The Washington Post
CIA Role in Satellite Case Spurs Probe
By Vernon Loeb and John Mintz
Washington Post Staff Writers
Saturday, December 5, 1998; Page A1
February 1996.
(Reuters) The Justice Department has
initiated a criminal probe of the CIA to determine
whether the agency obstructed justice when it provided
information to Hughes Electronics Corp. about the scope
of an ongoing congressional investigation into the
transfer of sensitive U.S. space technology to China,
according to senior federal government officials.
High-ranking CIA officials, including the agency's
general counsel, have agreed to testify next week
before a federal grand jury in Washington about
information provided earlier this year to Hughes, which
has supplied the CIA with satellites and sophisticated
communications equipment for decades.
Government sources say the CIA provided information to
Hughes about the Senate Select Committee on
Intelligence's technology transfer investigation that
might have enabled the firm to anticipate the moves of
congressional investigators.
The Justice Department initiated the obstruction probe
at the request of the Senate committee, sources said.
The committee became alarmed after learning that the
CIA had informed Hughes of names of company officials
that the agency had previously supplied to the
committee to assist in its investigation, sources said.
A CIA spokesman said the agency is fully cooperating in
the obstruction probe. Another CIA official, speaking
on background, acknowledged that the agency may have
erred in providing certain information to Hughes. But
the information was turned over in the normal course of
business between the agency and one of its major
classified contractors with no intention of interfering
with the investigation, the official said.
The CIA official also stressed that agency employees
who provided information to Hughes did so in their
official capacities with approval of their superiors,
not as individuals acting on their own. The official
said that some of what the CIA gave Hughes pertained to
the investigations precisely because there was no
intent to hide anything, and that agency officials
informed the committee of their communications with
Hughes.
Hughes spokesman Richard Dore said, "Hughes has not
been provided information by the CIA regarding the
details of federal criminal investigations involving
Hughes."
Much of the information provided by the CIA to Hughes
is contained in CIA documents subpoenaed by the Senate
and by federal investigators conducting a parallel
probe into the transfer of U.S. technology to China,
sources said. Hughes and Loral Space & Communications
Ltd. are under investigation by the Justice Department
and two congressional committees for their role in
transferring technology to the Chinese after Hughes and
Loral satellites were destroyed in two Chinese rocket
explosions.
Government sources said it is highly unusual for the
Justice Department to investigate a fellow federal
agency -- particularly one as sensitive and secretive
as the CIA -- for possible obstruction of justice.
Sources said the matter began this fall when a CIA
analyst specializing in Chinese technology, Ronald
Pandolfi, was called to the Senate committee and told
staff members that he had concluded in 1995 that Hughes
had been too aggressive in marketing high-technology
equipment in China.
At the time, according to an account from several
sources, Pandolfi conducted interviews with Hughes
executives about their work in China, causing Hughes to
complain angrily to the CIA that he was operating
outside of customary channels. The CIA office that
regularly deals with Hughes reprimanded Pandolfi, who,
after being summoned by the committee, in September
laid out a set of accusations against the firm, sources
said.
Aware of Pandolfi's views, the CIA gave Hughes a
heads-up about his discussion with the committee and
offered to supply the panel with the names of Hughes
executives who might explain the disagreement, sources
said.
Meanwhile, in a related development of concern to
federal investigators, the House select committee
looking into the transfer of sensitive U.S. space
technology to China has indicated that it wants to
grant immunity to certain Hughes employees from future
prosecution based on information they would provide to
Congress. One federal government source said that some
of those employees are subjects of the Justice
Department probe.
Federal investigators are concerned by the prospect
because congressional immunization can complicate any
attempt to prosecute those individuals on any future
charges. In one celebrated instance, former White House
aide Oliver North had his federal conviction in the
Iran-contra scandal overturned after arguing that
witnesses who testified against him may have relied on
some of the immunized testimony he supplied Congress.
The controversy involving Hughes is rooted in its
practice, shared by other aerospace firms, of launching
commercial communications satellites atop Chinese
rockets because they are much less expensive than
Western launchers, particularly the market-leading
French Ariane rocket.
Hughes also works closely with the CIA and the National
Reconnaissance Office, designing and manufacturing
truck-sized satellites that eavesdrop on Earth from
22,000 miles in space. The firm, in the elite of
trusted contractors for the U.S. intelligence
community, has had intimate ties with the CIA for
decades, since the time the company was run by
swashbuckling aviation pioneer Howard Hughes.
It's not known whether U.S. government officials
believe Hughes's communications with Chinese
authorities in 1995 about space technology harmed U.S.
security in any way. But Air Force intelligence
officials have concluded that Loral's transfer of data
in 1996 may have hurt U.S. national security by helping
the Chinese to improve their ballistic missiles.
In both cases, the companies' disclosure of technical
data followed failed launches of China's balky Long
March rockets carrying the firms' satellites into
space.
In January 1996 a Long March rocket lifting off from a
remote mountainous site in southwestern China exploded,
destroying the Hughes satellite aboard and raining down
fiery metal that killed hundreds of villagers. Chinese
space officials, traditionally defensive and
close-mouthed, blamed the Hughes satellite, saying it
had caused the explosion. Western space executives
scoffed at the accusation.
The Chinese stance presented a quandary for Hughes,
since the firm wanted to remain in favor with China's
space program as a cheap launch alternative. But Hughes
officials privately explained to some in the U.S. space
community that the Long March rocket was responsible
for the accident. The Chinese "became unglued" at what
it viewed as Hughes's audacity, an industry official
said.
Amid the recriminations, Hughes sought and received
Commerce Department approval to review with the Chinese
some of its findings about the explosion's cause.
Pentagon officials are supposed to monitor such
contacts to ensure U.S. engineers don't disclose
information that could help China design more capable
ballistic missiles. But in this case, military monitors
kept tabs only peripherally on Hughes's talks with the
Chinese, sources said.
The Justice Department probe focuses on whether Hughes
misled Commerce about how much data it planned to give
the Chinese, and whether Hughes disclosed more than
Commerce had approved. The company has insisted it
provided the Chinese only vague information that could
not possibly have harmed U.S. security.
Loral is under investigation for its activities
following the destruction of one of its satellites in
the February 1996 explosion of a Long March rocket.
U.S. officials say the explosion killed more than 200
villagers in a torrent of burning rocket fuel.
Because of China's record of misstatements following
past Long March failures, insurance industry executives
who had insured the $85 million Loral satellite
demanded that Western space officials investigate the
cause of the mishap. Loral headed the panel, and its
members included Hughes representatives.
In May 1996, a Loral staff member on the panel faxed
the Chinese a copy of its after-accident report. Loral
superiors informed the State Department immediately
about the disclosure, saying it was the result of a
subordinate's inattention to security rules. Loral,
too, insists the data couldn't have helped China build
better missiles.
Staff writers Roberto Suro and Walter Pincus
contributed to this report.
� Copyright 1998 The Washington Post Company
