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 TIME on politics Congressional Quarterly CNN/AllPolitics CNN/AllPolitics - Storypage, with TIME and Congressional Quarterly

Satellite Launches in the PRC: Loral

page 3

Meeting on April 24, 1996 On April 24, 1996, the PRC representatives attempted to answer some of the questions presented by the Independent Review Committee on the previous day. There was also continued discussion of the launch failure analysis, and plans were made to continue the meeting in Beijing on April 30 and May 1, 1996.107

The Hughes committee members, Steinhauer and Smay, did not attend the meeting on April 24.108

The following is the agenda for the April 24 Palo Alto Independent Review Committee meeting:


9:00 AM REVIEW OF PROGRESS TO DATE IRC
9:30 AM REVIEW OF LM-3/LM-3B DIFFERENCES CGWIC
10:30 AM BREAK
10:45 AM CONTINUE REVIEW OF LM-3/LM-3B CGWIC
12:00 PM LUNCH
1:00 PM ACTION ITEMS FOR LM-3/APSTAR 1A IRC
3:00 PM BREAK
3:15 PM WRAP UP AND PREPARATION FOR BEIJING MEETING IRC
4:00 PM OPEN DISCUSSION ALL
5:00 PM END


United States Trade Representative Meeting on April 23, 1996
On April 23, 1996, Nick Yen, Loral's Intelsat 708 Launch Operations Manager and Secretary of the Independent Review Committee, and Rex Hollis, an employee in Loral's Washington, D.C. office, met with various U.S. Government officials at the offices of the U.S. Trade Representative in Washington, D.C.

In a memorandum prepared by Yen dated May 15, 1996, memorializing this April 23, 1996 meeting, Yen described the purpose of the meeting as an informal briefing on the activities leading up to and including the launch failure.109

According to Yen's memorandum, the U.S. Government representatives at the meeting were interested in the accuracy of claims by the PRC authorities about the extent of the damage caused to a nearby village by the rocket's explosion. They were also interested in the course of action that was being taken to correct safety problems and deficiencies at the launch site.

According to the memorandum, which was prepared after the State Department inquiries about possible export violations by Loral and three weeks after the meeting, Yen mentioned that an independent review committee headed by Wah Lim had been created.110

The memorandum reflected that Yen told the meeting attendees that, since launch site safety related to how the rocket behaves, the Independent Review Committee would review the findings, conclusions, and corrective actions performed by the PRC Failure Investigation Committee, and set the necessary safety implementation requirements for China Great Wall Industry Corporation to consider for its future customers, not just Loral.111

Yen did not tell the attendees that Loral did not have a license to participate in the investigation.

The memorandum stated that one of the U.S. Trade Representative officials, Don Eiss, requested a copy of the Independent Review Committee formal report when it became available. According to the memorandum, Yen told Eiss that he would have to consult with Lim prior to the dissemination of the report. There is no indication that the report was ever disseminated to any of these U.S. Government representatives. The memorandum reflected no substantive discussion concerning the Independent Review Committee report.112

The meeting was not about export licensing for failure analyses, and no U.S. official at this meeting has been identified as an export licensing officer. Loral, in its Voluntary Disclosure, admitted that:

[T]his meeting cannot be taken as U.S. government consent to Loral's activities on the IRC (particularly as the State Department personnel were not from the Office of Defense Trade Controls).113

The April and May 1996 Independent Review Committee Meetings in Beijing
Meeting on April 30, 1996
On April 30, 1996, the second series of Independent Review Committee meetings convened, this time in Beijing. Hughes committee member Robert Steinhauer did not attend this meeting. The committee members stayed at the China World Hotel, and were transported by van from their hotel to the meeting location.

The meeting was held in a large room in a building on the China Great Wall Industry Corporation campus. In attendance were representatives from various PRC aerospace organizations.

According to Independent Review Committee members, various PRC representatives made presentations concerning different aspects of their launch failure investigation.

Many of the committee members say that it was difficult to understand parts of the presentation. In some instances, the presentations were made in Chinese and interpreted for the committee members. Some of the committee members say that, in their opinion, the interpreters did not have technical backgrounds. According to some of the committee members who testified, this lack of technical training contributed to the difficulty in understanding the PRC presentations.

The following is the agenda for the first day of the Beijing Independent Review Committee meeting:

Members' Caucus at the China World Hotel On the evening of the first day, the Independent Review Committee members and technical staff held a caucus in a meeting room at the China World Hotel. The purpose of the meeting was to discuss the presentations that had been made by the PRC, to consider the possible causes of the launch failure, and to decide on what to present to the PRC participants the following day.

The caucus meeting ran from about 7:00 p.m. to at least 10:00 p.m. No PRC personnel were present. However, according to testimony presented to the Select Committee, the discussion was almost certainly secretly recorded by the PRC.

Topics of discussion included, among others:

  • Proposed failure modes
  • Redundancy
  • High fidelity testing
  • Gimbals
  • Gyroscopes
  • Torque motors
  • Telemetry data
  • The oscillatory behavior of the flight

During the caucus, the Independent Review Committee members expressed views that were incorporated in attachment IV of their Preliminary Report. One committee member described the meeting as a "brainstorming" session.

The same member stated, "I'm sure we felt that we had to get together and try to summarize and understand and agree among ourselves what we thought we had heard and seen that day, and that was the whole idea . . . . It gave us a chance to talk among ourselves and review what we had heard and perhaps raise questions."

Striking is one Independent Review Committee member's admission that there were probably things said in these supposedly closed meetings of the committee that they would not have said in front of the PRC officials.

