December 24, 1998
C.I.A. Ignored Report of Payments to Chinese
for Satellite Contracts
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By JEFF GERTH
ASHINGTON -- 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.
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