Aviation Week & Space Technology, June 29, 1998, p. 24

U.S. Broadens Probes Of China Tech Transfer

By JOSEPH C. ANSELMO and JAMES R. ASKER

Federal investigators have broadened their examinations of the possible transfer of sensitive U.S. space technology to China. They are looking at an additional launch failure review and whether American engineers asked leading questions of their Chinese counterparts.

Federal prosecutors are now trying to determine whether a Hughes Space&Communications review of a 1995 Long March launch failure that was given to Chinese officials disclosed any tightly held U.S. technical information. The disclosure last week that the Justice Dept. is reviewing Hughes' transmittal to China Great Wall Industries of a report--on the Jan. 26, 1995, failure of the Long March 2E that destroyed Apstar 2—adds a second launch to the one prosecutors here were known to be investigating. In the Hughes case, however, the Commerce Dept. had approved the release of the report to the Chinese.

MEANWHILE, CLINTON Administration officials acknowledged to congressional committees that they are concerned that an encryption circuit board missing from recovered satellite wreckage in another accident may have been stolen by the Chinese. Following the Feb. 14, 1996, failure of the Long March 3B that carried the Loral-built Intelsat 708, the Chinese kept all Americans away from the crash site for 5 hr., the Administration officials said.

A federal grand jury here is conducting a criminal investigation into whether a Loral-led review of that accident resulted in transfer of technology or insights that could help Beijing upgrade ballistic missiles (AW&ST June 22, p. 24). Loral has acknowledged that one of its employees faxed an executive summary of the review to Chinese officials without U.S. government approval.

Investigators are focusing on more than the Loral report and what it might have disclosed, however. They're also zeroing in on two meetings held between the Chinese and the Loral-led investigation team, and asking why U.S. Defense Dept. officials were not at those meetings.

Loral has furnished minutes and notes from the meetings to congressional committees. Some who have read the documents came away with the impression that members of the Loral-led team asked extremely leading questions that, by inference, could have helped the Chinese make design changes to improve Long March. (At the time, Loral had at least one other satellite scheduled to launch on the same version of Long March.)

"It was more than just identifying a solder joint that wasn't soldered properly,"said one source, referring to discussions. The Chinese failure review, validated by the Loral-led team, determined that the cause of the Long March mishap in which Intelsat 708 was destroyed was an electrical connection that had not been soldered.

The 1996 meetings between the review team and Chinese officials were held Apr. 22-24 in Palo Alto, Calif., and Apr. 30-May 1 in Beijing. Written questions were provided to the Chinese at the first meeting and numerous oral questions were asked, according to information released last week by the House Science Committee.

A major point of controversy is that Defense Dept. representatives were absent from both meetings. A Science Committee summary said Loral had failed to notify the Defense Dept. of the two meetings . But the summary added that Defense officials may have failed in their responsibility to ask, since the investigation had been publicly announced.

The industry failure review team was led by Wah Lim, Loral's senior vice president and general manager for engineering and manufacturing. The team's other members were two Hughes employees, and one from Daimler-Benz, along with former employees of British Aerospace, Intelsat and General Dynamics.

Four Loral employees assisted the failure review team. According to the Science Committee, it was one of those four, Nick Yen, who faxed a copy of the team 's preliminary report to China on May 7, 1996, and a final version three days later, "less attachments." Loral Chairman Bernard L. Schwarz has characterized the documents as a "summary" of the full report and adamantly denied they contained any sensitive information (AW&ST June 1, p. 24).

While the grand jury conducts its investigation in silence, the controversy has generated an uproar on Capitol Hill, where both the House and Senate have ongoing investigations. Lawmakers have held numerous hearings, which at times took on partisan tones as President Clinton embarked on his 10-day visit to China.

Rep. Dana Rohrabacher (R-Calif.), once an active proponent of the policy that allowed U.S. satellites to be exported to China, attacked Loral for its alleged assistance to the Chinese. "Loral and the insurance companies decided they needed China's low-cost rocket to be more reliable, so they helped the Chinese improve it," he charged. "That's not trade, it's treachery."

THE MATTER OF THE MISSING encryption board from a computer on board Intelsat 708 was raised by Rep. Curt Weldon (R-Pa.) in joint hearings of the House National Security and International Relations committees.

Weldon said when the battered command processor box from Intelsat 708 was returned to Loral after the launch failure, it was opened and the board that decodes encrypted spacecraft bus commands from the ground was missing. Debris from some accidents has been collected by villagers in the countryside near Xichang and recovered by officials only if they bought it back.

Weldon read from what he said was a National Security Agency (NSA) statement that said, "If the encryption board were reverse-engineered, the knowledge gained could strengthen [Chinese] knowledge" of how the U.S. encrypts satellite communications. The NSA declined to comment publicly on the matter.

Administration witnesses pointed out that the encryption algorithm on later satellites was different and suggested that acquiring a single, destroyed satellite's decode chip is not worrisome. Commercial satellites encrypt uplink commands, to prevent hackers from misdirecting it. Classified satellites encrypt downlinked signals, too, even basic telemetry, so as not to broadcast any easily used information about the spacecraft.

There are thousands of encryption algorithms, many of them available in open literature. Each series of satellites typically has a unique code. But thus far, every classified U.S. satellite has been effectively "one of a kind," a former Defense Dept. official told Aviation Week & Space Technology.

