Weapons of Mass Destruction (WMD)

[Page: H4758]

From the New York Times, May 19, 1998

Satellite Maker Gave Report to China Before Telling U.S.

(By Jeff Gerth)

Washington: A leading American satellite maker acknowledged for the first time Monday that a committee headed by one of its top executives provided a report in 1996 to the Chinese on a failed Chinese rocket, without first consulting federal officials, and contrary to the company's own internal policies.

But the company, Space Systems/Loral, a subsidiary of Loral Space and Communications, based in Manhattan, said it `does not believe any of its employees dealing with China acted illegally or damaged U.S. national security.' The company issued a two-page statement, which it called a `fact sheet.'

In the statement, Loral said it was cooperating with the Justice Department, which is investigating whether sensitive technological information was passed to the Chinese during industry reviews of an accidental explosion of a Chinese rocket seconds after liftoff in February 1996.

The criminal inquiry is focusing on whether officials from Loral and other companies who participated in the review violated American export control laws.

Loral maintained Monday that no secret or sensitive information was conveyed to the Chinese. But a classified Pentagon study concluded the review had helped Chinese missile capabilities and harmed American security, administration officials said. The Pentagon study prompted the Justice Department's inquiry.

In recent days, the Clinton administration's policies on Chinese-launched American satellites have come under intense scrutiny because of information that a Chinese military officer had funneled nearly $100,000 into Democratic campaign committees during President Clinton's re-election campaign.

The New York Times has reported that lawyers and officials have said that Johnny Chung, a fund-raiser, provided information to federal investigators about the Chinese officer, Lt. Col. Liu Chaoying, who was a senior Hong Kong executive for China Aerospace, the Chinese conglomerate whose rocket exploded with a Loral satellite in 1996.

The information provided by Chung, which followed his pleading guilty to campaign-related bank and tax fraud charges, has re-ignited Republicans' zeal to investigate whether the Chinese government tried to influence Clinton administration policy.

Speaker Newt Gingrich is considering creating a special select committee to investigate the transfer of advanced space technology to China, and House Republicans are threatening to attach amendments to the Pentagon's budget bill later this week that would bar the sale of commercial satellites and technology to China.

Loral's statement Monday said that `no political favors or benefits of any kind were requested or extended, directly or indirectly, by any means whatever.'

It also said that the company's chairman, Bernard Schwartz, who has been one of the largest individual Democratic Party donors in the last few years, `was not personally involved in any aspect of this matter.'

In outlining its involvement with the Chinese rocket, Loral's statement said insurance companies asked Loral and other satellite concerns, including the Hughes Electronics Corp., to review the results of an accident investigation done by the Chinese.

The outside review was headed by a senior executive at Space Systems/Loral. The review committee's report shows that the senior Loral executive had been requested by the president of China Aerospace, which controls China's satellite and space enterprises.

In the end, the review committee affirmed what the Chinese found: `that a failed solder joint was the most likely cause of the failure,' Loral said Monday.

Loral also said that while the 1996 review was under way, unidentified Loral officials `discussed the review committee's work with a number of U.S. officials interested in China's space program.' But the company acknowledged that it had not followed its own procedures.

`Contrary to SS/L's own internal policies, the committee provided a report to the Chinese before consulting with State Department export licensing authorities,' Loral said without elaborating.

The company has privately told investigators in a report that Loral's security advisers had told the company to seek State Department approval before talking to the Chinese but those instructions were not followed, industry executives and federal officials said.

Loral has private conceded another mistake: ignoring license conditions that required Pentagon monitors during the transmission of any information, the executives and officials said.

Last February, President Clinton approved the Chinese launch of another Loral satellite. That license, according to American officials, explicitly requires
separate government approval to participate in any accident review and contains stringent safeguards against transfer of any technology. Administration officials have said that being under investigation was insufficient grounds to deny Loral a license.

But the Justice Department opposed the recent presidential approval for Loral's license, officials said. Department lawyers feared that the approval would undercut the viability of a criminal case--if one were to go forward--by creating the appearance for a jury of government support for Loral's previous conduct.

Law-enforcement officials also had initial concerns about some of the licensing language, but those concerns appear to have been allayed as the inquiry is going forward, officials said.

The expertise needed to put satellites into orbit is similar to that used to deliver nuclear warheads. The overlapping commercial and military uses lie at the heart of both the criminal inquiry and congressional concern about Clinton's policies on satellite launches in China.

On Capitol Hill Monday, senior Republicans continued to call for a broad investigation into whether the transfer of space technology to China threatened United States security.

Gingrich Monday called on Clinton to delay his trip to China in June.

The Speaker is also proposing the creation of a special committee, with five Republicans and three Democrats, and headed by Rep. Christopher Cox, R-Calif., who served as deputy counsel in the Reagan administration, said Christina Martin, Gingrich's spokeswoman.

`The purpose would be to assess whether U.S. policy was affected by Communist Chinese efforts,' Ms. Martin said.

But Rep. Richard A. Gephardt of Missouri, the House democratic leader, argued that the House had several standing committees that could handle the task.