7 July 1998 Source: http://www.washingtonpost.com/wp-srv/WPlate/1998-07/07/064l-070798-idx.html Thanks to FT U.S. to Ease Limits on Export of Data-Scrambling Technology By Elizabeth Corcoran Washington Post Staff Writer Tuesday, July 7, 1998; Page E04 Commerce Secretary William Daley plans to announce today that the government will give U.S. software companies new freedom to export their most sophisticated data-scrambling technology to financial institutions chartered in 45 countries, according to Clinton administration sources. Under the new rules, which officials said are likely to take effect in late summer, eligible banks, securities firms, brokerage houses and credit-card companies will need to receive approval only once from the Commerce Department before they can license the most sophisticated "encryption," or data-scrambling, technology. Once they receive approval, those institutions will be permitted to share the technology with any of their branch offices, except for those located in terrorist states. Government sources estimate that the new rules will include about 70 percent of the world's banks, including the 100 largest (ranked by assets). For years, the government has closely regulated export of encryption software, on the grounds that terrorists or hostile governments might use it to cloak their communications. The software industry argues that the rules are unworkable and unfairly block foreign sales. Unfriendly parties wanting to use encryption already can obtain it overseas, industry executives said. The new rules on banks are "a move in the right direction," said one industry executive familiar with the regulations. "But we're still leaving some groups out. Basically, we need to keep spreading the circle wider," to include the growing number of businesses offering financial services, such as insurance companies. "What we've heard sounds great," said Kawika Daguio, a lobbyist for the American Bankers Association. "We've been arguing [for several years] that the regulatory structure we have guarantees we're good citizens" who wouldn't make illicit use of the technology, he said. Now the government appears to have agreed. Current regulations require that U.S. companies apply for permits before exporting anything but the simplest versions of encryption products. To export more sophisticated technology, organizations must have a plan for creating so-called "spare keys." That way, law enforcement officials who have obtained a court order would be able to unlock the information. In May 1997, the Commerce Department said it would not restrict the sophistication of the data-encryption technology sold to financial institutions. But it required spare keys and case-by-case licensing. Approvals have been slow. Now the government is doing away with the key requirement, defining more precisely which financial institutions qualify and pledging to end case-by-case approval. Because of concerns about money laundering, the government will grant the new permission only to financial institutions chartered in countries that have agreed to take steps against money-laundering. If U.S. companies want to sell to financial institutions chartered in other countries, they will have to apply for licenses from the Commerce Department. Such provisions still fall short of the demands of U.S. companies. "To take a piecemeal approach [to loosening encryption restrictions] is the wrong direction," said Ed Gillespie, executive director of Americans for Computer Privacy, a lobbying group. "We need a blanket lifting of restrictions with individual prohibitions," such as bans on sending such technology to terrorist states, he said. In a related development, a federal court in Ohio ruled on Friday that posting the text of an encryption program on the Internet, where people all over the world could see it, was not protected by the constitutional right to free speech. The ruling, made late Friday, contradicts a ruling made by a California district court last August. Privacy advocates predict that the issue will be taken up by the U.S. Supreme Court. © Copyright 1998 The Washington Post Company