Hughes had important commercial interests in the PRC at the time it engaged in the failure investigations. These interests included future sales of satellites to the PRC or to parties serving the PRC market, and reducing the cost and improving the safety of launching satellites in the PRC.
ii. In 1996, Loral and Hughes showed the PRC how to improve the design and reliability of the guidance system used in the PRCĖs newest Long March rocket.
LoralĖs and HughesĖ advice may also be useful for design and improved reliability of elements of future PRC ballistic missiles.
Loral and Hughes acted without the legally required license, although both corporations knew that a license was required.
Loral and Hughes analyzed for the PRC the potential causes of a 1996 PRC launch failure, identified for the PRC the true cause of the failure as a particular element within the Long March rocketĖs guidance unit, and provided the PRC with technical assistance that may be useful not only for the PRCĖs commercial and military space launch programs, but for ballistic missiles as well.
In so doing, Loral and Hughes deliberately acted without the legally required license, and violated U.S. export control laws.
Although Loral and Hughes were well aware that a State Department license was required to provide assistance related to the guidance system of a PRC rocket, neither company applied for or obtained the required license. Loral was warned of the need for a license at the time it agreed to participate in the investigation, but took no action.
Loral and Hughes also failed to properly brief participants in the failure investigation of U.S. export requirements, failed to monitor the investigation as it progressed, and failed to take adequate steps to ensure that no prohibited information was passed to the PRC.
Loral and Hughes submitted lengthy written materials analyzing the cause of the guidance system failure to the PRC and to other foreign nationals. In addition, Loral and Hughes engaged in technical discussions, including discussions about the details and causes of the guidance system failure, that were almost certainly recorded by the PRC.
While some aspects of these discussions have been identified by the Select Committee and reviewed by independent experts retained by the Select Committee, the full range and content of these discussions remains unknown. The Select Committee was unable to talk to several important participants in the failure investigation, and the PRC refused to agree to the Select CommitteeĖs request for interviews. Additional controlled information may have been received by the PRC.
The information and assistance conveyed by Loral and Hughes led to improvements to the guidance system of the PRCĖs Long March 3B rocket. While the launch that failed was commercial, the information transmitted by Loral and Hughes was useful, as well, for military space launch purposes.
Loral and Hughes provided valuable additional information that exposed the PRC to Western diagnostic processes that could lead to improvements in the reliability of all PRC ballistic missiles. LoralĖs and HughesĖ advice could help reinforce or add vigor to the PRCĖs adherence to good design and test practices, which could be transferred to the ballistic missile program. The exposure to U.S. diagnostic and test processes outlined by Loral and Hughes has the potential to improve PRC pre- and post-flight failure analysis for the ballistic missile program.
The technology transferred by Loral and Hughes thus has the potential, if used by the PRC, to increase the reliability of future PRC ballistic missiles.
The independent experts retained by the Select Committee had access not just to the written report prepared by Loral with input from Hughes, but also to the comments of participants about meetings in Beijing. The independent experts conclude that information valuable to the PRCĖs space and ballistic missile programs was transferred.
Neither Loral nor Hughes disclosed to export control officers of the U.S. Government their unlicensed activities until after they were contacted by U.S. Government licensing officials demanding an explanation for their conduct. The U.S. Government officials became aware of the improper activities through an article in a widely-read industry publication. This article also came to LoralĖs attention prior to LoralĖs disclosure to the U.S. Government.
Loral and Hughes had important commercial interests in the PRC when they engaged in the 1996 failure investigation. These interests included future sales of satellites to the PRC or to parties serving the PRC market, and reducing the cost and improving the safety of launching satellites in the PRC.
E. In light of the PRCĖs aggressive espionage campaign against U.S. technology, it would be surprising if the PRC has not exploited security lapses that have occurred in connection with launches of U.S. satellites in the PRC.
The original policy permitting U.S. manufactured satellites to be launched in the PRC envisioned strict compliance with requirements to prevent unauthorized technology transfers.
These requirements are encompassed in U.S. regulations and licenses. Pursuant to a bilateral agreement between the United States and the PRC, the requirements include U.S. control over access to the satellite while it is in the PRC. Many of these requirements imposed on exporters are to be closely monitored by U.S. Government officials provided by the Defense Department.
