[Congressional Record Volume 140, Number 26 (Thursday, March 10, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: March 10, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                      NATIONAL COMPETITIVENESS ACT

  The Senate continued with the Consideration of the bill.


                           Amendment No. 1479

     (Purpose: To require reports on foreign industrial espionage)

  Mr. COHEN. Mr. President, I call up amendment numbered 1479, which is 
at the desk, and I ask for its immediate consideration.
  The PRESIDING OFFICER. The clerk will report.
  The legislative clerk read as follows:

       The Senator from Maine [Mr. Cohen] proposes an amendment 
     numbered 1479.

  Mr. COHEN. Mr. President, I ask unanimous consent that reading of the 
amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The Amendment is as follows:

       At the end of the title III insert the following:

     SEC 309. REPORTS ON FOREIGN INDUSTRIAL ESPIONAGE.

       (a) In General.--(1) In order to assist Congress in its 
     oversight functions with respect to this Act and to improve 
     the awareness of United States industry of foreign industrial 
     espionage and the ability of such industry to protect against 
     such espionage, the President shall submit to Congress a 
     report that describes, as of the time of the report, the 
     following.
       (A) The respective policy functions and operational roles 
     of the agencies of the executive branch of the Federal 
     Government in identifying and countering threats to United 
     States industry of foreign industrial espionage, including 
     the manner in which such functions and roles are coordinated.
       (B) The means by which the Federal Government communicates 
     information on such threats, and on methods to protect 
     against such threats, to United States industry in general 
     and to United States companies known to be targets of foreign 
     industrial espionage.
       (C) The specific measures that are being or could be 
     undertaken in order to improve the activities referred to 
     subparagraphs (A) and (B), including proposals for any 
     modifications of law necessary to facilitate the undertaking 
     of such activities.
       (D) The threat to United States industry of foreign 
     industrial espionage and any trends in that threat, 
     including--
       (i) the number and identity of the foreign governments 
     conducting foreign industrial espionage;
       (ii) the industrial sectors and types of information and 
     technology targeted by such espionage; and
       (iii) the methods used to conduct such espionage.
       (2) The President shall submit the report required under 
     this subsection not later than 6 months after the date of the 
     enactment of this Act.
       (b) Annual Update.--Not later than 1 year after the date 
     referred to in paragraph (2) of subsection (a), and on the 
     expiration of each year thereafter, the President shall 
     submit to Congress a report updating the information referred 
     to in paragraph (1)(D) of that subsection.
       (c) Form of Reports.--To the maximum extent practicable, 
     the reports referred to in subsections (a) and (b) shall be 
     submitted in an unclassified form, but may be accompanied by 
     a classified appendix.
       (d) Report under Defense Production Act.--Section 
     721(k)(1)(B)) of the Defense Production Act of 1950 (50 
     U.S.C. App. 2170(k)(1)(B)) is amended by inserting ``or 
     directly assisted'' after ``directed''.
       (e) Definition.--For the purposes of this section, 
     ``foreign industrial espionage'' means industrial espionage 
     conducted by a foreign government or by a foreign company 
     with direct assistance of a foreign government against a 
     private United States company and aimed at obtaining 
     commercial secrets.

  Mr. COHEN. Mr. President, I noted with some interest the findings in 
title III of the bill that is currently before the Senate in which the 
committee states:

       The governments of our most successful competitor nations 
     in the global marketplace have created supportive structures 
     and programs that have been effective in helping their 
     domestic industries increase their global market shares.

  I assume that this refers to foreign governments' efforts to help 
their industries to compete by allowing well-educated workers to have 
access to low-cost capital and to benefits of government-funded 
research programs.
  But there is another type of supportive structure and program that 
many foreign governments provide their industries. I am referring to 
industrial espionage committed by or with the assistance of foreign 
intelligence services.
  Mr. President, I am not going to suggest that foreign industrial 
espionage is the greatest problem confronting the American industry 
today. But it is a real problem. It costs the U.S. economy billions of 
dollars annually, and it appears to be growing quite rapidly. It also 
is a problem that has received far too little attention. As a result, 
efforts to deal with it, I think, are grossly inadequate.
  To too far an extent, foreign industrial espionage has been left as 
an issue of specialty to those who are studying intelligence matters, 
rather than those who are engaged in business. There are a number of 
larger companies who have taken measures to protect themselves, but 
most American businesses do not, including many of the smaller firms, 
which give birth to so much of our new technology. Here are a few 
examples of what is taking place; there are an abundance of reports in 
the media about this type of espionage:
  A South Korean computer company penetrates an American competitor 
with a mole, who plants a bug in the United States company's FAX 
machine.
  A Japanese company recruits an American executive, who has a drug 
habit to support, causing him to buy sensitive bidding information and 
other commercial secrets for their benefit.
  A maintenance worker, working for U.S. companies overseas, reprograms 
the telephone switching equipment to enable them to eavesdrop on the 
company's phone calls.
  An American scientist goes from lab coat to turncoat, selling foreign 
pharmaceutical companies trade secrets.
  These are just a few of the examples one can read day after day. And 
while much of the industrial espionage is solely the work of private 
firms, in many cases foreign governments are assisting or even 
directing economic spying activities.
  French intelligence has long engaged in a large-scale industry 
espionage program, penetrating foreign businesses, intercepting 
telecommunications, and conducting a reported 10 to 15 break-ins each 
day in Parisian hotels to copy documents that business people have left 
in their rooms. The information acquired is passed on to French 
industry.
  The Governments of Japan, Germany, Belgium, Netherlands, and other 
allies, as well as other countries, such as China, are also reported to 
be spying on behalf of their countries' industries.
  I am quoting now:

       All of America's major foreign competitors have the full 
     weight of their governments' diplomatic and intelligence 
     resources thrown behind their nationals' companies or 
     consortia, especially the ones in heavy offshore competition.

  These are the words of former CIA official, George Carver; he spoke 
them about 3 years ago.
  The situation is only getting worse as ``foreign intelligence 
services have turned from politics to economics with the United States 
as their prime target,'' said the former CIA Director, Robert Gates.
  The U.S. Government has taken some steps to make American industry 
better informed of this espionage threat, and also to assist it in 
defending itself. But most of these efforts have been directed toward 
the defense industry. These are the industries that were long targeted 
by the Soviet Union and other hostile intelligence services.
  I think we have made some progress in this regard. But the reaction 
of the U.S. Government is largely a reactive one at best, telling 
nondefense industry: We are ready to help you if you come to us with a 
problem. In my view, the Government should have a much more aggressive 
approach going out to industry to explain what the problem is and how 
to guard against it.
  Let me say that, to its credit, the FBI did produce in late 1992, a 
small pamphlet to raise business travelers' awareness of the industrial 
espionage threat while they are overseas. But the value of the pamphlet 
was undermined by almost the exclusive focus on industrial espionage by 
Communist or formerly Communist countries, which few view as economic 
competitors and even fewer travel to today. The GAO has summed up the 
situation, I think, well in its 1992 testimony. The efforts of 
intelligence in criminal justice agencies do not appear to be 
sufficiently coordinated to adequately protect U.S. industry against 
economic espionage. The Justice Department also has acknowledged the 
weakness in its ability to confront this.
  So, Mr. President, I have considered various legislative options for 
addressing the problem, and the amendment I am offering today basically 
accepts the GAO recommendation that before we seek to legislate, 
Congress ought to generate, No. 1, broader public dialog and a 
comprehensive review on how the Federal Government is organized to 
fight the threat. This would help to ensure that the legislative and 
other remedies adopted are going to be effective.
  So the amendment will do basically three things, and I am trying to 
summarize a fairly lengthy legislative proposal.
  First, it would require a one-time report that reviews the following:
  First, the respective roles of the various agencies in identifying 
and countering foreign industrial espionage threats.
  Second, the means by which the Federal Government communicates the 
U.S. industry information on these threats, and methods that can be 
used to protect against it.
  Third, the specific measures to improve the Government's internal 
functioning to counter the foreign industrial espionage threat and its 
communication with industry on these activities.
  Fourth, the specific information on the nature of the threat, 
including the number and identity of foreign governments who are 
conducting it, the industrial sectors and information technologies 
being targeted for espionage, and the methods used.
  Those are the four basic goals of this one-time report.
  Second, the amendment would require an annual update, but only on the 
nature of the threat, so that the business community and Congress will 
be aware of the trend lines of this threat.
  The third major goal would help to clarify existing requirements for 
quadrennial reports on foreign industrial espionage targeting of 
critical technologies, to examine not only espionage directed by 
foreign governments, but directly assisted by foreign governments.
  I want to emphasize that there is nothing in this amendment that 
would in any way advocate that we engage in offensive industrial 
espionage. My colleague, the chairman of the committee, knows from his 
service on the Intelligence Committee, that at the end of the cold war, 
there was some notion that perhaps we ought to engage in economic 
spying. This amendment does not, in fact, advocate that.
  This amendment advocates that we become aware that this is taking 
place on a substantial scale. It is not only individual firms within 
various countries, but being organized and assisted by foreign 
governments, and we are ill prepared to cope with it.
  So basically, it is seeking to implement a GAO recommendation that we 
get more information to be coordinated, and that that information be 
disseminated. And we, therefore, take a pretty aggressive proactive 
measure to counter the kind of threats that we are being confronted 
with.
  I ask unanimous consent that several documents and articles be 
printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                       U.S. Department of Justice,


                                Office of Legislative Affairs,

                                  Washington, DC, October 6, 1992.
     Hon. William S. Cohen
     U.S. Senate,
     Washington, DC.
       Dear Senator Cohen: This is in response to your letter of 
     July 28, 1992, requesting a point of contact within the 
     Department of Justice should American corporations have 
     questions or concerns regarding industrial or foreign 
     espionage activities being directed against them. Your letter 
     also invited suggestions as to what precautionary techniques 
     we suggest businesses take to better protect themselves from 
     these types of activities.
       Jurisdiction to investigate violations of the espionage 
     statutes rests with the Federal Bureau of Investigation 
     (FBI). The FBI also has jurisdiction to investigate 
     violations of those Federal criminal statutes generally 
     relating to ``industrial espionage''--type activities, for 
     example: Wire Fraud, Interstate Transportation of Stolen 
     Property, Copyright Infringement, and Conspiracy. 
     Consequently, whenever businesses suspect their products or 
     technologies are being targeted or stolen by foreign 
     government or government-sponsored individuals/entities or by 
     other individuals or groups which may be operation in 
     violation of Federal law, they should expeditiously notify 
     their nearest FBI field office for appropriate action. In 
     addition, FBI Special Agents regularly provide one-on-one 
     security, counter-espionage, and counterintelligence 
     briefings to those companies possessing information or 
     technologies known to be of interest to foreign governments 
     or business entities. Again, interested companies should 
     contact their local FBI field offices directly for further 
     assistance and information regarding such briefings. Should 
     you or your staff require further specific information, place 
     contact FBI Supervisory Special Agent Peter F. Brust, Office 
     of Public and Congressional Services, (202) 324-6027.
       As you know, there are growing concerns in this country 
     that ``economic espionage'' is routinely being conducted 
     against American businesses by foreign government and/or 
     government-sponsored business entities bent upon stealing, 
     rather than developing for themselves, information or 
     technologies which would make them competitive in the world 
     marketplace. These concerns have identified and highlighted 
     issues which need to be addressed by the United States 
     Government if we are to protect American jobs and economic 
     competitiveness. For example, in many instances information 
     is being targeted and stolen which falls within a statutory 
     ``gray area''; that is, an area where law and jurisdiction, 
     either from a criminal or counterintelligence perspective, 
     remains as yet undefined. Proprietary information, 
     intellectual property, and trade secrets all fall into this 
     category. Under existing criminal statutes, the Attorney 
     General has a limited ability to counter the unfair economic 
     advantages being realized by foreign businesses and 
     industries, entities which are too often covertly owned or 
     fostered by foreign governments. Therefore, legislation 
     providing additional ``economic espionage'' investigative 
     jurisdiction to the Attorney General is warranted at this 
     time. I would welcome an opportunity to further explore this 
     topic with the Congress.
       Thank you for your letter and for your interest in 
     preserving the security of this Nation and economic well-
     being of its people.
           Sincerely,
                                                     W. Lee Rawls,
                                       Assistant Attorney General.
                                  ____

                                      U.S. Department of Commerce,


                                Office of the General Counsel,

                                 Washington, DC, October 19, 1992.
     Hon. William S. Cohen,
     U.S. Senate,
     Washington, DC.
       Dear Senator Cohen: Thank you for your letter inquiring 
     about steps that U.S. businesses can take to protect 
     themselves against industrial espionage. Enclosed is a list 
     of some of the associations and publications that deal in 
     this area. Also, we understand that the Federal Bureau of 
     Investigation will soon publish a pamphlet entitled ``The 
     Susceptible Traveler,'' providing tips on how best to protect 
     information while traveling abroad. The pamphlet will be 
     available from the Foreign Counter-Intelligence Training Unit 
     of the FBI, which can be contacted at (202) 324-2566. 
     Additionally, the Office of Export Enforcement at the 
     Department of Commerce works with U.S. companies to prevent 
     unauthorized disclosure or export of ``dual use'' technology 
     and information (items with both military and civilian 
     applications). Enclosed is a packet of information about 
     their programs, and any questions can be directed to their 
     office at (202) 482-2252.
       We can also suggest a few general guidelines for companies 
     to follow. First, a company should educate its employees 
     about the threat of industrial espionage, increasing 
     awareness about the techniques used by others to collect 
     business confidential information and the basic 
     countermeasures for protecting such information from 
     disclosure. Second, companies must develop a system for 
     safeguarding material, including storing documents in secure 
     container and discouraging sensitive business discussions 
     among employees in public places. third, a company should 
     ``compartmentalize'' sensitive information, disseminating it 
     only to employees who need to know such information to 
     perform their jobs.
       I hope these suggestions and the enclosed items will prove 
     helpful to you in answering inquiries from U.S. corporations 
     interested in countering industrial espionage.
           Sincerely,
                                            Eleanor Roberts Lewis,
                            Chief Counsel, International Commerce.
                                  ____


            Economic Espionage--The Threat to U.S. Industry

  (By Milton J. Socolar, Special Assistant to the Comptroller General)

       Mr. Chairman and Members of the Subcommittee: We are 
     pleased to be here today at your request to talk about our 
     ongoing examination of issues involving foreign economic 
     espionage.
       The theft of U.S. proprietary information or technology by 
     foreign companies has long been a part of the competitive 
     business environment. However, as the world political climate 
     changes with the end of the Cold War, the surreptitious 
     gathering of economic and technological information has taken 
     on added significance. The unauthorized acquisition of U.S. 
     proprietary or other information by foreign governments to 
     advance their countries' economic position is growing--
     referred to as economic espionage. The loss of proprietary 
     information and technology through espionage activity will 
     have broadening detrimental consequences to both U.S. 
     economic viability and our national security interests.
       The United States, a leader in creative technological 
     research and development, is a prime target for economic 
     espionage. In recent months, government officials have begun 
     to speak out about this problem. In a recent speech, Central 
     Intelligence Agency (CIA) Director Robert Gates focused on 
     the changing activities of foreign intelligence efforts when 
     he reported, ``[S]ome foreign intelligence services have 
     turned from politics to economics and the United States is 
     their prime target.'' President Bush also expressed concern 
     about such activities when he stated in a speech, ``We must * 
     * * thwart anyone who tries to steal our technology or 
     otherwise refuses to play for fair economic rules.''
       Sophisticated and often undetectable methods are used in 
     economic espionage. Unfortunately, U.S. companies targeted by 
     foreign intelligence agencies may not know--and may never 
     know--that they have been targeted or compromised. In 
     addition, many companies that know they have been victimized 
     want to avoid the negative publicity associated with the loss 
     of valuable trade secrets and other proprietary information. 
     Industry representatives are thus reticent to publicize 
     incidents of espionage.
       While it is not possible for me to quantify the scope of 
     economic espionage conducted by foreign intelligence 
     agencies, there is evidence of a real and growing problem. It 
     has been known for many years that the KGB has been 
     misappropriating U.S. corporate secrets. Indeed, the FBI has 
     estimated that the efforts of the KGB and its surrogates 
     saved the Soviet Union billions of dollars and years of 
     research and development efforts in gaining Western 
     technologies and expertise.
       A former director of the French secret service, DGSE 
     (Direction Generale de la Securite Exterieure), publicly 
     admitted that he directed French industrial and technological 
     intelligence forces to gather economic information from the 
     United States and other countries. In one instance, he stated 
     that the DGSE compiled a detailed secret dossier of the 
     proprietary proposals from U.S. and Soviet companies who 
     were competing with a French company for a billion dollar 
     contract to supply fighter jets for India. Negotiators for 
     the French company, which builds the Mirage jet, were 
     stated to have then used the information provided by DGSE 
     to obtain the contract.
       The following instances of economic espionage that we found 
     in open source documents further illustrate the nature of the 
     problem:
       Recon Optical, Inc., a U.S. company, contracted with the 
     Israeli government to design a top-secret airborne spy-camera 
     system. After months of disagreement between Recon and 
     Israel, Israeli agents allegedly gave Recon's plans for the 
     system to Electro-Optics, an Israeli defense contractor. 
     Recon brought suit against Israel, and the case was settled 
     in 1991. Court records of the settlement are still sealed.
       In two other instances, the French DGSE was allegedly 
     involved in the misappropriation of proprietary information 
     from two U.S. companies. In the first case, the DGSE acquired 
     proprietary information for IBM's next-generation personal 
     computer. The DGSE reportedly provided the information to 
     Campagnies des Machines Bull, an IBM competitor. In the 
     second case, a French national, working for Corning, Inc. in 
     France, sold information and trade secrets to DGSE regarding 
     Corning's latest fiber optic technology. DGSE, in turn, 
     allegedly provided this information to a French competitor of 
     Corning.
       In some instances, U.S. business people have aided foreign 
     competitors in obtaining information. For example, in one 
     case a U.S. scientist sold the trade secrets of U.S. 
     pharmaceutical companies to foreign corporations. The 
     research and development costs associated with the 
     pharmaceutical products alone were estimated at $750 million.
       A complicating factor in examining the problem of economic 
     espionage is the difficulty in determining whether a 
     particular theft of information is the result of foreign 
     government or foreign business activity. This occurs when the 
     company perpetrating the theft is in a country whose 
     government-to-industry relationship is substantially 
     different than what prevails in the United States.
       The government-to-industry relationship in Japan makes it 
     difficult to determine if the Japanese government is involved 
     when Japanese companies successfully acquire U.S. corporate 
     secrets in an unauthorized manner. For example, in 1982 
     Hitachi employees pleaded guilty to conspiring to transport 
     stolen IBM property--in this case, design documents and 
     components for every major part of IBM's newest and most 
     powerful generation of computers, which were not yet on 
     the market. Hitachi, a manufacturer of IBM-compatible 
     products, planned to use this technology to eliminate 
     costly and time-consuming research, thereby shortening the 
     lead time required to bring compatible Hitachi products to 
     the marketplace.
       The clandestine operations by the DGSE and other foreign 
     intelligence agencies can be contrasted sharply with the U.S. 
     intelligence community's view that it should not conduct 
     industrial or economic espionage to benefit U.S. companies. 
     As CIA Director Gates recently stated, U.S. intelligence 
     ``does not, should not, and will not engage in industrial [or 
     economic] espionage.'' Mr. Gates' position is consistent with 
     the views of U.S. industry leaders; they have stated that it 
     would be highly undesirable to have the CIA engage in this 
     type of activity due to ethical and practical reasons. For 
     example, what would the intelligence community's 
     dissemination policies be with respect to foreign company 
     secrets?
       Cryptographic and other information technologies exist that 
     can protect against the vulnerability of the electronic 
     transmission of sensitive information. Such technology is 
     readily available under internationally accepted industry 
     standards. U.S. industry could use this technology to afford 
     a high degree of protection to its proprietary information. 
     The intelligence community, however, appears to be insisting 
     upon the development of a different standard for U.S. 
     industry for electronic communications between it and the 
     government. This separate standard is weaker than what is 
     commercially available, is an added burden on commercial 
     activities, and raises the question as to whether any 
     practical purpose would be served by the requirement. The 
     issues involved, although they may lie within the national 
     security area, merit public discussion.
       Technological advances in computers have made it easier for 
     foreign intelligence agencies and others to monitor the 
     electronic commerce of U.S. industry. U.S. companies may be 
     less able to protect themselves from the espionage apparatus 
     of a foreign government than from a competitor. This problem 
     is made more acute by the globalization of economic 
     competition and the use of advanced communication 
     technologies to conduct business. We need to examine openly 
     the extent to which the government should be hampering 
     industry's use of generally available cryptographic 
     technology that would better protect electronic business 
     communications.
       The CIA and the Federal Bureau of Investigation (FBI) 
     maintain foreign counterintelligence efforts to protect 
     national security. However, the efforts of these agencies do 
     not appear to be sufficiently coordinated to adequately 
     protect U.S. industry against economic espionage. This 
     suggests that there are significant policy issues requiring 
     resolution. In addition, the National Security Agency (NSA) 
     maintains electronic intelligence capabilities that may 
     include gathering economic information. Under the Computer 
     Security Act of 1987, NSA's role is to provide technical 
     advice to the National Institute of Standards and 
     Technology (NIST). NIST's responsibility, under the act, 
     includes assisting government agencies and private 
     entities in protecting unclassified, but sensitive, 
     computer data from compromise.
       Many of the issues in economic espionage, concerning the 
     roles of the FBI and CIA, are similar to those raised during 
     the hearings leading to the enactment of the Computer 
     Security Act of 1987. A wide range of concerns had been 
     raised at that time, regarding President Reagan's decision to 
     give the Department of Defense (DOD) responsibility for 
     computer security involving unclassified, but sensitive, data 
     located in civilian agencies and the private sector.
       As you know, Congress responded by holding hearings that 
     resulted in legislation giving the responsibility to the 
     Commerce Department instead of DOD. Pursuant to the act, the 
     Commerce Department is responsible for issuing computer 
     security standards that allow industry to use the best 
     commercially available technology.
       In closing, economic espionage is an important problem that 
     this country has to face. The criminal justice and 
     intelligence agencies have not adequately addressed this 
     problem. Economic espionage must be looked at very carefully. 
     There should be a thorough review of which agencies should be 
     involved in this area together with what their 
     responsibilities should be. No decision should be made 
     without benefit of a full public debate. Currently, most of 
     the discussions are being conducted within the intelligence 
     community, without the benefit of public debate. In the final 
     analysis, Congress may have to develop legislation to protect 
     industry from economic espionage. How these issues are 
     decided may have a dramatic effect on the economic future of 
     this country.
                                  ____


