1997 Congressional Hearings
Intelligence and Security

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44–838 CC








MAY 8, 1997

Printed for the use of the Committee on International Relations


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BENJAMIN A. GILMAN, New York, Chairman
HENRY J. HYDE, Illinois
CASS BALLENGER, North Carolina
EDWARD R. ROYCE, California
JAY KIM, California
TOM CAMPBELL, California
JON FOX, Pennsylvania
LINDSEY GRAHAM, South Carolina
ROY BLUNT, Missouri

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SAM GEJDENSON, Connecticut
TOM LANTOS, California
PAT DANNER, Missouri
WALTER CAPPS, California
BRAD SHERMAN, California
BOB CLEMENT, Tennessee
BILL LUTHER, Minnesota
JIM DAVIS, Florida
RICHARD J. GARON, Chief of Staff
MICHAEL H. VAN DUSEN, Democratic Chief of Staff

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Subcommittee on International Economic Policy and Trade
ILEANA ROS-LEHTINEN, Florida, Chairperson
TOM CAMPBELL, California
LINDSEY O. GRAHAM, South Carolina
ROY BLUNT, Missouri
SAM GEJDENSON, Connecticut
PAT DANNER, Missouri
BRAD SHERMAN, California
BOB CLEMENT, Tennessee
TOM LANTOS, California
BILL LUTHER, Minnesota
YLEEM D.S. POBLETE, Professional Staff Member
AMOS HOCHSTEIN, Democratic Professional Staff Member
JOSE A. FUENTES, Staff Associate

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    The Honorable William Reinsch, Under Secretary of Commerce, Bureau of Export Administration
    The Honorable William Crowell, Deputy Director, National Security Agency
    The Honorable Robert S. Litt, Deputy Assistant Attorney General, Criminal Division, U.S. Department of Justice
    Mr. John Gage, Chief Scientist, Sun Microsystems
    Mr. Humphrey P. Polanen, General Manager, Network Security Products Group, Sun Microsystems Incorporated (accompanied by Mr. John Gage, Chief Scientist, Sun Microsystems Incorporated)
    Mr. Jerry Berman, Executive Director, Center for Democracy and Technology
    Mr. Tom Parenty, Director of Security, Sybase Corporation
    Mr. Stephen T. Walker, President and CEO, Chairman of the Board, Director, Trusted Information Systems
Prepared statements:
The Honorable William Reinsch
The Honorable Robert S. Litt
The Honorable William Crowell
The Honorable Bob Goodlatte, a Representative in Congress from Virginia
Mr. Humphrey P. Polanen
Mr. Jerry Berman
Mr. Tom Parenty

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Mr. Stephen T. Walker
Additional material submitted for the record:
Article submitted by Congressman Goodlatte of Virginia, ''Fact and Comment'', by Steve Forbes, editor in chief, Forbes Magazine

House of Representatives,
Subcommittee on International Economic Policy and Trade,
Committee on International Relations,
Washington, DC.

    The Subcommittee met, pursuant to notice, at 9:30 a.m. in room 2172, Rayburn House Office Building, Hon. Ileana Ros-Lehtinen [chairwoman of the Subcommittee] presiding.
    Ms. ROS-LEHTINEN. The Subcommittee will come to order. Thank you for being here today.
    We have a Republican caucus that got started just a few minutes ago and that will be going for an hour, so I apologize for our side for the folks who will not be here. But we are joined by our Ranking Member, Mr. Sam Gejdenson, who is here already.
    Today, the Subcommittee will address an issue which is highly complex, which encompasses a wide variety of U.S. national interests and has multiple ramifications. Once the exclusive domain of the national security and intelligence agencies, encryption now has an expanded application, impacting the daily lives of U.S. citizens.
    Today, banking systems, stock markets, air traffic control systems, credit bureaus, telephone networks, weather satellites, social security systems, television networks, civilian and government payrolls are all affected by a flow of data managed by countless computer and telecommunication networks around the world. We are truly living in a global environment, where computer technology serves as the nervous system of our modern society.

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    Brainpower industries are growing in incredible amounts. The technology is evolving at an ever-increasing pace, and new issues are surfacing daily that we must find solutions to. Advances in computer technology have created a new frontier where policymakers serve as pioneers trying to guide others through this unknown land.
    The initial reaction is to try to control the rate at which these changes are occurring to allow time to recover and plan for the future. However, how can knowledge and intellectual development be restrained?
    Such is the reality we face. It is the scenario which serves to frame the discussion about encryption. Encryption today encompasses several issues dealing with U.S. economic and commercial priorities, with law enforcement and national security concerns and as well with individual civil liberties.
    One of the key issues is whether there should be any restrictions on the domestic use and sale of encryption technology—specifically, whether domestic users must place their keys in escrow with the government or some neutral third party. According to its supporters, escrowed encryption would provide strong protection for legitimate uses of encryption but would also provide a mechanism which would enable law enforcement officials to gain access to the encryption key as part of the criminal investigation.
    Another pertinent issue is whether there should be any restrictions on the export of encryption technology. Current law regulates the export of encryption technology in a manner similar to military technology. U.S. export control laws limit the sale of strong encryption products overseas in the interest of denying foreign countries the ability to encode information in ways that would make it more difficult for U.S. authorities to monitor activities which threaten U.S. national security and domestic tranquillity.
    The argument is focused on the ability of terrorists and other criminal groups to conduct activities undetectable if non-key recovery encryption is widely available. However, the validity of the availability argument as a measuring stick for export controls is frequently called into question, given the liquidity of computer technology and given the reports of other countries using and selling encryption technology that is far more complex than the one U.S. industries are permitted.

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    Opponents of export controls argue that it merely serves to restrict U.S. businesses and to constrict their potential growth by limiting their foreign commercial capabilities.
    Furthermore, the issue of encryption has generated interest at the most basic level of American society, with individual consumers questioning their right to privacy within the context of key recovery. Consumer groups want individuals to have access to the best encryption possible, without regard to key recovery features. They cite the spillover effects that this type of controlled encryption could have in the daily routine of American citizens, fueling fears about the big brother watching.
    In the end, it is our responsibility to fully investigate and evaluate each of these issues in order to decide on the one particular policy configuration which best describes the overall national interest. As the Greek philosophers argued, we must look to what would serve the greater good.
    Now, I would like to recognize our Ranking Member, Mr. Sam Gejdenson, for remarks. Sam.
    Mr. GEJDENSON. Thank you, Madam Chairman.
    The situation in the finance office today seems to be a continuation of where we have been for at least the last decade as Administration after Administration has tried to stumble through the issue of encryption. There was, of course, the great solution called Clipper chip, which was going to solve all our problems internationally. I think two Administrations assured us we would have global support for Clipper chip, but somehow other countries weren't as inclined to give the CIA the key to all their encrypted information as our Administrations thought they would.
    Again, if you look at 7 years ago, we had the Secretary of Commerce, Mr. Mosbacher, in a fight with the Secretary of Defense, Mr. Cheney, over the decontrol of 286 computers at a time when 386 chips were available in Radio Shack in Beijing.

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    I am fearful that we are stuck in the same situation with encryption. There is a recent New York Times story of a German company basically sending its appreciation to the American Government and the restrictions we placed on encryption because we are about to make them really rich.
    Now I understand international competition and I understand the desire to keep sophisticated encryption away from the bad guys; but, you know, we don't have an exclusive marketing agreement with bad guys. If other people have these products, they are going to go overseas to get them.
    And while there are all these references that other systems aren't as good, the reality, as I understand it, most of these are mathematical formulas; and scientists in a dozen countries around the world can create them. And what we are in the process of doing is not so much in any way restricting the access of this equipment to terrorists or bad guys, but what we are really going to be doing is costing the American economy—ranges as much as $60 billion.
    People responsible for the security of this country, I understand, have to try to keep constant balance over, no matter what the cost is in dollars and jobs and economy, whether or not that cost gives us additional protection.
    If, as it seems to be the case with this German company, and I understand there are lots of companies in other countries who are marketing very capable and equally capable and able encryption production, then it seems to me the only thing we are doing is injuring the country and our economy and our future position in many of these critical sectors and not in any way depriving this technology from the individuals we would like to deprive it from.
    So I hope that we can make some progress on Mr. Goodlatte's bill, which I am cosponsor of. I think he has done some very important work in this area. And, you know, I think that unless we can find some very hard, very clear reasons why we should allow Germans and others to take this market away, what is the benefit if they can get products everywhere else and we are not selling them?

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    Ms. ROS-LEHTINEN. Thank you, Sam, for your words.
    We are proud to have a new member, William Luther of Minnesota, joining our panel—welcome—and, of course, our loyal friend, Pat Danner. Thank you, Congresswoman Danner.
    I don't know if either member would like to make any opening statements.
    Ms. DANNER. I have none at the time, except I join you in welcoming our new colleague.
    Ms. ROS-LEHTINEN. Thank you some so much, and let us proceed with the introduction of our first panel.
    Testifying first will be Mr. William Reinsch, who currently serves as the Under Secretary for Export Administration in the Department of Commerce. As head of the Bureau of Export Administration, Mr. Reinsch is charged with administering and enforcing the export control policies. Before that, Mr. Reinsch served on the congressional staffs of Senator John D. Rockefeller and the late Senator John Heinz, as well as two Members of Congress.
    Then we will hear the testimony of the Deputy Director of the National Security Agency, Mr. William D. Crowell. As the senior civilian at NSA, Mr. Crowell serves as the Agency's Chief Operating Officer, guiding and directing strategies and policies.
    He also receives major quality management efforts and serves as the principal advisor to the Director. Mr. Crowell serves as a member of the Cabinet-level Committee on National Encryption Policy and has received numerous awards for his dedicated public service.
    Our next witness will be Deputy Assistant in the Criminal Division of the Department of Justice, Robert Litt. Mr. Litt has served as Assistant U.S. Attorney in the Southern District of New York, prosecuting fraud, racketeering and official corruption cases. Mr. Litt was also an associate and later a partner in the law firm of Williams and Connolly in Washington, DC.
    I thank all three of you gentlemen for joining us.

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    Ms. ROS-LEHTINEN. Mr. Reinsch, you may begin.

    Mr. REINSCH. Thank you very much, Madam Chairman.
    I am very pleased to be here, and I am particularly pleased that the Subcommittee under your leadership is continuing its tradition of interest in this issue, which, you know, has been manifest over several years, as Mr. Gejdenson pointed out. And I think that is particularly apt since, as your statement pointed out, so many of the issues that are encompassed in the encryption debate fall within the purview of this Subcommittee. We are delighted you are doing this.
    Mr. Gejdenson said so many things in his remarks that I want to comment on that I am tempted to just dump my statement and talk about them, but I think that I won't do that except to say that we don't like to think of our policy currently as stumbling. We like to think of ourselves as firmly walking down the road. You may think it is in the wrong direction, but I think we have our act together, and what I would like to do in my statement is tell you what it is, because we have a number of people in the private sector telling it like it isn't.
    So I want to make clear what the policy is and what we intend to do, both short term and long term, with respect to legislation and some other things; and then my colleagues are going to amplify on a couple of the key pieces.
    I think we all agree that developing strong commercial encryption is in the best interest of the United States. We think it is inevitable. We think developing public network security or secure public networks is an integral part of electronic commerce, and that is something that we want to facilitate and encourage in this country, and we have tried to develop a policy that will do that.

