NYT on Daley Deal

[John Young]

   The New York Times, April 16, 1998, p. D2.

   Commerce Secretary Seeks Compromise on Encryption

     Administration Reconsiders F.B.I. Position

   By Jeri Clausing

   Washington, April 15 -- The Clinton Administration's attempts to
   control encryption technology have been a failure and are forcing
   American software makers to concede ground to foreign
   competitors, Commerce Secretary William M. Daley said today.

   Mr. Daley's remarks, made in a speech here to the high-technology
   industry, were the strongest indication yet that the
   Administration was seriously considering parting ways with Louis
   Freeh, the Director of the Federal Bureau of Investigation, and
   other law enforcement and spy agencies over the issue of how data
   should be scrambled.

   "We are headed down a lose-lose path, and we have to get back to
   win-win," Mr. Daley said. He blamed both industry and law
   enforcement officials for the failed policy, saying that the two
   sides had failed to find a reasonable compromise between the need
   to monitor the activities of criminals and the need to offer
   consumers strong security for on-line transactions.

   The purpose of his speech today was to release the Commerce
   Department's first comprehensive report on the impact of
   electronic commerce on the nation's economy. The report shows
   that information technology, including business on the Internet,
   is growing twice as fast as the overall economy, employing some
   7.4 million workers at salaries 64 percent above the national
   average.

   But while the report was full of impressive numbers and glowing
   predictions for the future, Mr. Daley said that strong encryption
   and a solid encryption policy were essential if electronic
   commerce was to realize its full potential.

   Mr. Daley's blunt comments marked the first public acknowledgment
   that the Clinton Administration's encryption policy had failed.
   And his remarks echoed what the industry has contended for years
   -- that foreign companies are fast taking over the high-demand
   market for products that protect the privacy of communications.

   The software industry is currently prohibited from exporting
   strong encryption programs, which scramble data in ways that make
   it difficult or impossible for unauthorized people -- including
   law enforcement agencies -- to decode. Such software is essential
   to electronic commerce, which requires that credit card
   information and other private data be encrypted when products are
   ordered on the Internet.

   The software industry has long argued that the export rules put
   American companies at a great disadvantage relative to foreign
   competitors not under such restrictions. Mr. Freeh and the
   National Security Agency argue that the threat of terrorists and
   other criminals scrambling data to thwart law enforcement is so
   great that the export restrictions should be removed only if the
   police are given keys to unlock encrypted data.

   At the end of 1997, Mr. Daley said, an estimated 656 encryption
   products were being produced in 29 countries outside the United
   States. Products from Germany, Ireland, Canada, Israel and
   Britain can compete with anything made domestically, he said, and
   can meet the needs of the world's computer networks.

   "Our policy, ironically, encourages the growth of foreign
   producers at the same time it retards growth here," Mr. Daley
   said. He called for a sincere dialogue between industry and law
   enforcement, but stopped short of saying that the Administration
   would withdraw its support of the F.B.I. and N.S.A. position.

   "There are solutions out there," Mr. Daley said. "Solutions that
   would meet some of law enforcement's needs without compromising
   the concerns of the privacy and business communities. But I fear
   our search has thus far been more symbolic than sincere.

   "The cost of our failure will be high. The ultimate result will
   be foreign dominance of the market. This means a loss of jobs

   here, and products that do not meet either our law-enforcement or
   national security needs."

   Mr. Daley declined to offer examples of what the Administration
   might be willing to give up to reach an agreement.

   Industry officials, however, said there was no room for
   compromise.

   "People want complete privacy," Peter F. McCloskey of the
   Electronic Industries Alliance said.

   Harris N. Miller, president of the Information Technology
   Association of America, said that companies were willing to
   continue discussions with the Administration, but he asserted
   that Government officials "think compromise is something in the
   middle; sometimes compromise is found outside of the box."

   Mr. Miller said that the solution needed to be a technical one,
   perhaps one that gave law enforcement better training and
   equipment to crack encrypted criminal communications without
   requiring that everyone hand over spare keys to their computer
   files.

   "Law enforcement has legitimate concerns," Mr. Harris said. "What
   we disagree with is their demand for unlimited access."

   [End]