Appendix A: The Investigation

Appendix B: Members and Staff

Appendix C: H. Res. 463

Appendix D: Hearings and Meetings

Appendix E: Interviews, Depositions, and Document Requests

Appendix F: Glossaries

All Volumes: Appendix A

Scope of the Investigation

The Select Committee on U.S. National Security and Military/Commercial Concerns with the People’s Republic of China (the Select Committee) was established pursuant to House Resolution 463, adopted on June 18, 1998 (included at Appendix C). The Resolution authorized the Select Committee to investigate a broad range of issues relating to the transfer of U.S. technology to the People’s Republic of China. The Select Committee was charged with, among other things, the responsibility to investigate any transfers of technology, information, advice, goods, or services that may have contributed–

To the enhancement of the accuracy, reliability, or capability of the PRC’s nuclear-armed intercontinental ballistic missiles or other weapons

To the manufacture of weapons of mass destruction, missiles, or other weapons

To the enhancement of the PRC’s intelligence capabilities

The Select Committee was also given the responsibility to assess the impact of such enhancements on U.S. regional or national security interests.

Faced with a broad mandate and limited time in which to complete its investigation and report to the House (effectively from July 1998 to the end of December 1998), the Select Committee necessarily focused on a limited number of issues. The Select Committee focused on the allegations relating to the Loral and Hughes launch failures; U.S. policies and practices regarding exports of high performance computers to the PRC; U.S. policies and practices regarding exports of machine tools and other advanced manufacturing technologies to the PRC; PRC activities targeted against U.S. technology; and the role of PRC espionage, including PRC-owned or dominated commercial entities in the United States, in the transfer of technology from the United States to the PRC.

H. Res. 463 also authorized the Select Committee to investigate PRC attempts to influence technology transfers through campaign contributions or other illegal means. In light of the fact that two other committees of the Congress have been engaged in the same inquiry and had begun their efforts long before the Select Committee’s formation, the Select Committee did not undertake a duplicative review of these same issues. The Select Committee did, however, contact key witnesses who could have provided new evidence concerning such issues. The Select Committee’s efforts to obtain testimony from these witnesses were unsuccessful, however, because the witnesses either declined to testify on Fifth Amendment grounds or were outside the United States. Because the Select Committee was unable to pursue questions of illegal campaign contributions anew, no significance should be attributed, one way or the other, to the fact that the Select Committee has not made any findings on this subject. The same is true with respect to other topics as to which time constraints or other obstacles precluded systematic inquiry.

Much of the information gathered by the Select Committee is extremely sensitive, highly classified, or proprietary in nature. In addition, the Select Committee granted immunity to, and took immunized testimony from, several key witnesses. Pursuant to an agreement reached with the Justice Department, this testimony must be protected from broad dissemination in order to avoid undermining any potential criminal proceedings by the Justice Department.

In attempting to evaluate the potential national security implications of various technology transfers, the Select Committee staff met with representatives of numerous Executive departments and agencies, the National Laboratories, other laboratories engaged in government research, and various private companies, think tanks, and academic institutions. In addition, the Select Committee retained a firm of respected scientists with significant experience to provide an independent evaluation of a broad range of technology transfer issues.

Beginning in June 1998, the Select Committee received briefings and conducted hearings to receive testimony from U.S. Government officials, private sector experts, and key witnesses in the matters under investigation. The Select Committee’s work continued during the August recess of the Congress, when 10 additional days of hearings were held. Full-scale investigative activity continued during September, October, November and December 1998, even while this Report was being written.

The Select Committee’s proceedings were conducted in an extraordinarily bipartisan manner. The Select Committee relied heavily on a non-partisan Joint Investigative Staff of experienced investigators and technical experts to conduct its investigative activities. The Joint Investigative Staff, led by the Chief Investigative Counsel, worked closely with the Select Committee’s Majority and Minority staffs.

Despite the short period of time available, the Select Committee was able to accomplish a significant amount of information collection and analysis. The staff conducted nearly 700 hours of interviews and depositions of more than 150 individuals. In 21 instances, the Select Committee issued subpoenae to require individuals to submit to questioning; in four instances use immunity was granted to compel testimony.

The Select Committee met 34 times to conduct formal business and to hear testimony, typically in executive session to hear classified and other sensitive, law enforcement, and proprietary information. More than 150 hours of testimony was heard from more than 75 different witnesses. Finally, the Select Committee reviewed over 500,000 pages of evidentiary material received from public and private sources.