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    I am not going into any great length for this Subcommittee, because of the depth of your knowledge of the subject, about why we think electronic commerce is important or why we think exports are important or why we have an interest in this industry, both hardware and software, maintaining its world lead. That is all obvious. I just want to assure you that we share those objectives.
    At the same time, as Mr. Litt will point out, the increased use of encryption does carry with it serious risks for public safety, law enforcement and also our national security; and we want to try to pursue a policy, as the President has indicated in his statement last October, which balances the equities that I have just described—privacy, electronic commerce, law enforcement and national security.
    We believe that the approach that does provide that balance is key recovery; and Mr. Crowell will be talking in more detail about precisely what key recovery is, how it works and why it is important.
    What I want to do in my remaining few minutes is to tell you what we have done to try to implement that policy, making clear in the process that we are doing it working with the market, working with the industry, and not against it.
    This is not a policy of technology by fiat. This is not Clipper. This is an attempt to discover what the market is doing and trying to reinforce it. We believe that the market and our policy are both moving in the same direction, which is the direction of key recovery; and I think some of your private-sector witnesses will tell you the same thing in the later panels.
    At the end of last year, we published new regulations that transfer licensing of export of these items from State to Commerce, thereby emphasizing the President's view that these things are not munitions but integral elements of electronic commerce, to be treated as commercial items.

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    The regulations set forth several procedures which are intended to support the development of a key management infrastructure and development of key recovery. The most important of these is the creation of a license exemption which would allow recovery of encryption products of any strength and key length to be exported freely after a single review by the government.
    The new regulations also allow for self-escrow and escrow of keys overseas under certain circumstances.
    We have also created a special, 2-year liberalization period for companies to export 56-bit DES or equivalent products if they submit plans showing they are working to develop key management infrastructure to the Administration.
    Let me say that I think that the proof of the success of our policy is revealed by the results that we have had since we put those regulations in place. We have received close to 700 license applications for exports valued at almost $800 million. More than that, we have 24 companies submitting plans to build key recovery products, including some of the largest software and hardware manufacturers in the country. We have approved 12 of these plans. We expect to approve more shortly. Most importantly, none have been rejected.
    We are in the process of developing through NIST a Federal standard for Federal procurement of these products. We are doing it the way NIST always has done it, using an industry advisory group to develop a standard. When the standard is done, then the Secretary of Commerce will promulgate it for Federal use. If it is a good standard, I think others will adopt it as well; but that is their business. The government is not in the business in this case of mandating private standards for private use.
    Let me say a word about the kind of legislation we support to facilitate the development of key management infrastructure. We support legislation that will expressly confirm the freedom of domestic users to choose any type or strength of encryption; that explicitly states the participation is voluntary; that sets forth legal conditions for the release of recovery of information pursuant to lawful authority and which provides liability protection for key recovery agents who properly release such information; that criminalizes the misuse of keys or the use of encryption to further a crime; that offers, on a voluntary basis, firms that are in the business of providing public cryptography keys the opportunity to obtain government recognition, allowing them to market the trustworthiness implied by government approval.

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    Now, let me emphasize that last point, Madam Chairman.
    Ms. ROS-LEHTINEN. If you could try to wrap it up.
    Mr. REINSCH. This is my last point. Since Mr. Goodlatte is here, I will reserve my comments on the Goodlatte bill for questions.
    I want to make clear the last point, Madam Chairman, if I may, and that is we intend, on behalf of the government, to develop a key management infrastructure for government use. We will license certificate authorities and key recovery agents and require those entities to adhere to the rules that we are providing in our regulations.
    I also want to make clear this is not going to be, in our conception, the exclusive key management infrastructure of this country. Private entities of any sort—banks, other financial institutions, service providers, people in the digital signature business—now will all be free to undertake the same process without linking to the government system. This is not a mandatory system in any sense of the word. Legislation is pending up here. As you know, one of its authors is sitting next to you and we would be pleased when the panel concludes to comment specifically on that.
    Ms. ROS-LEHTINEN. Thank you so much. We appreciate it.
    [The prepared statement of Mr. Reinsch appears in the appendix.]
    Ms. ROS-LEHTINEN. Mr. Crowell.


    Mr. CROWELL. Thank you for inviting me to testify on the technical implications of the Administration's policy on encryption and to address the five specific areas that you identified in your letter of invitation.

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    The Nation's encryption policy must be multidimensional and balanced, and its technical underpinnings must be sound. I have identified several important issues in my written testimony, and I ask that it be submitted as part of the record.
    Ms. ROS-LEHTINEN. Yes, of course. All of the testimony will be. Thank you.
    Mr. CROWELL. Today I will summarize the main technical points and move to the points you indicated in your letter.
    Everybody in this room shares the goal of promoting the use of secure encryption to achieve greater security in electronic commerce. To accomplish this goal, a number of technical steps are required.
    The first step is to recognize the need for establishment of key management infrastructures as an integral part of using encryption. The essential elements of these include digital signatures, public key certificates and key recovery. Robust, trustworthy, full-featured key management infrastructures are needed to provide the international framework, an internationally acceptable framework that can enable the use of encryption to grow and electronic commerce to flourish.
    When I refer to trustworthy infrastructures, I mean that you must be willing to bet your company and your company's future not only on the strength of the algorithms that are used but on the integrity of those who issue the encryption credentials that vouch for your identity and the identity of those you deal with, that build the directories that allow others to communicate with you, and assist you if you believe your encryption key has been compromised, lost or corrupted.
    The system integrity fostered by key management infrastructures will allow you to have the same confidence in electronic transactions that you now have with signatures on paper, handshakes with business partners and face-to-face meetings. Without infrastructure, we risk building an electronic Tower of Babel.

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    Users will also expect a key recovery feature when using encryption, particularly if they lose or corrupt their keys. If any of you have ever forgotten a password or pin number, you know what I mean.
    Key management infrastructure provides the means for encryption users to recover their lost keys and for lawful access to the encrypted communications for law enforcement purposes. This is an important technical issue since users and public safety officials cannot rely on brute force techniques to obtain access to the information.
    Several companies recognize the benefits of key recovery and have formed business ventures to thrive within the new climate. In October, 1996, the Key Recovery Alliance was formed; and that alliance has already grown to 57 domestic and international companies. Some alliance members include Mitsubishi, Boeing, DEC, Hewlett Packard, Motorola, Sun, Unisys, RCA, IBM, Apple and America Online.
    In summary, to achieve greater security and trust in electronic commerce, you need more than just strong algorithms. You also need trustworthy key and certificate generation, authentic nonforgeable digital signatures and a way to gain access to encrypted data when the key is lost or unavailable.
    I encourage you to consider the details of these important technical points and others by referring to the written statement, and now I would like to give you NSA's responses to the questions you raised in the letter of invitation.
    In your letter, you asked that I address five main points: restrictions on domestic encryption, the extent of domestic and exported encryption regulations, exporting encryption like military items, potential conflicts among free trade, privacy and encryption regulations and pending legislative initiatives.
    There are currently no domestic restrictions, and we are not advocating them. We support the Administration's initiatives that are designed to encourage encryption to be used more in the United States. These initiatives include legislation to protect personal privacy, public safety and key management infrastructure service provider liability, and to encourage the development of encryption standards that will help encryption to be interoperable and secure.

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    Export regulations have already been relaxed to allow any algorithm and key length to be exported as long as the keys can be recovered by authorized entity. Some vendors are already exporting key recovery products. For those vendors who have not yet developed products, the export regulations will allow them to export 56-bit DES, something the industry has asked for and the council recommended. The Administration has already changed its export policy so dual use commercial encryption is treated as a commercial product.
    Ms. ROS-LEHTINEN. If I can ask you to just summarize the other questions.
    Mr. CROWELL. Let me summarize then, and I can address the rest of your questions later as we go.
    In closing, let me say, from a technical perspective, NSA sees the emergence of key management infrastructure as necessary and inevitable. The Administration's regulations and legislative initiatives will help establish infrastructures and encourage the acceptance of key recovery. The policy also ensures early on that such growth is not haphazard and does not place users and public safety as risk; and I want to emphasize, while the government can assist in significant ways, only industry can build robust and scalable key management infrastructures that are necessary.
    Thank you, Madam Chairman.
    Ms. ROS-LEHTINEN. Thank you so much, and we will include all of your testimony in the record.
    [The prepared statement of Mr. Crowell appears in the appendix.]

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    Mr. LITT. Thank you, Madam Chair and members of the Subcommittee, for giving me the opportunity to discuss the views of law enforcement on this very important and complex issue. I particularly appreciate it because, as I read the statements of other people on the issue, I find that our views are caricatured and unrecognizable; and I would like to take this opportunity to let you know what our issue really is on the issues presented before you.
    First, I want to make clear that the Department of Justice and law enforcement in general strongly supports the spread of strong encryption. Part of our responsibility is to enforce the laws that protect personal privacy and commerce, and we believe we will be significantly aided in that regard by the use of strong cryptography.
    We think that the availability and use of strong cryptography will be critical for the new global infrastructure to fullfil its promise. But, at the same time, we also have the responsibility to protect the American people from the threats posed by terrorists, organized crime, child pornographers, drug cartels, foreign intelligence agents and others and to prosecute crimes when they do occur.
    So while we favor the spread of strong encryption, we are gravely concerned that the proliferation of unbreakable encryption would seriously undermine our ability to protect the people. Our national policy has to reflect a balance between these competing interests of privacy and public safety. If unbreakable encryption proliferates, critical law enforcement and national security tools would be nullified.
    For example, we have the ability, under the laws passed by Congress, to go to court, satisfy rigorous legal and procedural requirements and obtain a court order to tap the phones of drug traffickers or any other criminals. Those wiretaps under court order would be worthless if, when we install them, all we can hear is an unintelligible jumble of noise. We might seize the computer of a terrorist or child molester who uses the Internet and be unable to read the data which identify his targets and his plans.

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    The potential harm to law enforcement and to our domestic security from unbreakable encryption could be devastating. This is not theoretical or future or exaggerated.
    In my written statement, I give you specific examples of cases where we are already encountering encryption in criminal investigations. As it proliferates and becomes an ordinary component of mass market items and as the strength of encryption products increases, the threat to public safety will increase.
    To some, this is an acceptable outcome. They argue that people have the right to absolute immunity from government intrusion regardless of the cost to public order and safety and that any new technology that enhances absolute privacy should go unrestricted.
    But this would be a radical change to the way we structure our society. The Fourth Amendment strikes a careful balance between an individual's right to privacy and society's needs, on occasion and when authorized by law, to intrude into that policy. Our encryption policy should try to preserve that balance, which has served this country well for several centuries.
    Others say our fears are overstated. But that is not true. We don't have the computing power to break encryption even in the strength available today in any reasonable period of time, and it is always going to be cheaper and easier to devise algorithms that use longer keys than to build computers that are powerful enough to break them in a reasonable period of time.
    We also have to remember that we are not only talking about Federal law enforcement here but of the thousands of State and local police forces all over the country who don't have access to top-of-the-line supercomputers but are still going to be encountering encryption. Attempting to crack a code is not a feasible solution when you are trying to find a kidnapped child before she is killed or prevent a terrorist attack.
    As we said, our goal is to encourage strong encryption but, at the same time, protect law enforcement's ability through the use of a key recovery system.