                      [From Newsweek, May 4, 1992]

          United States Firms Face A Wave of Foreign Espionage

                          (By Douglas Waller)

       It's tough enough these days for American companies to 
     compete with their Pacific Rim rivals, even when the playing 
     field is level. It's a lot tougher when your trade secrets 
     are peddled by competitors. One Dallas computer maker, for 
     example, recently spotted its sensitive pricing information 
     in the bids of a South Korean rival. The firm hired a 
     detective agency, Phoenix Investigations, which found an 
     innocent-looking plastic box in a closet at its headquarters. 
     Inside was a radio transmitter wired to a cable connected to 
     a company fax machine. The bug had been secretly installed by 
     a new worker--a mole planted by the Korean company. 
     ``American companies don't believe this kind of stuff can 
     happen,'' says Phoenix president Richard Aznaran. ``By the 
     time they come to us the barn door is wide open.''
       Welcome to a world order where profits have replaced 
     missiles as the currency of power. Industrial espionage isn't 
     new, and it isn't always illegal, but as firms develop global 
     reach, they are acquiring new vulnerability to economic 
     espionage. In a survey by the American Society for Industrial 
     Security last year, 37 percent of the 165 U.S. firms 
     responding said they had been targets of spying. The increase 
     has been so alarming that both the CIA and the FBI have 
     beefed up their economic counterintelligence programs. The 
     companies are mounting more aggressive safeguards, too. 
     Kellog Co. has halted public tours at its Battle Creek, 
     Mich., facility because spies were slipping in to photograph 
     equipment. Eastman Kodak Co. classifies documents, just like 
     the government. Lotus Development Corp. screens cleaning 
     crews that work at night. ``As our computers become smaller, 
     it's easier for someone to walk off with one,'' says Lotus 
     spokesperson Rebecca Seel.
       To be sure, some U.S. firms have been guilty of espionage 
     themselves--though they tend not to practice it overseas, 
     because foreign companies have a tighter hold on their 
     secrets. And American companies now face an additional 
     hazard: the professional spy services of foreign nations. 
     ``We're finding intelligence organizations from countries 
     we've never looked at before who are active in the U.S.,'' 
     says the FBI's R. Patrick Watson. Foreign intelligence 
     agencies traditionally thought friendly to the United States 
     ``are trying to plant moles in American high-tech companies 
     [and] search the briefcases of American business men 
     traveling overseas,'' warns CIA Director Robert Gates. Adds 
     Noell Matchett, a former National Security Agency official: 
     ``What we've got is this big black hole of espionage going on 
     all over the world and a naive set of American business 
     people being raped.''
       No one knows quite how much money U.S. businesses lost to 
     this black hole. Foreign governments refuse to comment on 
     business intelligence they collect. The victims rarely 
     publicize the espionage or report it to authorities for fear 
     of exposing vulnerabilities to stockholders. But more than 30 
     companies and security experts Newsweek contacted claimed 
     billions of dollars are lost annually from stolen trade 
     secrets and technology. This week a House Judiciary 
     subcommittee is holding hearings to assess the damage. IBM, 
     which has been targeted by French and Japanese intelligence 
     operations, estimates $1 billion lost from economic espionage 
     and software piracy. IBM won't offer specifics but says that 
     the espionage ``runs the gamut from items missing off loading 
     docks to people looking over other people's shoulders in 
     airplanes.''
       Most brazen: France's intelligence service, the Direction 
     Generale de la Securite Exterieure (DGSE), has been the most 
     brazen about economic espionage, bugging seats of businessmen 
     flying on airliners and ransacking their hotel rooms for 
     documents, say intelligence sources. Three years ago the FBI 
     delivered private protests to Paris after it discovered DGSE 
     agents trying to infiltrate European branch offices of IBM 
     and Texas Instruments to pass secrets to a French competitor. 
     The complaint fell on deaf ears. The French intelligence 
     budget was increased 9 percent this year, to enable the 
     hiring of 1,000 new employees. A secret CIA report recently 
     warned of French agents roaming the United States looking for 
     business secrets. Intelligence sources say the French Embassy 
     in Washington has helped French engineers spy on the stealth 
     technology used by American warplane manufacturers. 
     ``American businessmen who stay in Paris hotels should still 
     assume that the contents of their briefcases will be 
     photocopied,'' says security consultant Paul Joyal. DGSE 
     officials won't comment.
       The French are hardly alone in business spying. NSA 
     officials suspect British intelligence of monitoring the 
     overseas phone calls of American firms. Investigators who 
     just broke up a kidnap ring run by former Argentine 
     intelligence and police officials suspect the ring planted 
     some 500 wiretaps on foreign businesses in Buenos Aires and 
     fed the information to local firms. The Ackerman Group Inc., 
     a Miami consulting firm that tracks espionage, recently 
     warned clients about Egyptian intelligence agents who break 
     into the hotel rooms of visiting execs with ``distressing 
     frequency.''
       How do the spies do it? Bugs and bribes are popular tools. 
     During a security review of a U.S. manufacturer in Hong Kong, 
     consultant Richard Hefferman discovered that someone had 
     tampered with the firm's phone-switching equipment in a 
     closet. He suspects that agents posing as maintenance men 
     sneaked into the closet and reprogrammed the computer routing 
     phone calls so someone outside the building--Hefferman never 
     determined who--could listen in simply by punching access 
     codes into his phone. Another example: after being outbid at 
     the last minute by a Japanese competitor, a Midwestern heavy 
     manufacturer hired Parvus Co., a Maryland security firm made 
     up mostly of former CIA and NSA operatives. Parvus 
     investigators found that the Japanese firm had recruited one 
     of the manufacturer's midlevel managers with a drug habit to 
     pass along confidential bidding information.
       Actually, many foreign intelligence operations are legal. 
     ``The science and technology in this country is theirs for 
     the taking so they don't even have to steal it,'' says 
     Michael Sekora of Technology Strategic Planning, Inc. Take 
     company newsletters, which are a good source of quota data. 
     With such information in hand, a top agent can piece together 
     production rates. American universities are wide open, too: 
     Japanese engineers posing as students feed back to their 
     home offices information on school research projects. 
     ``Watch a Japanese tour team coming through a plant or 
     convention,'' says Robert Burke with Monsanto Co. ``They 
     video everything and pick up every sheet of paper.''
       Computer power: In the old days a business spy visited a 
     bar near a plant to find loose-lipped employees. Now all he 
     needs is a computer, modem and phone. There are some 10,000 
     computer bulletin boards in the United States--informal 
     electronic networks that hackers, engineers, scientists and 
     government bureaucrats set up with their PCs to share 
     business gossip, the latest research on aircraft engines, 
     even private White House phone numbers.
       An agent compiles a list of key words for the technology he 
     wants, which trigger responses from bulletin boards. Then, 
     posing as a student wanting information, he dials from his 
     computer the bulletin boards in a city where the business is 
     located and ``finds a Ph.D. who wants to show off,'' says 
     Thomas Sobczak of Application Configured Computers, Inc. 
     Sobczak once discovered a European agent using a fake name 
     who posed questions about submarine engines to a bulletin 
     board near Groton, Conn. The same questions, asked under a 
     different hacker's name, appeared on bulletin boards in 
     Charleston, S.C., and Bremerton, Wash. Navy submarines are 
     built or based at all three cities.
       Using information from phone intercepts, the NSA 
     occasionally tips off U.S. firms hit by foreign spying. In 
     fact, Director Gates has promised he'll do more to protect 
     firms from agents abroad by warning them of hostile 
     penetrations. The FBI has expanded its economic 
     counterintelligence program. The State Department also has 
     begun a pilot program with 50 Fortune 500 companies to allow 
     their execs traveling abroad to carry the same portable 
     secure phones that U.S. officials use.
       But U.S. agencies are still groping for a way to join the 
     business spy war. The FBI doesn't want companies to have top-
     of-the-line encryption devices for fear the bureau won't be 
     able to break their codes to tap phone calls in criminal 
     investigations. And the CIA is moving cautiously because many 
     of the foreign intelligence services ``against whom you're 
     going to need the most protection tend to be its closest 
     friends,'' says former CIA official George Carver. Even 
     American firms are leery of becoming too cozy with their 
     government's agents. But with more foreign spies coming in 
     for the cash, American companies must do more to protect 
     their secrets.


                          HOW THE SPIES DO IT

                              MONEY TALKS

       Corporate predators haven't exactly been shy about greasing 
     a few palms. In some cases they glean information simply by 
     bribing American employees. In others, they lure workers on 
     the pretense of hiring them for an important job, only to 
     spend the interview pumping them for information. If all else 
     fails, the spies simply hire the employees away to get at 
     their secrets, and chalk it all up to the cost of doing 
     business.


                           STOP, LOOK, LISTEN

       A wealth of intelligence is hidden in plain sight--right 
     inside public records such as stockholder reports, 
     newsletters, zoning applications and regulatory filings. 
     Eavesdropping helps, too. Agents can listen to execs' 
     airplane conversations from six seats away. Some sponsor 
     conferences and invite engineers to present papers. Japanese 
     businessmen are famous for vacuuming up handouts at 
     conventions and snapping photos on plant tours.


                                  BUGS

       Electronic transmitters concealed inside ballpoint pens, 
     pocket calculators and even wall paneling can broadcast 
     conversations in sensitive meetings. Spies can have American 
     firms' phone calls rerouted from the switching stations to 
     agents listening in. Sometimes, they tap cables attached to 
     fax machines.


                            HEARTBREAK HOTEL

       Planning to leave your briefcase back at the hotel? The 
     spooks will love you. One of their ploys is to sneak into an 
     exec's room, copy documents and pilfer computer disks. Left 
     your password sitting around? Now they have entry to your 
     company's entire computer system.
                                  ____


            [From Business and Society Review, Winter 1991]

         Industrial Espionage: What You Don't Know Can Hurt You

                        (By Michael J. Stedman)

       It wasn't long ago that American industry set the standards 
     for the world. Particularly envied was the nation's prolific 
     research and development (R&D) in high technology. Today 
     things are a bit different, but American technology is still 
     a valuable target for foreign businesses and nations--and 
     their spies.
       There are, of course, a host of reasons why American 
     competitiveness has weakened in the past twenty years, not 
     the least of which is that its commercial challengers have 
     gotten stronger. But business and government leaders--
     seriously concerned with America's deteriorating economic 
     position--are reaching the conclusion that part of our 
     competitors' gains can be attributed to the loss of exclusive 
     trade secrets and technology to foreign espionage. Officials 
     at the Central Intelligence Agency (CIA) and the National 
     Security Agency (NSA), for example, think it is time for 
     America to employ all its resources--including intelligence--
     to meet more effectively global competition and to bolster 
     the U.S. economic base.
       With the Cold War over, field officers around the world 
     have begun to move from the intelligence services into 
     private business. Indeed, the services themselves are moving 
     their resources from military to economic and business 
     arenas. Says Sen. David Boren (D-Okla.), who sits on the 
     Senate Select Committee on Intelligence: ``As the arms race 
     is winding down, the spy race is heating up.''
       And when it comes to spying, the Soviets, with totalitarian 
     single-mindedness, have always played writer/director. As 
     Steven Bryen, former Director of the Defense Technology 
     Security Administration, and now president of Delta Tech, 
     Inc., a consulting firm in Washington, D.C., says, ``The 
     Russians turned what was a cottage industry--people spying on 
     each other's companies--into an international product.'' 
     Bryen's view is supported by the evidence. In the past twenty 
     years, the Soviets have diverted thousands of different high 
     technology items; the hardware alone is worth billions of 
     dollars.
       America's warming relationship with Russia will not likely 
     change the soviet need for discounts on sensitive 
     technological advancements or its approach to business 
     research.
       According to CIA Director William Webster, the changes 
     introduced by Soviet President Mikhail Gorbachev make it more 
     important for the Soviets to get intelligence on advanced 
     technology. ``We see signs that the Soviets are more 
     aggressive, more robust; there are more pitches being made,'' 
     Webster says. He adds that there is a greater Soviet effort 
     to recruit agents both in the United States and in Europe. 
     One recent Soviet defector disclosed that the KGB's Dept. T, 
     which specializes in industrial espionage, illicitly gathered 
     25,000 technical documents and 4,000 pieces of machinery from 
     1984 to 1988.


                            cloak and dagger

       Industrial espionage has a global dimension. The 
     intelligence services of several African nations, for 
     example, cooperate with the KGB to attempt to steal U.S. 
     secrets abroad. ``Soviet intelligence is more aggressive than 
     it has been at any time in the last decade,'' argues Oliver 
     Revell, the Federal Bureau of Investigation's (FBI) associate 
     deputy director in charge of investigations. And intelligence 
     officials indicate that the Soviets are even now recruiting 
     the best agents from the East bloc while those not selected 
     seek espionage jobs in the West. Many end up working in 
     western countries for Iraq, Yemen, and Libya.
       According to one global specialist, Steven Dedijer, of Lund 
     University's School of Economics and Management in Sweden, 
     ``Today, it has become a real threat to U.S. companies.'' on 
     May 19, 1990, KGB Chief Vladamir Kryuchkov said his agents 
     would help Soviet businesses acquire economic information 
     from the West. Why? Stealing technologies is one of the 
     quickest ways for them to make up lost ground. Says Dedijer: 
     ``The U.S.S.R. enterprises until now have not had 
     competition. With the Gorbachev economic reforms . . . there 
     are strong indications that thousands of KGB officers will be 
     engaged by Soviet firms to help establish corporate 
     intelligence.''
       This, of course, is news only in degree. The Soviets (as 
     well as Americans) have always engaged in economic 
     intelligence. A 1985 declassified CIA report revealed that 
     ``in spite of the several decades of massive investment in 
     indigenous R&D, the prospects are small that the Soviets can 
     reduce their dependence on a large variety of western 
     products and technology in this decade and the next without 
     allowing the technological gap to widen. Even if there were 
     some major Soviet economic or managerial reforms, no real 
     lessening of the Soviet dependence on western innovation is 
     anticipated,'' the report warned. The impact of the 
     dependence could be even more important in the 1990s than it 
     is today,'' it added.
       While the Soviet Union's espionage is regarded by the FBI 
     and top U.S. military counterintelligence as the most 
     sophisticated and threatening, there has been increased 
     concern of late with Chinese spying and technology theft. 
     U.S. customs officials in California rate the Chinese as the 
     leading foreign power involved in stealing U.S. technology.
       ``The Russians and Chinese may be the most active spies, 
     but they are certainly not the only ones rifling American 
     technology and industrial secrets.'' An increasing share of 
     the espionage directed against the United States comes from 
     spying by foreign governments against private American 
     companies aimed at stealing commercial secrets to gain a 
     national economic advantage.
       According to George A. Carver, Jr., a former career CIA 
     official and now a fellow at the Center for Strategic and 
     International Studies and president of C and S Associates, 
     Inc., a consulting firm, economic competition is replacing 
     military competition in most of the world--a shift that does 
     not necessarily mean the world is about to become one big 
     happy family. All of America's major foreign competitors 
     [have] the full weight of their governments' diplomatic and 
     intelligence resources thrown behind their nationals' 
     companies or consortia, especially ones in heavy offshore 
     competition,'' Carver says.
       American companies face a formidable foe overseas since, 
     points out Dwayne O. Andreas, head of Archer Daniels Midland, 
     ``Every one of our competitors is a democratic, socialist, 
     mercantile managed economy. American companies are not 
     competing with other companies but with the treasuries of 
     other governments, and that is the problem.''
       An example of this problem surfaced this past summer when 
     it was revealed that U.S. agents discovered that the French 
     intelligence service, Direction Generale de la Securite 
     Exterieure, recruited spies in the European branches of IBM, 
     Texas Instruments, and other U.S. electronics companies. U.S. 
     officials say the spy ring, which was passing on marketing 
     and research secrets to Compagnie des Machines Bull, the 
     troubled government-owned French computer company, was part 
     of a major espionage program run against foreign business 
     executives since the late 1960s by Service 7 of French 
     intelligence.
       Anyone skeptical of an impending threat to America's 
     leadership in the technological and industrial sector need 
     only look at a report, ``Deterrence in Decay: the Final 
     Report of the Defense Industrial Base Project,'' issued last 
     year by a Defense Department-supported panel of industry 
     spokespersons. Produced by the Center for Strategic and 
     International Studies, the report states: ``One of the most 
     important national security aspects of industrial performance 
     is import penetration into the domestic defense industry. 
     Total import penetration grew between 1980 and 1986 in 104 of 
     122 defense sectors for which data are available. Certain 
     critical components are available only from foreign suppliers 
     whose reliability in time of emergency is questionable. . . . 
     Foreign penetration of the U.S. defense industrial base may 
     drain the U.S. technological lead.''
       ``The United States is the most formidable country in the 
     world once it sets its mind on doing something,'' says 
     William T. Archey, a vice president for the U.S. Chamber of 
     Commerce. ``And what it needs to do right now is focus its 
     attention on international competitiveness and the importance 
     of trade to the country's economic well-being.'' But many 
     experts involved in security and intelligence wonder if 
     American business is up to the job.


