C.I.A. Ignored Report of Payments to Chinese for Satellite Contracts
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. |
