-Caveat Lector- <A HREF="http://www.aci.net/kalliste/">The Home Page of J. Orlin Grabbe</A> ----- The Best of Seasons to All and on to the utmost of our best futures. Om K ----- ------------------------------------------------------------------------ Spy vs. Spy CIA Ignored Payments to Chinese Bribes for Satellite Contracts by Jeff Gerth WASHINGTON -- CIA officers in China told headquarters in March 1996 that a consultant for American aerospace companies had made payments to Chinese officials in hopes of getting lucrative contracts, U.S. intelligence officials say. The allegation, made in a secret cable, should have set off alarm bells. U.S. law bars companies or individuals from paying bribes overseas to secure contracts, and the CIA has agreed to share information about potential criminal activity with the Justice Department. But for reasons that remain unclear, the cable languished in CIA files for more than two years, the officials said. It was unearthed this year only after congressional committees began examining whether the Clinton administration had compromised national security in its zeal to promote high technology exports to China, the officials said. The consultant is Bansang Lee, a Chinese-American who worked for Hughes Space & Communications and for Loral Space & Communications. It is not clear whether the cable specifies on whose behalf Lee would have been making any payments to Chinese officials, or what kind of officials these were. Nor is it clear whose money the CIA believed it was, or how much money passed hands. Administration officials say the Justice Department is now examining Lee's activities more closely. His lawyer, Brian O'Neill, said his client "has never made any unlawful or improper payments of any kind to any Chinese official." Spokesmen for Hughes and Loral deny any wrongdoing but declined to discuss Lee's activities. A CIA official said the failure to pass the cable on to the Justice Department had been an oversight that was now being reviewed by the CIA's inspector general. But it marks the second time this year that CIA officials have acknowledged that they failed to disseminate potentially significant information about questionable dealings involving China and American satellite manufacturers. The incident also illustrates the pressures that confront American manufacturers as they compete with European companies for a share of a Chinese market in which individual satellite sales can be worth as much as $1 billion. Lee was born in China but educated in the United States, receiving a doctorate from Princeton University in electrical engineering. Industry executives say he served as a crucial intermediary between American companies and Chinese aerospace officials who on one hand were buying Western satellites and on the other hand marketing their country's ability to launch these satellites with China's own rockets. State Department documents and interviews with industry executives suggest that Lee appears to have had a hand in both endeavors. During his years working for Hughes, the company sold hundreds of millions of dollars in satellites and telecommunications equipment to Chinese concerns, and Loral made its first satellite sale to China after it hired Lee. When he was working at Loral, Lee suggested that the company help Chinese rocket scientists understand the causes of a failed satellite launch in 1996, according to State Department documents. Loral sent technicians to China, and their dealings with Chinese scientists, carried out without U.S. government approval, are now the focus of a criminal investigation and Congressional inquiries. A federal grand jury is examining whether Loral, in 1996, and Hughes, in an earlier accident investigation, illegally shared American expertise with China, helping it improve the reliability of their launchings of satellites and ballistic missiles. The companies deny any wrongdoing. That inquiry had its roots nearly a decade ago when American satellite manufacturers sought to do more business with China after the Bush administration approved the first launches of American satellites on Chinese rockets. Hughes was the first American satellite maker to establish a foothold in Beijing, and it opened a new office for Asian deals in Tokyo. The company hired Lee as a Hong Kong-based consultant in 1989, and by the early 1990s, former executives said, Hughes was seeking closer ties to the powerful China Aerospace Corp., which sells missiles, launches rockets and makes communications satellites. Lee was an ideal go-between. He had a close working relationship with Liu Jiyuan, the chairman of China Aerospace, a satellite industry executive said. Lee moved to Beijing in 1992 and the next year became a full-time Hughes employee, satellite executives said. One executive said the company was so pleased with the business that Lee had generated as a consultant that it failed to conduct a thorough background investigation before hiring him. One year later, Lee's Chinese business dealings came under scrutiny within Hughes after company employees in Beijing raised questions about some of his private business deals, said a former Hughes executive, who declined to be identified but read from notes he kept of the inquiry into Lee's activities. One of Lee's separate business