Unfashionable Hard-Liner Finds Struggle Persuading White House of China Threat

By David S. Cloud
The Wall Street Journal, 27 November 1998

WASHINGTON — Michael Maloof is convinced China’s military is grabbing sophisticated
U.S.
technology. His bosses at the Pentagon insist he is crying wolf.

Mr. Maloof is a case study in why the battle over U.S. export policies to Beijing has become
so
fierce. He is part of a coterie of export-control specialists whose hard-line views, unfashionable
since the Cold War’s end, have been adopted by many members of Congress and are driving the
debate.

He considers Beijing’s modernizing armed forces the U.S. military’s next major threat. But
administration officials portray the 55-year-old career Defense Department aide as a Cold War
throwback who can’t reconcile himself to the inevitable easing of export controls.

Mr. Maloof, a manager in the Pentagon’s Defense Technology Security Administration since
1986, has become a fertile source for hawks seeking evidence of national-security damage. And
he is becoming a major headache for Hughes Electronics Corp., which he accuses of knowingly
assisting the People’s Liberation Army.

In 1993, the Clinton administration eased licensing requirements for products — such as
high-speed computers, telecommunications equipment and machine tools — deemed to have both
civilian and military uses. The industry hailed the changes, but some Defense Department
bureaucrats accustomed to tight Cold War controls were aghast.

Keeping a Diary

It so bothered Mr. Maloof that earlier this year he began keeping a diary of his dealings with
Pentagon superiors, which was obtained by The Wall Street Journal.

The export control system is now dominated by Commerce Department officials, whose
mind-set
is much more pro-export. For years, the DTSA was the influential voice of the Defense
Department in export-policy decisions. Now longtime staffers say their role in the process has
been downgraded, with the Commerce Department taking the lead role in license approval. The
Pentagon even changed the agency’s name recently to the Technology Security Directorate.

Under the 1993 licensing changes, the agency, still referred to as the DTSA, has the
opportunity
to review every license — about 21,000 a year. The sheer volume guarantees a small percentage
are examined closely. As a result, Mr. Maloof has claimed, dozens of sales get approved every
day with little scrutiny of foreign buyers. “Decisions are being made outside a system created for
the purpose of insuring that sensitive technology doesn’t get into the wrong hands,” Mr. Maloof
wrote in an April 14 entry.

Administration Response

Administration officials counter that Mr. Maloof’s strong views often taint his analysis of what
technology the People’s Liberation Army has acquired or what the U.S. can reasonably control.

“There are real ideological differences about what our China policy should be, and within
DTSA
there are people who feel strongly about this,” Pentagon spokesman Kenneth Bacon says. “In
talking to Mr. Maloof’s bosses and others, we do not believe we have allowed the transfer of
technology to China that presents national security vulnerabilities.”

People’s Liberation Army officers are active in front companies and joint ventures that buy
U.S.
technology; sometimes their goal is no more nefarious than making money or getting working cell
phones. In any event, industry experts say, it is a losing battle to try to deny dual-use technology
because European companies eagerly supply whatever the People’s Liberation Army wants.

Hard-liners found ammunition earlier this year when it was learned that the Justice
Department is
investigating whether U.S. satellite makers illegally leaked sensitive missile data to China. During
congressional hearings, the DTSA’s senior strategic trade adviser, Peter Leitner, echoed many of
Mr. Maloof’s charges.

“What passes for an export-control system has been hijacked by long-time ideological
opponents
of the very concept,” Mr. Leitner claimed.

House Probe of Exports

A House panel headed by Republican Christopher Cox of California is probing high-tech
exports
to China, looking for possible national-security damage. The Pentagon’s inspector general is
examining procedures at the DTSA. Mr. Maloof has been a major source of information for both.
He has told congressional investigators that David Tarbell, DTSA director since 1994, has cut
him out of decisions about China, often siding with the pro-export Commerce Department in
licensing decisions.

Mr. Maloof was interviewed under subpoena by committee aides in August. Last Friday, they
called in Mr. Tarbell. Mr. Maloof has also shared his diary and memos with Justice Department
and Customs Service investigators. The DTSA itself was subpoenaed by the Justice Department
in May for documents about certain China decisions.

Mr. Maloof’s criticism of his bosses has included speculating about their relationship with the
satellite industry. He wrote June 9 that he met with a Customs agent and “raised concerns for the
first time whether Tarbell may be showing unusual favor toward Hughes.”

Denial of Favoritism

In a statement, the Pentagon’s Mr. Bacon said: “Mr. Tarbell steadfastly denies that he has
accepted gratuities from Hughes or has shown favoritism to Hughes.”

Mr. Tarbell declined to be interviewed. In a statement, Mr. Tarbell said, “I have always
sought to
ensure that DOD’s recommendations on these license applications look first to protecting U.S.
national security. In this regard, there are numerous export license applications that we
recommend be denied because they risk transferring sensitive weapons and technologies to
potential adversaries.” Exports that are approved, Mr. Tarbell noted, sometimes are subject to
conditions intended to prevent foreign militaries from gaining access to the technology.

In a memo this summer to Mr. Tarbell, Mr. Maloof charged Hughes sold satellite ground
stations
to China that were “supplied and wittingly installed by Hughes for Chinese ground and rocket
forces.” Mr. Maloof argued in the memo that the ground stations are part of the People’s
Liberation Army’s effort to upgrade encrypted its voice and data communications.

Mr. Maloof claimed Mr. Tarbell said the findings weren’t “enough to go on.”

A Hughes spokesman denied the El Segundo, Calif., company knowingly sold the equipment,
known as VSATs, to People’s Liberation Army front companies and noted that the government
approved the sales. VSAT units permit voice and data transmission to orbiting satellites via small
sending dishes.

Officials of Hughes, a separately traded unit of General Motors Corp., acknowledge they
often
have limited information about their Chinese customers. Hughes said it sold the VSATs to a
company called China Electronic Systems Engineering Co., which several U.S. officials say is
associated with the Chinese military. It asked that the VSATs be fitted with a special port and
circuit boards to load encryption software, Hughes said.

Pentagon officials say Mr. Maloof’s allegations often contain a grain of truth, but dismiss his
contention that all sales to the Chinese military pose a security risk. Privately, some U.S. officials
say it is desirable for the Chinese military to buy U.S. communications equipment, because U.S.
intelligence is familiar with how to tap or disable it.

Mr Maloof’s memos, they say, often draw sweeping conclusions based on thin evidence. Still,
some of his findings have been explosive. He discovered recently that in 1994 Hughes had hired
the son of Lt. Gen. Shen Rongjun, a senior Chinese military official, while competing for a $600
million contract to sell a civilian communications satellite to a consortium that included People’s
Liberation Army companies linked to Lt. Gen. Shen. By 1995, Hughes got the contract.

In a May 28 entry, Mr. Maloof wrote that the information came to him from an anonymous
telephone tip. He confirmed it by checking the DTSA’s classified computer database.

Embarrassed, Hughes said Jun Shen, a naturalized Canadian with a doctorate in computer
science,
was indeed an employee but had little to do with the project. The Clinton administration was
similarly chagrined. In 1996, it had granted Hughes an export license, but the satellite was never
sent due to other problems. Now the administration has delayed issuing a new license, partly
because of concerns about People’s Liberation Army involvement.