Investigative Issues

The Select Committee’s investigative efforts generally were highly successful, especially in view of time and resource constraints. The investigation did, however, encounter certain issues that warrant mention.

CIA and Hughes

The Select Committee’s attempts to investigate allegations made by a CIA analyst were made more difficult by certain actions of the CIA. The analyst had alleged that, while visiting Hughes in 1995, he had come across information indicating that technical data had been improperly passed by Hughes to the PRC in connection with the 1995 failure investigation, and that the CIA had ignored his request for a formal report to CIA Headquarters to that effect. As part of its investigation of Hughes’ conduct in 1995, the Select Committee had previously determined that it should interview several of the Hughes employees from whom the CIA analyst said he had obtained his information since they were known to have played a part in the failure investigation.

Because the CIA analyst could not remember the names of the Hughes employees with whom he had spoken, the Select Committee asked the CIA to retrieve the information from its files. The CIA did so, but also, without the prior knowledge of the Select Committee, advised Hughes not only that the Select Committee might seek to interview these employees, but also of the lines of questioning that the Select Committee probably would pursue. The Select Committee was concerned that this notification may have inadvertently given Hughes the opportunity to destroy relevant evidence and allowed its employees to be less than candid. The Select Committee considered this action by CIA to be ill-advised and an impediment to this aspect of its investigation. The Senate Select Committee on Intelligence, which was separately investigating this matter of the CIA analyst, made a formal notification of the matter to the Justice Department. Justice was also already investigating the conduct of Hughes employees. The Justice Department had not yet concluded its investigation at the time of this report.

The CIA’s official explanation for its actions was that it notified Hughes as a courtesy. The CIA denies that its notification to Hughes was intended in any way to interfere with the Justice Department or Congressional investigations that were then under way.

The Select Committee is disappointed about the lack of judgment that CIA personnel showed in this matter by not coordinating the CIA’s communication with Hughes on this matter with the Select Committee prior to the event. The decision to advise Hughes about the Select Committee’s intentions was discussed at length within the CIA and was approved by, among others, the CIA’s Principal Deputy General Counsel and Deputy Director for Congressional Affairs. Because their personal counsel advised certain CIA employees not to make themselves available to the Select Committee during the pendency of the Justice Department investigation, the Select Committee was unable to interview all the CIA personnel who were involved in this matter. However, based on the information the Select Committee has been able to obtain on this matter, the Select Committee believes that at no time in the course of the many internal discussions and exchanges of correspondence did any of the CIA employees involved voice any concern about the adverse effects their proposed course of action might have on the Justice Department or Congressional investigations that were under way, nor even of the impact that lack of notice of this action might have on relations between the CIA and those entities.

Remedial action is needed at the CIA to ensure that employees are made more sensitive to the implications of their activities as they relate to on-going investigations by Congress and law enforcement agencies. Steps also should be taken to ensure that competent legal advice is available to CIA personnel. The Select Committee understands that, in addition to the Justice Department, the House and Senate Intelligence Committees are reviewing this matter.

Privilege Claims

A significant issue that arose in connection with the Select Committee’s investigation related to assertions of attorney-client privilege. While Congress traditionally has reserved to itself the right to reject such claims, the assertion of such privilege raises concerns beyond Congressional investigations. Furthermore, the contempt remedy raises timing concerns, particularly for a time-limited committee.

The most serious and contentious assertion of attorney-client privilege arose in connection with testimony taken from Eric Zahler, the General Counsel of Loral Space and Communications, the parent company of Space Systems/Loral; Julie Bannerman, Space Systems/Loral’s General Counsel; and Michael Poliner, a lawyer from the firm of Feith & Zell who conducted an internal investigation of the Independent Review Committee’s conduct for Loral and helped prepare the company’s disclosure to the State Department. Loral agreed that it had waived the attorney-client privilege with regard to communications in its “voluntary” disclosure. However, all three witnesses refused on the basis of the attorney-client privilege to answer questions regarding any information that came into their possession after the first grand jury subpoenas were served on Loral and its employees in the Justice Department’s investigation of possible criminal violations. In addition, various Hughes and Loral employees were instructed by their counsel not to answer questions related to relevant facts that they learned in the course of discussions after that date at which a Loral attorney was present.