According to a document reflecting discussions in the caucus meeting, the Independent Review Committee members were focusing on the following failure modes:

  • Broken wires in general, as postulated by the China Academy of Launch Technology
  • Frozen follow-up gimbals, a failure mode not considered by the PRC
  • Open loop in the feed back path114

As early as February 29, 1996, China Great Wall Industry Corporation had identified that there was a problem with the inertial platform.115 In a March 28, 1996, Information Release from China Great Wall Industry Corporation, the PRC announced that they were one experiment away from completing the simulation experiments on the Long March 3B failure scenarios.116 The Information Release stated that they had analyzed the telemetry data and the failure mechanism. Through this analysis, they had isolated four inertial platform failure modes:

  • A broken wire to the torque motor for the inner frame
  • A blocking of the inner frame axis
  • An open loop of the follow-up frame
  • Environmental stress

From its analysis of the telemetry data, China Great Wall Industry Corporation determined that during the 22-second flight of the Long March 3B, there were three distinct cycles, each of which lasted a little over seven seconds. Witnesses at the launch confirmed that the rocket veered three times before impact. China Great Wall Industry Corporation theorized that the rocket veered as the result of a faulty wire (or flawed solder joint) in the inertial platform, which intermittently disconnected and reconnected at the end of each of the three cycles.117

By the time of the Beijing insurance meeting on April 15, 1996, China Great Wall Industry Corporation had eliminated two of the four failure modes identified in March. Specifically, they isolated the problem to the inner frame and posed the following possibilities:

  • Electrical circuitry problems: open loop through the inner frame; broken wire; poor contact; or false welding
  • Mechanical problems: the axis of inner frame clamping; foreign object blocking118

Viewgraphs supplementing their report stated that the inertial platform veered three times during the 22-second flight, and that the first periodic motion occurred in the torque motor on the inner frame axle of the platform.119 China Great Wall Industry Corporation presented similar information to the Independent Review Committee participants at the first meeting of the committee in Palo Alto from April 22 to 24, 1996.

At the second Independent Review Committee meeting in Beijing, China Great Wall Industry Corporation continued to emphasize the inner frame as the problem. In fact, they provided the Independent Review Committee participants a failure tree that specifically eliminated all but the inner frame as a potential failure mode.120

In the words of one Independent Review Committee participant, "I think if they had not had the IRC, they would have sold that one down the line."

The Independent Review Committee was not convinced. First, several committee participants thought the disconnecting and reconnecting wire theory either was not plausible or was "highly unlikely." In addition, China Great Wall Industry Corporation was only able to replicate the first seven to eight seconds of the flight, rather than the full 22-second flight. Finally, China Great Wall Industry Corporation had not resolved a fundamental question as to why the telemetry data in the follower frame was flat, rather than oscillating.121

In a continuing effort to persuade China Great Wall Industry Corporation to explain the behavior of the full 22 seconds of flight, the Independent Review Committee provided comments to the PRC after the first day of the Beijing meeting. The Independent Review Committee stated that "China Academy of Launch Technology should consider to perform a simulation test using an open feed back path as the initial condition. It is also very critical for CALT [China Academy of Launch Technology] to explain why the follow-up gimbal resolve[r] (angle sensor) stayed flat throughout the flight." 122

While the Independent Review Committee generally acknowledged China Great Wall Industry Corporation's proposed failure modes, they did so only after modification. For example, the PRC proposed a "broken wire to the torque motor for the inner frame," while the Independent Review Committee proposed a "broken wire in general as postulated by CALT." While the PRC proposed a "blocking of the inner frame axis," the Independent Review Committee proposed "frozen follow-up gimbals." 123

Meeting on May 1, 1996
May 1, 1996, was the second day of the Independent Review Committee Beijing meetings. The following is the agenda for the second day's of that meeting:

8:20 IRC MEMBERS LEAVE HOTEL CGWIC
9:00 IRC'S REVIEW TO THE ANSWERS IRC 11:00 DETAILED DISCUSSIONS OF LM-3 AND LM-3B FAILURE ALL ISOLATION ANALYSIS AND IMU FOR LM-3 & LM-3B
MANUFACTURING AND TEST PROCEDURE ETC.
12:00 LUNCH BREAK (BUFFET)
13:00 TOUR OF THE ASSEMBLY WORKSHOP OF L/V,
THE IMU TEST FACILITY ALL
16:00 WRAP UP SESSION IRC/CGWIC
17:00 SUMMARY OF FINDINGS TO DATE
AND CONCLUSION IF AVAILABLE IRC
19:00 DINNER HOSTED BY CASC

During the morning session, a "splinter meeting" was held to specifically discuss the inertial platform. The meeting was attended by the five Independent Review Committee members, and a small group of PRC engineers.124 During the meeting, the committee participants sought clarifications concerning the signal flow diagrams in order to determine the cause of the open circuit.

During the Independent Review Committee meetings in Beijing, several of the Independent Review Committee members toured the PRC manufacturing and assembly facilities for the Long March 3B inertial measurement unit. During those tours, the Independent Review Committee members commented to the PRC engineers about the quality control practices used by the PRC. These comments on quality control were reiterated in the Independent Review Committee Preliminary Report sent to China Great Wall Industry Corporation on May 10, 1996.125

The Independent Review Committee Preliminary Report Writing the Report
Upon completion of the Beijing Independent Review Committee meeting on May 1, 1996, the process of writing the report began. Wah Lim delegated the task of writing the major portion of the report to John Holt, the British committee participant, because he seemed to have the best understanding of the issues related to the Long March 3B inertial measurement unit.126

On or about May 2, 1996, Holt faxed his draft summary to Nick Yen, the Secretary of the Independent Review Committee, at Loral. Yen then disseminated Holt's draft summary to the other Independent Review Committee members. The committee members subsequently provided their comments on Holt's draft to Yen and Lim.127

Loral Sends the Draft Report to the PRC
Yen assimilated all of the material into a draft Preliminary Report during the period May 2 to 6, 1996. He completed the draft Preliminary Report around May 6 or 7, 1996. Yen then showed the report to Loral's Wah Lim, the Chairman of the Independent Review Committee. Lim suggested changes, and told Yen to send it to the Independent Review Committee members, and to the China Great Wall Industry Corporation.