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    But I want to emphasize another point, because this is also an area where we are often misunderstood. We are not asking for any new authority to obtain data, to examine records, or to conduct a wiretap. Our goal is only to preserve the legal authority that we have today to protect Americans' public safety through encouraging the voluntary manufacture and use of key recovery products.
    I would like to close, Madam Chairman, by making one other point.
    We believe that our Nation's encryption policy has to be a balance that recognizes and accommodates competing interests. As I have said before, law enforcement recognizes that there are important privacy and commercial interests at stake in this issue, and we want to encourage strong encryption. We have taken steps to accommodate these important privacy and commercial interests in our policy, even though a stronger policy would better protect law enforcement and national security interests.
    And I would ask you to ask those who are in opposition to the Administration's policy, do they recognize that there are important public safety interests at stake here? What would they propose to accommodate the public safety interests? Or are they prepared to sacrifice public safety entirely for the privacy and commercial interests?
    Thank you very much, Madam Chair.
    Ms. ROS-LEHTINEN. Thank you so much for your testimony.
    [The prepared statement of Mr. Litt appears in the appendix.]
    Ms. ROS-LEHTINEN. We are pleased to have with us Congressman Goodlatte, whose bill has generated a lot of interest on the Hill. His bill is moving along in the legislative process, and I am pleased to see him joining our panel today. I would like to recognize him to make an opening statement as well as to start the round of questioning on our side. Bob.
    Mr. GOODLATTE. Thank you, Madam Chairman. I appreciate your holding these hearings and allowing me to be a participant. This is important for you as well as the Judiciary Committee.

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    I also want to thank Congressman Gejdenson for his cosponsorship and his promotion of the use of strong encryption in this country and also welcome all three of our witnesses here today. I know all of them very well. They have all testified before me on a number of other occasions.
    I especially know Mr. Crowell very well. He has some ties to my congressional district, and we have spent a lot of time together talking about this issue, and I very much consider him and the other gentleman to be a friend. We happen to fundamentally disagree on the best approach to fighting crime and terrorism in this country.
    Mr. Litt, I very much agree with you and welcome your expression of support for the spread of the use of strong encryption by legitimate businesses and individuals in this country; but I very, very strongly disagree that the Administration's policy is designed to promote that. I think what you are doing is creating a bottleneck that is having the effect of slowing down very, very dramatically the use of encryption.
    And when it comes to answering your question about what the objections of opponents are, it is my opinion, strongly held and shared by a great many people in this country, that promoting the use of strong encryption without the restrictions that the Administration would like to impose will do far, far more to fight crime and prevent terrorism in this country, many, many, many fold, than the obvious danger the use of encryption by those who would abuse it; and I say that for two reasons.
    First of all, it is my opinion, shared again by a great many people, that right now—and certainly in the very near future—the availability of that strong encryption, not escrowed, not in a recovery system, not in a management system, is and will increasingly be available to those people, those organized criminals, terrorists and so on who would abuse it; and, as a result, the Administration's policy is only directed at those people who are law-abiding.

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    If somebody wants to get ahold of strong encryption, which, as you have noted, is freely available with no restrictions in this country today and send it out of this country in the form of a computer disk or even through the wires in the forms of little 1s and 0s going anywhere in the world, that can happen today. But what can't happen is for legitimate U.S. software manufacturers who dominate this industry in the world today—about 75 percent of all the software created in the world—what they cannot do is violate your export control laws, and they will not do it, but they will suffer severe consequences as a result of that.
    Now you say you have formed your regulations to make it possible for them to export stronger encryption, and a few have taken advantage of that. But they do so with tremendous trepidation because they know of the very, very serious disadvantages that come about by doing that.
    One is the inordinate cost they will incur in complying with regulations in the creation of those programs and getting those programs licensed through the Department of Commerce; and in the cost of implementing and selling those programs, they will be at a competitive disadvantage. But I think they even more greatly fear the competitive disadvantage of having to have foreign competition like the German software company who was reported on in The New York Times——
    And Madam Chair, I would ask that this article be made a part of the record.
    Ms. ROS-LEHTINEN. Yes.
    Mr. GOODLATTE [continuing]. Boasting, boasting about what competitive advantages they now have and will continue to have if the United States maintains its current encryption policy, and they strongly support your policy. The West German manufacturers of software competing with our companies strongly support what you are doing, because you are giving them a tremendous competitive advantage over our U.S. software companies.

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    Mr. GOODLATTE. And I would also like to ask that an editorial from Forbes magazine written by Steve Forbes——
    Ms. ROS-LEHTINEN. Without objection.
    Mr. GOODLATTE [continuing]. Endorsing this legislation be made a part of the record as well. So for those reasons, I do oppose what you are attempting to do.
    I do think it is very, very important that we establish strong encryption and give every American the opportunity to have the advantage of that. And groups all across this country are rallying to this cause and understanding it, dozens of privacy groups—groups like the American Civil Liberties Union and the Center for Democracy and Technology, which might be on the liberal or libertarian side; and conservative groups like Americans for Tax Reform and Eagle Forum have come together in support this legislation.
    Certainly the software and hardware computer industries have strongly supported this legislation, but it goes well beyond just that portion of American business. The National Association of Manufacturers and the National Retail Federation have both endorsed this legislation, because they know of the importance of encryption in promoting the commercial use of the Internet and protecting citizens in this country from crime; and the only way that it will rapidly develop will be for the Administration to change its policy and not try to create this bottleneck using our export control laws.
    And you say you don't want to have domestic laws involving encryption, but I suggest to you that your use of the domestic control laws is not your fear of what goes out of this country but rather your hope that using those laws will create the opportunity to set up a domestic system of control of encryption, which today is prohibited in this country and which my legislation would continue to prohibit.
    So, Madam Chairman, I thank you for the opportunity to participate and make this statement and, again, thank the Committee for its interest.

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    Ms. ROS-LEHTINEN. Thank you.
    Without objection, we will put those in the testimony.
    [The material mentioned by Mr. Goodlatte appears in the appendix.]
    Ms. ROS-LEHTINEN. I wonder, Mr. Goodlatte, if you would like to ask the panelists any questions?
    Mr. GOODLATTE. Not at this time, Madam Chairman. We have had a number of exchanges on these issues, and I am sure they will have the opportunity to respond to some of the things I have just said.
    Ms. ROS-LEHTINEN. Thank you very much.
    Mr. GEJDENSON. Let me ask a couple questions.
    I can buy pretty decent encryption in this country, Mr. Litt?
    Mr. LITT. Yes.
    Mr. GEJDENSON. And so if I am a terrorist coming to do damage I can walk into CompUSA, whatever, buy my encryption; and anything I do in this country will give you some challenge in deciphering it.
    Mr. LITT. That is correct.
    Mr. GEJDENSON. And if I am a terrorist, I am probably not going to follow your export laws precisely, so I can also dial up and export the encryption anywhere in the world via modem.
    Mr. LITT. Under the current regime, if you are willing to do that, yes.
    Mr. GEJDENSON. So what we have now is a situation where I can buy good encryption in this country, and I can send it globally to my partners in crime. Or I can, as Microsoft did when it needed to get better encryption for its products overseas, just buy this German product and marry it to my product overseas, so I can legally get good encryption overseas. Can I buy this German encryption and bring it into the country?

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    Mr. LITT. Under U.S. laws, yes.
    Mr. GEJDENSON. All right. I can buy this pretty decent German encryption which goes beyond what you allow in this country. So I wouldn't have to break the law by sending what we have. I could simply buy the German product and bring it here. Would that work as well?
    Mr. LITT. Well, Mr. Crowell, who is more up on the technical aspects of these things than I am, tells me that product only does banking applications. So if I was a terrorist who wanted to do home banking, I could use that.
    Mr. GEJDENSON. But they don't sell any other products.
    Mr. CROWELL. I assume you are talking about Brokat. They only sell home banking products.
    Mr. GEJDENSON. So if I find somebody else internationally who sells pretty decent encryption which isn't compromised or is that possible?
    Mr. CROWELL. There are products on the market.
    Mr. GEJDENSON. So I can find a good foreign product—I shouldn't make all these admissions in a public forum—and then I can buy that product and bring it back into the country and communicate with my fellow criminals globally in encrypted fashion.
    Mr. LITT. Yes. And if you ask me if we are——
    Mr. GEJDENSON. That is the world we live in.
    The question is, what are you trying to achieve through your policy? I assume you are not trying to destroy America's economic future in this area. That might be incidental to your policy, but that is not the prime focus.
    So my assumption is you have figured out there is a cost here, and you are willing to pay that cost if you can kind of hold the tide back. It is going to get you, and you are hoping you can build a fast enough computer before it gets you completely. So you are putting sandbags on a river that is rising faster than you can handle, and any way you can slow it down is worth the price. Is that your basic assessment?

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    Mr. LITT. No.
    Mr. GEJDENSON. You have another goal in mind?
    Mr. LITT. Yes.
    Mr. GEJDENSON. What is your goal?
    Mr. LITT. First of all, I think we all recognize we can't possibly sandbag the river fast enough. As I said, it is a lot easier to build stronger encryption than we can break; and there is encryption out there far beyond our ability to decrypt.
    That is not what the goal is. Our goal is to try to get an international standard of key recovery, to work with foreign countries and work domestically so we don't have unbreakable encryption being the standard.
    Mr. GEJDENSON. Through the years, I have been given lists of countries that are on the verge of making all this illegal domestically. Which countries have you entered into agreements on?
    Mr. REINSCH. Ambassador Aaron has submitted a statement for the record that provides some details about that. He has talked to all the G–7 countries, the remainder of the EU that is relevant here, the Australians, the Canadians, the South Africans, the Japanese. He has plans to talk to the Israelis and several others.
    I think the picture is—I would say most of them on moving in our direction. I think they are behind——
    Mr. GEJDENSON. That is very slow movement, sir. I don't want to argue with you, but I was chairman of this Committee 4 years ago. Three years ago, at the beginning of my tenure, they were moving in our direction.
    Mr. REINSCH. Well, some of them have taken some actions that are worth noting.
    The French have already passed a law more restrictive than ours. You have to deposit the key with the government.

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    The British have made a proposal which they will embody in legislation by the end of this year which differs from the French; but, in some respects, is more restrictive than our proposal is. I think Mr. Crowell can describe the difference.
    The other European countries that we have had discussions with, I think, are working closely with the EU in Washington to see what the British and French and particularly the Germans do. The Germans are having a decision about this that has become public in the last few weeks.
    If you read other publications other than The New York Times on this, the Interior Minister of Germany made a speech in which he recommended a policy which I guess would be similar to the French; and several other German ministers made public statements of disagreement with him. The Germans have yet to resolve where they are.
    I think we have discussed in other fora where the Japanese are. I think the Japanese want to see a multilateral approach to this problem, and they very much want to be a part of the multilateral consensus. I don't think you will see them deviating from that consensus.
    We have had one multilateral meeting consisting of most of the countries I described and some others. We intend to have another one next month to try to move things in that direction.
    Mr. GEJDENSON. So you have accomplished nothing yet except for some very good discussions. And maybe one day you will get there, but at the moment we have won no international agreement. We have one country with some rules in place, discussions with others.
    I am not saying you are wrong. This is a complicated issue. Obviously, when you walk into the White House and tell the President of the United States, if we change this law and any American is injured anywhere, it is going to end up on your desk, we are going to make legislators, Presidents very cautious about fiddling with this legislation.
    But it seems to me what Mr. Litt said, and others have said, is this is a mathematical formula that is not impossible to recreate. Even without large institutions behind you, that lots of people can make this, that criminals will be able to get very high-quality encryption, encryption that doesn't have a key sitting somewhere in the U.S. Government's availability, that the only thing we are going to achieve here is we are going to build competing industries worldwide in encryption, which will actually make it more difficult for us to come to any kind of agreement because then there will be large economic centers outside of the United States that benefit from ever-increasing encryption—international banking, the Internet, automatic kinds of things demand higher and higher encryption.

