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The Business September 1, 2002

THE WINNER OF THE WAR ON TERRORISM IS. . . US INDUSTRY

By Brendan Koerner

The full-page ads that Siebel Systems began running in America last January were certainly eye-catching. "Who are the Mohammed Attas of tomorrow?" the headline asked, accompanied by a grainy surveillance photograph of the 11 September hijacker passing unhindered through airport security in Portland, Maine. The copy pitched the software giant's new data-sharing product, Siebel Solutions for Homeland Security, as a tool for officials seeking to combat terrorism: "With Siebel, they can better monitor, analyse and share up-to-the-minute intelligence and co-ordinate the appropriate response."

The multi-million dollar ad campaign was the most visible component of Siebel's post-11 September marketing push, but not the most important. Company founder Thomas Siebel was invited in February to make an appearance before the House sub-committee on technology and procurement policy. "Had such technology been in place prior to 11 September," he boasted of his software, "there may have been a different outcome."

Siebel Systems is hardly the only company to recognise the War on Terrorism's lucrative promise. For this year alone, the US government has allocated nearly $30bn for the overhaul of airport security and hacker-proofing software for government computers. Many of these expenditures may soon be controlled by the Department of Homeland Security, the new agency being created as part of the US's biggest bureaucratic reorganisation since the late 1940s. Under President Bush's plan, the department would be second in manpower only to the Pentagon. Fulfilling such an expansive mission will clearly include disbursing tens of billions of dollars to the private sector. "Industry players are looking to the federal government as their salvation," says Peter Swire, an Ohio State University law professor who advised President Clinton on privacy issues. "Many companies that rode the dot.com boom need to find big new sources of income. One is direct sales to the federal government; another is federal mandates. If we have a big federal push for new security spending, that could prop up the sagging market."

Technology companies have been the most aggressive in marketing their wares as vital to the War on Terrorism. Software titans like Oracle and Sun, anxious to find new customers for their database programs and web servers, are pushing for the creation of a national identity-card system. Old-line defence contractors like Raytheon and Northrop Grumman, stung by the decline in demand for big weapons systems after the end of the cold war, are recasting themselves as security pro-viders, hiring "homeland security directors" and pitching their technologies to shield nuclear plants or refit the coast guard's patrol boats.

Small start-ups peddling silver bullets - from fake-document detectors to anthrax- handling robots to dubious "brain finger-printers"- may have the most to gain. A year ago, for example, fledgling InVision, a California-based maker of explosives-detection systems, was forced to lay off 6% of its workforce. But the company hit the jackpot in March when the newly-created transportation security administration placed a $170m order for its detectors. A few weeks later, InVision raised more than $90m by selling a raft of shares for $36.50 a pop; on 10 September, the stock had traded for just $3.10.

The throng of companies angling for security profits includes more than just hi-tech firms. Credit-reporting bureaux are pushing their services, claiming they can identify terrorists by monitoring consumers' spending habits. Drug companies have banded together to stress the importance of stockpiling drugs and vaccines to counter bioterrorist attacks. Even architects are getting in on the act, forming the Security Design Coalition to promote their industry's ability to help the federal government secure the thousands of buildings it operates nationwide.

And that's just the beginning, Because federal expenditures on homeland security are projected to rise dramatically in the coming years - and because every aspect of civilian life, from food distribution to public transit, could be affected - a wide range of industries ultimately stands to benefit. "The private sector is going to play a much more important role in homeland security than it did in national security" in the past, says retired Air Force colonel Randy Larsen, director of the Institute for Homeland Security, a think-tank created by the Rand Corporation. "In the 21st century, they are going to play an important operational role, not just provide bombs and bullets."

The fear among critics of this nascent "security-industrial complex" is that companies will use their new clout to push self-serving agendas. Already, credit card companies have sought looser restrictions on consumer privacy and drug-makers have asked to be exempted from anti-trust laws in connection with anti-bioterrorism efforts. "There's a real element of patriotism to much of what these companies are doing," Swire says. But he adds: "My concern is that the fight against terrorism could become a convenient way to undermine civil rights and consumer protections."

After 11 September, the Federal Aviation Administration was besieged with 23,000 proposals for new airline security devices, ranging from "smart" closed-circuit television systems to minivan-size explosives-detection tools. "We've got every salesman - 20,000 of them, I think - approaching us about how they've got some machine that will take care of everything," transportation secretary Norman Mineta told the senate appropriations committee in May, "including not only detecting explosives but athlete's foot as well."

Some firms have tried novel ways of publicising their products. In May, Visionics, a company that makes facial- recognition systems, donated several of its devices to the National Park Service. Two of the cameras, which scan faces in a crowd and compare them to a database of terrorist mugshots, were installed beside the ferry that shuttles visitors to the Statue of Liberty.

