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Encryption, China, RSA, and Banking

by Charles R. Smith

It is known that China obtained advanced cryptography from the US under the Clinton administration. The first known instance of such an export is the Hua Mei contract which was approved under a special (one and only) license in 1994. The approval came after Commerce Secretary Ron Brown visited China in late 1993. This deal allowed a company owned by the Chinese military to purchase secure, real-time, atm-fiber optic systems complete with video and audio links. That deal was well documented by the GAO which noted that the Chinese would divert this technology directly into their military. You can find the GAO report on export of advanced communications to China at my web site (http://www.us.net/softwar) or at the GAO web site (Export Controls: Sale of Telecommunications Equipment to China, 11/13/96, GAO/NSIAD-97-5).

However, lesser known, is a deal for advanced encryption technology cut between RSA Inc. and the Chinese government. RSA is the largest crypto technology company in the US and a major Defense contractor. The deal "officially" began in 1995 when RSA Chairman James Bidzos visited Beijing at the invitation of the communist government. In February of 1996 RSA Data Security signed a distribution and development agreement with the Computing Center of the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) of the People's Republic of China and the Chinese Academy of Sciences Graduate School's Laboratory of Information Security (LOIS). That deal, of course, was approved by the US Commerce Department.

Yet, RSA CEO Bidzos was also engaged with Commerce and administration officials who wanted to purchase the patents owned by RSA. More or less the government wanted to BUY the rights to the RSA code systems. I once estimated that deal to be worth over a billion dollars but was quickly rebuffed by many as exaggerating the figure. However, recent evidence obtained by Freedom of Information (FOIA) requests has shown that RSA was indeed in the midst of a very hot deal called PKP or Public Key Partners. This hot deal would require special actions by the Clinton administration before going into effect but it could also yield billions of dollars in return.

There are a few outside of the Clinton circle who know of the PKP deal. The banks had to know because they were going to foot the bill. In fact, CITICORP wrote to the Commerce Department and complained about PKP. The government had granted PKP an exclusive license/patent that required a 1% to 5% royalty on all banking hardware and software. To illustrated how much that is worth please note that another bank, Manufacturers Trust, estimated their annual computer budget was $400 million dollars in 1993. In addition, the government grant included the right to charge a fee per transaction, a scheme that would take in a percentage of the trillions of dollars electronically transferred world wide. If you think charging a buck each time you use your ATM card is bad - just think about charging a penny per dollar for every electronic transaction!

How important was this to the government? Mr. Bidzos claims that the Clinton administration was so hot to buy him out that they hustled him to the White House. I use the word "hustle" with all due respect because Bidzos claims that Vice President Al Gore personally tried to convince him to sell. This author submitted an FOIA request to the Vice President's office to obtain documentation of that meeting but the FOIA request was DENIED by Al Gore. In addition, I have made several attemps to contact Mr. Bidzos. Again, no reply.

Yet, there is more evidence of the attempt to buy out RSA. This evidence is being hidden by the Commerce Department. Ginger Lew of the Commerce Department also met with Bidzos several times, trying to purchase the RSA patents. In August of 1996, Ira Sockowitz, Ginger Lew's assistant, walked out of the Commerce Department with a load of secret material on RSA. Ira Sockowitz, a former DNC fund-raiser, was personally nominated to his post by Bill Clinton. However, much like other Clinton Commerce employees, it seems Ira did a "no-no". Ira Sockowitz walked out of the Commerce Department with two boxes of secret materials ranging from CIA reports, NSA reports, Department of State cables, and sensitive material from Russia and France.

Still, the lion's share of secrets taken by Sockowitz are on cryptography and money. To be precise, how much money did the owners of cryptography have. Sockowitz took a LEXUS scan of James Bidzos, a LEXUS scan of Robert Fougner (a partner in the PKP deal), and a LEXUS scan of RSA Inc. Robert Fougner, the PKP "partner" of James Bidzos, donated his first $1,000 to the DNC exactly five days after Ira Sockowitz did the LEXUS scan.

1. if by land, 2 if by sea. Paul Revere - encryption 1775

Charles R. Smith

Posted here August 2, 1997
Web Page: http://www.aci.net/kalliste/