deals with a China Aerospace subsidiary entitled him to payments of about $1 million for every Hughes satellite launched on a Chinese rocket, the former Hughes executive and a government investigator said. Lee told Hughes officials that no payments had ever been made, that he had disclosed the general outlines of the deal to the company previously and that the agreement was no longer active, former Hughes executives said. But some Hughes officials called for his immediate dismissal, the former executives said. A spokeswoman for Hughes, Helen Sanders, would not discuss Lee's resignation, saying it was the subject of a confidential agreement. She said Lee had stopped working for the company in February 1995. A few weeks later, Loral, which was trying to break into the Chinese market, hired Lee, aerospace executives said. Thomas Ross, Loral's vice president for government relations, said the company was not aware of any "allegations at the time" it hired Lee and knows of "no allegations of wrongdoing by Lee during the period he has served as a consultant to Loral." A former Loral executive said Loral's chief of security had been concerned about Lee's close ties to Chinese officials. But other satellite executives said Loral had been pleased with Lee's work, especially his instrumental role in getting Loral to sell its first satellite to China, Chinasat 8. Lee's activities in China appear to have attracted little attention in Washington, except for the neglected 1996 CIA cable. Intelligence officials said the cable mentioned both Hughes and Loral, but further details could not be learned. The issue was dormant until 1998, when it was disclosed that Loral and Hughes were under investigation for possible illegal transfers of rocket expertise to China. Congress began its own inquiries, and a House select committee asked the CIA for information about Lee, bringing the 1996 cable to light. About the same time, inquiries from the Senate Select Committee on Intelligence led to the discovery that a CIA scientist, Ronald Pandolfi, had learned about Hughes' sharing of expertise with the Chinese in 1995. Pandolfi wrote a draft intelligence estimate report warning about the military implications in April 1996, about a month after the cable arrived. The CIA decided not to distribute the classified report to select government officials, as is routinely done with intelligence estimates, saying it was insufficiently rigorous. Both the cable and Pandolfi's report were written at a time when President Clinton was moving to ease restrictions on satellite deals and had shifted primary oversight of sales from the State Department to the Commerce Department. In recent reports the Pentagon largely embraced Pandolfi's conclusions, saying Hughes had provided valuable technological insights to the Chinese in 1995. And last week, the State Department's intelligence arm asserted in a separate report that China had significantly improved its ability to launch rockets reliably as a result of the help from Hughes, lessons inherently applicable to China's missile program, an administration official said. The Pentagon and State Department have raised similar concerns about the help that Loral gave the Chinese in 1996 as it investigated another failed launch. The outside review of that accident was organized by Liu, the China Aerospace chairman and associate of Lee. In February 1996, before the outside committee was formed, Lee asked the Chinese to include a Loral representative as part of the investigation, according to a State Department cable recounting what Lee told a U.S. diplomat at the U.S. Embassy in Beijing. Several weeks later, when Liu specifically sought a top Loral executive to head the outside review, Lee relayed the Chinese request to the Loral executive, according to Loral documents. The New York Times, Dec. 24, 1998 Single Currency Euro Traders Get Ready for a Scramble New Kid on the Block LONDON - Thorkild Juncker, the head of currency trading at J.P. Morgan & Co., recalled a visit to the bank's London offices by a senior German business executive in November 1994, who told skeptical dealers they had better prepare for a single European currency. ''Not only will it happen,'' he said, ''it's the law.'' The dealers were unimpressed. ''We smiled and laughed and sent him home,'' Mr. Juncker said. Well, dealers at J.P. Morgan and at banks across London and around the world have since had a change of heart as governments maintained their commitment to forge a monetary union, and currency and interest rates converged across Europe. Now as Europe gets ready to replace 11 national currencies with the euro over the New Year's weekend, few people are as prepared as the ones who rule the world's $1.5 trillion-a-day foreign exchange market. Over the past two years, banks have trimmed and restructured their dealing staffs to prepare for the end of trading in once volatile and lucrative currencies like the Italian lira and the Spanish peseta. But far from heralding the end of a freewheeling currency market that Germany's finance minister, Oskar Lafontaine, has dubbed a ''casino,'' many bankers believe the euro will intensify trading volumes and volatility. ''The capital movements in and out of the euro are going to become more dramatic'' as national stock