The Select Committee has found numerous lapses in the intended pre-launch technology safeguards. Defense Department monitors have reported numerous security infractions by exporters. Exporters often hire private security guards to assist in the performance of their duties to prevent technology transfers, and these private guards have also reported security lapses.
In addition, it is likely that other security lapses have gone unreported. In the mid-1990s, three launches and associated pre-launch activities were not monitored by the Defense Department. Launches that were monitored have lacked proper staffing.
Because of the PRCĖs aggressive efforts to acquire U.S. technology, it would be surprising if the PRC has not exploited security lapses while U.S.-built satellites and associated equipment and documents were in the PRC. Prior to launch, the satellite, associated test equipment, and controlled documents are transported to the PRC and may remain in the PRC for periods as short as a couple of weeks or as long as two months. The PRC would likely exploit opportunities to gain information while the U.S. satellite and associated equipment are in the PRC before launch.
Unrestricted access to a satellite for as little as two hours could provide the PRC with valuable, non-public information about major satellite subsystems, as well as the design and manufacture of such subsystems.
There are numerous reasons for security infractions, some of which may be addressed through changes in procedures:
- Defense Department monitors on occasion have found poor attitudes toward security among both company management and private guards
- Private security guards hired by satellite exporters may have an inherent conflict of interest when reporting on their current and prospective employers
- Both Defense Department monitors and private security guards may lack sufficient training
- Defense Department monitors sometimes lack continuity with a given launch
- Often, only one Defense Department monitor may have been present on a project
F. Foreign brokers and underwriters of satellite and space launch insurance have obtained controlled U.S. space and missile-related technology outside of the system of export controls that applies to U.S. satellite manufacturers.
While existing laws address such exports, U.S. export control authorities may not be adequately enforcing these laws in the space insurance industry context, nor paying sufficient attention to these practices.
Satellite and space insurance is underwritten by overseas and multinational organizations to which U.S. technical information is always passed to assess insurance risks. This is particularly true where the insurers have particular reasons to be concerned about launch failures.
These insurers have, on occasion, received controlled U.S. technical information. It is not clear that manufacturers and purchasers of satellites are transmitting satellite information to such foreign brokers and underwriters in compliance with U.S. export control rules and regulations.
As insurance is critical to commercial space launches, the insurance role cannot be eliminated. Existing laws address exports to brokers and insurers. The administration of these laws must be applied to exports of sensitive U.S. technology to the space launch and satellite insurance industry.
G. The Strom Thurmond National Defense Authorization Act took important steps to correct deficiencies in the administration of U.S. export controls on commercial space launches in the PRC.
But the aggressive implementation of this law is vital, and other problems with launches in the PRC that the Act does not address require immediate attention.
The Fiscal 1999 Department of Defense Authorization Act sought to increase safeguards on technology transfer during foreign launches of U.S. satellites.
The measures set forth in the Act include transferring licensing jurisdiction to the Department of State, and increased support for the Defense DepartmentĖs efforts to prevent technology loss.
However, additional measures Û including better training for Defense Department monitors and improved procedures for hiring professional security personnel Û will be needed.
H. It is in the national security interest of the United States to increase U.S. domestic launch capacity.
While U.S. policy since 1988 has permitted launching satellites in the PRC, U.S. national security interests would be advanced by avoiding the need for foreign launches through increased domestic launch capability.
The Reagan administrationĖs decision to permit launches in the PRC was affected by two factors: insufficient domestic launch options in the aftermath of the Challenger disaster, and the perception of the PRC as a strategic balance against the Soviet Union in the context of the Cold War. These factors are no longer applicable today.
Launching Western satellites has provided the PRC with additional experience that has improved its space launch capabilities. Even in the absence of any loss of U.S. technology, such experience benefits a potential long-run competitor of the United States.
See the chapters PRC Missile and Space Forces, Satellite Launches in the PRC: Hughes, and Satellite Launches in the PRC: Loral for more detailed discussion of the Select CommitteeĖs investigation of these matters.
3. United States and international export control policies and practices have facilitated the PRCĖs efforts to obtain militarily useful technology.