                            overt and covert

       These experts essentially argue that American business has 
     too long ignored the relationship between intelligence 
     gathering and economic competitiveness. Carver emphasizes 
     that intelligence collection and other operations cannot be 
     neatly compartmentalized into ``overt'' and ``covert'' 
     categories. Rather, they span a spectrum that ranges from 
     using one's own eyes and ears while engaged in perfectly 
     open, lawful activities (and encouraging others to do the 
     same) to classical espionage operations conducted with the 
     full panoply of clandestine tradecraft. Thus, many important 
     intelligence tasks can only be performed by humans. And 
     because the kind of talent needed to perform them effectively 
     isn't readily available, a new industry--business 
     intelligence (BI)--is emerging. Intelligence specialists, who 
     bring with them their special expertise, are in the process 
     of creating this totally new business discipline that some 
     say will eventually prove to be as valuable to business as 
     the development of strategic planning. It is important to 
     understand the difference between business intelligence 
     and corporate espionage: it is the difference between 
     stealing secrets and analyzing, organizing, and 
     distributing legally available information that can be 
     useful to the unique policymaking needs of one particular 
     enterprise.
       Dedijer, speaking at a recent convention of business and 
     competitive intelligence professionals in Paris, said, ``BI 
     today is the chief national weapon in the worldwide economic 
     war.'' While he points to Japan as having the most 
     sophisticated business intelligence, he also credits the 
     U.S.S.R. with making it a science.


                          military experience

       The evidence that intelligence is important to the success 
     of business enterprises has had little impact on business 
     schools in America. American management science, with very 
     few exceptions, has preferred not to devote serious 
     consideration to the intelligence and security competence of 
     the enterprise, regarding it in many respects as an unethical 
     realm of cloak-and-dagger escapades and worse. That may 
     partially explain why until now most business intelligence 
     professionals have been men with experience in various 
     branches of military, police, and political intelligence. 
     Didijer explains that ``the emergent intelligent corporation 
     will need'' professionals with business school training in 
     the theory and practice of business intelligence.
       A consensus is beginning to form that American business 
     needs to develop its understanding of how the rest of the 
     world balances the relationship between industry and 
     government with regard to intelligence. This is not an 
     entirely new need, of course. Competition from friend and foe 
     has been increasing for the past twenty to twenty-five years. 
     But recent and impending forces--the collapse of communism 
     and the enormous markets that that event opens, the 
     unification of Europe in 1992, the increased financial 
     pressure on Japan, and the frenzied search for innovation and 
     new products--bring a startling urgency to the situation. The 
     pressure on business to compete more effectively is destined 
     to increase exponentially.
       CIA Director Webster has noted that President Bush has 
     identified competitiveness as a national goal. That effort is 
     inextricably linked to America's commitment to develop its 
     comprehension of how information and intelligence can be 
     handled in a competitive environment. ``It is the job of 
     intelligence to provide information that will help our 
     policymakers reach that goal . . . to examine . . . the ways 
     that actions taken abroad can affect our national security 
     interest. Understanding the capabilities and intentions of 
     competitors will assist our policymakers in deciding how our 
     nation will play. It is very important for us to recognize 
     that other countries may not be playing by the rules that we 
     would necessarily advance,'' he adds.
       In the arcane area of intelligence there can be problems 
     that cannot be solved by individual companies or even entire 
     industries. These problems are not only beyond reach of the 
     corporate marketing or research departments, but reside in a 
     shadowy region sheltered from our own laws and agreements.


                             stolen secrets

       Bob Muir, director of the patent office at Caterpillar in 
     Moline, Illinois, cited a frustrating example: ``me-too'' 
     registrations. Because many of the chemicals used by the 
     pharmaceutical and agro-chemical industries are toxic, some 
     nations require that foreign companies register with the 
     government a chemicals formulation and present evidence 
     demonstrating how the substance can be safely used. Having 
     done this (compiling the test results can sometimes take 
     years), American companies often find that the chemical 
     formulas they have developed and spent years testing turn up 
     in the registrations filed by competitors within that 
     country. Only the intervention of the U.S. government can 
     correct this unjust enrichment at the expense of American 
     companies. Muir says patent experts have been pressing for 
     laws that would protect companies from this practice. The 
     practice is now legal in a number of lesser-developed 
     nations.
       A similar scheme was hurting U.S. manufacturers in Italy 
     until the laws were finally changed, according to Muir. 
     ``Italy had a large pharmaceutical industry which simply 
     manufactured pharmaceuticals identical to those patented 
     in this country,'' he says. Since it is the process of 
     making a product that is usually patented, Italy's 
     pharmaceuticals could be exported anywhere--and 
     particularly to the United States, where importing a 
     product made by an identical process overseas does not 
     constitute a patent infringement.
       Gerald Burke, chairman and CEO, Parvus Co., Silver Spring, 
     Maryland, a private investigation firm, says that while 
     American technology is the primary target of both espionage 
     and intelligence efforts by foreign governments and 
     companies, the activity is neither confined to American 
     corporations, nor to technology. Burke's firm, like the 
     intelligence agencies its operatives come from, specializes 
     in counterespionage and security.
       A very large international Swiss construction contractor 
     retained Parvus because it was suspicious that an Italian 
     competitor was stealing bidding information on contracts 
     worth billions of dollars. The client, which should have won 
     some of the contracts, was being consistently underbid. ``We 
     did find the bad guy, a former employee of our client who 
     still had an in with the people in the controller's office of 
     our client and literally bribed him for this bidding data,'' 
     Burke says.


                          operating operatives

       Burke's firm illustrates the rising prominence of business 
     intelligence and the type of expertise the field employs. 
     Burke started his career as a naval officer before 
     transferring into Naval Intelligence, where he worked closely 
     with the National Security Agency as an expert in Soviet 
     missiles. In 1969, after reaching the top levels of NSA as 
     civilian chief of staff, he was appointed by President 
     Richard Nixon as executive director of the President's 
     Foreign Intelligence Advisory Board to evaluate worldwide spy 
     operations.
       Parvus' roster of officers and operatives reveals it to be 
     a small, private version of the Central Intelligence Agency 
     for hire. As an example, former CIA director Richard Helms is 
     chairman of Parvus' advisory board. Virtually all of its 
     operating employees came out of CIA, NSA, DEA, FBI, U.S. 
     Foreign Service, State Department intelligence, INTERPOL, 
     IRS, and intelligence branches of the various armed 
     services. The range of expertise at the firm is broad; 
     several on the staff, for example, have medical degrees.
       The secrecy inherent in all this creates a Catch-22 
     situation: While the U.S. intelligence community wants to 
     broaden public support for efforts to increase the exchange 
     of economic and business information between government and 
     industry, the secrecy necessary to shield intelligence 
     activity from adversaries inhibits them from acting. After 
     all, not even the victims of foreign espionage and business 
     intelligence activities want to talk about it. And for the 
     CIA, NSA, or one of the defense intelligence agencies to 
     discuss it would mean unmasking methods and resources that 
     are at the heart and soul of their work.
       America's cultural reservations about big business and big 
     government have further hindered any advance toward bridging 
     the gap between business and government intelligence.
       Former CIA director Richard Helms, now president of Safeer 
     Company, Washington, D.C., agrees that while the American 
     intelligence community has always been involved in economic 
     intelligence, there is more of a need today for the 
     government ``to provide information to individual companies 
     in an effort to keep America competitive. But I don't think 
     anyone's worked out a solution to that problem.'' Helms 
     pointed out that not a small part of the difficulty ``is this 
     country's cultural environment itself. Our culture in America 
     is such that when companies do work for their government, 
     they're always open to suspicion and vice versa.'' Perhaps 
     that explains partly why ``nearly all of this stuff 
     [espionage against U.S. companies] will remain secret because 
     there is a mutual defense pact here: the guy getting it 
     doesn't want it to be known that he's doing it, the guy 
     receiving it doesn't want it to be known that he's getting 
     it, and the victim doesn't want anyone to know he's been 
     had.''
       Burke illustrates the problem when discussing his own 
     experiences. He is unable to divulge the identity of his 
     clients or other specifics when describing examples of 
     espionage at work against commercial enterprises.
       ``We recently had a case on retainer where we caught a 
     Japanese computer company stealing or misappropriating, not 
     hard trade secrets, but marketing analyses, cost and pricing 
     data, etc., [which] can have immediate bottom-line 
     implications for an American company.'' Burke's firm 
     identified and caught the guilty parties but the client did 
     not want to involve the authorities--the firm simply wanted 
     the practice to end. ``They weren't at all interested in 
     calling in the FBI,'' says Burke. ``If someone is victimized, 
     they don't want anyone to know that they are vulnerable.''


                          multinational spies

       One of the best ways to make American companies more 
     competitive is to open their eyes to competitive 
     intelligence, Burke says. He points to the ``grand old 
     tradition in Europe'' of using national intelligence services 
     to help private companies. Echoing Ambassador Helms, he says 
     ``there is a kind of adversarial relationship between 
     government and business'' and laments that American companies 
     are not nearly as sophisticated as Japanese, German, or 
     French companies in terms of competitive intelligence.
       As vice chairman of the National intelligence Council and 
     special assist to former Director of Central Intelligence 
     William Casey, Herb E. Meyer managed the production of the 
     U.S. national intelligence estimates, the top-secret 
     projections that go to the President every day. Today Meyer 
     is president of Real World Intelligence, Inc., Washington, 
     DC. He is also a former editor of Fortune magazine and the 
     author of the recently released book Real World Intelligence.
       After leaving the CIA, Meyer says he became aware that non-
     American companies were making tremendous use of information 
     analysis--as opposed to field operations or clandestine 
     activity--in ways that American firms were not. ``There is no 
     such thing as a Japanese company that doesn't have a business 
     analysis system, and European companies are beginning to do 
     it, too. And I saw the emergence of a management tool that 
     was being used against American companies of which we were 
     not aware,'' he says.
       Many major foreign multinational companies are increasingly 
     using intelligence as a management tool as well. And, 
     according to Meyer, they are doing so far more extensively 
     and effectively than U.S. corporations. He says that the 
     foreign multinationals are taking advantage of intelligence 
     analyses provided by intelligence-consulting firms that have 
     set up shop in the past few years in the world's financial 
     and political capitals. Most of these firms, he explains, are 
     owned and operated by former high-level government officials 
     who, in effect, are repackaging and selling to corporate 
     clients--often for large fees--the information and insights 
     they acquired while in office.
       Meyer believes business intelligence is destined to become 
     the next major management science tool to take America by 
     surprise. To illustrate how uninitiated he feels the American 
     business and academic business school community remains, he 
     likens what is happening today to two earlier instances of 
     major management science break-throughs: strategic planning, 
     which American ingenuity recognized, and quality control 
     circles, which it didn't.
       Meyer believes that, with a bit of encouragement, American 
     corporations and business schools can shed their negative 
     perception of business intelligence. Indeed, he thinks it may 
     eventually be embraced enthusiastically. Meyer recalls the 
     enthusiasm that greeted another new management method: 
     strategic planning. Business, which saw how Pentagon ``whiz 
     kids'' had used logistics to help Allied forces win WW II by 
     providing for the smooth and uninterrupted flow of vital food 
     and supplies to troops, recognized the potential of the new 
     management method.


                            corporate radar

       Meyer also recalls W. Edward Deming, who developed 
     innovative quality control manufacturing techniques--
     techniques that were ignored in the United States. After his 
     rejection at home in the years after World War II, Deming 
     took his ideas on the road to Japan. There, he became the 
     second most celebrated person after the Emperor. Every year, 
     the Deming award for quality is broadcast nationally on 
     Japanese television. Says Meyer: ``[Deming] was a nobody [in 
     the United States]. No one would buy him lunch. Now big 
     American companies are flying him in on private jets with 
     lines waiting to listen to him.
       ``There is a serious danger that the pattern will repeat 
     itself. You cannot graduate from the top business school in 
     France without taking a course in business intelligence. 
     There are virtually no BI courses in American business 
     schools,'' he adds.
       Meyer's book has just been published in the United States; 
     it's being launched in France, and will be printed in 
     Japanese. ``Business intelligence is corporate radar; it 
     doesn't exist in the United States except that now we're 
     beginning. You can go to any CEO and ask `How do you plan 
     strategically,' and he can tell you. But ask `how do you 
     harness information?' and he cannot answer your question. 
     That's the equivalent of `Hey, everybody keep your eyes 
     peeled and if you see anything, let me know.' It's a non-
     system,'' he shrugs.
       The line in Real World Intelligence Meyer says gets quoted 
     most is that Mitsubishi has an intelligence analytic staff 
     that takes up two floors of the Pan Am building in New York. 
     ``To serve their broad commercial interests, the Japanese 
     trading companies--the sogo shosha--have created vast 
     overseas data-collection networks,'' he smiles.
       Another former government official, Michael Sekora, who 
     headed the Defense Department's SOCRATES project which 
     examined the availability of technology on a global basis, 
     now operates a private consulting firm, Technology Strategic 
     Planning, in Stuart, Florida. Sekora says that the United 
     States has ``to start playing the game the way everyone else 
     does: Limit the flow of good technology out of your own 
     country while going to other countries and getting theirs.''
       Charles Hunt, an associate of Meyer in Paris, says business 
     must be played like war today--seriously--but without the 
     dirty tricks and nastiness. ``You have to know your 
     objectives, your target, and once you know your target, you 
     build your sensory apparatus: radar.'' Hunt uses the metaphor 
     of a soldier in warfare tending radar for a harbor. ``You're 
     looking for the enemy,'' he says.


                             SEOUL GUITARS

       Business intelligence requires setting up a sensory system 
     that will channel information directly from sources to 
     deciphering and analysis, where data is put into a form that 
     can be acted on effectively and immediately. ``That's the 
     first part of the trick, to know where to look, to use your 
     sensory equipment. Once you have your system to get the early 
     signals and a way to go to the sources, you have almost 95 
     percent of the intelligence business,'' Hunt explains.
       Hunt has also just published a book in France--Strategic 
     Intelligence for Your Enterprise--that offers a compelling 
     example of business intelligence. The huge Korean 
     organization Samsung, Hunt writes, has a very articulated, 
     informal, internal intelligence network. Samsung's 
     headquarters in Seoul receives a daily intelligence report 
     from all locations where the organization employs more than 
     four people. The system was so effective that even the Iran-
     Iraq war and the Iranian revolution did not interfere with 
     the flow of daily reports from Samsung subsidiaries and 
     branches to Seoul. The reports contained information that 
     allowed headquarters to plan effectively in advance for 
     the needs of its far-flung empire. A gripping example of 
     how intelligence can be used effectively and within legal 
     and ethical parameters was illustrated by the American 
     guitar caper. According to Hunt, an employee responsible 
     for Samsung's Los Angeles office read in the local paper 
     that one of the last American guitar factories was going 
     to close. Guitars from East Asia were cheaper and a price 
     war made it no longer profitable to make them at the 
     American factory. The employee in Los Angeles sent the 
     newspaper article to Seoul.
       ``So [headquarters] thought about it and decided that the 
     guitar was a strong symbol of the free American spirit, of 
     independence, the cowboy strumming along the cattle trail,'' 
     said Hunt. Samsung anticipated that the American guitar 
     industry ``would go to Washington to canvass and Congress 
     would put some sort of restraints on those kinds of string 
     instruments,'' Hunt added.
       The information, confirmed by other Samsung 
     representatives, gave management all it needed to make a 
     strategic decision that would prove extremely profitable. 
     ``They just stacked their warehouses in America with all the 
     guitars they could find in Korea and sold all they could 
     until Congress passed a ruling, which it did,'' said Hunt.
       The need for more attention to intelligence as a management 
     science in corporations as well as in business schools is 
     driven home by Lester Thurow, the dean of MIT's business 
     school. ``We in America are very poorly organized to employ 
     business intelligence to compete.'' He points to a reluctance 
     to catch up with modern facts of business and economic life, 
     if not sheer arrogrance, as a problem. ``Because for a half-
     century we believed there was nothing important to learn in 
     the rest of the world and therefore we don't have to have our 
     vacuum cleaners out there vacuuming it up; it goes from the 
     trivial to the sophisticated,'' Thurow says. He points out 
     that one of the jobs at the Japanese Productivity Center in 
     Washington simply is to translate every science and 
     engineering article written in English into Japanese and send 
     it to all the corporations in Japan that they think should 
     read it. The United States doesn't do anything like that.
       ``It is interesting to note that there are virtually no 
     courses in business intelligence at American business 
     schools, including at MIT. It goes back to the same thing: no 
     one thought it was necessary,'' Thurow says. He adds: ``The 
     U.S. government is going to have to jump in with both feet to 
     help its corporations because other countries already do 
     that.''
       Speaking to the morality of business intelligence, Fred 
     Haynes, vice president for planning and analysis of LTV's 
     Missile and Electronics Group, says, ``It's not spying. It 
     doesn't have to be done unethically. It's part of a normal 
     process.''
                                  ____


                       [From Time, May 28, 1990]

When ``Friends'' Become Moles--American Companies Wake Up to a New Spy 
                          Threat: U.S. Allies

                           (By Jay Peterzell)

