From the New York Times, June 1, 1998
The White House Dismissed Warnings on China Satellite Deal
Washington.--The caution signs made it evident that the application by Loral Space & Communications to export a satellite to China earlier this year was anything but routine.
Justice Department prosecutors warned that allowing the deal could jeopardize possible prosecution of the company for an earlier unauthorized technology transfer to Beijing. The Pentagon reported that Loral had provided `potentially very significant help' to China's military rocket program. And senior White House aides cautioned that the deal was certain to spark opposition from critics of the Administration's nonproliferation and human rights policies toward China.
But the White House pressed ahead, concerned about the financial costs to Loral of delaying approval of the deal and certain that it could defend the decision against subsequent criticism.
Rarely is the public given a detailed look inside the White House decision-making process on a matter of national security as sensitive as the export of a satellite to China. These records ordinarily remain sealed for years, buried under the Government's strict regime of secrecy.
But documents produced by the White House 10 days ago in response to a demand from Congress provide an unusually rich account of the evolution of a Presidential decision in which numerous warning signals were raised and then dismissed.
According to the records, the February decision by President Clinton to approve the Loral satellite launching was treated as an urgent matter not because of its importance to the national security, but because the company was facing heavy fines for delay.
Concerns about European competition for the satellite business and fears that
denying the deal would damage the United States-China relationship overrode words of caution from other Government agencies.
The presumption throughout was that the deal would be approved, as had 19 previous applications under Presidents Clinton and Bush. The documents reflect the White House staffs search for a defensible rationale for the decision.
Federal and Congressional investigators are now examining what led the President to risk political embarrassment by creating the perception that he might be letting Loral--headed by the Democratic Party's largest campaign contributor--off the hook in a serious criminal inquiry into whether Loral executives helped China's missile program.
DECISION TRACED TO A SATELLITE CRASH
Samuel R. Berger, the national security adviser, had a preemptive answer in the decision memorandum he forwarded to the President on Feb. 12. The memo briefly noted the Justice Department's concerns and referred to the possibility that Loral might have significantly aided China's military rocket program.
But he urged the President to approve the deal regardless.
`In any case,' Berger wrote, `we believe that the advantages of this project outweigh this risk, and that we can effectively rebut criticism of the waiver.'
Clinton approved it with his distinctive backward check mark six days later.
Since 1989, the export of American satellites for launching on Chinese rockets has been suspended as a result of sanctions imposed after the killings in Tiananmen Square. A deal can go forward only if the President concludes that the export is in the national interest and issues a waiver.
President Bush approved all nine waiver requests that reached this desk; President Clinton routinely followed the practice in his first four years in office, signing 10 waivers with little internal debate or external controversy.
But the waiver Clinton signed on Feb. 18 was not routine. The roots of his unusual decision trace back two years when a Chinese rocket carrying a Loral satellite crashed into a village seconds after liftoff, killing and injuring dozens of civilians.
A few months later, Loral led an outside review team to help the Chinese figure out what had happened. The company says its officials did nothing wrong. But Loral also acknowledged serious mistakes in a June 1996 disclosure to the State Department, including an admission that it allowed the Chinese to see its lengthy review of the rocket mishap without prior Federal approval. Such technological assistance to the Chinese requires prior Government approval, which Loral had not received.
At virtually the same time that Loral made its disclosure to the Government, the company was seeking another Presidential waiver for a satellite. Its chairman, Bernard L. Schwartz, donated $100,000 to the Democratic Party four weeks before the waiver application was approved in early July 1996 by Clinton.
It is not known whether Loral's help for the Chinese was mentioned in the memorandum that went to the President because the White House has not released documentation on that decision.
It is known that the State Department had already alleged in a letter to satellite industry executives that there had been a violation of American export control laws in the accident review.
But as of July 1996, no criminal inquiry was under way. The Justice Department began its investigation only after the Pentagon completed an assessment of the accident review in May 1997.
That is the same month Loral applied for its most recent waiver, for the Chinasat 8 satellite.
COMPANY'S CONCERNS REACH WHITE HOUSE
The first notice to the White House of unusual problems with the Chinasat 8 waiver application came in an early January memorandum from the State Department detailing the factors for the President to consider.
Although couched in careful bureaucratic language, the State Department document made it clear that this was no routine export license application.
The State Department pointed out that China's transfer of missile technology to Iran might prohibit the export of the Loral satellite or any other satellites or related items.
`Moreover' the State Department memo stated, `information about unauthorized defense services provided by Space Systems/Loral and another U.S. firm to China's Long March 3B Launch Vehicle' could lead to imposition of harsh sanctions against the company.
But the State Department and other agencies nonetheless recommended granting the waiver, because the deal would enhance the United States' leadership in commercial telecommunications, provide an incentive for China to adhere to international nonproliferation rules and improve trade ties with Beijing.
After virtually no debate at the White House, the State Department memorandum was rewritten as a decision paper for the President.
The State Department's concern about technology transfers to Iran appeared nowhere in the decision document, but a new element is inserted in the first and in most subsequent drafts. The President must act quickly, the draft states; any delay will cost Loral money.