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    Maybe your policy is right, but the policy has to be seen as you are an anchor in the sand, and we are going to drag you along the shore and every so often move that line forward.
    Mr. REINSCH. Let me make a couple comments in response.
    First, with respect to the foreigners, I don't think it is so much a question of what we accomplish as what they decide to do for themselves. The dialog we have been having has accelerated the timing in terms of them making their own decisions. What we believe, and we could be wrong, sure, but we believe all of them are moving in our direction.
    Now, we would certainly agree with you, Mr. Gejdenson, that if they don't we are going to have a problem. We are going to have a competitiveness problem and a problem implementing our own policy.
    In fact, the point we are making to them on export controls is that if they are not prepared to exercise export controls in their own countries, none of them will be able to pursue their own national policies with any effectiveness. Now, if they don't want to have a national policy or if they want to have a national policy that provides for no restraint at all, export controls wouldn't matter, but if they want to have the British national policies or French national policies or any of the other policies we have been talking about, they are going to have to have some element of export controls in——
    Mr. GEJDENSON. I think you are all honorable individuals. I believe you believe in what you are saying. I know it would be true in two of you, and the third I don't know so well, but I assume that is true.
    Mr. REINSCH. I feel a but coming on here.
    Mr. GEJDENSON. It was next to impossible.
    I remember sitting here fighting over fast switches to China for their phone system. And we fought over it; and the next thing we knew was the Israelis were selling them faster switches than we were; and the next thing, the Chinese were building their own switches as fast as the ones we could sell them. So it seemed at the end of the day we brought the Chinese into the manufacturing business as well as some other nationals along the way.

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    I think that is what we are going to do here. And the question is whether the loss of market share and time will be of any benefit at all at the end of the day, when today, if I want to use encryption for evil and illegal activity, I can do it worldwide. When I wanted to build a very fast computer, I needed to have clean rooms and technology of a significant nature. When I want to create encryption, my understanding is, if I am a decent mathematician and I walk off with one of these laptops, I can create some pretty decent encryption.
    So demand is increasing, and I don't know where you guys are going.
    Mr. CROWELL. Could I address that?
    Mr. REINSCH. Let me say, first, we could have used you 2 weeks ago at a National Security Committee hearing on exports.
    Mr. CROWELL. We have been trying to make a very important point about the use of encryption that I think we have been unsuccessful in making with many of you, and that is encryption alone is not necessarily security, that there is much more to providing security than an algorithm.
    Since we have had difficulty with that, I thought I would read from an article published by Brushner in the communications of the ACM. Brushner, for those in the audience who don't know him, is a leading private sector cryptologist. Therefore, he is more credible.
    Mr. GEJDENSON. Not with me.
    Mr. CROWELL. I will just take a couple of parts of it out.
    But the cryptography now on the market doesn't provide the security it advertises. Most systems are designed and implemented not by cryptographers but by engineers who think cryptography is like any other computer technology. It is not. You can't make systems secure by tacking on cryptography as an afterthought. You have to know what you are doing every step of the way from conception through installation.

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    The good news about cryptography is we already have the algorithms and protocols needed to secure systems. The bad news is that is the easy part. Implementing the new protocol successfully requires considerable expertise.
    The areas of security that interact with people—human management interface security, access control—often defy analysis; and the disciplines of public key infrastructure, software security, computer security, network security and tamper-resistant hardware design are poorly understood.
    His point and the point that we have been trying to make—two points—one is, the key management infrastructures are necessary to allow cryptography to provide the public with real security. Without public key infrastructures, no one knows who they are securely communicating with. It is part of the way you build a system, and we know that from 50 years of studying cryptography.
    The second thing is, as encryption is used for electronic commerce, these infrastructures are going to be built in order to protect the economic interests of the entities using them and the public interest; and then the criminals and the terrorists will have to use those systems. They cannot create their own cells and do their banking, and they cannot create their own little cells and do their own business on the open market. So, yes, they can build little cells and communicate with each other; but they cannot carry on their daily business.
    Mr. LITT. Could I just——
    Ms. ROS-LEHTINEN. Maybe you could incorporate that answer into the next round of questioning.
    We recognize Mr. Goodlatte.
    Mr. GOODLATTE. Thank you.
    I would like to follow up on the questions that the gentleman from Connecticut made, because he made some good ones.

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    None of us disagree with the concern you have of misuse of encryption by criminals or terrorists, and I understand the concern the President might have in changing his policy in terms of what that spells for somebody having access to encryption and misusing it. But the problem is the President doesn't run the risk of saying that is a harm that may come to some American or some somebody else in the world by changing the policy.
    I think the risk is far greater by not changing the policy. Because the lack of strong encryption protecting, for example, a nuclear power plant today that a terrorist could break into and cause a meltdown or stealing and altering industrial secrets as they are transmitted between the design plant and the manufacturing plant of a manufacturer are great concerns right now. And the promotion of strong encryption, which we know you say you support but you have a policy which harms the implementation of that, is to me far greater.
    Now when we talk about the other countries' national policies, I don't think their efforts are going to work any better than the efforts have here; but, nonetheless, the point is this: No nation on earth protects the freedom and privacy of its citizens greater than the United States does. And I don't want to base my standard on what any of those other countries may or may not do, but I can almost assure you they will never reach universal agreement on how to handle it because they don't trust each other any more than we trust all of them.
    You are absolutely right, Mr. Crowell, that we have to promote the use of key management and key recovery. Because if anybody sets up a heavily encrypted computer system and loses their key or hasn't the ability to communicate with some aspect of their communications system, they have created an enormous problem for themselves, risking huge economic loss by doing so.
    The question is, however, whether a free market system of this country and the very, very capable computer software industry should manage the development of that system or whether big government should be involved in setting that system up in such a way that causes competitive disadvantages and severe mistrust on the part of a great many Americans who are concerned that the access to their private communications are going to be interrupted by government.

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    I mean, we are talking about a situation where 1,000 people's FBI files wind up down at the White House where they did not belong. Why are we going to feel more confident with a gamed system where the government has access to keys to computers that give people a greater sense of security, that the same thing won't happen on a much, much larger scale?
    After all, the FBI files are information gathered by government on individuals in the country. Access to people's computers is the citizens themselves gathering the information under a system where it could be abused, that access being turned over entirely to government. We would be essentially reporting to the government ourselves. So, to me, the approach is wrong-headed; and it is hurting our ability to prevent and control crime; and I would like you to address that.
    Ms. ROS-LEHTINEN. We would ask for them to briefly address. Then we will recess for a vote and then come back, if the gentlemen could stay, because the other members do have questions.
    Mr. LITT. I would like to address that last point that you made and to emphasize that we would have no more access to the contents of your computer than we do today. The government does not go into people's computers and steal their data today. We need to have warrants and need to have lawful authority——
    Mr. GOODLATTE. Mr. Litt, under the proposed legislation that is floating around here, you would need far less than a warrant to get access. You would only need a letter from the Attorney General of the United States. That is a far less secure system to protect our citizens than we have under current law.
    Mr. LITT. That is not correct. We would need to have the independent legal authority to get access to the underlying data. We could not walk into any place and get a key unless independently we had the lawful authority to get the data that was encrypted. We could not just go get a key.

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    We are not seeking any expansion of our present legal authority to get data or communications or anything else. The American citizen's privacy would be protected to the exact same extent that it is today.
    Mr. GOODLATTE. Now, when you get that key for the banking purposes that every criminal and every terrorist has to engage in, you can get that key right now. Because the banking institution that also has to have that key to encrypt that communication with that criminal, they are sitting right there responsive to your current ability under current law to subpoena that key.
    Why do you need to change that in order to accomplish what you are talking about? If these entities can use their own encryption when they communicate among themselves and they turn around and communicate with legitimate entities, you can already get those keys.
    Ms. ROS-LEHTINEN. We will have a brief recess, and you may address that when we come back, and then we will recognize as well the other members of our panel.
    The Committee is now in recess.
    Ms. ROS-LEHTINEN. The Subcommittee will come to order.
    Thank you, gentlemen, for waiting to answer Mr. Goodlatte's question; and he will get the answer, even if he joins us mid-sentence.
    Mr. LITT. Thank you, Madam Chairman.
    I think the answer is we can have our spinach and our ice cream, too. We think we can get the benefit of strong encryption while protecting law enforcement. I am not suggesting that we are going to have a system where every single terrorist throughout the world uses a key recovery system, but we think that our policy will eventually make the worldwide standard encryption that uses key recovery.
    And one of the things that we notice in the law enforcement business is that criminals don't necessarily take advantage of every opportunity to thwart our investigation. Although everyone knows we can wiretap phones, nonetheless, with great regularity, criminals continue to use the telephone to conduct their business.

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    We are confident that if key recovery becomes the worldwide standard, the great number of criminals will use that because that is what is available to them and it is easy to use. So we will get that while at the same time allowing—I couldn't agree with Mr. Goodlatte more when he said we need to get encryption to protect our infrastructure from terrorist attacks, but we need to do that in a way that allows law enforcement to continue to have the abilities that it has now.
    Mr. CROWELL. Madam Chairman, if I could just add, I think some of the statements Mr. Goodlatte made are very important; and I think there are many areas of agreement that we should capitalize on.
    Mr. Goodlatte and we agree that a key management infrastructure is necessary to good security. I heard him say that, that key recovery is something the market will demand. He said, we agree that it should be industry-led and not government-mandated.
    We agree with that. We agree that it should be voluntary, not mandatory; and we agree that there should be in the areas of domestic use and with good key management infrastructure some key recovery, no bit-length restrictions.
    So there are so many areas of agreement that we keep coming back to as areas of disagreement that I think we are not making much progress, and I am sorry.
    Mr. GOODLATTE. Let me follow up on that, because there are four elements in my mind.
    One I know you don't disagree with, and that is making it a crime to use encryption in the commission of a crime or covering up a crime. I know you don't disagree, because you have stated in these hearings and before that the stated principle to every law-abiding American to use encryption is something you support.
    You say you do not want mandated government key recovery or key escrows. Well, the bill prohibits that; and if you don't object, why would you object to the prohibition of it?