Trade groups have been stepping up their support for specific bills - and the lawmakers sponsoring them. In June, the Security Industry Association threw a reception raising more than $10,000 for the campaign coffers of congressman Jerry Weller, author of a bill that allows corporations to write off expenses for buying security devices. Computer security firms, for their part, have been promoting the Cybersecurity Research and Development Act, which would earmark $880m to combat the possibility of a digital terrorist attack - a scenario the industry has been raising since last September.

Manufacturers of alarms that indicate the presence of smallpox or anthrax, meanwhile, were thrilled by the passage of a $4.6bn anti-bioterrorism bill last spring. The bill, which among other things calls for stronger security for food and drinking-water supplies, was a godsend to small companies like Cepheid, a Silicon Valley firm whose handheld anthrax detector was used at last winter's Olympics in Salt Lake City. Another potential beneficiary was Northrop, which is seeking to sell the US postal service an anthrax detector it is developing with two other companies.

Oracle founder Larry Ellison met Homeland Security director Tom Ridge in the weeks immediately after the 11 September attacks to propose a "national database" that would combine a vast array of government data with biometric information such as thumbprints and iris scans. "Gaining entry to an airport or other secure location," Ellison said in October, "would require people to present a photo ID, put their thumb on a fingerprint scanner and tell the guard their social security number." The database, he went on, could be linked to a digital ID card that could ultimately replace driver's licences and social security cards.

Oracle has long had a close relationship with the government. The company was founded to help the CIA with a database project codenamed Oracle and a quarter of its licensing revenue still comes from federal contracts. For the national ID project, Ellison has proposed donating the requisite software to the government, though observers note that companies frequently give away software, then charge for upgrades and maintenance.

Ellison isn't the only hi-tech executive plugging a national ID card. Sun Microsystems' CEO, Scott McNealy, whose company makes powerful network computers, has also endorsed the idea. Companies that could manufacture the cards, such as Polaroid, stand to gain, as do data-profiling companies. And if such enthusiasm for surveillance seems odd coming from an industry that has cultivated a libertarian image, Ellison and others counter that the private sector has been gathering extensive data on individuals for years. "This privacy you're talking about is an illusion," Ellison told the online trade magazine, SiliconValley.com, last year. "All you have to give up is your illusions, not your privacy."

The national ID card is only one of numerous anti-terrorism proposals that require comprehensive access to data once deemed private. Among the most hotly debated of these is an expanded passenger-screening program the Federal Aviation Administration (FAA) is now testing. The system uses credit information to check whether a passenger has engaged in "suspicious" activity, such as paying for pilot lessons, purchasing one-way tickets for friends on the same flight, or moving frequently.

Credit-reporting bureaux and financial-services companies argue that the screening programme and other terrorist-tracking systems will work only if privacy laws are relaxed. In April, a group calling itself the Center for Information Policy Leadership invited Experian, Visa, Fidelity and 13 other companies to a New York meeting to discuss how consumer databases could be used to fight terrorism. "We have to think about how to use information to create profiles about what a bad guy might look like," a spokesman told reporters. But a memo circulated by the group suggests another set of priorities - to challenge privacy laws that have "unintended, adverse economic impact".

One law that financial services companies would like to see amended is the 1970 Fair Credit Reporting Act, which limits the circumstances under which credit bureaux can sell credit reports. Rewriting the act may help companies share information with the FAA, but it would also make it far easier for them to sell personal data to insurance companies and direct marketers.

Chris Hoofnagle, staff counsel at EPIC, the electronic privacy group, fears that passenger- screening databases, combined with relaxed privacy laws, will lead to innocent citizens being fingered as potential terrorists because of "suspicious" patterns on their credit reports - reports that in 30% of all cases contain serious errors. But privacy fears are not a priority as congress and the administration continue to wrestle over long-term strategies for the War on Terrorism. Bush's latest plan calls for measures including the deployment of "smart border" technology for detecting hazardous cargo and fake visas; major equipment and personnel upgrades for the coast guard; and expanded use of sensors to detect nuclear and biological materials.

The total package could require more than $100bn a year from federal, state and local sources combined.

"It's free government money right now," says John Pike of the think tank GlobalSecurity.org. "You don't see a lot of lobbying going on for the defence budget because everybody knows who's got the contracts." But the new homeland security budget, he adds, is another matter. "For specific sectors and specific companies, it's going to be generating a feeding frenzy. It already has."


First printed in Mother Jones magazine. Reprinted with permission, (c) 2002, Foundation for National Progress


Copyright 2002 Sunday Business Group