[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.
____________________