On May 7, 1996, Yen distributed the draft Preliminary Report to the Independent Review Committee members and technical staff for additional comments.128

On the same day, Yen also faxed a copy of the draft to China Great Wall Industry Corporation in the PRC.129

According to interview notes of Lim taken by a Feith & Zell attorney, Lim acknowledged that he instructed Yen to send the draft Independent Review Committee report to everyone, including the PRC, on May 7, 1996.130

It should be noted that Lim refused to be interviewed or deposed during this investigation.

The Contents of the Draft Report The Independent Review Committee's Preliminary Report repeated the committee's concerns that China Great Wall Industry Corporation's conclusions were debatable. As a short-term recommendation, the Independent Review Committee stated:

An explanation of the total flight behavior is essential to fully confirm the failure mode.131 A mathematical numerical solution is recommended immediately, to be followed by a hardware in the loop simulation test when possible . . .132

In addition, the draft Preliminary Report documented the Independent Review Committee's view that an intermittently reconnecting wire - the PRC's theory - was not necessary for the rocket to behave in the manner in which it did.

Specifically, the Independent Review Committee postulated that a single disconnection-without reconnection-would be "a much simpler, and more plausible, explanation." 133

The Independent Review Committee repeated its concern that "the open circuit could be at various other physical locations," suggesting that the problem might not be in the inner frame,134 as was posited by the PRC.

The Independent Review Committee participants questioned China Great Wall Industry Corporation's assertions that the flat data from the follower frame were bad data.135 They therefore requested that China Great Wall Industry Corporation confirm that the follower frame had functioned properly during flight.

Ten days after China Great Wall Industry Corporation received the Independent Review Committee's Preliminary Report, it abandoned testing of the inner frame, and started vigorously testing the follower frame.

One month later, China Great Wall Industry Corporation determined that the cause of the failure was an open feed back path in the follower frame. This finding was confirmed in a presentation by China Great Wall Industry Corporation to Loral, Hughes, and others in October 1996.

In addition to these observations, the Independent Review Committee document recommended that a "splinter" meeting be held the following day to examine more closely the failure modes related to the inertial guidance system of the Long March 3B.136 John Holt, John Smay, Jack Rodden, Fred Chan, and Nick Yen were selected to participate in the meeting.137

Notification to Loral Officials That a Report Had Been Prepared
On or about May 6, 1996, Lim spoke during a Loral staff meeting about the work of the Independent Review Committee, and mentioned that a report was going to be submitted to the insurance companies on or about May 10, 1996.

Julie Bannerman, Loral's General Counsel, says that she was concerned about the possibility that the company might incur some liability to the insurance companies because Loral employees would be associated with representations that were made in the report. Bannerman advises that, for this reason, she wanted to add a disclaimer to the report.138

Thus, Bannerman believes that she asked Lim to provide her a copy of the report prior to its dissemination, although she has no specific recollection of making the request.139

Bannerman says she does not recall any mention at the Loral staff meeting that the report was being provided to the PRC.140

Loral Review and Analysis of the Independent Review Committee Report
Loral General Counsel Julie Bannerman says that she found a copy of the Independent Review Committee draft Preliminary Report on her desk on May 9, 1996. She does not know who put the document on her desk, but believes that it was probably Wah Lim.141

Bannerman says that she looked at the report and realized that it contained technical information she did not understand. As a result of the concern this caused her from an export control perspective, she says she began preparing a memorandum to send to Loral's outside legal counsel, Feith & Zell in Washington, D.C., for review.142

During the preparation of her memorandum, Bannerman says that she telephoned Loral Export Control Manager William Schweickert because she wanted to mention his April 22, 1996, export briefing in the memorandum. Schweickert provided her with the requested information, which she included in approximately one line in the memorandum, but she does not recall whether she advised Schweickert that a draft report had been prepared by the Independent Review Committee.143

Bannerman says that she faxed her memorandum and the draft Preliminary Report to Mark Feldman, an attorney at Feith & Zell. She did not call Feldman prior to transmitting the document.144

Bannerman says that she was concerned that the draft Preliminary Report might include technical data or defense services that required an export license (which Loral did not have), or that it represented activities that might require a license. However, she says she could not make that judgment. She did not consider it necessary at this point in time to call Lim because "the issue at hand was present in the document." Bannerman advises that she did not speak with Lim on May 9, 1996.145

Bannerman recalls believing that, since the draft Preliminary Report was in her possession, it would not be disseminated outside Loral. Bannerman says that, at this point - May 9, 1996 - she was not aware that the draft Preliminary Report had been disseminated to anyone.146

The Final Preliminary Report is Sent to the PRC
Loral's General Counsel, Julie Bannerman, says that on May 10, 1996, Loral Export Control Officer Duncan Reynard returned from vacation and came to her office. Bannerman showed him the Independent Review Committee report, since she wanted his advice on how to handle the document.147

Bannerman says that Reynard's immediate comments concerned the quality of the report, not necessarily its substance. Bannerman says that she and Reynard called Mark Feldman at Loral's outside counsel, Feith & Zell, to see if he had yet reviewed the report. According to Bannerman, Feldman said that he had reviewed it, was concerned about the structure and apparent purpose of the document, and thought that some issues required resolution.148

Bannerman says she believed the report would not be sent outside Loral until she and Reynard had more information.149

Bannerman says that she and Reynard advised Loral President Berry of the situation, and he concurred in their recommendation not to allow dissemination of the report.150

Bannerman says that her recollection is uncertain on this point, but she believes that Reynard was responsible for preventing any dissemination of the draft Preliminary Report, and was going to talk to Wah Lim about that. Bannerman also believes that she may have called Lim and told him not to disseminate the report. She says that her recollections of the remainder of that day are vague, but that she recalls going home with the understanding that the "mission had been accomplished." 151

Reynard says his recollection is that Bannerman was going to speak to Lim, and he was going to speak with Yen. Reynard says that, after the meeting with Bannerman, he went to Yen's office at approximately 11:30 a.m. that same day, May 10, where he saw a number of reports on Yen's table. Reynard says that Yen confirmed that the documents were copies of the draft Preliminary Report. Reynard says that Yen told him that he was preparing the reports for dissemination to the Independent Review Committee members.152

Reynard says he told Yen that the reports could not go out until Loral had State Department approval, or a license, and that Yen said he understood this. Reynard said he did not ask Yen whether the reports had been sent out, because they were on Yen's desk. Reynard says he took some copies of the report, so that he could show them to U.S. Government officials.153

Yen finished the final Preliminary Report on May 10, 1996. He took it, and a cover letter addressed to China Great Wall Industry Corporation, to Lim for his review. Lim looked at the report quickly and signed the cover letter.