       The dangers of Soviet military espionage may be receding, 
     but U.S. security officials are awakening to a spy threat 
     from a different quarter: America's allies. According to U.S. 
     officials, several foreign governments are employing their 
     spy networks to purloin business secrets and give them to 
     private industry. In a case brought to light last week in the 
     French newsmagazine L'Express, U.S. agents found evidence 
     late last year that the French intelligence service Direction 
     Generale de la Securite Exterieure had recruited spies in the 
     European branches of IBM, Texas Instruments and other U.S. 
     electronics companies. American officials say DGSE was 
     passing along secrets involving research and marketing to 
     Compagnie des Machines Bull, the struggling computer maker 
     largely owned by the French government.
       A joint team of FBI and CIA officials journeyed to Paris to 
     inform the French government that the scheme had been 
     uncovered, and the Gallic moles were promptly fired from the 
     U.S. companies. Bull, which is competing desperately with 
     American rivals for market share in Europe, denies any 
     relationship with DGSE. Last year the company made a 
     legitimate acquisition of U.S. technology when it agreed to 
     purchase Zenith's computer division for $496 million.
       U.S. officials say the spy ring was part of a major 
     espionage program run against foreign business executives 
     since the late 1960s by Service 7 of French intelligence. 
     Besides infiltrating American companies, the operation 
     routinely intercepts electronic messages sent by foreign 
     firms. ``There's no question that they have been spying on 
     IBM's transatlantic communications and handing the 
     information to Bull for years,'' charges Robert Courtney, a 
     former IBM security official who advises companies on 
     counterespionage techniques.
       Service 7 also conducts an estimated ten to 15 break-ins 
     every day at large hotels in Paris to copy documents left in 
     the rooms by visiting businessmen, journalists and diplomats. 
     These ``bag operations'' first came to the attention of the 
     U.S. Government in the mid-1980s. One U.S. executive told 
     officials about a trip to Paris during which he had made 
     handwritten notes in the margin of one of his memos. While 
     negotiating a deal with a French businessman, he noticed that 
     the Frenchman had a photocopy of the memo, handwritten notes 
     and all. Asked how he got it, the Parisian sheepishly 
     admitted that a French government official had given it to 
     him. Because of such incidents, U.S. officials began a quite 
     effort to warn American companies about the need to take 
     special precautions when operating in France.
       While France can be blatant, it is by no means unique. ``A 
     number of nations friendly to the U.S. have engaged in 
     industrial espionage, collecting information with their 
     intelligence services to support private industry,'' says 
     Oliver Revell, the FBI's associate deputy director in charge 
     of investigations. Those countries include Britain, West 
     Germany, the Netherlands and Belgium, according to Courtney. 
     The consultant has developed a few tricks for gauging whether 
     foreign spies are eavesdropping on his corporate clients. In 
     one scheme, he instructs his client to transmit a fake cable 
     informing its European office of a price increase. If the 
     client's competitor in that country boosts its price to the 
     level mentioned in the cable, the jig is up. ``You just 
     spoof'em,'' Courtney says.
       Most U.S. corporations could protect their sensitive 
     communications simply by sending them in code. But many 
     companies are reluctant to do this, even though the cost and 
     inconvenience might be minor. One reason may be that the 
     effects of spying are largely invisible. All the company sees 
     is that it has failed to win a contract or two. Meanwhile, 
     its competitor may have clandestinely learned all about its 
     marketing plans, its negotiating strategies and its 
     manufacturing secrets. ``American businesses are not really 
     up against some little competitor,'' observes Noel Machette, 
     a former National Security Agency official who heads a 
     private security firm near Washington. ``They're up against 
     the whole intelligence apparatus of other countries. And 
     they're getting their clocks cleaned.''
       As U.S. national-security planners increasingly focus on 
     American competitiveness, many of them fear that U.S. 
     corporations are operating at a severe disadvantage. 
     America's tradition of keeping Government and business 
     separate tends to minimize opportunities for the kind of 
     intelligence sharing that often occurs in Europe. ``I made a 
     big effort to get the intelligence community to support U.S. 
     businesses,'' recalls Admiral Stansfield Turner, who headed 
     the CIA in the late 1970s. ``I was told by CIA professionals 
     that this was not national security.'' Moreover, it would be 
     hard for the Government to provide information to one U.S. 
     firm and not to another. Yet if sensitive intelligence is 
     shared too widely, it cannot be protected.
       One thing the U.S. Government can do is make sure business 
     leaders understand the threat. When the late Walter Deeley 
     was a deputy director at NSA in the early 1980s, he began a 
     hush-hush program in which executives were given clearances 
     and told when foreign intelligence agencies were stealing 
     their secrets. ``He considered it a real crusade,'' a former 
     intelligence official says. ``If American business leaders 
     could see some of these intelligence reports, I think they 
     would go bananas and put a lot more effort into protecting 
     their communications.''
       ``It may not be possible to level the playing field [with 
     foreign companies] by sharing intelligence directly'' with 
     their U.S. rivals, observes deputy White House science 
     adviser Michelle Van Cleave. ``But it should be possible to 
     button up our secrets.'' That argues for much more use of 
     secret-keeping techniques and far less naivete on the part of 
     American business as it enters the spy-vs.-spy era of the 
     1990s.
  Mr. COHEN. With that, Mr. President, I yield the floor at this time 
and seek any comment that the chairman might have.
  Mr. HOLLINGS. Mr. President, right to the point, there is no use 
trying to extend technology with regional centers when the foreign 
intelligence penetrations are going on, and they are ahead of the 
extension, particularly with respect to our technology. As it shifts 
from DOD and DARPA over into Commerce's Advanced Technology Program, 
this has been a matter of concern. It is not a subject, of course, of 
this committee, but we are willing to try, in the light of what has 
been explained by the distinguished Senator from Maine, try to take it 
and see what the Members on the other end of the Capitol would like to 
do. We will do our best.
  I have worked in this intelligence field; I will plead guilty on 
that. I started back in the fifties on the Hoover Commission. We 
investigated, at that time, the intelligence activities not only of the 
entire Defense Department--Army, Navy, Air Force, Department of Defense 
intelligence, the old Atomic Energy, Nuclear, the CID, CIA, FBI, 
National Security Agency, particularly the CIA, working at that time 
with Allen Dulles. We had a real tight and responsive organization. I 
have just completed 8 years with the distinguished Senator from Maine 
on the Intelligence Committee. We are sadly lacking in this area he 
highlighted, and this is definitely needed. There is no question. That 
is my opinion. If others are disposed otherwise, I would yield and let 
others address the particular subject, and then go along with his move 
to adopt.
  The PRESIDING OFFICER. Is there further debate on the amendment?
  The question is on agreeing to the amendment.
  The amendment (No. 1479) was agreed to.
  Mr. COHEN. Mr. President, I move to reconsider the vote.
  Mr. HOLLINGS. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.
  The PRESIDING OFFICER. The Senator from Maine is recognized.


                           Amendment No. 1489

    (Purpose: To amend the National Security Act of 1947 to improve 
 counterintelligence measures through enhanced security for classified 
                  information, and for other purposes)

  Mr. COHEN. Mr. President, I send to the desk an amendment and ask for 
its immediate consideration.
  The PRESIDING OFFICER. The clerk will report.
  The legislative clerk read as follows:

       The Senator from Maine [Mr. Cohen] proposes an amendment 
     numbered 1489.

  Mr. COHEN. Mr. President, I ask unanimous consent that the reading of 
the amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (The text of the amendment is printed in today's Record under 
``Amendments Submitted.'')
  Mr. COHEN. Mr. President, I rise to offer an amendment to improve our 
Nation's counterintelligence capabilities. This amendment is identical 
to S. 1869, which Senator Boren and I introduced last month.
  When Boris Yeltsin gave his memorable speech to a joint session of 
Congress in 1991, he bluntly declared, ``No more lies.'' Perhaps 
because of the thunderous applause that followed, many Americans seem 
to have misheard him to say ``no more spies.'' We now know better.
  The point, though, is what we should have known all along. If anyone 
got the impression that the end of the cold war meant there would be no 
one left to come in from the cold, they did not get that impression 
from Moscow. After the collapse of the Berlin Wall and the Warsaw Pact, 
Soviet and later Russian intelligence officials clearly stated that 
they were still hard at work and even were getting more aggressive at 
stealing business secrets.
  The FBI and others warned that the end of the cold war would produce 
no decline in espionage against the United States and, indeed, might 
lead to an increase since some Americans might be more comfortable 
selling secrets to countries that no longer appear to threaten us.
  The image of a cold war spy was of a Philby, Burgess or other high-
level official driven by ideological zeal. But long before the cold war 
ended, these glamorous, derring-do agents of real life and fiction gave 
way to faceless bureaucrats whose zeal was not for the Red banner but 
the greenback.
  During the 1980's, more spies were unmasked than during any other 
decade in our history. They were clerks, analysts, cryptanalysts, 
military personnel and other low- to mid-level employees with access to 
our most important secrets and a willingness to sell those secrets to 
the highest bidder. Only one-tenth of them were recruited. Nine out of 
ten were volunteers, initiating contact with a foreign intelligence 
service.
  Five years ago, recognizing that countering this new breed of spies 
would require new methods, Senator Boren and I, as chairman and vice 
chairman of the Senate Intelligence Committee, undertook a year-long 
review to identify ways to improve the Nation's counterintelligence 
system without sacrificing the personal liberties our national security 
apparatus is meant to protect.
  To assist us in that effort, Senator Boren and I convinced a panel of 
wise men with significant experience in government.
  This distinguished panel included Eli Jacobs, a businessman who has 
served on many government advisory panels related to national security 
and intelligence; now-Secretary of State Warren Christopher; Lloyd 
Cutler, who served as counsel to President Carter and has just been 
named as President Clinton's counsel; Reagan White House counsel Arthur 
B. Culvahouse; and Ambassador Sol Linowitz.
  The work of this panel, as well as testimony we received from the 
FBI, the CIA, the Justice Department, the ACLU, the American Foreign 
Service Association, and others greatly contributed to our effort. 
Based on our research and these contributions, we drafted legislation 
to deter U.S. citizens from spying, detect those who are not deterred 
and help prosecute those we detect.
  Given the pecuniary motives of today's spies, we sought to improve 
the chance that warning lights would start flashing when Americans 
handling highly classified information lived beyond their means. Or, as 
I noted in a 1990 statement that is unexpectedly pertinent in light of 
the Ames case, if a guy goes from a Vega to a Jaguar in a year's time, 
something's wrong and should be detected.
  We concluded that the FBI should be given greater access to financial 
and foreign travel records of persons who handle Top Secret 
information. Giving consent to such FBI access should be a condition of 
obtaining a Top Secret clearance, and this consent should apply 
throughout the time a person has access to Top Secret information and 
for 5 years thereafter. Current law actually prohibits a person from 
giving consent for government access to financial records for more than 
3 months.

  While constituting a moderate loss of privacy for those handling 
highly classified information, this would create an important deterrent 
to those tempted to spy and a new tool to catch those who do. Being 
entrusted with the Nation's secrets is a privilege for which the Nation 
can and should ask reasonable sacrifice.
  A second significant change we proposed was to establish uniform 
requirements for access to highly classified information, which today 
can vary widely from one agency to another. According to a recent 
report by a panel appointed by the CIA and the Pentagon, information on 
a certain technology was subject to discretionary controls by the 
Department of Energy but protected with deadly force by one of the 
military services. Similar, if less extreme, variations exist in 
agencies' requirements for obtaining security clearances.
  Besides creating wasteful redundancies, this permits weak 
links in the chains of security guarding our secrets. It even opens the 
opportunity for a person to shop around for a security clearance. 
Jonathan J. Pollard, who pleaded guilty in 1986 of spying for Israel, 
was denied employment by the CIA in 1977 because of security concerns 
only to be hired 2 years later as a civilian Navy intelligence analyst.
  Other measures we identified included improving protection of 
cryptographic information, which can be the magic key to read volumes 
of sensitive communications at all levels of classification; closing 
gaps in our espionage laws; better enabling the Government to 
confiscate spies' ill-gotten gains; establishing jurisdiction in U.S. 
courts for espionage acts committed abroad; and allowing monetary 
rewards for information leading to the arrest or conviction of spies or 
prevention of espionage.
  Mr. President, I was very pleased last week when the Chairman of a 
special DOD-CIA appointed commission endorsed not only these types of 
measures but this very legislation, itself. In fact, in public 
testimony to the Senate Intelligence Committee, Jeff Smith called for 
the prompt passage of this legislation so that it can be enacted into 
law this year. Smith chaired the Joint Security Commission, a group of 
experienced and knowledgeable private citizens appointed by Secretary 
Aspin and Director Woolsey last May to review the defense and 
intelligence communities security procedures.
  The endorsement by yet another distinguished panel verifies that this 
legislation remains urgently needed.
  It is quite possible that Aldrich Ames would have been caught years 
ago had this legislation been adopted when we first introduced it in 
1990. Now, however, it is more important to look to the future. Passage 
of this amendment will greatly increase the chances that unknown 
persons now spying or considering doing so could be caught or deterred 
before causing grievous and costly damage.
  It would, of course, had been better to adopt this back in the 101st 
Congress, when we first introduced it, or in the 102d Congress, when we 
reintroduced it. Unfortunately, as the cold war thawed, the resulting 
flood of goodwill for our former enemies swept away support for 
improving counterintelligence. While thoroughly vetted by the special 
advisory panel, congressional hearings and Justice Department reviews, 
this legislation languished due to the widespread belief that it was a 
solution to a problem of another era.
  At the time, we asked what would be needed to get Congress to act--
another Felix Bloch? Would it take another security disaster before 
Congress would be spurred to action? As the Ames case regrettably 
reveals, the answer was yes.
  Now that Mr. Ames has reminded us that spying for dollars will 
continue as long as we entrust secrets to fallible human beings, we 
should promptly adopt this legislation to improve our chances of 
catching those faceless bureaucrats who still spy and deter those who 
are considering getting in on the act.
  If we do not act now, when will we--after the next Aldrich Ames?
  At this point, Mr. President, I would like to briefly run through 
each section of the Counterintelligence Improvement Act, and I ask that 
at the conclusion of my remarks a more detailed section-by-section 
analysis be included in the Record.
  Before doing so, I would note that the amendment we are offering is 
essentially identical to S. 3251 of the 101st Congress and S. 394 of 
the 102d Congress. The only nontechnical modification is the 
elimination of Section 12 from those earlier bills, related to FBI 
access to telephone subscriber information. A version of Section 12 was 
adopted by Congress last November as free-standing legislation and 
enacted as Public Law 103-142.
  And the detailed section-by-section analysis I am submitting for the 
Record is essentially identical to that which appeared in the Record of 
October 26, 1990. The only modifications are technical corrections and 
the elimination of the discussion of section 12.


                         summary of provisions

  Section 1. Gives the bill the short title of the Counterintelligence 
Improvements Act of 1994.
  Section 2. Adds a new title to the National Security Act of 1947 to 
establish uniform requirements for access to Top Secret information. To 
be granted access to such information, a person would be required to 
permit access by U.S. Government investigative agencies to financial 
records, consumer credit reports, and foreign travel records maintained 
by commercial entities in the United States.
  Section 3. Adds a new title to the National Security Act of 1947 to 
provide special requirements for the protection of cryptographic 
information.
  Section 4. Amends the Right to Financial Privacy Act of 1978 to 
permit a person being considered for access to Top Secret information 
to provide consent to U.S. Government investigative agencies to obtain 
access to his or her financial records. This would apply for the period 
of the person's access to such information and for 5 years thereafter. 
Currently, consent can be provided for only three months.
  Section 5. Amends chapter 37 of title 18, U.S. Code, to create a new 
criminal offense for the possession of espionage devices where the 
intent to use such devices to violate the espionage statutes can be 
shown.
  Section 6. Amends chapter 37 of title 18, U.S. Code, to create a new 
criminal offense for any person who knowingly sells or transfers for 
any valuable consideration to a person whom he knows or has reason to 
believe to be an agent or representative of a foreign government any 
document or material classified Top Secret.
  Section 7. Provides that any officer or employee of the United States 
who knowingly removes documents or materials classified Top Secret 
without authority and retains them at an unauthorized location shall be 
fined not more than $1000 or imprisoned not more than 1 year, or both.
  Section 8. Establishes jurisdiction in certain U.S. Federal courts to 
try cases involving violations of the espionage laws where the alleged 
misconduct takes place outside the United States.
  Section 9. Amends title 18 of the U.S. Code to provide for expansion 
of the forfeiture provision to certain espionage offenses that are not 
enumerated in the existing law.
  Section 10. Provides that a person may be denied annuity or retired 
pay by the U.S. if convicted in a foreign country of offenses for which 
such annuity or retired pay could have been denied had such offense 
occurred within the United States.
  Section 11. Amends the Consumer Credit Protection Act to provide the 
FBI access to records sought in connection with an authorized foreign 
counterintelligence investigation when there are specific and 
articulable facts giving reason to believe the person to whom the 
records relate is an agent of a foreign power.
  Section 12. Provides the Attorney General with discretionary 
authority to pay rewards, up to $1 million, for information leading to 
the arrest or conviction of espionage against the United States or the 
prevention of such acts.
  Section 13. Subjects physical searches in the United States to the 
same court order procedure that is required for electronic surveillance 
under the Foreign Intelligence Surveillance Act.
  Mr. President, in line with the last amendment I wanted to focus 
briefly, if I could, on the need for adequate counterintelligence.
  When Boris Yeltsin gave his memorable speech to a joint session of 
Congress in 1991, he bluntly declared, ``No more lies.'' Perhaps 
because of the amount of thunderous applause that he received, many 
Americans seem to have misheard him to say ``no more spies.'' But now I 
think we know better.
  The point is, however, we should have known all along that it was 
going to continue. There was going to be an effort undertaken by, not 
the Soviet Union, but its successors, the Russian Republic and others, 
to continue their effort to acquire this Nation's secrets. We were 
forewarned. The former director of the KGB, the head of their 
intelligence service forewarned us. He said, ``We are going to continue 
to gather intelligence so that we can compete with the West.'' That was 
as direct as he could possibly be. The Soviet Union or its successor 
states were going to continue their intelligence gathering efforts 
here.
  It strikes me as somewhat pious on our part, I guess, this 
handwringing going on, saying, ``My God, how could they possibly do 
that to us?''
  I would say to my friend from South Carolina that it is one thing if 
a person holds his hand out to say, ``I need your help,'' and you are 
prepared to give it to him; you do not expect that person to be 
reaching in your back pocket to pick it, which is precisely what is 
occurring with the aid to Russia right now.
  But other than that, being offended by the fact that someone is 
asking you for help and you agreed to give that individual help, you do 
not expect to be pickpocketed.
  Nonetheless, we should have anticipated it. This is precisely what we 
were going to do. We should have anticipated, expected, acknowledged, 
and taken measures to prevent it.
  However, I think we were basking in this wave, the afterglow of the 
fall of the Berlin Wall, the end of the cold war. We said we really do 
not need to take these kinds of precautions any longer.
  Senator Boren, who was chairman of the Intelligence Committee, with 
whom I served for 4 years as his vice chairman on that committee and a 
total of 8 on the committee, along with my colleague, Senator Hollings, 
he and I conducted a year-long study. We called upon a group of ``wise 
men,'' so-called, headed up by Eli Jacobs. We had the current Secretary 
of State, Warren Christopher; we had Arthur B. Culvahouse; we had other 
individuals who were very active in intelligence matters, Ambassador 
Sol Linowitz, and others, Lloyd Cutler, the current White House 
counselor, to try to get as broad a spectrum as possible of experts in 
the field to balance off the needs to protect the privacy rights of 
those who serve in our intelligence community, but also to protect the 
secrets of this country.
  They came up with a set of recommendations that we circulated within 
the intelligence community, we circulated within the universities, 
civil liberties advocates, and we developed what we thought was a real 
good consensus on what needed to be done. And we put that consensus in 
the form of legislation that was introduced back in 1990. It was 
reintroduced again in 1992. And yet nothing occurred.
  I recall at the time saying how many more Felix Blochs do we have to 
wait for until we finally get serious and give our intelligence 
communities the opportunity and the assets and the ability to really 
safeguard our Nation's most valuable secrets?
  Again, this was rather dismissed, I guess, at the time because it was 
thought this was the end of the cold war; you are sounding like a bunch 
of aging hawks at this point and it is unnecessary.
  Well, time has proven us correct. I think we need to take more 
stringent measures to protect our intelligence and our secrets, and we 
have failed to do so. So now we have the Ames case.
  So, Mr. President, what I am offering today on behalf of Senator 
Boren and myself is a bill that will, in fact, improve our 
counterintelligence capabilities. Basically what we want to do is to 
have uniformity in our system. Right now you have different types of 
requirements for those who qualify for top secret clearances in DIA 
versus CIA versus the State Department. We have that variety of 
different qualifications so that you can, in fact, have a situation 
that we had with Jonathan Pollard, for example, who pleaded guilty in 
1986 of spying for Israel. He was denied employment by the CIA in 1977 
because of security concerns. He was hired 2 years later as a civilian 
Navy intelligence analyst.
  As a result of these different requirements, we found he was able to 
acquire access to highly classified information which he then disclosed 
to Israel. He is now serving a life term as a result of those 
activities.
  So we want to have uniformity. We also want to give the FBI the 
opportunity to have access to financial records of the individuals who 
work in our agencies, to provide them with the opportunity to check the 
credit and the spending habits without notification. This involves 
privacy rights; we recognize that.
  Mr. President, something is wrong, as I pointed out when I first 
introduced this measure, when someone goes from a Vega to a Jaguar and 
no one takes notice, or someone starts turning up credit cards of 
$50,000 when they are earning perhaps a salary of $60,000 or $70,000, 
or they purchase a $500,000 home and nothing is done. No one is taking 
notice. Something is wrong. Those are the classic tell-tale signs.
  So, this particular bill would provide for the kinds of protections 
that I believe are essential. I believe they were essential back in 
1990, 1991, and 1992. I believe had they been in place at that time, we 
may very well have prevented the kind of disclosures that have taken 
place with respect to Mr. Ames. He would have been detected much 
earlier and perhaps lives would have been saved. As well as lives, a 
great many of our national secrets would have been preserved.
  So I offer this amendment with the goal in mind of protecting this 
Nation's most important national secrets.
  The PRESIDING OFFICER. The Senator from South Carolina is recognized.
  Mr. HOLLINGS. Mr. President, they know the aberrations in the Ames 
polygraph, also, as we all know.
  The ``good old boy'' system over there, the bureaucracy, the analysis 
section without relating the number, is tremendously overstaffed. There 
is a crowd of them in there, analysts being paid not only Senatorial 
pay, but they get overtime. You see it is overtime now for me. It is 
past 5 o'clock, but I am not getting any extra pay. But over at the 
Central Intelligence Agency they are. And they fall over each other. 
They cut the corners analyzing. They are around the edges so that 
General Schwarzkopf, when he got the reports from Desert Storm from the 
CIA said, ``Mush.'' That is his word. And he had to depend on the field 
intelligence, as we well know.
  But what got me is here we had the man Rick Ames who was in 
counterintelligence. Namely, he was working our spies over there in the 
Soviet Union. Under the golden rule, do unto others as we do unto you. 
If we are spying on them under the golden rule, not pickpocketing, you 
may say the Soviet was only responding to the golden rule.
  I never could see this great hiatus about, oh, shock and surprise 
when it was the catching of our main man in charge of 
counterintelligence, namely, of spying on them. I think that the need 
here is very clear.
  Unfortunately, it is not on our bill. It is not within the subject or 
purview, but we will see, as I have explained on the former amendment, 
over on the other side of the Capitol what we might do.
  So I will then go along with the Senator for the adoption of the 
amendment.
  Mr. BOREN. Mr. President, I am proud to join and cosponsor this 
amendment with Senator Cohen. The recent Ames case makes clear the need 
for reform. Our amendment would strengthen the tools available to the 
Federal Government to deter, catch and prosecute those guilty of spying 
against our country. It grows out of work performed by the Senate 
Select Committee on Intelligence when I served as chairman and Senator 
Cohen served as vice chairman in 1990.
  The amendment is the product of work performed by a distinguished 
panel of outside experts. Public hearings on their proposal were held 
by the Senate Select Committee on Intelligence. The independent panel, 
which issued its report in 1990, was chaired by New York businessman 
Eli Jacobs, who had served on a number of national security advisory 
boards. Other members included Lloyd Cutler who has been recently named 
White House Counsel; Warren Christopher, now the Secretary of State; 
Jim Woolsey who has since been named CIA Director; Admiral Bobby Inman, 
former director of the National Security Agency and former deputy 
director of the CIA; former White House counsel A.B. Culvahouse; Sol 
Linowitz, former ambassador to the Organization of America States; 
Richard Helms, former director of the CIA; Seymour Weiss, a former 
ambassador and State Department official; and Columbia law professor, 
Harold Edgar who is a noted scholar on national security law.
  The panel determined that most modern spies sell secrets for 
financial rather than philosophical motives and for that reason are not 
likely to be discouraged by the political changes that have swept 
through the Eastern bloc. Indeed, the largest part of the espionage 
problem is impervious to the political change in the former Soviet 
Union and Eastern Europe. It is the phenomenon of the U.S. citizen with 
access to highly classified information who volunteers his service to a 
foreign intelligence service for money. No foreign government is going 
to turn down an opportunity to acquire information in its own national 
interests.
  The changes proposed by the panel in the legislation were presented 
at a rare open intelligence hearing on May 23, 1990. A second open 
session was held a month later.
  The changes proposed in the legislation fall into three categories--
improving the government's personnel security system, providing 
additional penalties for espionage activities, and enhancing 
counterintelligence investigative capabilities.
  At the time the legislation was first introduced, the cold war was 
coming to an end and many people asked why we should continue to worry 
about espionage. Although ideologically inspired spying was decreasing, 
spying for financial gain was on the rise. Those tempted to spy now may 
not think they're putting their country in jeopardy as much as during 
the cold war. Senator Cohen and I had difficulty in focusing enough 
attention on our proposal at the time it was first unveiled. Hopefully, 
recent developments have made it clear that the winding down of the 
cold war does not necessarily mean that the espionage threat has been 
reduced. With a desire of more nations to collect information related 
to national economic interests, the threat may actually be increasing.