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    It simply allows U.S. software manufacturers to export heavily encrypted software up to the point they can show that foreign competition is already offering a similar product. That doesn't interfere with your right to establish a national or international system, because if other countries are already allowing folks to do it elsewhere why shouldn't we be allowed into that game? If, in the meantime, you can continue to conduct negotiations for some kind of international agreement, this bill doesn't prohibit that.
    Why do you object to my bill if what you say is correct?
    Mr. CROWELL. First of all, we believe that your bill which prohibits mandatory key recovery will inhibit the market for key recovery. It certainly will inhibit the government's use or mandated use for government records and government networks and systems, which are extremely important to protecting the public interests where we are the custodians of those records and must be able to turn them back to the public after they become public record.
    Mr. GOODLATTE. We would certainly work with you to make it clear that we are not attempting to prevent the government from having a key recovery system. We are trying to prevent the government from mandating that other people have a key recovery system who don't want to be one with the Federal Government.
    Ms. ROS-LEHTINEN. Thank you, Mr. Goodlatte. We appreciate your being here to discuss this issue which is of great concern to you as well.
    Mr. Luther, welcome again to our Subcommittee.
    Mr. LUTHER. Thank you, again. I thank you for the kind welcome.
    My question really is about legislative proposals. As I understand it, the Administration is considering some legislative proposals; and I am wondering if you could elaborate on those.
    Mr. REINSCH. Yes, Mr. Luther.

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    We have been working on a bill which is on the Net—or earlier versions of it are on the Net. I am not sure that the final version is linked yet, but I have no doubt that ultimately it will.
    The contents of the bill reflect principles that I mentioned in my statement.
    We, too, will confirm that there will be no domestic regulation of encryption.
    We will make clear that participation and key management infrastructure is voluntary.
    We will set forth legal conditions, as Mr. Litt described, for the release of recovery information to law enforcement officials pursuant to lawful authority.
    We will provide liability protection for key recovery agents who follow the rules.
    We will criminalize the misuse of keys and misuse of encryption to further a crime, which is something Mr. Goodlatte discussed.
    And we will create, as I said in my statement, on a voluntary basis a government key recovery system that we will use for government use, as Mr. Crowell indicated. We think that there will be some demand for participation in that system anyway.
    Mr. Goodlatte is concerned about people who don't want to participate. That is fine. We don't want anybody to participate if they don't want to.
    On the other side of the coin, we don't want to discourage people from participating who want to participate, who find that the government's assurance of authenticity and validation through its licensing the certificate authorities and key recovery agents is something valuable to them.
    One of the points that Mr. Crowell alluded to in the answer to one of Mr. Gejdenson's questions is that, in developing secure systems, what we are really talking about here, is not just encryption; it is how can you do commerce on the Net securely; and a critical part of that isn't just being able to encrypt your transaction, it is having confidence that it is going where you want it to go and being received by your intended recipient and not somebody else who is masquerading. That is a question of using the digital signature that is rapidly becoming part of that, and we want to facilitate that.

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    We think that a key recovery system where the government says these are valid people because we have checked them out, and when they certify a key recovery agent that lends an element of authenticity to it that we think would help the market. If people don't want that, that is fine; but that is in our bill.
    We have not submitted our bill yet, Mr. Luther; and I think for the time being we are not going to. We are going to see how the situation develops both here and in the Senate for a few more weeks.
    Ms. ROS-LEHTINEN. Thank you.
    Mr. Rothman, would you like to question?
    Mr. ROTHMAN. Thank you, Madam Chairwoman. It is great to be with you again.
    A couple of general questions. Does the Goodlatte bill prohibit voluntary key recovery systems?
    Mr. REINSCH. I think we would say that it inhibits it, Mr. Rothman.
    Mr. ROTHMAN. No, my question was, does it prohibit it?
    Mr. REINSCH. I would have to look at it.
    Mr. CROWELL. It prohibits the mandatory key escrow procedures.
    Mr. ROTHMAN. Prohibits mandatory, so does not prohibit accomplishing Mr. Reinsch's objective of establishing if somebody wants to get the government's certification or know if a company they are dealing with has this certificate.
    Mr. CROWELL. It would have an impact on the government mandating key recovery for government use, which is something that we would encourage.
    Mr. ROTHMAN. Right. Would Mr. Goodlatte—you indicated he would have no objection to allowing the government to create——

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    Mr. GOODLATTE. If the gentleman will yield.
    Mr. ROTHMAN. Yes.
    Mr. GOODLATTE. We don't believe the bill prohibits and we don't believe it inhibits the development of a key recovery or key management or key escrow system that individuals want to privately contract for with a software company, a bank, whoever they want to deal with.
    If there is a concern on the part of the government that somehow they will be prohibited, certainly we want them to be able to recover their records and we want them to encrypt the records to protect the citizens. If they feel the legislation in any way prohibits them from doing that, we would work with them and make that clear, that they could use it themselves.
    Mr. ROTHMAN. If you would allow me, I would be delighted to participate with you in amending the bill to accomplish that objective.
    Mr. GOODLATTE. We would want to take a look at it and see if it does need to be amended. But, if it does, we would like the cooperation.
    Mr. ROTHMAN. All right. For the life of me, I can't—if it doesn't mandate participation in a government-mandated key recovery system and if we can accomplish some clarity with regard to our intention to allow the government to have a key recovery system for its own documents and own legitimate purposes, then what is left to the objection?
    Mr. REINSCH. The removal of export controls.
    Mr. CROWELL. And the lack of any provision for facilitating it and encouraging the growth of key management infrastructures and key recovery.
    Mr. ROTHMAN. Well, if I may, Madam Chairman, the removal of export controls, I don't get it. What is the problem with allowing—if we are not mandating this for our own people, why would we require that it be prohibited from other people, if, as Mr. Goodlatte said, the technology is already out there?

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    Mr. REINSCH. Well, there is a difference of opinion, first, between us and Mr. Goodlatte and others over the extent to which the technology is out there.
    Mr. ROTHMAN. To the extent the burden is met first before the export is permitted, which apparently is what the bill reads.
    Mr. GOODLATTE. If the gentleman yields, the bill does not remove export control, simply allows us to show that a foreign competitor has a competitive product. They should be able to rise to the level of encryption of that competitive product. That is all we are asking for.
    We recognize the concern of the Administration about unlimited access to encryption. We think they have a problem that their solution doesn't solve.
    And if I could add one other thing with regard to that. The export controls don't just affect the access of people overseas to strong encryption. It also affects the ability to have strong encryption domestically.
    For example, Citibank, which strongly supports this legislation, and you can communicate with your San Francisco office, you can use any level of encryption you want to transmit your financial transaction, but if you want to transmit to your London office or Tokyo office, you cannot use U.S. domestically created software because you can't export because of the export control laws to those overseas locations. You can, however, buy, as the gentleman from Connecticut pointed out, German-created software, bring that into the United States and use that internationally. And that is ludicrous.
    The policy of trying to control the availability of little 1s and 0s going through wires through our export control laws designed to control things like jets and bombs and maybe even mainframe computers being exported simply will not work in this regard, but it will work a serious detriment to the U.S. software industry and the availability of encryption to U.S. citizens.

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    Mr. ROTHMAN. If I may reclaim my time, thank you. Just one concern with regard to—and I haven't really thought this through too much—and that is the civil libertarian aspect of this whole issue. Is it the government's position that they would like to have a mandatory worldwide key recovery system in place so no one around the world would be able to buy any computer system or software for which the government didn't have a back door key?
    Mr. REINSCH. No, that is not our position; that is not our position; and let me, if I may, elaborate on that and respond to your previous question.
    We seek to use export controls as an effort to move all of our major trading partners and ourselves in the direction of the key recovery and key management infrastructure in the way that we have described, which is in the direction of a voluntary system.
    Export controls undertaken by the United States unilaterally, if that were to be the case, ultimately would have the adverse effects, I believe, that Mr. Gejdenson described. If they are successfully undertaken multilaterally—and we do have some now; we control these items multilaterally, less so for banking than others; we intend to make an announcement in an hour and a quarter with respect to that. But as part of a multilateral framework, we believe that export controls are virtually the only instrument available that will allow countries to pursue their own policies.
    Our national policy will be one of allowing law enforcement access under the circumstances that Mr. Litt described. Other countries may have different national policies by virtue of their concerns and their histories. If you have a world with no export laws, no country could pursue its national policies because there would be items coming in in violation of it.
    Mr. ROTHMAN. But this is a voluntary policy; whoever decides to be a part of it will be; right?
    Mr. REINSCH. Well, yes. What we hope will happen and what we see happening in the marketplace is the increasing use of the technology that provides the access that we seek to have available. We think key recovery is what people are going to adopt, not because we want them to, not because of our policy, but because it makes good commercial sense. Ask the next panel, and see what they say about that.

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    Mr. ROTHMAN. Thank you.
    Ms. ROS-LEHTINEN. Thank you, Mr. Rothman.
    Mr. Chabot has no questions, so we will continue to Mr. Sherman.
    Mr. SHERMAN. You know, I believe in key recovery. I have got a key to my apartment hidden near the front door, but it never——
    Mr. REINSCH. Are you going to tell us where, Mr. Sherman?
    Mr. SHERMAN. That is the point I am going to make. It never occurred to me to give that key to any agency of the government.
    Mr. REINSCH. We don't want it.
    Mr. SHERMAN. I don't know why the government should be involved in any way in key recovery unless it is the intent of the government to use the key without the permission of the person whose data has been encrypted. I think it is somewhat artificial to come here and say, well, any big business would want a key, so we want to impose a Federal regulation that will lead to that key being available. I am sure that various private users will find a way to hold on to a key without Federal export controls.
    I am particularly concerned, and I think the last speaker made it very clear, we are using export controls because it is the only available mechanism to control something that really can't be controlled through export control. We have got a situation where anybody can buy anything domestically, and there is no attempt—correct me if I am wrong, Mr. Litt—to regulate that at the Federal level.
    Mr. LITT. That is correct.
    Mr. SHERMAN. So you can buy anything American industry can create, use it anywhere in the United States, and for, I think it is about $12, Federal Express will send it to your friends in Japan. We have, to my knowledge, no capacity to stop an individual package from going abroad if owned by the consumer. We also don't have any import controls. It ignores the Administration proposing them; correct?

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    Mr. REINSCH. That is correct, Mr. Sherman.
    Mr. SHERMAN. So in any country, even if you got 20 technologically developed countries to sign up that nobody can use more than 2-bit encryption, and they have to have a key anywhere, and there is just one country out there that manufactures software with 128-bit encryption, that can be imported by any drug dealer and terrorist in the United States; right?
    Mr. REINSCH. Yes. I think the answer to that lies in the comments Mr. Crowell made previously. I don't know if you were here when he made them.
    Mr. CROWELL. The use of that encryption requires some means of conveying trust in the people represented by their public keys. Earlier we commented on that, that to be used widely, encryption needs the support of the infrastructure that will identify a public key, you know—I guess I have to start at the beginning.
    Mr. SHERMAN. I am sorry, you don't have enough time to start at the beginning, but I am sure——
    Mr. CROWELL. Let me try and say it in just a couple words. If you were to use an Internet browser today that provides 128-bit cryptography and provides great encryption, it provides very little security, because when you hook up over the Internet, which is a large party line, and the little key closes on the left-hand side, all you know is that you are encrypted. You have no idea whom you are talking to. There is no way to certify whom you are talking to, because the infrastructure that is necessary to provide that security doesn't exist.
    Mr. SHERMAN. So we would need to see the loss not only of jobs involved in creating encryption software but communications software as well, and if people were unwilling to entrust the government with their keys, they would have to buy not only encryption software but a whole package of software.
    Mr. CROWELL. We do not seek in the government to hold the keys of anyone.