Yen faxed the report to China Great Wall Industry Corporation in the PRC shortly afterward that same day.

Later that day, Lim asked Yen if the report had been sent to the China Great Wall Industry Corporation. When Yen replied that it had, Lim indicated that Loral might have to apply for a license for the Independent Review Committee activity.

Another Copy of the Report Is Sent to Beijing
On May 13, 1996, Lim's office instructed Yen to send the report to Paul O'Connor at J & H Marsh & McLennan in Washington, D.C. After receiving the report in its Washington office, J & H Marsh & McLennan requested the report be faxed to O'Connor in Beijing. Apparently Lim specifically approved faxing the report to O'Connor in Beijing.

Lim's May 13, 1996, letter transmitting the final Independent Review Committee Preliminary Report to O'Connor says, in part:

This [Report] will not be delivered to CGWIC [China Great Wall Industry Corporation] and its launch service agencies until the export license or an equivalent authorization is obtained." 154

This letter is inconsistent with Yen's having already transmitted the draft Report to China Great Wall Industry Corporation six days earlier, on May 7. It is also inconsistent with Lim's letter three days earlier, on May 10, transmitting the final Independent Review Committee Preliminary Report to China Great Wall Industry Corporation, which was faxed to the PRC on that date by Yen.

It should be noted that Lim refused to be interviewed in this investigation, despite the issuance of a subpoena.155 Moreover, the Department of Justice has requested that further details of this aspect of the Select Committee's investigation not be publicly disclosed because it would compromise the criminal prosecution of Loral, Hughes, and their employees. Since the details can be made public as part of such a prosecution, the Select Committee has agreed to this request.

Loral Management Actions After Delivery of the Report to the PRC
Loral General Counsel Bannerman recalls a meeting in Loral President Berry's office, possibly on May 14, 1996, concerning the Independent Review Committee matter.

Bannerman believes that Loral's Executive Vice President, Pat Dewitt, may have called the meeting to discuss a May 14, 1996, memorandum prepared by Loral Export Control Manager Reynard. The memorandum raised concerns about possible violations of the International Traffic in Arms Regulations on the part of Loral.156

Loral President Berry and Weh Lim, the Chairman of the Independent Review Committee, were also present at the meeting.

During the meeting, Bannerman says Dewitt was concerned about whether or not the Preliminary Report had been disseminated. She says he asked Lim to confirm that it had not.157

Bannerman says Lim made a telephone call at that point in the meeting, but she does not know to whom. Bannerman does not recall that Lim actually confirmed at this meeting that the Preliminary Report had not been sent. However, she says the meeting participants "received the message" that Lim had stopped the report from being disseminated.158

Bannerman believes a meeting was set up for the following day, May 15, 1996, in order to receive a telephone report from Reynard, who was in Washington meeting with U.S. Government representatives concerning the report.159

Reynard says he recalls the meeting on May 14, 1996, in Berry's office, during which he gave copies of a memorandum he prepared to Bannerman, Berry, and Dewitt.160

Reynard says the purpose of the memorandum was to get people's attention on the Independent Review Committee report and necessary action. He says the bold print in the memorandum indicated that he was strongly trying to get people's attention. The final page of the memorandum contained recommended courses of action.161

One of the memorandum topics concerned an article that appeared in Space News. The article reported that the Independent Review Committee's report had been released to the PRC on May 10, 1996. Reynard says that he considered the article to be inaccurate because, to the best of his knowledge, the report had not been released.162

Another topic of the memorandum concerned possible violations of the International Traffic in Arms Regulations, but Reynard does not think there was any "real" discussion of that specific concern at the meeting.163

Reynard says that at this point he did not know the report had been disseminated to the PRC. Reynard says the meeting did not last long, and that Berry told him at the meeting to go to Washington and to do whatever was necessary regarding the Independent Review Committee's report.164

On May 14, 1996, Yen received a call from Lim requesting that Yen be present at a meeting on May 15, 1996, in Berry's office. The purpose of the meeting was to have a telephone conference with Reynard, who was in Washington meeting with State Department and Defense Technology Security Administration officials regarding the Independent Review Committee activity.

Defense Department Official Discovers the Activities of the Independent Review Committee
After reading an article in Space News that described Loral's involvement in a launch failure investigation, Defense Technology Security Administration official Robert Kovac called Loral's Washington Representative, Harold Bradshaw, on or about May 14, 1996. Kovac inquired about the license that Loral relied upon to conduct the investigation. When Bradshaw could not provide an answer to Kovac's question, a meeting was scheduled for May 15, 1996.165

Meeting with the Defense Technology Security Administration
On May 15, 1996, Loral's Reynard and Bradshaw met with Kovac and two other officials of the Defense Department's Defense Technology Security Administration. Later that day, Reynard and Bradshaw met with representatives of the State Department's Office of Defense Trade Controls.

At the meeting with the Defense Department officials, the Defense Technology Security Administration reviewed the Preliminary Report and expressed concerns about the technical data it contained.