Even under the attorney-client privilege rules that apply in the Judicial branch, a serious question arises as to whether such claims were valid. Although Loral argued to the contrary, there is substantial and compelling case law suggesting that in making a voluntary disclosure to the U.S. Government that included attorney-client communications and purported to be a full and complete rendition of the facts surrounding the Independent Review Committee incident, Loral waived the attorney-client privilege with respect to all information on the same topic that Loral or its employees communicated to the company’s counsel, regardless of when that communication occurred.

Companies make voluntary disclosures in the hope that by doing so they will convince the U. S. Government not to pursue any enforcement action or, if an action is taken, that the penalty will be mitigated. Thus, it is against sound public policy to permit a company to make what may be an incomplete or inaccurate voluntary disclosure in which it reveals exculpatory attorney-client communications in the hope that no further investigation will ensue and then, when that hope is disappointed, to use the attorney-client privilege as a shield against disclosure of additional or inconsistent facts that emerge once counsel undertakes a subsequent defense in a law enforcement investigation. Such a rule would only encourage companies to file misleading disclosures and their counsel to do a less than thorough job of investigating possible illegal activity.

Nonetheless, Loral’s attorneys argued to the Select Committee that to hold in favor of enforcing a waiver of attorney-client privilege regarding communications voluntarily made by a corporation would be against the public policy of encouraging voluntary disclosures. The Select Committee believes that there is a greater public interest in ensuring that disclosures are full, complete, and accurate and that a possible response, were this point of view to be accepted, would be to take appropriate action to ensure that any party that files a voluntary disclosure relating to possible export control violations be required, as part of that disclosure, to acknowledge that this constitutes a plenary waiver of the attorney-client privilege with respect to the possible violation.

Justice Department Objections

When the Select Committee began its investigation, the U.S. Attorney for the District of Columbia already had been engaged for a considerable time in an investigation of the Loral and Hughes disclosures and, presumably, had collected a large body of documentation and witness testimony. When the Select Committee requested that various Executive departments and agencies comment on their understanding of certain issues involved in the Loral and Hughes cases, it discovered that these departments and agencies had not been provided information by the Justice Department about the progress of its investigation and that they believed that the pendency of the Justice Department investigation was a deterrent to their pursuing their own investigations and analyses.

As a result, the Select Committee was forced to expend a major part of its available investigative resources in retracing the Justice Department’s steps, often in the face of protests from Justice Department officials that to talk to certain potential witnesses might undercut the criminal investigation. In addition, a variety of Executive departments and agencies refused initially to provide the Select Committee with copies of requests for information that had been received from the Justice Department and even, in some cases, with copies of documents that had been produced to Justice in response to those requests. Despite substantial and continuing efforts, even with the assistance of the Deputy Attorney General’s office, production of much of this material to the Select Committee was delayed for substantial periods of time.

With all due deference to the importance of criminal investigations, the Select Committee believes that national security interests frequently are at least as great, if not paramount. There appears to be no established means, however, by which the Executive departments and agencies engaged in regulatory, administrative, or intelligence functions that could benefit from an awareness of what is being learned in a criminal investigation can be apprised in any timely or complete manner of such information. This is an issue that the Select Committee also believes should be addressed.

Inability to Survey Defense Technology Security Administration Employees Regarding Agency Management Issues

Two mid-level DTSA employees alleged that DTSA is a problem-plagued organization in which DTSA senior management rules with a heavy hand. As a consequence, morale is poor. According to the two employees, DTSA senior managers frequently overruled valid national security concerns when formulating the Defense Department’s position on dual-use license applications. Among other things, they also expressed the view that DTSA’s recent transfer from the Office of the Secretary of Defense to the Defense Threat Reduction Agency (DTRA) will further weaken and isolate the organization, whose role has already been diminished in the interagency licensing process. Both were critical of current DTSA management and characterized it as secretive and heavy-handed.

The Select Committee was unable to conduct a thorough evaluation of the validity of these concerns due to time limitations and the lack of cooperation by the Defense Department. The Defense Department refused to allow the Select Committee to interview DTSA personnel on these matters unless a Defense Department observer was present. The Select Committee attempted to reach an accommodation by proposing that it interview only the five or six most senior DTSA personnel and conduct a written survey of DTSA personnel regarding these morale and management issues. The Defense Department refused to permit either the interviews or the survey.