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    Mr. SHERMAN. In any case, if someone wanted a greater degree of privacy from the government than is provided from the regime you are trying to create, they would have to buy not only their encryption software but other related communications software from a foreign supplier that did not——
    Mr. GOODLATTE. Would the gentleman yield on that point?
    I thank the gentleman for yielding.
    It is a very, very good point, because encryption is not a separate segment of the software industry. Every type of communications that people want to have secure in the future, where that is their copyrighted material that is not on the Internet, because you can't protect Snow White, Disney can't do that, whether it is any type of medical record that might be transmitted by telemedicine procedure, every type of financial transaction, be it banking or whatever, the software that underlies that is going to be encrypted. Some of it is encrypted today.
    Within a few short years, every American who wants to buy over the Internet and be secure with their credit card number being on there, we are going to encrypt. So you are not talking about losing that segment of the market that would be called encryption, you are talking about losing massive portions of our software industry to foreign competition that is constrained by an export policy that we have.
    Mr. SHERMAN. So if even 1 of 20 or 30 developed countries wanted to take the software industry away from us, or a big portion of it, all they would have to do is not enter into any of the international agreements that are being proposed, and they would be the only country that would offer communications software without the full degree of privacy that some consumers want.
    Mr. GOODLATTE. That is right, and you are going to see U.S. companies with a strong interest in moving to those countries to create that business, and we will lose it here.

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    Mr. SHERMAN. So that virtually guarantees that at least one country won't enter into an agreement. And perhaps our panel can correct me; the United States is not going to impose any sanction on any country that says, we want free access to the American market, we want all the advantages of being part of the developed world and having our border protected by the American military, but we want to make a lot of money selling encryption software, and we refuse to enter into an OCED agreement. We would impose no sanctions, no disadvantages, on such a country; right?
    Mr. REINSCH. Well, I don't think the way to begin a negotiation or a conversation with our allies is to threaten them.
    Mr. SHERMAN. Well, these negotiations are not beginning; they are stalled.
    Mr. REINSCH. On the contrary, they have already begun.
    Mr. SHERMAN. That is what I mean, they have begun, they are not beginning, and I think it is highly unlikely that they are going to lead to universal success.
    Mr. REINSCH. Well, I think that is a judgment where we can differ, but it is a judgment. I encourage you to read Ambassador Aaron's statement that he submitted for the record. I think we are making more progress than generally recognized, because the other governments understand the issue the same way we do and understand their stake in it. They have the same law enforcement issues, the same issues with terrorists and with drug cartels that we do; we are not unique. Other governments recognize that. They are wrestling with the same problems that we are.
    Mr. SHERMAN. Excuse me. What you are trying to do is draw to an inside straight. That is to say, it is not enough to get 50 percent of the countries all on board on the same agreement, or 60 percent, you need them all. If every country but Holland or every country but Thailand agrees to this, those are countries which, within a year or two, will have the software technology to completely thwart the effectiveness of this agreement.

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    The reason why in poker you don't draw to an inside straight, even if you get four out of five, the fifth card is never there. Do you have any reason to think that you are not going to get just general agreement or universal agreement from every country capable of producing encryption software, all without the threat of sanctions?
    Mr. CROWELL. One of the things that we believe is that unilaterally opening up export controls will undermine the international agreements.
    Mr. SHERMAN. You have clearly undermined an effort that seems doomed to failure.
    Mr. LITT. I think I would disagree with the premise that we need every country to agree, because I think our expectation is that people will recognize that the kind of product we are talking about is a better product, and that this is a product that they will want to buy, and that fundamentally you will not have large numbers of people who will be looking for non-key recovery software.
    Mr. SHERMAN. I think a lot of people want software where they keep their own extra copy of the key. Some might even trust Bill Gates with an extra copy of the key, but none of the people who have written me want to entrust the government with the key.
    Mr. LITT. We don't want it.
    Mr. SHERMAN. Nor do they want to entrust it to anyone who might make it available to the government.
    Mr. LITT. To go back to your analogy of the key by the front door, I think it is an easy analogy but there is a fundamental difference from the law enforcement point of view. Obviously, this would never happen with you, so let's assume John Gotti keeps a key by his front door. If we go to court and establish there is probable cause that there is evidence of a crime in Mr. Gotti's house, and we get a warrant, if we don't have his key, we can break down the door and seize that evidence. We can't do that with encrypted data. We have no other way into that. Even if we get the court order and establish probable cause, we can't get it.

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    Mr. SHERMAN. Mr. Litt, I fully understand why it would be valuable for law enforcement to be able to decode all encrypted messages. I just see this as an effort to punish U.S. software makers, because there is no chance of ever giving law enforcement that ability which you describe as being very useful and arguably necessary. And if you are going to ever have that kind of ability, it is not going to come from export controls with no import controls or an assumption that you are going to draw to an inside straight. You are going to have to do what the French have done, which is limit their own citizens' right to the use of software, no matter where developed or manufactured.
    Ms. ROS-LEHTINEN. Thank you, Mr. Sherman, if you would like to add that up, we would like to move onto our other panelists.
    Mr. SHERMAN. You don't have the votes to do so. So as long as there is any country in the world that will make communications software that provides this level of encryption, Americans will, because you don't have the votes here to be able to use it, and that will include those engaged in crime.
    Thank you.
    Ms. ROS-LEHTINEN. Thank you so much. I would like to thank the panelists for being here with us.
    Ms. ROS-LEHTINEN. I would like to introduce our second set of panelists. We will be hearing from Humphrey Polanen, the general manager of Network Security Products Group. Mr. Gage will provide our Subcommittee with a short informative demonstration of the encryption issue.
    We will next hear from Jerry Berman, the executive director and one of the founders of the Center for Democracy and Technology. The Center is an independent nonprofit policy organization, and their mission is to develop and implement public policies and answer individual liberty and individual fallout in the new digital media. Mr. Berman also coordinates the Digital Privacy and Security Working Group and the Interactive Technology Working Group. Mr. Berman received his M.A. from the University of California at Berkeley and also graduated with honors and served as the editor of the California Law Review at law school.

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    And we will also hear from Mr. Tom Parenty, the director of security for Sybase Corporation. Mr. Parenty has been active in the cryptography and computer security field for over a decade, starting with his tenure at the National Security Agency, where he worked on global nuclear demand and control networks. He has worked with several intelligence agencies regarding design of operating systems, networks, data base management systems also. He holds a bachelor's degree in philosophy and master's in computer science.
    And last, Stephen Walker, the president and chief executive officer of Trusted Information Systems, which he founded in 1983. Mr. Walker served 22 years in the Department of Defense and several branches, including the National Security Agency. He has over 35 years of experience in systems design and program management and is nationally recognized for his pioneering work in computer security.
    I believe that Mr. Gage will start with the demonstration. Is that correct, gentlemen?
    Mr. GAGE. My name is John Gage. I am the chief scientist for Sun Microsystems.
    Responding to the last panel that asked that big business speak, we are a $9-billion company, so it is a medium-sized business.
    I want to show you something very quickly which is accessible to any kid with a modem, anybody sitting at that panel with their computer on the House Information Systems link to the Internet. So what I have set up, you can see on the screen, is a simple Web page that says what you can do if you are a non-U.S. company, why you can use strong encryption, what you can do if you are a U.S. company, you can use strong U.S. encryption, but you have to fight your way through the export regulations to let your users somewhere else protect their machines. Well, OK, that is fine.

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    What can you do if you are a kid on the Internet? You can download strong encryption. What can you do as a company to protect your own company data abroad? Well, if you can't use strong U.S. encryption, really strong, you will have to use foreign, so that is what hundreds of U.S. companies do.
    So I put these little buttons here to summarize what it is we are up to. You can push this button—don't do it yet—to see where you can get strong encryption worldwide. You click another button and it comes to your computer, the one right there on that bench where you are sitting. Then, the red line said if you send it back where it came from—that is just one click—you go to jail.
    Well, you don't, because you are Members of Congress and you have a general counsel who is highly paid to keep you out. But, you know, what happens out there in the real world?
    Our concern—I think every member of the industrial commercial panel you have in front of you will agree with Bill Crowell—our concern is that the systems we use for air traffic control, controlling of the power grid, control of the trading floors where $1 trillion a day is traded in New York, in Tokyo, even a momentary disruption there brings chaos to world financial markets. We as a company and all of the people here at the panel do business in those arenas; that is it, it is real world stuff.
    And what do we have today? We have insecure operating systems, insecure networks, and a wonderful 1976 invention. This isn't God speaking. Public key encryption was invented in 1976, not a long time ago, and it gave us a brand new powerful tool to use in order to authenticate who you are. Is the check in the mail? Prove it. We now have a little machinery to do that.
    So if you want to use that machinery to go around the world and make your product safe and authenticate who you are and make sure who is inside your machine ought to be there, if you go to the top and hit ''Forward''—and we just went to Germany. This is that company mentioned earlier today, Brokat. The German company sells things for the Gelt and capital market; that means money people.

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    And if you go forward once more, you will see precisely the New York Times article. This is now coming from Germany. This is their advertisement. It says, if you scroll down a little bit, there are the people in Germany; they are happy because they can sell something U.S. companies can't.
    Just keep going down. Brokat makes $6 million; it is a tiny company; it has kids in a coffee shop. Far from hindering the spread of powerful encryption programs, U.S. policies created a bonanza for alert entrepreneurs.
    Now, for U.S. industry, we are blessed that there aren't that many alert entrepreneurs, but don't bet on it, because things are moving fast. There was a citation just a moment ago about what in the technical community we call the crossbar problem. That is, if you have 50 countries that want a policy and they have to deal with 50 others, that is 50 by 50 meetings. So much for Ambassador Aaron; he sinks from sight. Fifty by 50 meetings, 2,500 meetings if the United States wants to find out if Malaysia, which declared yesterday that the new capital city of Malaysia will be a data haven where anybody can use strong encryption with their data, they are going to be talking to Japan.
    Let's go forward once more, because we are going to leave the United States, we are going to leave Germany, and we are going to go to a hotbed of independent encryption. It is called Finland. Finland is the densest Internet country in the world. Sometimes people say it is dark so long, there is not much else to do in Finland.
    But what people do in Finland is get on the Internet, and they provide here the Finnish archive. Scroll down a little bit: The Finnish news, Fin Net. Just hit ''Forward'' again. We will go to a page instantly accessible from Finland that lists all sorts of crypto systems. You want 128-bit key, 256, 512, 1,024, RSA; you want to have code, source code for RSA, the European code; it is all here; you can just download it. So there are all these different, accessible to anyone in the world, pieces of code.

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    We go forward, and look at all this. Idea; that is an encryption; that is the DES code. How old is DES? Very old. Is their source code all around? You bet. Do you want to download it? Now, legally, I can click on one of these and it will come cross the wire and land right here on this machine. Triple DES. Let's not do that yet. Let's go back and see where else we can do.
    Ms. ROS-LEHTINEN. Thank you for bringing in Finland, land of my husband's birth.
    Mr. GAGE. It is a wonderful country. Finland hosted the last cryptography conference, and the NSA, thank God, is one of the world's best centers for encryption, world's largest pool of mathematicians. A lot of NSA people went to Finland.
    Let's now go to a strange place where you can get encryption. Let's go to Zagreb. This is in Croatia. Everybody is on the Net, so access is allowed all day, bombing excepted. Local time; what is it in Croatia?
    And FTP, that means file transfer; that means get me, touch me, and I will send you the entire source code, everything you need to build your encryption systems. Well, let's continue on. In Croatia, there is crypt—let's go in—and there is DES, and there is some more freely downloadable DES code from Croatia. Now, we can do this, and maybe we should do this. We can do this in a minute.
    I didn't want to get to this button yet, and maybe next time we do this, you can do that just so you can test the law. I thought we would go down to other places, all around Russia. If you are hungry and you are a cryptologist and you don't have any money coming in, what do you do? You sell your crypto. Sweden is an enormous center of this, because the mail systems now for the Scandinavian countries are completely strongly encrypted. They say it is silly, the U.S. position; they wouldn't think of putting any impediment in the way of a Swedish citizen or Norwegian citizen or a Finnish citizen to have secure, private mail. Norway, go to the Netherlands—unbelievable amounts of stuff. I guess I went on Zagreb again.