The Defense Technology Security Administration participants were shocked that the Preliminary Report contained references to technical discussions with the PRC concerning inertial navigation systems. Kovac told the Loral representatives that, in his opinion, Loral had potentially violated the law and was in the process of violating it "big time" by providing the report to the PRC.

Kovac specifically asked Reynard whether the document had been provided to the PRC. Reynard replied that it had not. But it had, he said, been disseminated to the Independent Review Committee members.

Kovac specifically advised that Loral should submit a voluntary disclosure to the State Department.

Kovac had follow-up conversations with Bradshaw, but no other conversations with Reynard.

In Kovac's opinion, the State Department DSP-5 license, No. 544593, issued to Loral for the export of technical data in support of technical discussions for the launch of an Intelsat VIIA satellite, did not allow Loral to provide any technical assistance to the PRC.

Meeting with the State Department
On May 15, 1996, following their meeting with the Defense Technology Security Administration. Loral's Reynard and Bradshaw met with Dr. Kenneth Peoples, the State Department licensing officer for the Intelsat 708 satellite launch.

Bradshaw had asked for a meeting at the State Department's Office of Defense Trade Controls to discuss Loral's involvement in a failure analysis with the PRC.

Based on Loral's presentation about the launch failure investigation of the Intelsat 708 satellite, Peoples believed there was a serious possibility the International Traffic in Arms Regulations had been violated.

Peoples recommended that Loral provide a letter to William Lowell, Director of the State Department's Office of Defense Trade Controls, concerning the matter. Loral subsequently delivered a box of documents relating to this matter to the State Department.

Reynard's Telephone Call to Loral On May 15, 1996, Loral officers Bannerman, Berry, Yen, and Dewitt - but not Lim - were present in a meeting room at the company to receive a telephone call from Loral's Export Control Officer, Duncan Reynard, who was in Washington. Bannerman recalls that Reynard called and briefed them on his meeting with U.S. Government officials.166

Bannerman's recollection is that the meeting was related to the Independent Review Committee. However, she does not recall whether the meeting was convened to initiate discussions about instituting a Loral investigation of the Independent Review Committee matter, or whether the purpose was to just to speak with Reynard.

Bannerman says that they (Loral) got the message that all Independent Review Committee activity should be ceased.167

Bannerman says she has no recollection of any discussion during this meeting about whether the Independent Review Committee report had been sent to the PRC. Bannerman's recollection is that it was decided that Loral would initiate an investigation into the matter upon Reynard's return from Washington.168

Bannerman says the message received from Reynard during this meeting was that Loral was not only to stop all Independent Review Committee activity, but also to retrieve all copies of the documents that had been disseminated. Bannerman says she cannot recall Reynard making any comments about whether the Independent Review Committee report had been disseminated to the PRC.169

Bannerman says that Yen was present for Reynard's telephone call, and that Yen did not say that he had disseminated the Independent Review Committee report to the PRC.170

Others present also recall that Reynard said that the Independent Review Committee was not a good idea, and that Loral should prepare a voluntary disclosure.

After the telephone conference with Reynard ended, Lim asked Yen to retrieve the Independent Review Committee reports that had been distributed to the foreign committee members. But Lim did not ask Yen to retrieve the copies that had been sent to the other Independent Review Committee members, or to China Great Wall Industry Corporation.

Bannerman says she has no specific recollection of meeting with Reynard upon his return from Washington. However, she believes she probably did, and that Reynard initiated a preliminary investigation into the matter.171

Loral Management Discovers the Independent Review Committee Report Has Been Sent to the PRC Bannerman says that Reynard told her on May 20, 1996, that Yen had admitted earlier that day he had disseminated the report to the PRC.172

Reynard advises that he confronted Yen in a small office at Loral, and asked him directly whether he had disseminated the report. Yen admitted, says Reynard, that he had transmitted the report to the PRC on May 10, 1996.173

Reynard says he did not ask Yen why Yen had not told anyone at Loral previously that he had disseminated the document to the PRC.

After receiving the information that the report had been sent to the PRC, Bannerman believes she advised Pat Dewitt, Loral's Chief Financial Officer, about the situation. She says she does not remember whether they told Berry about the matter at this time.174

Bannerman recalls making a decision that she wanted outside counsel to conduct an investigation, and that she did not interview Lim or Yen about the matter because outside counsel was going to investigate. Bannerman says she believed that the matter required delicate handling.175

Loral's 'Voluntary' Disclosure Investigation by Loral's Outside Counsel From May 29 through 31, 1996, an attorney from Loral's outside counsel for export matters, Feith & Zell, visited Loral's facility in Palo Alto and interviewed almost all of the Loral personnel referred to by name in the disclosure. Two Feith & Zell attorneys returned to Palo Alto from June 4 through 6, 1996, to hold follow-up interviews and review additional documents. Feith & Zell eventually completed the investigation and prepared a disclosure that was submitted on June 17, 1996, to the State Department.176

Loral Submits Its 'Voluntary' Disclosure to the State Department The disclosure by Loral chronicles the company's version of the involvement of Loral personnel in the Intelsat 708 launch failure investigation. It analyzes the Independent Review Committee meetings held in both Palo Alto and Beijing, as well as the preparation and dissemination of the Preliminary Report.177

This submission was in response to a May 29, 1996 letter from William Lowell of the State Department, advising Eric Zahler, General Counsel of Loral Space and Communication, Loral's parent corporation, that there was reason to believe that Loral may have participated in serious violations of the International Traffic in Arms Regulations by providing unauthorized defense services to the PRC in connection with the February 1996 launch failure investigation.178

Lowell recommended that Loral:

* Take immediate steps to cease all related activity that may require approval

* Provide a full disclosure

* Enumerate all releases that were controlled under the International Traffic in Arms Regulations179

The following outlines the substance of Loral's Voluntary Disclosure and its appendices and exhibits.