  The Boren-Cohen amendment would establish uniform requirements 
binding on all branches of government for access to TOP SECRET 
information and require all persons considered for such access to make 
personal financial reports during that period and for 5 years after 
their access is terminated. It would make some Government employees 
subject to random polygraph test and establish a new criminal offense 
for possession of espionage devices where intent to spy can be proved. 
Further, it would establish criminal offenses for selling or 
transferring TOP SECRET materials or removing them without 
authorization, tighten laws barring profit from espionage and expand 
existing authority to deny retirement pay to those convicted of 
espionage in foreign courts.
  The amendment would permit the FBI to obtain consumer reports on 
persons believed to be agents of foreign powers without those persons 
being notified. The FBI would be allowed to obtain subscriber 
information from telephone companies on persons with unlisted numbers 
who are called by foreign powers or their agents. It would authorize 
the Attorney General to pay rewards of up to $1 million for information 
leading to arrests or convictions for espionage or for the prevention 
of espionage. Finally, the legislation would subject physical searches 
in the United States to the same court order procedure that is required 
for electronic surveillance.
  No one is under the illusion that these proposals will eliminate 
espionage. But they should give the Government an improved ability to 
deter U.S. citizens from spying, to detect those who are not deterred 
and to help prosecute those who trade our security for their 
enrichment. I urge the adoption of the amendment.
  The PRESIDING OFFICER. Is there further debate on the amendment? If 
not, the question is on agreeing to the amendment of the Senator from 
Maine.
  The amendment (No. 1489) was agreed to.
  Mr. COHEN. Mr. President, I move to reconsider the vote.
  Mr. HOLLINGS. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.
  The PRESIDING OFFICER. The Senator from Rhode Island is recognized.
  Mr. CHAFEE. Mr. President, I have some questions about this 
legislation, and I would like to ask my distinguished colleague, the 
Senator from Missouri, to see if I understand his bill correctly.
  As I understand the bill--and I am open to correction on this--what 
it does is it provides that over the course of 2 years, that is fiscal 
year 1995, which starts on October 1, and fiscal year 1996, that the 
bill authorizes some $2.8 billion of additional spending.
  Am I correct in that, I ask the Senator?
  Mr. DANFORTH. Well, it authorizes $2.8 billion of spending. The 
spending does exceed the appropriations levels for 1994.
  Mr. CHAFEE. So, in other words, in 1994, for this series of programs, 
as I look at the summary sheet, $526 million was appropriated.
  Mr. DANFORTH. That is correct.
  Mr. CHAFEE. And the request in the President's budget was $964 
million, nearly doubling, a little short of doubling, say some 70 
percent increase, perhaps?
  Mr. DANFORTH. That would be for 1995.
  Mr. CHAFEE. Now, what this bill does, it authorizes not what the 
President requested--by the way, the last I heard it was a Democratic 
President--but it is not $964 million that is requested, but under this 
bill the authorization is $1.370 billion; am I correct?
  Mr. DANFORTH. That is correct. This year, 1994, the appropriation for 
all these programs combined is $526 million. The President has 
requested for all of these programs $964 million. This is an 
authorization for 1995 for $1.370 billion.
  Mr. CHAFEE. I know that there is a difference between authorization 
and appropriation. But clearly, the committee has not authorized this 
without hoping that it will be appropriated, that can be only my 
conclusion.
  My second question is: is there a method of paying for this in the 
legislation?
  In other words, I can only assume that probably the President, in his 
budget request, has found some way of paying for it or adding it to the 
deficit. How about the difference? In other words, the difference here 
is some $400 million. Is there a way of paying for that in here?
  Mr. DANFORTH. Well, as I understand the argument in favor of the 
legislation, with the cutbacks in national defense and the cutbacks in 
spending for research in national defense, we have created a pocket of 
money which is now burning a hole in that pocket and that this is an 
opportunity to spend it by having the Government entangle itself in the 
private sector's research activities.
  Mr. CHAFEE. I must say, I find this rather amusing, because just some 
10 days ago on the floor of the Senate, we were debating the question 
of a constitutional amendment. I heard some stirring oratory on the 
other side of the aisle that, ``What this Senate needs is some courage, 
the courage to stop this spending. We don't need a Constitutional 
amendment.''
  Let me quote from one distinguished Democratic Senator.

       It does not take a constitutional amendment to reduce the 
     Federal deficit or balance the Federal budget. All it takes 
     is enough courage by Congress and the administration to make 
     the tough decisions we were elected to make.

  Now, hard on the heels of that--and the constitutional amendment was 
defeated with overwhelming rejection on the other side of the aisle--
now we come to an era when perhaps there are some tough decisions. And, 
as I understand it, there are programs, some money available in the 
defense budget, so the first thing, as I understand it, is to spend it, 
to spend it on a new program or enlargement of programs, some of which 
currently exist, and to not only increase them by some $800 million 
this year, and next year even more, am I correct; that next year the 
idea is to have even more than what they are proposing for this budget 
for the fiscal year 1995?
  Mr. DANFORTH. That is correct. The authorization for 1995 is $1.370 
million and in 1996, it is $1.478 billion; the grand total being $2.8 
billion.
  It is the contention of this Senator that that reflects a ballooning 
of the cost of these programs, and, of course, the creation of some new 
programs to boot.
  Mr. CHAFEE. Well, yes.
  I notice that there is the creation of some new programs. For 
example, in looking at this, first of all, we start off with an SBA 
Pilot Program. No money in the current year, no money requested in the 
budget by the administration. We start off with $50 million for the 
next year and $50 million beyond that.
  Additional Activities, zero for the current year, zero requested by 
the President, $14 million, and then $19 million beyond that.
  And then, Wind Energy and Environmental Construction, zero, zero, and 
then $6 million; National Technology Info Service, that is zero in the 
current year, requested by the President some $18 million, and up it 
goes to $20 million. New NFS Centers--I presume that is National 
Science Foundation--zero in the current year, zero requested by the 
President, $75 million in this bill.
  Mr. DANFORTH. Seventy-five million dollars in each of the 2 years.
  Mr. CHAFEE. Computer Applications, zero in the current year, zero 
requested by the President, $209 million in the next year and $150 
million.
  Is this evidence of that courage that we were urged to take by those 
sterling declarations in connection with defeating the constitutional 
amendment? Am I missing something here?
  Mr. DANFORTH. Well, I do not want to miscast or in any way 
misrepresent what this is about.
  The way the Senator has put the issue has to do with increased 
spending. I believe that the argument would be made that this is called 
investment and that because it is investment, maybe it is not spending.
  Mr. CHAFEE. Well, let me just say to the Senator, I have served 
considerable time on the Environment and Public Works Committee. One of 
our former chairmen was a wonderful individual. He frequently used 
that--that this is not spending, this is an investment.
  And I would like to see any program around here, whether it is Social 
Security, whether it is Head Start, whether it is school lunch 
programs, or whether its elementary and secondary education, that there 
is not one of them who cannot stand on the floor and say, ``That is not 
spending, that is investment.''
  We believe every one of those programs are an investment. And, by the 
way, I think that applies to the EPA programs. For example, is 
Superfund a spending program or is it an investment to clean up the 
environment of this Nation? Clearly, it is an investment.
  Now, I would further like to ask the Senator once again about the 
means of paying for this.
  Again, as I understand it, it is going to come from some area. Now is 
that area designated where it is going to come from? I have not 
understood that it is so pointed out in the measure. In other words, if 
it is going to come from some places, where? Does it say in the 
legislation?
  (Mr. HARKIN assumed the Chair.)
  Mr. DANFORTH. No. The Senator is raising a good question. It comes 
out of thin air.
  Mr. CHAFEE. Well, I am rather sensitive on this subject, because 
during the debate over the balanced budget amendment, the supporters of 
the amendment were sharply criticized for offering what was a placebo 
instead of the hard medicine needed to reduce the deficit. In other 
words, our desire to reduce the deficit through the constitutional 
amendment was labeled as a phony because the amendment did not state 
how the budget would be balanced. We did not detail that.

  Now here we are, 10 days later on the floor with a bill, legislation, 
that is similarly phony. It authorizes $2.8 billion in new spending but 
does not tell us how it is to be paid for.
  Suppose it did tell us how it was to be paid for: cuts, or savings in 
other programs. Is it immoral to take some savings that are there and 
put them toward the deficit? Instead of immediately grabbing them to 
spend in another program, this program for example? As I understand the 
budget deficit in the current fiscal year, it is anticipated to be $170 
billion. Am I correct? That is the latest figure I have. The budget 
deficit for this current fiscal year ending in the end of September is 
$170 billion.
  Mr. DANFORTH. I do not have the number in front of me but I accept 
that figure.
  Mr. CHAFEE. That is the latest figure that they have.
  Now, what does that mean, when we run a budget deficit like that? By 
the way, the deficit in the following year is in the billions, 
likewise. I am sure for 1995, when we are going to embark on this 
program with some $400 million more than this requests in its 
authorization for the current year, that means we are going to send the 
bill to our children. It is all well and good to give sturdy speeches 
out here about doing something about the deficit, having courage. But 
here we start right off with a measure that spends $2.8 billion to take 
care of big business, to a considerable degree, and send the bill to 
our children.
  Mr. President, I think that is wrong. Can nice arguments be made in 
favor of this spending? Of course they can be made. Just like there is 
not one of us who could not be here on the floor and dream up 100 
programs that are not only good for our Nation but we can classify as 
investments; that key word, ``investment.'' But in the final analysis 
we are sending the bill to our children. I think it is wrong. I hope 
this measure will be defeated.
  Mr. DANFORTH. Let me just address one comment to the Senator from 
Rhode Island. One, new programs that would be created by this 
legislation would make the Federal Government into a venture 
capitalist. There is a program, which is a brand new program, that 
would create a fund of $50 million for 1995, and an additional $50 
million for 1996, that would turn our Government into a venture 
capitalist operation. The legislation provides if we invest well, we 
might be able to make money.
  So let us say that we decided in the venture capital operation to 
invest in, let us say, Bullfrog Gold Mines and we struck it rich and 
made a fortune. I suppose it is conceivable that, if the governmental 
venture capitalists do strike it rich, we will fix the problem of the 
budget deficit. So maybe there is good news in some of this. I will 
have to see it to believe it. I am not confident we will do a good job 
as venture capitalists, but it is in the legislation. It is believed 
that this is an appropriate role for the taxpayers' money to get into 
the venture capitalist business. If you are a venture capitalist, 
sometimes you win money and sometimes you lose money.
  Mr. CHAFEE. Mr. President, I would like to ask the distinguished 
Senator from Missouri, who are the very, very wise people who are going 
to make these venture capital investments that we are fortunate enough 
to have in the employ of the U.S. Government? How is this going to 
work? I am curious. They must be very, very bright people who are going 
to do this.
  By the way, how do they make their decisions, who gets the money?
  Mr. DANFORTH. As I understand it there is a company that is set up 
that gets involved in venture capital. I would defer to the author of 
the bill for an answer to that question.
  Mr. CHAFEE. I wonder if the distinguished Senator from South Carolina 
could give me a hand on that because I find this intriguing.
  Mr. HOLLINGS. What I find intriguing in this Off-Broadway show. 
Evidently, we have a fundraiser or a special meal. I was not listening 
here to the last question because it was all out of whole cloth.
  What does the Senator want to know about venture capitalists?
  Mr. CHAFEE. How it works. I am not familiar that previous to this we 
have had the Federal Government investing money in startup ventures. Am 
I correct that is what happens? How does this work?
  Mr. HOLLINGS. This works in a different way. For one, the main 
program, the Advanced Technology Program, is at the initiation of 
private industry. They have to come in and say here is our advanced 
technology research program. They have to come in with at least half of 
the money. Once that is done, they have to give it on a merit basis, 
peer review--we have the National Academy of Engineering. You do not 
have to wonder about it, we have a list of success stories all around 
the country. It has been going on for 2 years.
  When the Senator yields the floor, I will get to the amounts of money 
and show how facetious this act has been. Because we are not spending 
the money the Senator from Missouri, answering questions, indicates.
  We are not spending as much money as he voted for. The Senator asked 
him to answer the question. He never did tell you candidly. But, wait a 
minute, Senator from Rhode Island, when we reported this bill for $1.5 
billion for 1 year or $3 billion, not 2.8 billion, in fact we are 
spending $143 million less than the Senator from Missouri voted for. He 
is not telling you that. He is talking about a pocketful of money and 
burning a hole in it and we are going to dish it all out.
  And where does the money come from in this authorization? Have I ever 
seen where the money comes from in the authorization of, let us say, 
the defense budget? Or the environmental budget? Or any of these other 
authorizations? I have been around here a long time.
  I will get into the courage in just a little while, too, with respect 
to paying the bills around this town.
  So I appreciate the time taken. I guess something else important is 
going on because I am going to get to the truth when you folks are 
completed.
  Mr. CHAFEE. I appreciate that. Perhaps while the Senator is up he can 
give me the truth in where I erred in the figures I have here. Am I in 
error in saying that the total appropriation for these activities were 
$526 million in the current fiscal year? Am I in error there?
  Mr. HOLLINGS. It is way more than that. Current fiscal year, the 
Senator is using the $526 million. Where he is in error is he comes to 
the $2.8 billion there. A lot of these programs as he indicates, the 
financing SBA wants; the new National Science Foundation; the new 
information highway; the facilities and various other ones. I think 
what we ought to do, rather than confuse the Senator going step by 
step, is just look and see what it says there on that particular 
report, fiscal year 1995, S. 4 report. It reported $1.513 billion.
  Does the Senator see that in the column down at the bottom? The 
second one. He cited the 526. Go to the next figure on totals.
  Mr. CHAFEE. I have the next total, it shows what has been requested 
for these programs by the administration in the current year.
  Mr. HOLLINGS. No. No. The Senator does not have the $1.513 figure for 
1995?
  Mr. CHAFEE. For 1995 I have $964 million was requested by the 
administration in the current year.
  Mr. HOLLINGS. Yes, but I am trying to get to the one everybody is 
trying to avoid on that side of the aisle. The $1.513 billion is before 
you get over to the $964 million, because that is a cut from what we 
reported. You see, all the Republicans voted for this. I hate for you 
to just run them down and burning holes in the pockets, hot pockets, 
and all of these other things and encourage balanced budget amendments.