A. Recent changes in international and domestic export control regimes have reduced the ability to control transfers of militarily useful technology.
i. The dissolution of COCOM in 1994 left the United States without an effective, multilateral means to control exports of militarily useful goods and technology.
The Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies (Wassenaar) leaves international controls over the transfer of military technologies to national discretion.
The dissolution of the Coordinating Committee for Multilateral Export Controls (COCOM) in March 1994 left the United States without an effective international mechanism to control the transfer of important military technologies. Other multilateral control regimes set guidelines for particular kinds of transfers (for example, certain transfers related to missiles or weapons of mass destruction).
In the post-COCOM period, the United States dramatically liberalized export controls.
A new COCOM-like agreement, under which national exports of certain militarily useful goods and technologies are subject to international agreement, would enhance efforts to restrict technology transfers. The United States should seek to negotiate such a new arrangement.
ii. The expiration of the Export Administration Act in 1994 has left export controls under different legislative authority that, among other things, carries lesser penalties for export violations than those that can be imposed under the Act.
Following the expiration of the Export Administration Act in 1994, export controls on dual-use items have been continued under the provisions of the International Emergency Economic Powers Act. This law carries significantly lesser penalties for criminal and civil violations of export controls than those that applied under the Export Administration Act.
While the general criminal penalties of Title 18 of the U.S. Code may be imposed under either scheme, administration of export controls would be enhanced by a reauthorization of the Export Administration Act that would restore more significant penalties for export control violations.
iii. U.S. policy changes announced in 1995 that reduced the time available for national security agencies to consider export licenses need to be reexamined in light of the volume and complexity of licensing activities.
New procedures and deadlines for processing Commerce Department export license applications instituted in late 1995 placed national security agencies under significant time pressures.
Commerce officials alone are less likely to have the expertise for identifying national security implications of exports of militarily useful technologies. While national security agencies may be informed of applications, due time is needed for their consideration.
However, the time frame for consideration is not always sufficient for the Department of Defense to determine whether a license should be granted, or if conditions should be imposed.
In addition, the Intelligence Community has sought a role earlier in the licensing process in order to evaluate the technology and end user.
B. Dividing the licensing responsibilities for satellites between the Departments of Commerce and State permitted the loss of U.S. technology to the PRC.
The 1996 decision to give Commerce the lead role in satellite exporting was properly reversed by the Congress.
Divided jurisdiction between Commerce and State over satellite export licensing has facilitated the loss of U.S. technology to the PRC.
While licensing authority regarding rockets has always remained with the State Department, in 1992 certain aspects of satellite licensing were transferred to Commerce.
For nearly a three-year period thereafter, Commerce licenses did not require Department of Defense monitors for launch campaigns. Accordingly, U.S. Government officials did not monitor several launches and launch campaigns. Given the PRCĖs efforts at technology acquisition, it would be surprising if the PRC did not attempt to exploit this situation.
In 1995, a Commerce Department official improperly authorized the transfer, in the context of a launch failure investigation, of information regarding rocket design that would almost certainly have been prevented had the Department of State been consulted.
In October 1996, all remaining authority for commercial satellite licensing was transferred to Commerce.
Legislation passed by Congress in 1998 eliminated the split jurisdiction and assigned all licensing of satellite exports to the Department of State.
C. U.S. policies relying on corporate self-policing to prevent technology loss have not worked.
Corporate self-policing does not sufficiently account for the risks posed by inherent conflicts of interest, and the lack of priority placed on security in comparison to other corporate objectives.
To protect the national security interests of the United States, the U.S. Government imposes substantial requirements on U.S. businesses exporting technology to the PRC. These can include obtaining a license, satisfying additional conditions imposed in the license, paying for U.S. Government monitors, and providing security guards.
Under current policies, whether U.S. national security is in fact protected from the loss of export-controlled information thus depends in large part on the vigilance, good will, and efforts dedicated by business to comply with lawful requirements.
Corporations may often face inherent conflicts of interest in complying with U.S. export laws. Corporate interests that may conflict with restricting exports as required by U.S. law include:
- Corporate goals to expand overseas markets and to satisfy current or prospective customers
- Urgent business priorities that compete for the attention of corporate management
- An unwillingness to devote the financial resources necessary for effective security
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