`Due to severe contractual penalties which Loral will incur if it cannot begin technical discussions with the Chinese by next week, we recommend that you take action on this issue by January 20,' read the first draft of the Presidential memorandum, dated Jan. 13.
A day earlier, Loral officials had made known to the White House their frustration at the slow Government response to their waiver application, which was submitted in May 1997.
A Loral letter found in White House files stated that unless the approval is granted within a week, the launching scheduled for November, would be delayed by several months, costing the company at least $6 million. Any such
delay would give the Chinese grounds for canceling the project, which would cost Loral $20 million, the company warned.
`Our competitors in Europe,' Loral officials complained, `do not suffer delays due to export licensing or legal complications.'
The company's concerns clearly were heard at the White House.
A senior aide at the National Security Council, Maureen E. Tucker, repeatedly pressed for a rapid decision in forwarding early drafts of the Presidential decision paper to associates at the council.
She described the memorandum and accompanying documents as `a very quick turnaround package for which I am seeking your clearance by tomorrow,' she wrote on Jan. 13.
By Jan. 20, one frustrated aide scrawled on a draft of the memo, `Needs to go to POTUS today!!' POTUS is the White House jargon for President of the United States.
But the waiver request was held up by questions from Berger, who asked his legal aides to research the status of the Justice Department investigation and determine whether it would bar approval of the waiver.
Tellingly, Berger asked Gary Samore, the National Security Council's top weapons aides to research the status of the Justice Department investigation and determine whether it would bar approval of the waiver.
Tellingly, Berger asked Gary Samore, the National Security Council's top weapons proliferation export, in a handwritten note if the approval can be granted in phases `to get over immediate crunch.'
Berger did not ask whether Loral's cooperation with the Chinese after the 1996 accident would require denial of the export license. Instead, he wonders in the note to Samore where there is `anything we can hang our hat on to characterize Loral's `offense.'
Berger's aides sought advice from officials at the State Department, who informed them that Loral's offenses appear to be `criminal' and `knowing.' Ms. Tucker was told that the Pentagon investigated Loral's assistance to the Chinese after the 1996 missile explosion and concluded that the company provided `potentially very significant help' to Beijing's ballistic missile program.
BEHIND DECISION TO GRANT A WAIVER
The White House counsel Charles F. C. Ruff told a Security Council lawyer that the Justice Department's investigation mattered less than maintaining close diplomatic and business relations with China.
`Issue is not [underlined twice] impact on DOJ litig(ation),' the Security Council deputy counsel Newell Highsmith wrote in notes of his conversation with Ruff, `but whether bilateral U.S.-China concerns and economic factors outweigh risk of political embarrassment.'
A principal argument behind Clinton's decision was that it would be unfair to penalize Loral by denying it a license if it was under investigation but had not been charged with any crimes.
The export law allows the President to deny a license if the license seeker has been indicted or if there is `reasonable cause to believe' the license seeker `has violated' United States export control laws. The White House documents show that some White House and State Department officials believed the latter, but Administration officials say they relied on a 1993 State Department memo which said that companies will be denied licenses only after indictment.
`In an ideal world we would wait until this matter is resolved,' Malcolm R. Lee, a National Security Council aide, told other White House officials in an electronic message a month before the President's decision, referring to the pending Justice Department inquiry. But, Lee added, `that is impracticable.'
A senior Administration official, speaking not for attribution, said that waiting for the results of the Justice Department investigation could delay the satellite launching for months, if not years.
And, the official added, `There were some imperatives to get a timely decision because of the penalties facing the company.'
But the company acknowledges that no such penalties have been imposed and the launching is still scheduled for November, as it has been for the last year.
`We believe we will not incur penalties because we can work around the problem,' a Loral official said late last week.
PENTAGON TROUBLED BY LORAL'S ROLE
The President did not receive a detailed assessment of the potential damage to American security caused by Loral's help to China in determining the cause of the 1996 launching failure. The Pentagon was troubled by Loral's technological assistance because the rocket science involved in putting a satellite into orbit is similar to that needed to deliver a nuclear warhead.
The Pentagon relying on Air Force missile and intelligence experts, did not find grave damage but did conclude that the United States national security had been harmed, according to Administration officials.
A White House official said that the National Security Council never received the Pentagon report, which was prepared to assist the State Department. `We did the best we could in the memo for the President in describing what we understood to be the allegations,' the official said. `We didn't beat around the bush.'
White House aides overcame the major impediment to the waiver--the concern of Justice Department prosecutors that it would jeopardize any possible prosecution--by relying on the fact that `the Department had every opportunity to weigh in against the waiver at the highest levels and elected not to do so,' as Ruff, the White House counsel, wrote on Feb. 13.
But Justice Department officials say that Ruff, in his discussion with Robert Litt, the top aide to the Deputy Attorney General, asked only about the impact of the waiver on possible prosecution--not whether the department opposed the waiver.
It is not known how the Justice Department would have answered that question.
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