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    Here is a site. This site is a U.S. site that points to all these sites around. So when there is a moment in the Department of Justice's harried schedule when the Deputy Assistant Attorney General in the Criminal Division decides to become a product manager for U.S. industry, he is up proposing himself as one with insights into what the business community will buy. That is our business; that is what we spend our time doing; that is where we have millions and millions of people that we deal with every day using encryption for interior security to make their systems secure, overall systems.
    And that is why I don't believe I would hire the Deputy Assistant Attorney General, Robert Litt, as a product manager. He doesn't know the ground. And when he uses language, which I must say makes me worry a bit, he is misunderstood, not just him but the entire Department of Justice, they are caricatured.
    And at the end of his testimony, he says: If you don't believe me, let me tell you what you are doing; you plan to sacrifice public safety entirely. I heard those words just a few minutes ago. It makes me worry that there is something out of hand.
    Bill Crowell from NSA is a wise man. He has watched this go on for years. He is confident—and I am happy he is—that the United States has the capability to intercept communications in the role of providing information to make the government work well, and decrypt it.
    The FBI is pretty much backward in this, and what has happened here is, they have become, I think the word was, not frightened, alarmed. They suddenly discovered that when people talk to each other, which is the basis for crime, it is tough to do crime without the phone system; alligator clips don't work anymore because this phone system puts your voice into little packets.
    And it is not just encrypting the little packets that is a problem; the little packets can go some to the left, some to the right, some to Tulsa, some through Omaha. They reassemble themselves. You can't get the entire transmission, so the engineering of the overall communications systems of the world has bypassed the ability given to law enforcement for 120 years of arriving with alligator clips and listening to the bad guys.

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    Now we hear testimony that would have been a shame to hear 5 years ago, and we are hearing it in 1997. So we have to do something that moves us forward, and I think the rest of the panel will address the thing that everyone that runs large computer systems must be able to recover: If they lose the keys, how you find out where everybody's address is.
    We all support the ability, self-determined ability, to be a systems administrator. The notion that we need to provide keys for all transmissions, people sending stuff around the world, when you can have each packet with a different key—oh, my, my, suddenly we are restoring millions of packet keys. This doesn't seem to be in any way in consonance with today's policy, so it seems doomed as a policy.
    So with that short demo, I won't ask you to download a file, although at the moment, when you download DES, be sure not to send it back outside the country or you are in trouble.
    Ms. ROS-LEHTINEN. Thank you so much.
    Mr. Polanen.


    Mr. POLANEN. Madam Chairman, thank you very much.
    It is a pleasure to be here and testify in front of this Subcommittee.
    I would request that the written statement which you have before you is entered in its entirety.
    Ms. ROS-LEHTINEN. Of course, without objection.
    Mr. POLANEN. Thank you very much.

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    I will limit my comments to some of the highlights in representing the Computer and Communications Industry Association, whose members employ over half a million people and generate annual revenues in excess of $200 billion.
    We also would like to endorse Mr. Goodlatte's bill, and we believe that in principle it represents a viable and solid solution to the conflict in the competing interests, policy interests, that occur here.
    We would like to say immediately at the outset that industry really does not oppose having a voluntary key infrastructure or a key recovery system. We believe that it is useful and possibly even necessary to commercial interests. Our desire is, however, for market forces and for customer requirements to drive those specifications and those standards and for them not to be mandated by the government.
    In addition, our concern is that you have seen how easily some of these strong cryptography products and technologies are already available, both within the United States as well as outside, and our concern is that this industry and this competency in cryptography will quickly move across our borders to other locales.
    We are aware of a number of companies who are either purchasing their strong cryptography requirements outside the United States or are setting up facilities outside the United States where the expertise which currently resides here will be developed and evolved outside the United States. And we are concerned not only for the loss of jobs that entails, but from a law enforcement and national security perspective, it is important to recognize that as this center of excellence and expertise moves abroad, the U.S. long-term interest in law enforcement and national security will be significantly undermined. And we would urge you to support Mr. Goodlatte, and this Subcommittee to support Mr. Goodlatte's legislation.
    I would comment very briefly that we believe that the government's plan to control the export of strong cryptography does not really lead to an effective policy of protecting the national security interests, nor protecting the availability of this technology. As many members have already commented, you can buy it easily today, you can import it, you can buy it abroad, so by restricting exports, you are not really accomplishing anything except the ability of our industry to take advantage of the burgeoning market for strong cryptography which we believe will be about $60 billion in only a few years, and we cannot play on a level playing field with the proposed Administration's policy.

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    At this point, I would simply close by saying that the river is not only rising, we believe that the dam has completely broken and that because this technology is already freely available abroad, there is simply no point in trying to restrict U.S. companies from taking advantage of this growing market.
    At the same time, if we are restricted from competing abroad and on a global basis, not only do the consumers who have a right to privacy and protection of their intellectual property lose, I think U.S. national security interests and law enforcement interests also lose long-term. And this was the conclusion of a finding of the study by the National Research Council in which the NRC recommended against restrictions of export of strong cryptography because those would be against the long-term interests of U.S. national security requirements.
    Thank you, and I will be available for questions.
    [The prepared statement of Mr. Polanen appears in the appendix.]
    Ms. ROS-LEHTINEN. Thank you so much.
    Mr. Berman.


    Mr. BERMAN. Thank you, Madam Chairman. And, like other members of this panel, I want to express my gratitude to Representative Goodlatte of this SAFE legislation. We are very, very supportive of it.
    As a civil liberties organization but an organization that tries to work with the private sector and across the political spectrum, I just want to take us back for a moment to a higher level, which is, what is going on here in this debate is, we are really talking about electronic commerce in this new environment. The world is shifting in a fundamental way, and we are dealing with a new paradigm. It is not the issue simply of selling cryptography overseas, it is whether they can product transactions on this global communications network in a secure way.

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    As other members of the panel, representatives, have pointed out, we are putting all of our information on this infrastructure. It is global, it is decentralized, and you have seen John Gage taking us around the world; you are around the world instantaneously. That means that we may be facing a point where we are facing a paradigm shift and that our traditional ideas of how to protect security and privacy in communications have to change. The traditional balances between law enforcement and privacy may not be able to be struck in this arena.
    I do not see the debate as a debate between security and privacy but a debate between two views of how we have security on the Internet. It is, I think, instructive that the business community is not coming to Congress and saying, in order for us to do business on the Internet, we need more police. They are coming in and saying, law enforcement is one thing, but if you want to protect us from the hackers, the security, the financial transactions, our information that is on the Net, we need encryption, we need technical means of protecting against crime around the world, because law enforcement stops at the border.
    Privacy advocates are saying the same thing from the other side, which says the fourth amendment stops at our border. We don't know how the fourth amendment will work in this global environment. We could use unlimited encryption in the United States, but when we get out on the information network, how are these systems going to work?
    And when the government proposes key recovery systems, I think it produces a considerable vulnerability. If we get to the government's argument that we will have a key recovery system, if it was voluntary, we could live with that. In fact, we think it is going to be developed. But the government cannot say it will be a voluntary system and not support your legislation.
    The way to drive a voluntary system if the market is going to develop would be to lift the controls, and if the market is going to develop a key for access, it will.
    Also, I would argue that if you wanted to make other countries more cognizant of the law enforcement problem and figure out ways to solve this problem, you would lift export controls so we could deal with this encrypted communications network.

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    I think that we really have to look at alternatives here. I really believe that the market will develop if we lift export controls, that there will be key management issues, and that there are alternatives to wiretapping for law enforcement to recover information.
    Thank you very much.
    [The prepared statement of Mr. Berman appears in the appendix.]
    Ms. ROS-LEHTINEN. Thank you so much.
    Mr. Parenty.

    Mr. PARENTY. Thank you, Madam Chairwoman. Thank you for the opportunity to speak with you this morning. Also I would like to thank your Committee and Subcommittee for your continued and continuing interest in this particular issue.
    I am director of the data communications at Sybase but am today speaking on behalf of the Business Software Alliance, which is an association of U.S. software vendors which, in addition to Sybase, includes such companies as Lotus, Novell, and Microsoft.
    I would like to say at this point there is unqualified support in the U.S. software industry for Congressman Goodlatte's legislation, and we view this as an extraordinarily important step forward in allowing the U.S. software industry to continue to compete internationally.
    In my written testimony I have focused on the economic issues surrounding this issue because they directly affect the software industry. However, in my comments today I would like to focus on a couple of other issues.
    One of the things that bothers me in this debate is that people who advocate and support Congressman Goodlatte's position are frequently characterized as in some sense being anti-American and trying to endanger our country. That is not the case. Passage of the SAFE legislation would enhance our national security, and it would promote public safety. And I say this not as a representative of the software industry but, rather, as a former employee of the National Security Agency who learned about encryption there and more recently as an advisor to the President's Commission on Critical Infrastructure Protection.

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    The broad use of cryptography in U.S. software products is indispensable in protecting all of the infrastructures upon which all of our lives depend.
    The second point I would like to make is, it is not the case by any stretch of the imagination that passage of this bill would substantively inhibit law enforcement from the detection and prosecution of criminals. On this point, I would like to address two different scenarios.
    In the case of smart criminals, or criminals communicating among themselves, independent of anything the U.S. Government does or is capable of doing, they will be able to wrap around their communications and data strong encryption widely available today to make them unavailable to U.S. law enforcement. There is nothing we can do about it.
    In the case of criminals communicating with legitimate businesses, there is existing legislation with respect to search warrants and things like that that would allow law enforcement agents with proper authorization to be able to get access to data.
    There is another category of criminals which law enforcement representatives frequently refer to as dumb criminals, and for those dumb criminals, law enforcement argues if we make encryption easy to use, then they will use it, making prosecution more difficult.
    My response to that is, dumb criminals are precisely that, dumb, and regardless of whatever encryption they use, they will continue to do things like renting hotels or Ryder trucks in their own name or depositing money in banks that they robbed the previous day. They will provide an ample trail for law enforcement to follow.
    The final thought I would like to share with you is that we are at a critical moment in the history of the U.S. software industry. We currently have world domination; we have over 70 percent of the market. We did this with: One, the innate creativity of Americans; and, two, the ability to provide products that the world wants.

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    The primary benefit, or one of the many benefits, of Representative Goodlatte's legislation is that it would remove government impediments, thus allowing the U.S. software industry to continue this trend of world dominance.
    I would like to thank you for the opportunity to make this statement.
    [The prepared statement of Mr. Parenty appears in the appendix.]
    Ms. ROS-LEHTINEN. Thank you so much.
    Mr. Walker.