Outline of Loral 'Voluntary' Disclosure

Summary - Nature Loral's disclosure claims that the Independent Review and Extent of Issues Committee's activity raises three questions: (1) Did Loral furnish China Great Wall Industry Corporation with "technical data"; (2) did Loral furnish China Great Wall Industry Corporation with a "defense service"; (3) did Loral furnish non-U.S. members of the Independent Review Committee with "technical data"

Identities and Addresses of List of all persons and organizations involved in the Independent Review Committee matter (Appendix B)

Individuals and Organizations

Export License Numbers

Licenses for the Intelsat VIIA satellite program. There is no Technical Assistance Agreement authorizing Independent Review Committee activity.

Munitions List Items Loral's disclosure that a central issue is whether the Independent Review Committee activities constituted a "defense service" in connection with a rocket.

Facts and Circumstances An outline is presented of Loral's involvement in the Independent Review Committee activities.

Summary of Key Mistakes Loral acknowledges it was a serious mistake to not seek prior State Department approval. Loral notes that Government Security Committee instructions regarding the need to seek advance State Department approval were not followed. Loral acknowledges that the export control briefing at first Independent Review Committee meeting was deficient, and that the Preliminary Report was sent to China Great Wall Industry Corporation without any review by Loral export control staff.

Corrective Actions
The thrust of corrective measures proposed is:

(a) improve export control training of all Loral staff who engage in or authorize communications with foreign persons

(b) tighten procedures to ensure communication and follow-up between Loral export control staff and program staff

(c) reinvigorate corporate policy on the priority of export control law compliance

Mitigating Factors Loral claims as mitigating factors, if the State Department should find that Loral violated export regulations, that the Government Security Committee functioned well. Any wrongdoing, Loral claims, was unintentional; they had no intent to provide technical assistance to China Great Wall Industry Corporation; there was minimal harm to U.S. interests; Loral takes compliance seriously; and they are taking corrective measures.

Conclusions
Loral acknowledges that several deficiencies had been revealed in Loral's export control procedures. Loral claims its staff acted in good faith. Loral asserts the harm to U.S. interests appears to have been minimal.

Supporting Material with Loral 'Voluntary' Disclosure

Appendix A Certification by Loral President, Robert Berry.

Appendix B List of all persons and organizations involved in the Independent Review Committee matter.

Green Binder Copies of all materials furnished by the Independent Review Committee members to China Great Wall Industry Corporation.

Blue Binder (3 volumes) Copies of all materials furnished to the Independent Review Committee by China Great Wall Industry Corporation.

Yellow Binder Miscellaneous materials.

Red Binder Loral export procedures and training materials.

Loral's disclosure to the State Department was silent as to why Yen disseminated a draft copy of the Independent Review Committee Preliminary Report to China Great Wall Industry Corporation on May 7, 1996.

Also, no reason was provided as to why Yen disseminated the final version of the Independent Review Committee Preliminary Report to China Great Wall Industry Corporation on May 10, 1996.

In addition, Loral's disclosure failed to identify - among other issues - the following facts:

  • During the time in which the Independent Review Committee was formed and conducted its activities, Loral did not adequately staff its export control function.180
  • In January 1995, Loral assigned responsibility for drafting its "Export Control Operating Procedures" by January 25, 1996. As of July 1996, those procedures had not been drafted.181
  • Even though the issue of Loral's participation in the Independent Review Committee was discussed at the April 11, 1996 Government Security Committee meeting, no one communicated the substance of that discussion to any of the participants in, or to the Chairman of, the Independent Review Committee.
  • No one, other than the participants in the Independent Review Committee, ascertained the type and extent of the Independent Review Committee's failure review activities.182
  • No one conducted any research to determine whether the intended activities of the Independent Review Committee were legal or consistent with Loral's company policy.183
  • Adequate notice was not given regarding the impending visit of PRC engineers to Loral's facility in Palo Alto.184
  • Loral failed to adequately review the export control briefing to be delivered to the Independent Review Committee, even though the drafter of that briefing had never prepared an export control briefing in connection with a failure review.185
  • No one ensured that the delivery of that briefing to the participants of the Independent Review Committee was adequate.186
  • At the time of the first Independent Review Committee meeting in Palo Alto, Loral's President, Executive Vice President, and Export Control Manager traveled to Europe in connection with an unrelated business trip and vacation.187
  • No one monitored the Independent Review Committee's failure review activities in the PRC.188
  • Once it was determined that a report had been drafted, no one effectively communicated to the responsible Loral employees that the report should not be transmitted to the PRC prior to review by Loral's General Counsel or the U.S. Government.189
  • Officers at Loral's parent, Loral Space and Communications, Ltd., were not involved in oversight of Loral's participation in the Independent Review Committee and acknowledge that they were distracted by other business matters, primarily the sale of Loral's defense assets to Lockheed Martin.190
  • No one was reprimanded, subjected to the company's administrative action, or fired in connection with the matter.191

The 'Voluntary' disclosure failed to disclose the following indications that Loral employees were generally aware of the export restrictions related to failure reviews:

  • Nick Yen, the Independent Review Committee Secretary, was aware of the export control hazards that attended failure reviews, as evidenced by the fact that he had reported his concerns regarding Hughes' participation in the 1995 Apstar failure review.192
  • The technical data license for the Intelsat 708 stated: "The contractor must not provide any technical assistance whatsoever to its Chinese counterparts which might assist China to design, develop, or enhance the performance of any of its contemplated or existing space launch missiles or facilities." 193
  • Numerous Loral personnel, including the Executive Vice President, General Counsel, Export Control Manager, and Yen, were aware of, or participated in, contemporaneous discussions with the State Department regarding the permissible bounds of Loral participation in PRC failure analyses. These discussions were embodied in an April 3, 1996 Loral proposal to the State Department of license language that would restrict Loral's participation in possible failure analyses in connection with the upcoming Mabuhay and Apstar Long March launches. Loral's proposal was that it would not comment or ask questions in the course of any such failure analyses.194
  • On or about January 24, 1996, a few weeks prior to the Intelsat 708 failure, Loral received and reviewed the Apstar technical data export license issued to Loral by the U.S. Government. The license barred Loral from passing any technical data to the PRC in connection with a failure investigation. The license stated: "[D]elete any discussion or release under this license of any technical data concerning launch vehicle [i.e., rocket] failure analysis or investigation." 195 This came to Loral senior management's attention shortly after the license was received.
  • On or about February 22, 1996, a week after the Intelsat 708 failure, Loral received and reviewed the Mabuhay technical data export license issued to Loral by the U.S. Government. The license barred Loral from passing any technical data to the PRC in connection with a failure investigation. The license stated: "[D]elete any discussion or release under this license of any technical data concerning launch vehicle [i.e., rocket] failure analysis or investigation." 195 This came to Loral senior management's attention when the license was received.

