) to make money.

    Invest in NTAP, BCSI, BA -- or don't. But whatever you do, do it for valid reasons, not merely because someone insinuated something that may not even be accurate.

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