and bond markets merge into a big, liquid pan-European capital market, said Howard Kurtz, a managing director of currency trading at National Westminster Bank PLC in New York. ''The dollar-euro will become a global benchmark.'' On fundamental grounds, many analysts believe the advent of the euro as a rival to the dollar as a global means of payment is inherently volatile. And Europe may be less concerned about the euro's exchange rate because the combined economy of the 11 euro countries is much larger and less dependent on foreign trade than the individual, national economies. While the dollar has traded mostly in a range of plus or minus 15 percent against the Deutsche mark since 1991, the range ''will widen out'' against the euro, said Avinash Persaud, a currency analyst at J.P. Morgan. What's more, bankers say, the euro is likely to contribute to the growing domination of the foreign-exchange market by a handful of international banks, which have the capital, technology and expertise to accept the biggest bets in the global currency game. That concentration itself is likely to reinforce the volatility of exchange rates, they say. ''It really has been those that have adapted to life beyond the euro that have gained market share,'' said Guy Whittaker, head of foreign exchange trading in London for Citibank, the world's largest currency trader. ''Customers are more and more interested in your ability to provide coverage in those countries beyond the euro. They're looking at emerging markets and more sophisticated hedging products. That plays to the large, global, sophisticated players.'' Citibank's experience is typical of the big changes that monetary union has promoted. Since the Maastricht Treaty on European Union was signed in 1992, starting the single currency process, the bank has shut its local currency trading operations across Europe, including Frankfurt, and centralized them in London. It will shut its last local outpost, a two-person Irish punt desk in Dublin, on Dec. 31. The bank's European currency team now numbers 230, including 150 in London, compared with 300 at the start of the process. Similarly, J.P. Morgan has cut its currency trading and sales staff by about 20 percent over the past two years, to just under 200 globally. The former chief trader in Milan now heads the emerging markets currency operation in London, which handles everything from the Polish zloty to the South African rand. But these leaner teams are handling much larger volumes, more complex transactions and a wider range of currencies. Corporate treasurers and investment managers are demanding more sophisticated options to hedge their business operations or investment holdings around the globe, a trend that has been given a fillip by the devaluation of Asian currencies over the past 18 months. Meanwhile, technology has enabled global banks to poach business that was once the preserve of local banks. J.P. Morgan, for instance, uses the World Wide Web to put its currency analytic tools and research directly into the hands of local fund managers across Europe. ''It has made it easier for wholesale banks to reach into the franchise of second-tier players,'' Mr. Juncker said. The results are dramatic. J.P. Morgan's foreign-exchange trading revenues totaled $393 million in the first nine months of this year, a period when trading volumes between European currencies evaporated, compared with $315 million for all of 1993, a year when European markets were convulsed by devaluations. Overall, the top 20 banks handle 69 percent of the $637 billion of daily currency trading in London, the world's busiest trading center, and 82 percent of currency and interest-rate options and other derivatives, a market worth $171 billion a day, the Bank of England reported earlier this year. And that was before the mergers of Union Bank of Switzerland and Swiss Bank Corp., and Deutsche Bank AG and Bankers Trust Corp., all major currency traders. Today, bankers say the market is really dominated by five to 10 banks, and at times of extreme volatility, even less. When the dollar plunged by 11 percent against the yen in early October, bankers say that fewer than five banks quoted a full range of currency and option prices throughout the day. The big question is whether that dollar-yen swing, a move unprecedented in 25 years of floating exchange rates, offered a taste of the volatility of the post-euro world. Many currency experts suspect it did. The concentration of trading in fewer hands ''has led to a greater discontinuity of price action than we were used to even five years ago,'' Mr. Whittaker said. ''There are fewer and fewer participants willing to transact on their own account.'' Graham Edwards, head of currency sales at Merrill Lynch & Co. in Europe, agreed. ''The capacity we have to move large amounts obviously diminishes as the number of counterparties declines,'' he said. International Herald Tribune, Dec. 24, 1998 ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, Omnia Bona Bonis, All My Relations. Adieu, Adios, Aloha. Amen. Roads End Kris DECLARATION & DISCLAIMER ========== CTRL is a discussion and informational exchange list. Proselyzting propagandic screeds are not allowed. Substance—not soapboxing! 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