  Let us get to where the unanimous Republicans as well as unanimous 
Democrats voted for this particular bill when we reported it. The 
administration, you are right, asked for less, $964 million is less 
than the $1.513 billion. In fact, they did cut it. But $1.513 billion. 
All of these things that they started out with--yes, this is a new 
program and it is an old program. It is an embellished program. It is 
intelligently embellished. If you will yield the floor, I will go into 
it and show you why.
  Mr. CHAFEE. I would just like to make sure I understand the 
statistic. I guess what you are saying, and that apparently does not 
appear in my figures here, what you are saying is the authorization for 
1994 was, you say--if I understand you correctly--was $1 billion 
something, and the appropriation was $526 million; is that correct?
  Mr. HOLLINGS. No, that is not it. I said when we reported the bill 
that all voted for----
  Mr. CHAFEE. This year or last year?
  Mr. HOLLINGS. For the next year, 1995. All of it comes up from 1994. 
There is no question about that. But after judicious discussion and 
treatment, we went over the bill and we reported $1.5 billion, and when 
we started the bill, having gone to OMB and having brought it back 
within budget so it does not increase the deficit, it is within the 
freeze, it is down to $1.370 billion. That is exactly the floor 
modification for 1995 and for 1996, $1.478 billion.
  Mr. CHAFEE. I am with you on those last two figures.
  Mr. HOLLINGS. Yes.
  Mr. CHAFEE. Your $1.5 billion, I am not sure whether that was the 
committee that sent that along.
  Mr. HOLLINGS. Yes, that is right.
  Mr. CHAFEE. Do not tarnish me with the committee. I am not on the 
committee.
  Mr. HOLLINGS. Excuse me, you are asking the distinguished Senator 
from Missouri who is my ranking member. That is why I take it as a 
pretty good act off Broadway. Come on. He answered not with a figure, 
he answered with hot pockets, a pocket of money burning a hole.
  Mr. CHAFEE. That appears to me to be the case here, and I would echo 
that sentiment because when all is said and done--if you have your way, 
we are going to spend a lot more money on this program. Next year you 
are going to spend more money and the year after you are going to spend 
more than that.
  Mr. HOLLINGS. I hope, if you understand what is going on--I am going 
to just get the floor and explain this to you, all right?
  Mr. CHAFEE. All right, that is fine. In the meantime, let me repeat 
that I think we have a lot of requirements in the United States 
Government. We are spending more than we take in; that when we have a 
chance to hold the line, we ought to hold the line. And people can 
label lovely things with terms like ``investment'' or ``cows come 
home,'' but the truth is, we are sending the bill on to our children on 
this measure, and I think it is wrong and I hope S. 4 is defeated.
  Mr. DANFORTH. Mr. President, before the Senator yields the floor, I 
think I am in a position now to shed light on the Senator's inquiry 
about the new $50 million a year venture capital program.
  To appreciate this program, the Senator has to understand the 
philosophy behind the bill. In the committee report, we are told that 
we are in an era of strong international economic competition. Then we 
are told, DOC--that is the Department of Commerce--has a leadership 
role to play in this new era.
  Now, pursuant to the new leadership role for our Department of 
Commerce, under this program, a committee consisting of the Department 
of Commerce and the Small Business Administration would license venture 
capital companies.
  So let us say that you have a venture capital company. Why, you could 
come from, let us say, Rhode Island, to Washington and meet with the 
committee and apply for a license, and then if the Department of 
Commerce and the SBA were to license your venture capital company, you 
would be eligible to receive financial support under this program. And 
then you would be able to, in turn, lend the money that the Government 
is providing to your licensed venture capital company to high-tech 
ventures.
  So that would be how it would work.
  Mr. CHAFEE. This is a new program?
  Mr. DANFORTH. Yes, this is brand new where the Department of Commerce 
and the Small Business Administration licenses venture capital firms 
who would then be eligible to apply for and receive Federal money so 
that they could use it to invest in venture capital projects.
  Mr. CHAFEE. You know the best thing in the world, if you want to 
encourage venture capital, why do they not cut the capital gains rate?
  Mr. DANFORTH. I think that is a very, very good question. I think 
that is a very good question, but the way we choose to do it in this 
legislation--I do not choose to do it--but the way they have chosen to 
do it in this legislation is to create a new program so that the 
Department of Commerce and the Small Business Administration can 
license venture capital companies.
  This is the place to come, Washington. If you are in the venture 
capital business, Washington is the place to come to be licensed. I 
hope that some modicum of this money, just a little bit, just a few 
dollars of the $100 million for venture capital in this legislation can 
be provided to engrave the licenses.
  If we have venture capital companies that are licensed by the 
Department of Commerce and the Small Business Administration, let us 
not have cheap licenses that look like they were cranked out on a Xerox 
machine. Let us have the real thing. Maybe the Bureau of Printing and 
Engraving can get on this case and we can have first-class licenses 
suitable for framing.
  Mr. CHAFEE. Mr. President, I just want to say, I want to find the 
directions to this place because, obviously, I will send all the Rhode 
Islanders who want some money to start ladling out to come on down, the 
cookie jar is available to dole out to what this worthy group 
determines to be the type of venture capitalism they ought to get into.
  I do not know how this country has survived without these programs. I 
thought once we were a great entrepreneurial country that was moving 
ahead and, indeed, was the most creative and inventive Nation in the 
world, and we have done all this without this Government-run venture 
capital. Now we are going to learn how to do it from these wise men and 
women in Washington. It is certainly an intriguing possibility. The 
only problem is, of course, our children will be paying it.
  I want to thank the Chair.
  Mr. HOLLINGS addressed the Chair.
  The PRESIDING OFFICER. The Senator from South Carolina.
  Mr. HOLLINGS. Mr. President, in spite of the statement just heard, 
the best of the best--the Advanced Technology Coalition, which 
comprises the American Electronics Association, the National 
Association of Manufacturers and going right on down all the 
responsible entities--have endorsed it.
  Once again, so the distinguished Senator from Rhode Island 
understands--and incidentally, we did not just start in this business. 
I remember years back when you started talking about responsibility and 
budgets and what the children are going to pay. It so happens as a 
young Governor, I realized that nobody was going to invest in Podunk 
and certainly not a bankrupt State.
  And so the first order of business was to cut spending and raise some 
revenues and get a AAA credit rating. The way I got that AAA credit 
rating advanced in balancing the budget was also put in an initiative. 
I went up to Standard & Poor's and Moody's and they say, ``Well, so you 
got it balanced 1 year. How can we count on it?''
  I said I have a certificate by the comptroller to be given quarterly 
to the Governor that the expenditures are within the revenues. And they 
got cut straight across the board. They said, ``You've got it.'' Both 
Standard & Poor's and Moody's gave us a AAA rating, and we did not lose 
it until last year. We had it from 1959 on. I used the technical 
training and skills to clean Rhode Island's and Missouri's clocks. You 
name the industry that left for South Carolina from Missouri and Rhode 
Island, and I will give you a list of them.
  I worked hard on this when I came to the Congress. I was delighted to 
work at that particular time when President Lyndon Johnson said, ``I am 
being accused of guns and butter. Cut the spending and get back in the 
black.'' And it was the final hours in December 1968, going into the 
1968-1969 period there, where we called over and Marvin Watson said, 
``Yes, we can get permission, cut another $5 billion.'' The whole 
budget was only $178 billion at the time, and so we put the Government 
into the black.
  Later on, trying through the years to get things done and cut some 
spending and raise some revenues both, we put in the freeze. I had the 
distinguished leader, majority leader, Senator Howard Baker, help me on 
it. We got tackled from behind, when you talk about courage and not 
giving the bill to the children.
  I then took that South Carolina idea--it worked so well--and went 
with Senator Gramm and Senator Rudman, and over on this side of the 
aisle, if you think it is easy to get votes on these kinds of things, 
14 votes up and down. The majority of the Democrats voted for it over 
the opposition of the then-majority leader, the majority whip and the 
chairman of the Budget Committee.
  I do not know the Senator's exact voting record, but I know my own. 
And I raised the point of order when they went to repeal it in 1990, 
that particular summit conference. I raised it late at night and they 
voted to repeal Gramm-Rudman-Hollings.
  They run around saying it did not work. They removed its 
applicability is exactly what happened.
  So then I went to President Bush at the time and asked him, told him 
what we needed was some spending cuts, but we needed a value-added tax. 
I testified before the distinguished Senator's Finance Committee with 
Lawton Chiles, Dr. Van Cnossen, the expert on value-added taxes, saying 
to President Bush at the time--and I got a note from him; I can gladly 
confirm it. He thought it was a good idea, but not now. Darman, Dick 
Darman, we worked on it and everything else. And I said, ``Mr. 
President, you are going to be in real trouble by 1992. If you don't go 
now, you will not need the Secret Service.'' So it did not go.
  So I put in the bill the first of '92 before the election, and again 
now in the first of '93, for a value-added tax. I had to run on it. The 
Senator is talking about courage; try running on taxes someplace. We 
ran on taxes. We put in taxes for health care and the deficit and debt.
  I have heard statements made by the Senator himself on the TV show 
that no one has proposed really how to pay for this, Republican and 
Democrat. I have heard the same statements made by our own leader over 
here.
  I have proposed how to pay for it. We can put in a VAT. I believe in 
paying for it, and I do not believe in putting it off on the children. 
I voted for a Kerrey amendment, across-the-board spending cuts. I voted 
against the supercollider. I am chairman of space authorization--but I 
voted against the space station. I can go down a long list of those 
things I will spend and cut and tax, so do not come and ask this 
Senator about where is the courage, where in the bill, that little act.
  I was really amused because I never heard this in my life. He says, 
``Now, where does the money come from?'' And then the Senator from 
Missouri, ``Well, that raises a good point. It does not say so in the 
bill?''
  You show me in any of these authorization bills where the money comes 
from.
  Then he says, ``Well, it is a phony bill. It does not tell us where 
the money comes from.''
  We are grown individuals. We have been around here. We have worked 
together. But do not put on this kind of nonsense at this particular 
time because, bottom line, we are spending less than what the Senator 
and all the others voted for. I will give you the rollcall.
  But they reported a bill in June of last year, unanimously, and they 
said spend $1.5 billion--not zero. Yes, zero here but so much there, 
and on down the line--$1.513 billion. And the amount for '95 now is 
down to $1.370 billion, which is $143 million less than what the 
Senator from Missouri supported. He did not tell that in responding to 
the question. And $1.478 billion out in 1996, which is still less, 
less--cutting--the amount of the Senator from Missouri and the other 
Senators on the committee.
  So they can put on the act and talk about burning holes in the 
pocket, and slush funds, and everything else like that. But there is 
nothing more studied and structured.
  The Republican Task Force on Defense Conversion, June 25, 1992. Here 
is what they asked. They said, ``Please get into this program. We want 
to get in from defense over to the private sector.'' On that score, I 
will read word for word what 14 of our Republican Senators called for.

       The task force endorses two programs of the National 
     Institute of Standards and Technology important to the 
     efforts to promote technology transfer to allow defense 
     industries to convert to civilian activities. These programs 
     are the manufacture and technology programs and the advanced 
     technology programs.

  Then all you have to do--not just us--go to the coalition itself that 
has been working in this particular field, the Competitiveness Policy 
Council. They put out their report and they said, for example, on 
spending ``expand the advanced technology program in the Department of 
Commerce and''--a new place to go get your money--``venture capital.''
  Yes, that is what they said. They compared it to an annual program of 
$750 million. We have not gotten up to that in 1996. It is only 500-
some million. We have not even gotten what they want. And then you call 
it $2.6 billion. You marry together 2 years. You do not say that. I 
wish we could get it to a $2 billion program.
  What do they say? What do they say? All right, here it is. They said, 
``And the reductions in the defense systems development and testing 
budgets, the $4 billion to $8 billion, should be applied to civilian 
dual use R&D.''
  So they are trying to get it up to $4 billion to $8 billion, not 2.8 
billion, whatever figure you are using, and it is not the $3 billion 
that the Senator wanted, if we are going to use 2-year figures.
  So come on. It sounds pretty to put on these shows, but it is not 
factual, it is not truth. And it is very damaging to a well conceived 
measure that has gone through the scrutiny of all the committees on all 
sides, and really when it got to the money, to the OMB, yes, they cut 
it back. And that is why we put in the modification.


                           Amendment No. 1490

(Purpose: To provide incentives to eligible institutions to enable such 
   institutions to devise and implement solutions to problems facing 
 business development and expansion in lower income urban communities)


                           Amendment No. 1491

(Purpose: To increase the overall economy and efficiency of Government 
    operations and enable more efficient use of Federal funding, by 
authorizing a demonstration program that enables local governments and 
private, nonprofit organizations to use amounts available under certain 
     Federal assistance programs in accordance with approved local 
                           flexibility plans)

  Mr. HATFIELD addressed the Chair.
  The PRESIDING OFFICER. The Senator from Oregon.
  Mr. HATFIELD. I send two amendments to the desk and ask that they be 
considered en bloc.
  The PRESIDING OFFICER. The clerk will report the amendments.
  The assistant legislative clerk read as follows.

       The Senator from Oregon [Mr. Hatfield] proposes amendments 
     en bloc numbered 1490 and 1491.

  Mr. HATFIELD. Mr. President, I ask unanimous consent that reading of 
the amendments be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendments are as follows:


                           amendment no. 1490

       At the appropriate place, insert the following section:

     SEC. ____. URBAN UNIVERSITY BUSINESS INITIATIVE GRANTS.

       (a) Urban University Business Initiative Grants.--
       (1) Authorization.--The Secretary of Commerce (hereafter in 
     this section referred to as the ``Secretary'') is authorized 
     to make grants to eligible institutions in accordance with 
     this section.
       (2) Application.--
       (A) In general.--An eligible institution seeking assistance 
     under this section shall submit to the Secretary an 
     application at such time, in such form, and containing or 
     accompanied by such information and assurances as the 
     Secretary may require by regulation.
       (B) Contents.--Except as provided in subparagraph (C), each 
     application submitted pursuant to subparagraph (A) shall 
     include--
       (i) a description of the activities and services for which 
     assistance is sought;
       (ii) evidence of coordination with any small business 
     development centers in existence in the community; and
       (iii) documentation of the formation of a consortium that 
     includes, in addition to eligible institutions, one or more 
     of the following entities:

       (I) A nonprofit organization.
       (II) A business or other employer.

       (C) Waiver.--The Secretary may waive the requirements of 
     subparagraph (B)(iii) for any applicant who can demonstrate 
     to the satisfaction of the Secretary that the applicant has 
     devised an integrated and coordinated plan that otherwise 
     meets the requirements of this section.
       (3) Selection Procedures.--Not later than 120 days after 
     the date of enactment of this section, the Secretary shall, 
     by regulation, develop a formal procedure for the submission 
     of applications under this section and shall publish in the 
     Federal Register an announcement of that procedure and the 
     availability of funds under this section.
       (b) Authorized Activities.--
       (1) In general.--Funds provided under this section shall be 
     used to design and implement programs to assist businesses, 
     especially those in lower income urban communities, to become 
     more productive and able to compete in the global 
     marketplace.
       (2) Specific authorized activities.--Activities conducted 
     with funds made available under this section may include 
     research on, or planning and implementation of technology 
     transfer, technical training, the delivery of services, or 
     technical assistance in--
       (A) business development;
       (B) business creation;
       (C) business expansion; and
       (D) human resource management.
       (c) Peer Review Panel.--
       (1) Establishment.--Not later than 90 days after the date 
     on which the Secretary publishes the announcement in the 
     Federal Register in accordance with subsection (a)(3), the 
     Secretary shall appoint a peer review panel (hereafter in 
     this section referred to as the ``panel'').
       (2) Membership.--In appointing the panel under paragraph 
     (1), the Secretary shall consult with officials of other 
     Federal agencies and with non-Federal organizations in order 
     to ensure that--
       (A) the panel membership is geographically balanced; and
       (B) the panel is composed of representatives from public 
     and private institutions of higher education, labor, 
     business, and nonprofit organizations having expertise in 
     business development in lower income urban communities.
       (3) Duties.--The panel shall--
       (A) review applications submitted under this section; and
       (B) make recommendations to the Secretary concerning the 
     selection of grant recipients.
       (d) Disbursement of Funds.--
       (1) Limitation on amount.--The Secretary shall not provide 
     assistance under this section to any recipient which exceeds 
     $400,000 during any 1-year period.
       (2) Equitable geographic distribution.--The Secretary shall 
     award grants under this section in a manner that achieves 
     equitable geographic distribution of such grants.
       (e) Definitions.--For purposes of this section, the 
     following definitions shall apply:
       (1) Lower income urban community.--The term ``lower income 
     urban community'' means an urban area in which the percent of 
     residents living below the Federal poverty level is not less 
     than 115 percent of the statewide average.
       (2) Urban area.--
       (A) In general.--Except as provided in subparagraph (B), 
     the term ``urban area'' means a primary metropolitan 
     statistical area of the United States Department of Commerce, 
     Bureau of the Census.
       (B) Exception.--With respect to a State that does not 
     contain an urban area, as defined in subparagraph (A), the 
     Secretary shall designate 1 area in the State as an urban 
     area for purposes of this section.
       (3) Eligible institution.--
       (A) Institution or consortium.--The term ``eligible 
     institution'' means a nonprofit institution of higher 
     education that meets the requirements of subparagraph (B), or 
     a consortium of such institutions, any 1 of which meets the 
     requirements of subparagraph (B).
       (B) Requirements.--An institution meets the requirements of 
     this subparagraph if the institution--
       (i) is located in an urban area;
       (ii) draws a substantial portion of its undergraduate 
     students from the urban area in which such institution is 
     located, or from contiguous areas;
       (iii) carries out programs to make postsecondary 
     educational opportunities more accessible to residents of 
     such urban area, or contiguous areas;
       (iv) has the present capacity to provide resources 
     responsive to the needs and priorities of such urban area and 
     contiguous areas;
       (v) offers a range of professional, technical, or graduate 
     programs sufficient to sustain the capacity of such 
     institution to provide such resources;
       (vi) has demonstrated and sustained a sense of 
     responsibility to such urban area and contiguous areas and 
     the people of such areas; and
       (vii) has a school of business accredited by the American 
     Assembly of Collegiate Schools of Business (or similar 
     organization) with faculty experienced in conducting research 
     on issues of immediate concern to small and emerging 
     businesses.
       (f) Authorization of Appropriations.--There are authorized 
     to be appropriated to carry out this section--
       (1) $10,000,000, for fiscal year 1995; and
       (2) such sums as may be necessary, for fiscal years 1996, 
     1997, 1998, and 1999.


                           amendment no. 1491

       Add at the end of the bill the following new title:
             TITLE VIII--LOCAL EMPOWERMENT AND FLEXIBILITY

     SEC. 801. SHORT TITLE.

       This title may be cited as the ``Local Empowerment and 
     Flexibility Act of 1994''.