So unless the Chinese wanted to disrupt other Intelsat 7-series satellites, even having full knowledge of the 708 chip would appear to be of little direct use. It seems unlikely that Beijing would want to misdirect another civilian Intelsat 7 spacecraft, since China itself is a member of the Intelsat consortium.

Said the former Defense Dept. official of the missing chip, "It's not a big deal in the long run." But Weldon charged the alleged theft is disturbing if only for what it says about how much the U.S. can trust the Chinese in launches, adding, "We better call the Chinese on this."

In Beijing, Foreign Ministry spokesman Tang Guoqiang denied China had stolen the encryption board. He characterized the entire controversy here as "a wave of noise" intended to disrupt bilateral relations.

On the release by Hughes to China of the other launch failure review, so far, prosecutors are only "reviewing" information related to the Apstar-2 failure. The possibility of a second criminal probe involving U.S. satellites exported to China for launch may be making Clinton Administration officials more nervous than those at Hughes, though. For unlike the Loral-led failure review faxed to China, the disclosure in question here was specifically authorized by the Commerce Dept.

"Hughes has acted responsibly in this matter and complied with all U.S. Government requests with respect to the 1995 Apstar-2 launch and failure review," a Hughes corporate statement said.

The launch failure was especially controversial in the space community, because China initially blamed the HS 601 satellite, not its rocket, for the accident. Hughes couldn't let that stand, but it had to respond to the criticism tactfully as it did not wish to offend Beijing, to which it hoped to sell satellites.

EVENTUALLY, HUGHES and China essentially agreed to disagree. In a joint statement, they cited wind shear as the root cause of the accident but allowed for two ways that could have led to the failure--one through the satellite, one via Long March. Congressional critics seized on a July 25, 1995, joint statement, because Hughes and China Great Wall also pledged to "work together to eliminate the above-mentioned causes of the failure and to enhance the monitoring of shear wind aloft."

But Hughes spokesman Don O'Neal said that does not indicate the two companies had as close a relationship "as it sounds." He said, "What we're talking about basically is establishing new criteria for launch--things for the `go/no go' decisions" related to winds aloft.

Under questioning from Rep. Benjamin A. Gilman (R-N.Y.), William Reinsch, the undersecretary of Commerce for export, admitted that the department did not consult with other federal departments before approving Hughes' release of its findings on the Apstar-2 failure to China.

"Why weren't these agencies, the experts in national security, consulted?" Gilman asked.

"If you read between the lines," Hughes' O'Neal said of the congressional testimony, "the Dept. of Justice is investigating the Dept. of Commerce."

ADMINISTRATION WITNESSES last week also told congressional panels that three launch campaigns for U.S. satellites in China from 1993-96 were not monitored at all by the Defense Dept. The three--which included Apstar-2--met nine technical parameters that allowed them to be exported with only a Commerce Dept. license, not one from the State Dept. as well, testified Walter Slocombe, undersecretary of Defense for policy. The rules were later changed to require Defense Dept. monitors at all launches, Administration officials said.

The Clinton Administration is arguing the case that a 1996 change it made in licensing procedures that begins the process at Commerce, instead of State, not only speeds decisions on satellite export but actually strengthens security by giving all the concerned agencies a voice in every export license application.

Rep. Sam Gejdenson (D-Conn.) forcefully reminded his colleagues they had not objected to the change. Nor had any member ever objected to a single satellite export when Congress was notified of a waiver of Tiananmen sanctions. The sanctions prohibit the export of any satellite to China without specific presidential approval.

And Rep. George Brown (D-Calif.) pointed out that while House Republicans have lambasted Clinton for transferring satellite export authority to the Commerce Dept. , they have pushed a commercial space bill that would do the same thing for many imaging satellites. "We run the risk of looking for villains and quick fixes," he said.

Both George Bush and Bill Clinton have granted waivers (see p. 26). Critics of the current administration point out Bush nixed some satellite export applications while Clinton has given all that have reached his desk a green light.

On the Senate side of Capitol Hill, the Intelligence Committee continued its investigation of whether China gained data that could be used to improve ballistic missiles. Following a closed session, chairman Richard Shelby (R-Ala.) said, "It is clear there were some serious problems with how U.S. companies interacted with Chinese launch providers. . . . I was very disturbed by a number of things I heard today."

Sen. Tim Hutchinson (R-Ark.) introduced an amendment on June 23 that would shift all "satellites and related items" back to the U.S. Munitions List. That would reverse President Clinton's 1996 transfer of most commercial satellite export oversight to the CommerceDept. and send it back to the State Dept.

However, Hutchinson voluntarily withdrew his amendment after being assured by Majority Leader Trent Lott (R-Miss.) that he could bring the issue to the floor after Clinton 's return.

Meanwhile, the Senate Governmental Affairs Committee broadened its look into export controls beyond satellites. A senior strategic trade advisor at the Pentagon's Defense Technology Security Administration (DTSA), charged that Defense Dept. oversight of technology exports is shoddy and inadequate.

Peter M. Leitner said DTSA reviews about 7,000 applications a year for exports of "dual use" items, a category that includes satellites. Leitner claimed that 70% of the applications are approved within 24 hr. without being sent to other defense or intelligence agencies for further input, and are often approved based solely on the "meager" information contained in the application.