The Loral disclosure acknowledged that it was a serious mistake not to have sought State Department approval for the Independent Review Committee activities. The disclosure did not admit to any violations of the International Traffic in Arms Regulations, although it recognized that the issue of assistance to China Great Wall Industry Corporation raised problems under these regulations. The disclosure advised that Loral's policy was to seek State Department approval before proceeding with activities such as the Independent Review Committee.197

The disclosure stated that Loral was taking a series of corrective actions to ensure that similar mistakes do not happen again. The thrust of those measures was to:198

  • Improve export control training of all staff who engage in or authorize communications with foreign persons.
  • Tighten procedures to ensure communication and follow-up between export control staff and program staff.
  • Reinvigorate the corporate policy that compliance with export control laws and regulations takes priority over business concerns.

The PRC Gives Its Final Failure Investigation Report
On October 21 and 22, 1996, China Great Wall Industry Corporation made its final launch failure presentation to officials at Loral.199 The meeting was sponsored by Loral's Mabuhay Program, which subsequently launched the Mabuhay satellite on the Long March 3B rocket on August 19, 1997.

On September 10, 1996, China Great Wall Industry Corporation had announced its final failure determination: that the cause of the February 11, 1996 Long March 3B crash was the absence of current output from the servo-loop of the follow-up frame of the inertial guidance platform.200

It should be noted that the follow-up frame failure mode had been rejected by China Great Wall Industry Corporation during the Beijing Independent Review Committee meetings.201 Yet, even though this mode had been rejected by China Great Wall Industry Corporation during the Beijing meetings, the Independent Review Committee included it in its final Preliminary Report as a possible failure mode.202

During the October 21 and 22, 1996 Long March 3B failure review presentation at Loral, China Great Wall Industry Corporation produced documents that showed it had started testing for the follow-up frame failure mode on or about May 20, 1996 - slightly more than two weeks after the conclusion of the Beijing Independent Review Committee meetings, and ten days after receiving the Independent Review Committee's Preliminary Report.203

China Great Wall Industry Corporation finished testing the follow-up frame failure mode on or about June 20, 1996.

Assessments by U.S. Government Agencies and Referral to the Department of Justice
Loral and Hughes each submitted information to the State Department in their disclosures regarding the Independent Review Committee. The State Department reviewed this material, and generated an assessment of the information contained in the documents that were submitted.

The State Department also asked the Department of Defense and CIA to review the materials and generate their own assessments.

The Defense Department conducted two analyses: one in August 1996, and another - by the Defense Technology Security Administration - in May 1997.

The Central Intelligence Agency provided views to the State Department in June 1996, but limited its analysis to proliferation concerns. In addition, in 1998 an interagency review team was asked to address a subset of questions that remained after the earlier assessments.

Defense Department 1996 Assessment In August 1996, the Department of Defense prepared a classified assessment of the Independent Review Committee materials. That assessment reported that the Defense Department would have recommended against issuing a license for the sharing of technical information with the PRC by Loral and Hughes. It concluded that there existed the potential for moderate harm to national security interests.

The assessment cited 18 violations that it believed had occurred during the Independent Review Committee's exchanges of information with the PRC. These examples were taken from the minutes of the second Independent Review Committee meeting, and from the draft and final versions of the Preliminary Report.

In conclusion, the Department of Defense assessment stated:

It is likely that the all-Chinese Failure Analysis Team [PRC] pursued recommendations made by Independent Review Committee in its draft report . . . and that the pursuit of these recommendations directly resulted in the Chinese team finding the correct cause of failure in the Long March 3B guidance system . . .

Evidence suggests that the Independent Review Committee very likely led the Chinese to discover the true failure of the Long March 3B guidance platform.204

Central Intelligence Agency Assessment
On June 17, 1996, the Central Intelligence Agency reported to the State Department that the Independent Review Committee report did not disclose any significant missile-related technology or know-how to the PRC's ballistic missile program. The Central Intelligence Agency judged that the Independent Review Committee's actions posed no proliferation concerns. The Central Intelligence Agency assessment was based on a review of the Independent Review Committee's preliminary report that State had received from Loral and focused only on proliferation concerns related to the PRC's ballistic missiles.

Department of State Assessment
On March 25, 1997, the State Department, after considering the views of the other agencies, reported its assessment of the Independent Review Committee's materials. That report stated: "[State] believes information passed to China . . . could significantly improve the manufacturing, production, reliability, and maintainability" of the Long March 3B guidance system.

Defense Technology Security Administration 1997 Assessment
The Defense Department's Defense Technology Security Administration issued a classified assessment of the Independent Review Committee activities on May 16, 1997. That report stated:

Loral and Hughes committed a serious export control violation by virtue of having performed a defense service without a license in the course of conducting an investigation for China of the failure of the February 1996 launch of the Long March 3B.

This activity also violated the U.S.-China Space Launch Technology Safeguards Agreement.

The defense service consisted of a full range of investigatory, engineering and corrective analyses to assist the Chinese in identifying the root cause of the failure and corrective measures.