     SEC. 802. FINDINGS.

       The Congress finds that--
       (1) historically, Federal social service programs have 
     addressed the Nation's social problems by providing 
     categorical assistance with detailed requirements relating to 
     the use of funds;
       (2) while the assistance described in paragraph (1) has 
     been directed at critical problems, some program requirements 
     may inadvertently impede the effective delivery of social 
     services;
       (3) the Nation's local governments and private, nonprofit 
     organizations are dealing with increasingly complex social 
     problems which require the delivery of many kinds of social 
     services;
       (4) the Nation's communities are diverse, and different 
     social needs are present in different communities;
       (5) it is more important than ever to provide programs 
     that--
       (A) promote local delivery of social services to meet the 
     full range of needs of individuals and families;
       (B) respond flexibly to the diverse needs of the Nation's 
     communities;
       (C) reduce the barriers between programs that impede local 
     governments' ability to effectively deliver social services; 
     and
       (D) empower local governments and private, nonprofit 
     organizations to be innovative in creating programs that meet 
     the unique needs of the people in their communities while 
     continuing to address national social service goals; and
       (6) many communities have innovative planning and community 
     involvement strategies for social services, but Federal, 
     State, and local regulations often hamper full implementation 
     of local plans.

     SEC. 803. PURPOSES.

       The purposes of this title are to--
       (1) enable more efficient use of Federal, State, and local 
     resources;
       (2) place less emphasis in Federal social service programs 
     on measuring resources and procedures and more emphasis on 
     achieving Federal, State, and local social services goals;
       (3) enable local governments and private, nonprofit 
     organizations to adapt programs of Federal assistance to the 
     particular needs of low income citizens and the operating 
     practices of recipients, by--
       (A) drawing upon appropriations available from more than 
     one Federal program; and
       (B) integrating programs and program funds across existing 
     Federal assistance categories; and
       (4) enable local governments and private, nonprofit 
     organizations to work together and build stronger cooperative 
     partnerships to address critical social service problems.

     SEC. 804. DEFINITIONS.

       For purposes of this Act--
       (1) the term ``approved local flexibility plan'' means a 
     local flexibility plan that combines funds from Federal, 
     State, local government or private sources to address the 
     social service needs of a community (or any part of such a 
     plan) that is approved by the Community Enterprise Board 
     under section 806;
       (2) the term ``community advisory committee'' means such a 
     committee established by a local government under section 
     808;
       (3) the term ``Community Enterprise Board'' means the board 
     established by the President that is composed of the--
       (A) Vice President;
       (B) Assistant to the President for Domestic Policy;
       (C) Assistant to the President for Economic Policy;
       (D) Secretary of the Treasury;
       (E) Attorney General;
       (F) Secretary of the Interior;
       (G) Secretary of Agriculture;
       (H) Secretary of Commerce;
       (I) Secretary of Labor;
       (J) Secretary of Health and Human Services;
       (K) Secretary of Housing and Urban Development;
       (L) Secretary of Transportation;
       (M) Secretary of Education;
       (N) Administrator of the Environmental Protection Agency;
       (O) Director of National Drug Control Policy;
       (P) Administrator of the Small Business Administration;
       (Q) Director of the Office of Management and Budget; and
       (R) Chair of the Council of Economic Advisers.
       (4) the term ``covered Federal assistance program'' means 
     an eligible Federal assistance program that is included in a 
     local flexibility plan of a local government;
       (5) the term ``eligible Federal assistance program''--
       (A) means a Federal program under which assistance is 
     available, directly or indirectly, to a local government or a 
     qualified organization to carry out a program for--
       (i) economic development;
       (ii) employment training;
       (iii) health;
       (iv) housing;
       (v) nutrition;
       (vi) other social services; or
       (vii) rural development; and
       (B) does not include a Federal program under which 
     assistance is provided by the Federal Government directly to 
     a beneficiary of that assistance or to a State as a direct 
     payment to an individual;
       (6) the term ``eligible local government'' means a local 
     government that is eligible to receive assistance under 1 or 
     more covered Federal programs;
       (7) the term ``local flexibility plan'' means a 
     comprehensive plan for the integration and administration by 
     a local government of assistance provided by the Federal 
     Government under 2 or more eligible Federal assistance 
     programs;
       (8) the term ``local government'' means a subdivision of a 
     State that is a unit of general local government (as defined 
     under section 6501 of title 31, United States Code);
       (9) the term ``low income'' means having an income that is 
     not greater than 200 percent of the Federal poverty income 
     level;
       (10) the term ``priority funding'' means giving higher 
     priority (including by the assignment of extra points, if 
     applicable) to applications for Federal assistance submitted 
     by a local government having an approved local flexibility 
     program, by--
       (A) a person located in the jurisdiction of such a 
     government; or
       (B) a qualified organization eligible for assistance under 
     a covered Federal assistance program included in such a plan;
       (11) the term ``qualified organization'' means a private, 
     nonprofit organization described in section 501(c)(3) of the 
     Internal Revenue Code of 1986 that is exempt from taxation 
     under section 501(a) of the Internal Revenue Code of 1986; 
     and
       (12) the term ``State'' means the 50 States, the District 
     of Columbia, Puerto Rico, American Samoa, Guam, and the 
     Virgin Islands.

     SEC. 805. DEMONSTRATION PROGRAM.

       The Community Enterprise Board shall--
       (1) establish and administer a local flexibility 
     demonstration program by approving local flexibility plans in 
     accordance with the provisions of this title;
       (2) no later than 180 days after the date of the enactment 
     of this Act, select no more than 30 local governments from no 
     more than 6 States to participate in such program, of which--
       (A) 3 States shall each have a population of 3,500,000 or 
     more as determined under the most recent decennial census; 
     and
       (B) 3 States shall each have a population of 3,500,000 or 
     less as determined under the most recent decennial census.

     SEC. 806. PROVISION OF FEDERAL ASSISTANCE IN ACCORDANCE WITH 
                   APPROVED LOCAL FLEXIBILITY PLAN.

       (a) Payments to Local Governments.--Notwithstanding any 
     other provision of law, amounts available to a local 
     government or a qualified organization under a covered 
     Federal assistance program included in an approved local 
     flexibility plan shall be provided to and used by the local 
     government or organization in accordance with the approved 
     local flexibility plan.
       (b) Eligibility for Benefits.--An individual or family that 
     is eligible for benefits or services under a covered Federal 
     assistance program included in an approved local flexibility 
     plan may receive those benefits only in accordance with the 
     approved local flexibility plan.

     SEC. 807. APPLICATION FOR APPROVAL OF LOCAL FLEXIBILITY PLAN.

       (a) In General.--A local government may submit to the 
     Community Enterprise Board in accordance with this section an 
     application for approval of a local flexibility plan.
       (b) Contents of Application.--An application submitted 
     under this section shall include--
       (1) a proposed local flexibility plan that complies with 
     subsection (c);
       (2) certification by the chief executive of the local 
     government, and such additional assurances as may be required 
     by the Community Enterprise Board, that--
       (A) the local government has the ability and authority to 
     implement the proposed plan, directly or through contractual 
     or other arrangements, throughout the geographic area in 
     which the proposed plan is intended to apply;
       (B) amounts are available from non-Federal sources to pay 
     the non-Federal share of all covered Federal assistance 
     programs included in the proposed plan; and
       (C) low income individuals and families that reside in that 
     geographic area participated in the development of the 
     proposed plan;
       (3) any comments on the proposed plan submitted under 
     subsection (d) by the Governor of the State in which the 
     local government is located;
       (4) public comments on the plan including the transcript of 
     at least 1 public hearing and comments of the appropriate 
     community advisory committee established under section 810; 
     and
       (5) other relevant information the Community Enterprise 
     Board may require to approve the proposed plan.
       (c) Contents of Plan.--A local flexibility plan submitted 
     by a local government under this section shall include--
       (1) the geographic area to which the plan applies and the 
     rationale for defining the area;
       (2) the particular groups of individuals, by age, service 
     needs, economic circumstances, or other defining factors, who 
     shall receive services and benefits under the plan;
       (3)(A) specific goals and measurable performance criteria, 
     a description of how the plan is expected to attain those 
     goals and criteria;
       (B) a description of how performance shall be measured; and
       (C) a system for the comprehensive evaluation of the impact 
     of the plan on participants, the community, and program 
     costs;
       (4) the eligible Federal assistance programs to be included 
     in the plan as covered Federal assistance programs and the 
     specific benefits that shall be provided under the plan under 
     such programs, including--
       (A) criteria for determining eligibility for benefits under 
     the plan;
       (B) the services available;
       (C) the amounts and form (such as cash, in-kind 
     contributions, or financial instruments) of nonservice 
     benefits; and
       (D) any other descriptive information the Community 
     Enterprise Board considers necessary to approve the plan;
       (5) except for the requirements under section 809(b)(3), 
     any Federal statutory or regulatory requirement applicable 
     under a covered Federal assistance program included in the 
     plan, the waiver of which is necessary to implement the plan;
       (6) fiscal control and related accountability procedures 
     applicable under the plan;
       (7) a description of the sources of all non-Federal funds 
     that are required to carry out covered Federal assistance 
     programs included in the plan;
       (8) written consent from each qualified organization for 
     which consent is required under section 806(b)(2); and
       (9) other relevant information the Community Enterprise 
     Board may require to approve the plan.
       (d) Procedure for Applying.--(1) To apply for approval of a 
     local flexibility plan, a local government shall submit an 
     application in accordance with this section to the Governor 
     of the State in which the local government is located.
       (2) A Governor who receives an application from a local 
     government under paragraph (1) may, by no later than 30 days 
     after the date of that receipt--
       (A) prepare comments on the proposed local flexibility plan 
     included in the application;
       (B) describe any State laws which are necessary to waive 
     for successful implementation of a local plan; and
       (C) submit the application and comments to the Community 
     Enterprise Board.
       (3) If a Governor fails to act within 30 days after 
     receiving an application under paragraph (2), the applicable 
     local government may submit the application to the Community 
     Enterprise Board.

     SEC. 808. REVIEW AND APPROVAL OF LOCAL FLEXIBILITY PLANS.

       (a) Review of Applications.--Upon receipt of an application 
     for approval of a local flexibility plan under this title, 
     the Community Enterprise Board shall--
       (1) approve or disapprove all or part of the plan within 45 
     days after receipt of the application;
       (2) notify the applicant in writing of that approval or 
     disapproval by not later than 15 days after the date of that 
     approval or disapproval; and
       (3) in the case of any disapproval of a plan, include a 
     written justification of the reasons for disapproval in the 
     notice of disapproval sent to the applicant.
       (b) Approval.--(1) The Community Enterprise Board may 
     approve a local flexibility plan for which an application is 
     submitted under this title, or any part of such a plan, if a 
     majority of members of the Board determines that--
       (A) the plan or part shall improve the effectiveness and 
     efficiency of providing benefits under covered Federal 
     programs included in the plan by reducing administrative 
     inflexibility, duplication, and unnecessary expenditures;
       (B) the applicant local government has adequately 
     considered, and the plan or part of the plan appropriately 
     addresses, any effect that administration of each covered 
     Federal program under the plan or part of the plan shall have 
     on administration of the other covered Federal programs under 
     that plan or part of the plan;
       (C) the applicant local government has or is developing 
     data bases, planning, and evaluation processes that are 
     adequate for implementing the plan or part of the plan;
       (D) the plan shall more effectively achieve Federal 
     assistance goals at the local level and shall better meet the 
     needs of local citizens;
       (E) implementation of the plan or part of the plan shall 
     adequately achieve the purposes of this title and of each 
     covered Federal assistance program under the plan or part of 
     the plan;
       (F) the plan and the application for approval of the plan 
     comply with the requirements of this title;
       (G) the plan or part of the plan is adequate to ensure that 
     individuals and families that receive benefits under covered 
     Federal assistance programs included in the plan or part 
     shall continue to receive benefits that meet the needs 
     intended to be met under the program;
       (H) the qualitative level of those benefits shall not be 
     reduced for any individual or family; and
       (I) the local government has--
       (i) waived the corresponding local laws necessary for 
     implementation of the plan; and
       (ii) sought any necessary waivers from the State.
       (2) The Community Enterprise Board may not approve any part 
     of a local flexibility plan if--
       (A) implementation of that part would result in any 
     increase in the total amount of obligations or outlays of 
     discretionary appropriations or direct spending under covered 
     Federal assistance programs included in that part, over the 
     amounts of such obligations and outlays that would occur 
     under those programs without implementation of the part; or
       (B) in the case of a plan or part that applies to 
     assistance to a qualified organization under an eligible 
     Federal assistance program, the qualified organization does 
     not consent in writing to the receipt of that assistance in 
     accordance with the plan.
       (3) The Community Enterprise Board shall disapprove a part 
     of a local flexibility plan if a majority of the Board 
     disapproves that part of the plan based on a failure of the 
     part to comply with paragraph (1).
       (4) In approving any part of a local flexibility plan, the 
     Community Enterprise Board shall specify the period during 
     which the part is effective. An approved local flexibility 
     plan shall not be effective after the date of the termination 
     of effectiveness of this title under section 813(a).
       (5) Disapproval by the Community Enterprise Board of any 
     part of a local flexibility plan submitted by a local 
     government under this title shall not affect the eligibility 
     of a local government, a qualified organization, or any 
     individual for benefits under any Federal program.
       (c) Memoranda of Understanding.--(1) The Community 
     Enterprise Board may not approve a part of a local 
     flexibility plan unless each local government and each 
     qualified organization that would receive assistance under 
     the plan enters into a memorandum of understanding under this 
     subsection with the Community Enterprise Board.
       (2) A memorandum of understanding under this subsection 
     shall specify all understandings that have been reached by 
     the Community Enterprise Board, the local government, and 
     each qualified organization that is subject to a local 
     flexibility plan, regarding the approval and implementation 
     of all parts of a local flexibility plan that are the subject 
     of the memorandum, including understandings with respect to--
       (A) all requirements under covered Federal assistance 
     programs that are to be waived by the Community Enterprise 
     Board under section 809(b);
       (B)(i) the total amount of Federal funds that shall be 
     provided as benefits under or used to administer covered 
     Federal assistance programs included in those parts; or
       (ii) a mechanism for determining that amount, including 
     specification of the total amount of Federal funds that shall 
     be provided or used under each covered Federal assistance 
     program included in those parts;
       (C) the sources of all non-Federal funds that shall be 
     provided as benefits under or used to administer those parts;
       (D) measurable performance criteria that shall be used 
     during the term of those parts to determine the extent to 
     which the goals and performance levels of the parts are 
     achieved; and
       (E) the data to be collected to make that determination.
       (d) Limitation on Confidentiality Requirements.--The 
     Community Enterprise Board may not, as a condition of 
     approval of any part of a local flexibility plan or with 
     respect to the implementation of any part of an approved 
     local flexibility plan, establish any confidentiality 
     requirement that would--
       (1) impede the exchange of information needed for the 
     design or provision of benefits under the parts; or
       (2) conflict with law.

     SEC. 809. IMPLEMENTATION OF APPROVED LOCAL FLEXIBILITY PLANS; 
                   WAIVER OF REQUIREMENTS.

       (a) Payments and Administration in Accordance With Plan.--
     Notwithstanding any other law, any benefit that is provided 
     under a covered Federal assistance program included in an 
     approved local flexibility plan shall be paid and 
     administered in the manner specified in the approved local 
     flexibility plan.
       (b) Waiver of Requirements.--(1) Notwithstanding any other 
     law and subject to paragraphs (2) and (3), the Community 
     Enterprise Board may waive any requirement applicable under 
     Federal law to the administration of, or provision of 
     benefits under, any covered Federal assistance program 
     included in an approved local flexibility plan, if that 
     waiver is--
       (A) reasonably necessary for the implementation of the 
     plan; and
       (B) approved by a majority of members of the Community 
     Enterprise Board.
       (2) The Community Enterprise Board may not waive a 
     requirement under this subsection unless the Board finds that 
     waiver of the requirement shall not result in a qualitative 
     reduction in services or benefits for any individual or 
     family that is eligible for benefits under a covered Federal 
     assistance program.
       (3) The Community Enterprise Board may not waive any 
     requirement under this subsection--
       (A) that enforces any constitutional or statutory right of 
     an individual, including any right under--
       (i) title VI of the Civil Rights Act of 1964 (42 U.S.C. 
     2000d et seq.);
       (ii) section 504 of the Rehabilitation Act of 1973 (29 
     U.S.C. 701 et seq.);
       (iii) title IX of the Education Amendments of 1972 (86 
     Stat. 373 et seq.);
       (iv) the Age Discrimination Act of 1975 (42 U.S.C. 6101 et 
     seq.); or
       (v) the Americans with Disabilities Act of 1990;
       (B) for payment of a non-Federal share of funding of an 
     activity under a covered Federal assistance program; or
       (C) for grants received on a maintenance of effort basis.
       (c) Special Assistance.--To the extent permitted by law, 
     the head of each Federal agency shall seek to provide special 
     assistance to a local government or qualified organization to 
     support implementation of an approved local flexibility plan, 
     including expedited processing, priority funding, and 
     technical assistance.
       (d) Evaluation and Termination.--(1) A local government, in 
     accordance with regulations issued by the Community 
     Enterprise Board, shall--
       (A) submit such reports on and cooperate in such audits of 
     the implementation of its approved local flexibility plan; 
     and
       (B) periodically evaluate the effect implementation of the 
     plan has had on--
       (i) individuals who receive benefits under the plan;
       (ii) communities in which those individuals live; and
       (iii) costs of administering covered Federal assistance 
     programs included in the plan.
       (2) No later than 90 days after the end of the 1-year 
     period beginning on the date of the approval by the Community 
     Enterprise Board of an approved local flexibility plan of a 
     local government, and annually thereafter, the local 
     government shall submit to the Community Enterprise Board a 
     report on the principal activities and achievements under the 
     plan during the period covered by the report, comparing those 
     achievements to the goals and performance criteria included 
     in the plan under section 807(c)(3).
       (3)(A) If the Community Enterprise Board, after 
     consultation with the head of each Federal agency responsible 
     for administering a covered Federal assistance program 
     included in an approved local flexibility plan of a local 
     government, determines--
       (i) that the goals and performance criteria included in the 
     plan under section 807(c)(3) have not been met; and
       (ii) after considering any experiences gained in 
     implementation of the plan, that those goals and criteria are 
     sound;

     the Community Enterprise Board may terminate the 
     effectiveness of the plan.
       (B) In terminating the effectiveness of an approved local 
     flexibility plan under this paragraph, the Community 
     Enterprise Board shall allow a reasonable period of time for 
     appropriate Federal, State, and local agencies and qualified 
     organizations to resume administration of Federal programs 
     that are covered Federal assistance programs included in the 
     plan.
       (e) Final Report; Extension of Plans.--(1) No later than 45 
     days after the end of the effective period of an approved 
     local flexibility plan of a local government, or at any time 
     that the local government determines that the plan has 
     demonstrated its worth, the local government shall submit to 
     the Community Enterprise Board a final report on its 
     implementation of the plan, including a full evaluation of 
     the successes and shortcomings of the plan and the effects of 
     that implementation on individuals who receive benefits under 
     those programs.
       (2) The Community Enterprise Board may extend the effective 
     period of an approved local flexibility plan for such period 
     as may be appropriate, based on the report of a local 
     government under paragraph (1).

     SEC. 810. COMMUNITY ADVISORY COMMITTEES.

       (a) Establishment.--A local government that applies for 
     approval of a local flexibility plan under this title shall 
     establish a community advisory committee in accordance with 
     this section.
       (b) Functions.--A community advisory committee shall advise 
     a local government in the development and implementation of 
     its local flexibility plan, including advice with respect 
     to--
       (1) conducting public hearings;
       (2) representing the interest of low income individuals and 
     families; and
       (3) reviewing and commenting on all community policies, 
     programs, and actions under the plan which affect low income 
     individuals and families, with the purpose of ensuring 
     maximum coordination and responsiveness of the plan in 
     providing benefits under the plan to those individuals and 
     families.
       (c) Membership.--The membership of a community advisory 
     committee shall--
       (1) consist of--
       (A) low income individuals, who shall--
       (i) comprise at least one-third of the membership; and
       (ii) include minority individuals who are participants or 
     who qualify to participate in eligible Federal assistance 
     programs;
       (B) representatives of low income individuals and families;
       (C) persons with leadership experience in the private and 
     voluntary sectors;
       (D) local elected officials;
       (E) representatives of participating qualified 
     organizations; and
       (F) the general public; and
       (2) include individuals and representatives of community 
     organizations who shall help to enhance the leadership role 
     of the local government in developing a local flexibility 
     plan.
       (d) Opportunity for Review and Comment by Committee.--
     Before submitting an application for approval of a final 
     proposed local flexibility plan, a local government shall 
     submit the final proposed plan for review and comment by a 
     community advisory committee established by the local 
     government.
       (e) Committee Review of Reports.--Before submitting annual 
     or final reports on an approved assistance plan, a local 
     government or private nonprofit organization shall submit the 
     report for review and comment to the community advisory 
     committee.

     SEC. 811. TECHNICAL AND OTHER ASSISTANCE.

       (a) Technical Assistance.--(1) The Community Enterprise 
     Board may provide, or direct that the head of a Federal 
     agency provide, technical assistance to a local government or 
     qualified organization in developing information necessary 
     for the design or implementation of a local flexibility plan.
       (2) Assistance may be provided under this subsection if a 
     local government makes a request that includes, in accordance 
     with requirements established by the Community Enterprise 
     Board--
       (A) a description of the local flexibility plan the local 
     government proposes to develop;
       (B) a description of the groups of individuals to whom 
     benefits shall be provided under covered Federal assistance 
     programs included in the plan; and
       (C) such assurances as the Community Enterprise Board may 
     require that--
       (i) in the development of the application to be submitted 
     under this title for approval of the plan, the local 
     government shall provide adequate opportunities to 
     participate to--
       (I) low income individuals and families that shall receive 
     benefits under covered Federal assistance programs included 
     in the plan; and
       (II) governmental agencies that administer those programs; 
     and
       (ii) the plan shall be developed after considering fully--
       (I) needs expressed by those individuals and families;
       (II) community priorities; and
       (III) available governmental resources in the geographic 
     area to which the plan shall apply.
       (b) Details to Board.--At the request of the Chairman of 
     the Community Enterprise Board and with the approval of an 
     agency head who is a member of the Board, agency staff may be 
     detailed to the Community Enterprise Board on a 
     nonreimbursable basis.

     SEC. 812. COMMUNITY ENTERPRISE BOARD.

       (a) Functions.--The Community Enterprise Board shall--
       (1) receive, review, and approve or disapprove local 
     flexibility plans for which approval is sought under this 
     title;
       (2) upon request from an applicant for such approval, 
     direct the head of an agency that administers a covered 
     Federal assistance program under which substantial Federal 
     assistance would be provided under the plan to provide 
     technical assistance to the applicant;
       (3) monitor the progress of development and implementation 
     of local flexibility plans;
       (4) perform such other functions as are assigned to the 
     Community Enterprise Board by this title; and
       (5) issue regulations to implement this title within 180 
     days after the date of its enactment.
       (b) Reports.--No less than 18 months after the date of the 
     enactment of this Act, and annually thereafter, the Community 
     Enterprise Board shall submit a report on the 5 Federal 
     regulations that are most frequently waived by the Community 
     Enterprise Board for local governments with approved local 
     flexibility plans to the President and the Congress. The 
     President shall review the report and determine whether to 
     amend or terminate such Federal regulations.

     SEC. 813. TERMINATION AND REPEAL; REPORT.

       (a) Termination and Repeal.--This title is repealed on the 
     date that is 5 years after the date of the enactment of this 
     Act.
       (b) Report.--No later than 4 years after the date of the 
     enactment of this Act, the Comptroller General of the United 
     States shall submit to the Congress, a report that--
       (1) describes the extent to which local governments have 
     established and implemented approved local flexibility plans;
       (2) evaluates the effectiveness of covered Federal 
     assistance programs included in approved local flexibility 
     plans; and
       (3) includes recommendations with respect to continuing 
     local flexibility.


                           amendment no. 1490

  Mr. HATFIELD. Mr. President, I am pleased to offer an amendment to S. 
4 which builds upon previous work of the Senate in granting greater 
flexibility to States and to local jurisdictions. In an age of 
increasingly limited Federal resources, my amendment is designed to 
help local government and nonprofits direct funds in the areas that 
help their communities the most.
  My amendment creates a demonstration project under the Community 
Enterprise Board to allow up to 30 local governments in 6 States to 
allow much greater flexibility in the way they administer Federal 
economic development and social service funds. Broader local discretion 
will help our Nation's communities and local areas position themselves 
to be successful in our Nation's changing economic and social 
environment without any increase in Federal spending.
  Currently, local governments are eligible for hundreds of separate 
categorical grants for social services and economic development. 
Federal programs have largely been created in response to a particular 
need or problem. Programs that provide similar services may be 
administered by completely different agencies. Many grant programs are 
narrow, and regulatory rigidity means Federal dollars end up mired in 
audits and recordkeeping rather than in services to people.
  This demonstration refocuses attention from the administrative 
process to the services delivered to people and communities.
  To participate in this demonstration project, local governments would 
prepare a local flexibility plan for the integration of Federal funds. 
The local plan must include citizen involvement, including involvement, 
of low-income citizens. In their planning process, local governments 
would identify the Federal resources they would use, the Federal, 
State, and local regulations which would need to be waived, the local 
resources to be used, and how changes in services will be experienced 
in the community.
  There are many things a local government could not do. The local 
government could not waive civil rights protections, reduce payments 
made directly to a person, increase Federal spending, or draw on money 
passed through State government without permission of the State.
  Local flexibility plans must also include clear accountability. The 
local government must establish clear and measurable goals, and then 
collect data about the effectiveness of their services. If goals are 
not met, then the Federal Government will rescind all flexibility and 
waivers that have been granted.

  This is not merely about waiving cumbersome Federal regulations. The 
local government must also look at the State and local regulations that 
affect good service delivery. This is an opportunity for local 
governments to think about the key aspects of the services they 
deliver, and get out from under administrative procedures that slow or 
damage effective services.
  Granting the new authority to local governments will not increase 
Federal spending. We are merely giving local jurisdictions more 
flexibility to use dollars they already receive. And because more 
dollars can be directed into services rather than administration, we 
are making limited Federal dollars go further.
  Mr. President, the Senate is on record in support of freeing-up State 
and local government from unnecessary regulations as long as Federal 
goals continue to be met. Last month, the Senate voted 97-0 in favor of 
a demonstration project to allow six States to experiment with greater 
flexibility for education and schools.
  A bill similar to my amendment has been introduced in the House of 
Representatives and has received a favorable response from the Clinton 
administration. The National Association of Counties and the National 
League of Cities also testified in favor of the House bill. The 
President's National Performance Review contained a recommendation 
similar to this amendment, and the administration supports the creation 
of comprehensive, community-based plans to remove regulatory barriers 
to the effective use of limited Federal, State, and local funds. I have 
designed my amendment to tie into the President's Community Enterprise 
Board, and the I believe those local areas selected as empowerment 
zones and enterprise communities will be among those most able to gain 
through this amendment.
  Population and employment growth, shifts in the global economy, and 
technological changes are creating new challenges for communities which 
do not respect the traditional programs that are available to deal with 
social and economic problems. We need to give our local governments 
tools to help them find innovative solutions to economic development, 
job creation, job training, housing, health, and other social issues.
  My amendment will help communities better position themselves to be 
competitive. Economic development and social services are key 
components of community health, and local governments in our Nation 
serve communities with a wide variety of social and economic needs. My 
amendment will help them do it better. I urge my colleagues to join me 
in passing this amendment.


                           Amendment No. 1491

  Mr. HATFIELD. Mr. President, this amendment would utilize research 
facilities already existing in our urban universities to help enable 
businesses to grow successfully to the point where they can effectively 
use the technology we are promoting in this act. This amendment will 
not create a new bureaucracy. It is designed merely to promote business 
research and business assistance by those uniquely qualified to take on 
these tasks: namely, our business schools in conjunction with private 
or nonprofit organizations.
  The focus here is not limited to technology, but is on the overall 
health of businesses in lower income urban communities. But, this 
amendment does not preclude this assistance from being applied in the 
rural areas. In fact, if a State does not contain an urban area as 
defined in the amendment, the Secretary may designate an area for this 
purpose.
  We know one of the most basic problems that businesses face is 
overregulation. Small and emerging businesses in low income urban areas 
find development difficult because of the lack of access to investment 
capital and technical assistance. But, why do some of these businesses 
thrive and compete internationally while similar businesses fail?
  As the committee report on S. 4 notes, only 6 out of 10 of our 
smaller manufacturers employ advanced technology, compared to 9 out of 
10 of plants with more than 500 employees. The SBA's small business 
profile for 1992 showed a 44-percent increase in business failures 
nationally from 60,740 in 1990 to 87,266 in 1991. In Oregon these 
failures rose by 120 percent. While the recession was a major cause of 
this increase, reports offer little information on exactly why 
businesses fail or cease to expand in certain areas. When I tried to 
find research on the specific problems that businesses face in Oregon, 
one of the only current sources of information was a survey done by the 
National Federation of Independent Business. Surveys and government 
statistics cannot take the place of primary research conducted by our 
Nation's business schools.
  Business schools--or consortia made up of schools, businesses, and 
nonprofit organizations--have an important role to play in sustaining 
business development. This role could be greatly enhanced without 
creating any new Federal bureaucracies by encouraging these entities to 
conduct the much needed research and apply it to businesses in their 
communities.
  This proposal would allow the Department of Commerce to make grants 
to urban universities for research on, or for implementation of, 
technical assistance, technology transfer, or delivery of services in 
business creation, expansion, and human resource management.
  The authorization for these demonstration grants is limited to $10 
million. The grants would be disbursed geographically, and not exceed 
$400,000 per institution or consortium. This would make use of the 
talent and facilities that already exist to create the information and 
assistance that developing businesses need.
  For example, a comprehensive data base on business births, deaths, 
expansions, or contractions is no longer maintained. One benefit of 
this proposal might be the creation of such a data base in conjunction 
with assistance efforts based upon this information. In this case, we 
would see nonprofit entities taking over functions that were previously 
under the direction of the SBA in order to enhance American 
competitiveness.
  Other programs such as the Small Business Development Centers 
[SBDC's] do an admirable job of specializing in assisting small 
entrepreneurial enterprises. The Urban University Business Initiative 
is designed to offer the applied research and long-term, in-depth 
technical assistance to small and emerging businesses that SBDC's do 
not have the facilities to undertake.
  I urge the adoption of this amendment and ask unanimous consent that 
supporting letters from the American Association of State Colleges and 
Universities, the National Association of State Universities and Land-
Grant Colleges, the American Electronics Association of Oregon, and 
Portland State University be placed into the Record following my 
remarks.
  There being no objection, the letters were ordered to be printed in 
the Record, as follows:
                                                    March 9, 1994.
     Hon. Mark O. Hatfield,
     Hart Senate Office Building,
     Washington, DC.
       Dear Senator Hatfield: On behalf of the American 
     Association of State Colleges and Universities (AASCU) and 
     the National Association of State Universities and Land-Grant 
     Colleges (NASULGC), we commend your efforts to match the 
     resources of our urban colleges and universities to the needs 
     of the urban business community through the proposed Urban 
     University Business Initiative legislation.
       The community resource and economic development mission of 
     our urban colleges and universities inextricably links our 
     institutions to the communities in which they reside. 
     Moreover, the business community's need for technical 
     assistance and solutions to problems, especially those in 
     lower income urban areas, and the urban university's ability 
     and interest in applying their energies and talents to human 
     and community concerns, creates a climate for urban 
     universities and urban businesses to collaborate.
       As we approach the 21st century, the technological 
     challenges threatening America's economy and international 
     competitiveness will have to be addressed by the American 
     people. Too often the potential of our colleges and 
     universities, as participants in the problem solving process, 
     is overlooked. Your legislation helps create the link between 
     urban institutions of higher education and the communities in 
     which they reside.
       Once again, we appreciate your foresight and leadership on 
     this issue and your outstanding and longstanding advocacy on 
     behalf of urban and metropolitan colleges and universities.
           Sincerely,
     James B. Appleberry,
                                President, American Association of
                                  State Colleges and Universities.
     C. Peter Magrath,

                               President, National Association

                                             of State Universities
                                          and Land-Grant Colleges.
                                  ____

                                              American Electronics


                                                  Association,

                                         Salem, OR, March 9, 1994.
     Hon. Mark O. Hatfield,
     Hart Senate Office Building,
     Washington, DC.
       Dear Senator Hatfield: I am writing to let you know that we 
     have seen your proposed amendment to S.4 regarding urban 
     university business initiative grants and welcome your 
     efforts.
       As you well know, Oregon is a hotbed of small businesses, 
     many of which are faced with the daunting task of trying to 
     compete in a global marketplace. Although such programs as 
     the SBDCs attempt to help small enterprises get started, your 
     amendment addresses a different need: the applied research 
     and long-term technical assistance that could be provided by 
     our urban universities.
       Your amendment addresses another gap in our current 
     system--a much needed data base to track small business 
     development and chart the reasons for success and failure.
       A recent discussion we had with economic development 
     leaders in the Portland area highlighted for us the urgent 
     need for business development strategies designed 
     specifically for lower income urban communities. We hope that 
     your proposal, if successful, will help address those needs.
       As always, we applaud your leadership in these issues. Good 
     Luck.
           Sincerely,
                                                       Jim Craven,
                                       Government Affairs Manager.
                                  ____



                                    Portland State University,

                                      Portland, OR, March 8, 1994.
     Hon. Mark O. Hatfield,
     Hart Senate Office Building,
     Washington, DC.
       Dear Senator Hatfield: I'm writing to let you know I 
     enthusiastcally endorse your proposed legislation related to 
     urban universities and technical assistance for small and 
     emerging businesses. This legislation will make a difference 
     not only to businesses in Oregon, but throughout the nation. 
     Establishing direct linkages between urban universities and 
     business assistance will help enhance the success rate of 
     small and emerging businesses.
       At a time when our nation's economic base is changing 
     dramatically from industrial to small and mid-size business, 
     legislative solutions like the Urban University Business 
     Initiative Grants are especially crucial to long-term 
     sustainability. In addition to providing technical 
     assistance, your legislation specifically establishes a 
     priority for a research agenda. Clearly, too little is now 
     known about what works to support business development, 
     strategies for promoting business expansion, and successful 
     efforts to maintain profitability and sustainability.
       The urban university is well positioned to provide business 
     assistance. It is the mission of the urban university to work 
     with the community to address community problems. A key 
     problem for urban areas, especially lower-income 
     neighborhoods, is business competitiveness. Jobs particularly 
     family wage jobs, are essential to self-sufficiency, family 
     stability, and community development. Your legislation 
     creates a mechanism for urban university business schools to 
     be an integral part of the solution.
       Senator Hatfield, your leadership on this issue is greatly 
     appreciated. I especially want to recognize the good work and 
     commitment of your staff in making this legislative concept a 
     reality. It is obvious that your passion for the urban 
     university mission is shared by the people you employ.
           Thank you again for embracing this important issue. 
     Please call upon me if I can provide you with any information 
     or assistance.
           Best regards,
                                                Judith A. Ramaley,
                                                        President.

  Mr. HATFIELD. Mr. President, these are two very brief amendments, and 
yet I think they are very poignant and important to the basic concept 
we are debating here tonight. They have been cleared on both sides of 
the aisle. Both the majority and the minority managers and staff have 
reviewed them as well.
  Mr. President, we have been moving to try to develop flexibility in 
this maze of Government bureaucracy where well-intended programs 
oftentimes get focused on administrative process and categorical grants 
to the local governments get mired in the compliance role rather than 
in the results-oriented focus of that program.
  This is an effort much like we added to the Goals 2000, an 
educational flexibility amendment. I am offering this similar pattern 
of providing 30 local government units within 6 States as demonstration 
projects to take the myriad of categorical grants and to try to see how 
they can be innovative, maintaining the goals of those grants but 
lifting much of the bureaucratic control and mechanisms that are now in 
place, and in turn that the State governments respond to the same call 
for this demonstration project.
  I believe that is basically the essence of the amendment. I would be 
happy to answer any questions on it.
  The other amendment is to again try to enhance involvement of local 
resources. Oftentimes in these programs that we create at the Federal 
level we are, in effect, often neglecting the opportunity to merge into 
the purpose of the bill our local existing resources. In this case, the 
purpose would be to facilitate grants, up to certain limitations, to 
urban university, business schools, and business research activities 
within those business schools, private and public.
  We have had some interesting experience in the Portland metropolitan 
area where Portland State University is taking on more and more of a 
service role with the various purposes and the objectives of community 
enterprise. For instance, under minority enterprises that we are trying 
to stimulate in our city, they have helped provide those minority 
entrepreneurs the resource data in order to apply for grants and so 
forth.
  So basically, this idea will utilize the urban universities, as a 
source of research, and data for small enterprise--indeed, all 
enterprise. That basically is the purpose of the second amendment.
  Again, I would respond to any questions on these amendments. 
Otherwise, Mr. President, I believe they have been cleared on both 
sides.
  I urge their adoption.
  Mr. HOLLINGS. Mr. President, the staff has looked this amendment 
over. It is within the Commerce Committee jurisdiction. As I understand 
it, it is peer reviewed. There is no apparent controversy. It will help 
the small business development centers as outlined in that small 
business part of the program to more accurately direct themselves to 
the technological applications.
  With that in mind, I yield, and join in urging the adoption of the 
amendment.
  Mr. HATFIELD. I thank the manager and the chairman of the committee.
  The PRESIDING OFFICER. If there is no further debate, the question is 
on agreeing to the amendments, en bloc. The amendments, en bloc (No. 
1490 and No. 1491) were agreed to.
  Mr. HATFIELD. Mr. President, I move to reconsider the vote by which 
the amendments were agreed to.
  Mr. HOLLINGS. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.
  Several Senators addressed the Chair.
  The PRESIDING OFFICER. The Senator from Maryland.
  Mr. SARBANES. Mr. President, I would like to ask the chairman of the 
committee if it would be possible to take a minute to make a statement 
on an unrelated topic? I do not want to intrude into the consideration 
of the bill.
  Mr. HOLLINGS. Mr. President, we have been waiting for the Senator 
from Colorado to bring his amendment. Can we do that when we are 
through with this? Is that all right?
  Mr. BROWN. The chairman's decision would be fine with me.
  Mr. HOLLINGS. Go ahead.

                          ____________________