The significant benefits derived by China from these activities are likely to lead to improvements in the overall reliability of their launch vehicles [i.e., rockets] and ballistic missiles and in particular their guidance systems.205

Based on its assessment, the Defense Technology Security Administration recommended that the matter be referred to the U. S. Department of Justice for possible criminal investigation.

Interagency Review Team Assessment In 1998 an interagency review team was asked to respond to questions regarding the Long March 3B and its guidance system. At the conclusion of the Select Committee's investigation, the interagency review team's conclusions remained in draft form. However, members of the team briefed the Select Committee staff and provided documents requested by the Select Committee.

The technical issue of greatest concern to the interagency review team was that the Independent Review Committee exposed the PRC to Western diagnostic processes. In addition, the Independent Review Committee provided the PRC with alternative possible causes of the failure that the PRC had apparently not previously considered in their investigation.

The interagency review team also found that the Independent Review Committee outlined for the PRC the general approach to isolating the true failure mode. This may have been of significant help to the PRC, and may have led it to discover the true failure mode more quickly. This could have prevented a failure in one or more subsequent rocket flights involving the same guidance system. (The Long March 3A, 3B, and 3C rockets all use the same guidance system.)206

More important still, the team members believed, was the exposure to the diagnostic test process outlined by Loral and Hughes that could improve PRC pre-flight and post flight failure analysis for their ballistic missile programs. This, in turn, could increase future ballistic missile reliability.207

Outline of What Was Transferred to the PRC

During their engagement, the Independent Review Committee members communicated with the PRC in several ways:

  • In-person conversations
  • In-person briefing presentations
  • Written questions and answers
  • Provision of other written materials:
    • - Briefing charts
    • - Meeting minutes
    • - Agendas
    • - Independent Review Committee charter and membership
    • - Independent Review Committee Preliminary Report208

The written records of these communications have been scrutinized by the several U.S. Government agencies that generated assessments of the Independent Review Committee's activities.

Independent Review Committee Meeting Minutes
The minutes for the Independent Review Committee meetings in Palo Alto and in Beijing contained questions, answers, action items, Independent Review Committee comments, agendas for the next meeting, and an Independent Review Committee preliminary assessment.209 They were transmitted to China Great Wall Industry Corporation as follows:210

  • On April 25, 1996, Yen faxed the minutes of the Independent Review Committee meeting in Palo Alto, California, to China Great Wall Industry Corporation.211
  • On May 6, 1996, Yen faxed the minutes of the Independent Review Committee meetings in Beijing to China Great Wall Industry Corporation.212

Independent Review Committee Preliminary Report
The Independent Review Committee Preliminary Report, and a draft version, were transmitted to the PRC in May 1996, as follows:

  • On May 7, 1996, Yen faxed a draft of the Preliminary Report to China Great Wall Industry Corporation, as well as to the Independent Review Committee members.213
  • On May 10, 1996, Yen faxed the final version of the Preliminary Report, less attachments, to China Great Wall Industry Corporation. He shipped complete copies to all Independent Review Committee members via express-mail.214
  • On May 13, 1996, Yen faxed the final Independent Review Committee Preliminary Report to a hotel in Beijing for Paul O'Connor of the J & H Marsh & McLennan insurance brokerage firm.215

Loral's Inaccurate Instructions on Releasing Public Domain Information to Foreigners
During a brief presentation at the first Independent Review Committee meeting in Palo Alto, the Loral Technology Transfer Control Manager gave instructions to the committee members regarding the dissemination of public domain information to the PRC.216 Statements from State Department officials indicate that the Loral instructions were not accurate. Other elements of the Loral Technology Transfer Control Officer's presentation, not addressed here, were also inadequate.

Instructions to the Independent Review Committee Regarding Public Domain Information
When, on April 22, 1996, the Independent Review Committee met for the first time at the offices of Loral in Palo Alto,217 one of the first speakers was Loral's Technology Transfer Control Manager, William Schweickert. Schweickert presented a two-page briefing on technology export control as it applied to the Independent Review Committee.

Two of the Independent Review Committee members were not present at that time, and the PRC visitors also were not present.218

The first page of the briefing material began by stating that Loral did not have an export license covering the Independent Review Committee failure review in which the audience was participating.219

It went on to list what could be done by the Independent Review Committee without a license. This list included:

  • "Receive technical information from CGWIC [China Great Wall Industry Corporation]"
  • "Request clarification"
  • "Ask questions"
  • "Indicate acceptance or rejection of conclusions"
  • "Discussions must be limited to the data presented or to information in the public domain" 220

The second chart listed the activity the Independent Review Committee could not engage in without a license. This list included:

  • "Disclosure of launch vehicle/satellite detail design, manufacturing processes or computer source code data"
  • "Disclosure of analytical tools, methodology, algorithms not in the public domain"
  • "Disclosure of information that will enhance the launch site facilities or launch vehicle/missile capabilities of the PRC" 221

The instruction in the briefing chart that said, "discussions must be limited to the data presented or to information in the public domain" indicates that the Independent Review Committee members can freely discuss information in the public domain.222 This statement was not correct.


COX REPORT

Overview
pages 1 | 2 | 3 | 4

PRC Acquisition of U.S. Technology
pages 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9

PRC Theft of U.S. Nuclear Warhead Design Information
pages 1 | 2 | 3 | 4 | 5

High Performance Computers
pages 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10

PRC Missile and Space Forces
pages 1 | 2 | 3 | 4 5 | 6 | 7 | 8 | 9

Satellite Launches in the PRC: Hughes
pages 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9

Satellite Launches in the PRC: Loral
pages 1 | 2 | 3 | 4 | 5 | 6

Launch Site Security in the PRC
pages 1 | 2 | 3 | 4 5 | 6

Commercial Space Insurance
pages 1 | 2 | 3 | 4

U.S. Export Policy Toward the PRC
pages 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9

Manufacturing Processes
pages 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10

Recommendations
pages 1 | 2 | 3

Appendices
pages introduction | A | B | C | D | E | F



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