    Mr. WALKER. Thank you. I appreciate the opportunity to speak to you again.
    I was here 3 1/2 years ago when you had a hearing on this same set of subjects. It is frustrating for a lot of us to be back here again with the same arguments and the same demos.
    Now, the Web wasn't as well established as now, so they weren't quite as dramatic, but in fact we went to Finland 3 1/2 years ago and picked up DES and demonstrated we could bring it in and, if we sent it back, we would be violating the laws.
    I was here then, and I argued at that point we are right at the end of the Clipper debate. Clipper had been introduced by the government as the answer to all of this: Strong cryptography, but the government kept the key. The government established key escrow centers at NIST and Treasury in order to keep the keys, so if they ever needed them, all they had to do was go to their own people and pick it off. Everyone hated that. It was a terrible situation and was totally rejected.

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    In fact, the legislation, back in the 1993–94 timeframe that Representative Cantwell and Senator Murray introduced was very similar to the legislation that is here now. I sat here and I testified also before Senator Leahy in May 1994 that government key escrow was a very bad thing and we needed to do something else.
    I walked the halls of this building and talked to folks about that legislation, and I heard firsthand attacks on myself and my own integrity as to the viability of it, treated as non-American. But I also watched the battles that happened behind the scenes that brought that legislation to its knees. It turned it into a survey of worldwide cryptography.
    A number of us following that concluded that this was a no-win battle, there was going to be this struggle going on, and the fact that we are here today is an indication that that struggle goes on.
    We began to look for an alternative. We began to realize that companies and individuals who use encryption, encryption is used to keep other people from reading your information, but if you lose the keys, you are not going to be able to read it either. They are effective.
    So we concluded that if key recovery systems, user-controlled key recovery systems, systems run by companies and organizations for their own purposes, if they were to become widespread, maybe we have a middle ground solution beginning to emerge.
    We talked to folks at the NSA and FBI and convinced them that if in fact they didn't promote the existence of user-controlled key recovery, that in fact they would be up against totally unbreakable encryption within 5 years and certainly within 50 years.
    And as a result of pressure from—suggestions from us and from others, the Administration has changed their policy in a significant way. They are now granting the ability to export strong encryption, the strongest encryption that you can get anywhere, so long as there is a key recovery system involved, user-controlled key recovery systems.

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    Now, unfortunately, a lot of people are portraying this as just another version of Clipper, another extension of Clipper. We have permission to export strong cryptography to Royal Dutch Shell, the Netherlands, totally outside the United States running their own key recovery center. We have dozens of other companies able to do that around the world.
    I want to not disagree with my fellow panelists here but, in fact, indicate that there actually has been some dramatic progress since 1993 and 1994. There is a middle-ground solution; there is a chance to have the opportunity to make some progress here and to move on and do our things with our lives. In fact, we find ourselves very much in the same situation as we did in 1993 and 1994, and, unfortunately, I see the forces at work that are going to cause these bills to come to the same conclusion, that the Cantwell and Murray bill came to.
    I believe a significant thing happened last October. The Administration announced that you could export any cryptography as long as it had a key recovery system. But another important thing happened when the Key Recovery Alliance was created. Initially there were 11 companies involved, IBM, DEC, Apple, HP, Sun, and others. That Alliance has grown to 60 members. These people are not there to harangue the government about export control. If these people agree that key recovery is a good idea, and everybody is saying voluntary user-controlled key recovery is a good idea, if it is a good idea, let's promote the existence of that, and then without any change in any law, without establishing any jurisdiction at all, the FBI can have access to key recovery centers just as they have access to your computer or to your files or papers through normal search warrant processes.
    I believe that, in fact, we need to give this industry-driven key recovery activity a chance to succeed. I believe we should——
    Ms. ROS-LEHTINEN. Thank you. Go ahead.
    Mr. WALKER [continuing]. That we need, the Congress should pass minimalist legislation that, in fact, defines, as some people have talked about here, the liability and limitations on people that hold keys, people that give out keys. I don't think we need to do radical things or even semi-radical things.

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    The Administration's proposal to link key recovery to the establishment of some public key infrastructure I think is fundamentally wrong. It is not necessary. There are going to be lots of public key infrastructures established. Key recovery in various forms can work with any one of those. But I also believe it is not wise for us to try to abolish export control, as was proposed 4 or 5 years ago. I believe that is an unnecessary step and one that key recovery, user-controlled key recovery, can in fact provide a middle-ground solution that can get us past these battles. I hope we are not sitting here 4 or 8 years from now on the same subject.
    Ms. ROS-LEHTINEN. Thank you.
    [The prepared statement of Mr. Walker appears in the appendix.]
    Ms. ROS-LEHTINEN. Mr. Gage, all this high-tech talk, and still here it says ''low battery.''
    Mr. GOODLATTE. Thank you, Madam Chairman.
    Mr. Walker, you supported the Cantwell legislation——
    Mr. WALKER. Yes, I did.
    Mr. GOODLATTE [continuing]. Several years ago.
    This legislation is, if not identical, very, very similar. It does not eliminate export controls, it simply says if the foreign guy has the same product, why can't our folks offer the same product without having to go through a clearinghouse, without having to have a label, a stamp put on it that says: Hey, hey, we have gamed this system. Where the foreign guy, these guys in West Germany and thousands more like them around the world, they are going to say: Hey, nothing like that on ours. You don't have to worry about who you trust. That is the issue here.
    The bottom line is, whom do you trust? Different people trust different people. Some people trust our government; some people trust other governments; governments don't trust each other. The gentleman from California made a very good point. We are never going to reach universal acceptance of this. Why not simply allow our companies to go up and meet the foreign competition, which is all that my legislation does and all the legislation you supported in the past has done? What would change your mind about that?

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    Mr. WALKER. The same argument existed here 4 years ago, that there were lots of foreign products out there. In fact, my company has conducted a survey for the available cryptography for 4 years now. We have published our results on the Web. There is lots of cryptography out there by little companies here and there.
    Mr. GOODLATTE. Little companies tend to become big companies. That is the history of Microsoft and others in the business, and the way they do it is by perceiving an opportunity in the market and exploiting that opportunity, and clearly the article we introduced here was also posted on the computer projection. These folks are doing just that; not just this group but many, many others. Why shouldn't we be able to compete with them?
    Mr. WALKER. I am not arguing that we shouldn't. The situation is, somebody producing DES or PGP or whatever, PGP has been around forever. It is growing in interest in the United States, but it is not integrated into any of the products that you and I would buy today. The fact that this——
    Mr. GOODLATTE. But it should be. Something like that should be available to allay the concerns that people have in this country right now that Mr. Parenty addressed about the vulnerability of our financial systems——
    Mr. WALKER. No question about it.
    Mr. GOODLATTE. Our electric generation facilities and a whole host of other things that relate to the security of this country or the right of privacy of individual Americans.
    Why would we want to tie the hands of our software companies and not allow them to go head to head with the foreign competition, and why would you change your position from support of the Cantwell bill, which is the model for my bill today?
    Mr. WALKER. What I have tried to do is find a space in the middle between those hard-liners on the national security law enforcement side who will try to kill your bill and successfully killed the predecessor of your bill before——

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    Mr. GOODLATTE. Let me give you an example of how times have changed. We have 35 members of the House Judiciary Committee; 24 of them have cosponsored this legislation. That is the principal committee in the U.S. Congress for dealing with law enforcement issues and has a long history of standing up and fighting against crime and supporting law enforcement with the tools they need to fight crime.
    We have come to recognize that law enforcement is behind the times. They have an Industrial Age solution to an Information Age problem, and we have stepped up to the plate and said now is the time to move this legislation forward and free up American companies to, one, protect jobs and compete with the foreign competition, but, two, even more importantly, get that heavily encrypted software into every home and every business in America to prevent crime and fight crime. And that is why the Judiciary Committee will support this legislation and why it will pass and didn't pass a few years ago.
    Mr. Parenty, let me ask you, could you briefly explain the difference between the key management structure and the key recovery or key escrow?
    Mr. PARENTY. OK. That is something I am glad you brought up, because in all of the discussions on the first panel with respect to the need to trust somebody who issues keys, the need to be able to have some mechanism for managing keys, that is quite true, and for electronic commerce and general use of the Internet to succeed, that is an absolute requirement, and that is something that there are a number of both international and national standards bodies that are looking at standardized, effective, secure ways of being able to issue and manage keys.
    That is entirely logically separate from, and can be separated from, the whole issue of having a third party that keeps spare copies or escrowed copies of keys. And in point of fact, the primary work that is being done in the Internet arena for standardization of a public key infrastructure is not addressing, because there is no pronounced demand at the moment, the issues of incorporating into that infrastructure mechanisms for third-party escrow agents.

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    Mr. GOODLATTE. Are you creating any key recovery products now, and have you applied for an export license under the new regulations?
    Mr. PARENTY. Actually, we are now coming up on the 2-month anniversary of Sybase submitting an application for export under the new regulations in which we proposed a voluntary key recovery mechanism that differed from the Administration's recommendation in two ways, one of which is that the key recovery mechanism would only be for stored data, not for communications, because that is the only kind of key recovery for which we see a commercial demand; and, two, that there would be no requirement for the customer to use any third-party escrow agent.
    And we have had conversations with the Commerce Department, who had questions from the FBI with respect to clarification. In 2 days, it will be 2 months, and we have not received a formal response. It is 2 months—it seems like 2 years, but no, it is 2 months, and even if our application is approved, that does not in any way diminish the need for legislation, because the set of conditions that are in place for the issuance of the export license make it extraordinarily difficult for not only my own software company to make business decisions, but also for the whole host of companies downstream who build products upon our products to be able to make business decisions.
    Mr. GOODLATTE. And isn't it fair to say that in your industry 2 months is like 2 years under some of the other lead times necessary to develop products in other Industrial Age type of industries? Things move very, very quickly in your field, do they not?
    Mr. PARENTY. That is why there is now coined the term, ''Internet time.''
    Mr. GOODLATTE. Exactly. So when Mr. Reinsch says the Department has not turned down any applications, that may well be correct, but that doesn't solve the problem of the bottleneck that is going to be far more severe. And what is the other alternative? They can take that offshore and provide that same product somewhere else.

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    Mr. PARENTY. That is technologically an alternative. However, the result will be a product whose quality, integration and performance may not be as good as if we were able to do it ourselves in the United States.
    Mr. GOODLATTE. Currently, but as time evolves that may change.
    Mr. PARENTY. That is correct.
    Mr. GOODLATTE. You found this very, very interesting, because I thought my legislation was geared toward promoting the use of encryption—one would logically want to make sure they knew how to get into their own computer if they heavily encrypted the information, whether that were a bank or medical concern or whatever, and therefore some management of the keys, some system to recover those keys and be able to get into the system, I presumed would be something that we would want to promote along with my legislation.
    But now we hear from the Administration that they think that my legislation inhibits the development of key recovery or key management. And I wonder if you would comment on that, any of the panel members.
    Mr. PARENTY. To begin with, the importance of being able to have spare or extra keys for encrypted stored data is indispensable for running a business; there is no question about that at all. And a mechanism that allows for a corporation or individual to be able to very conveniently keep spare copies of keys is an absolute requirement for using cryptography. So independent of anything the government does, there will be a move for key recovery that is voluntary and that pertains to stored data.
    Mr. GOODLATTE. And I would take it that everybody on this panel, including Mr. Walker, strongly supports the development of key recovery systems. Do any of you know anything in my legislation that inhibits it?
    Mr. Berman.
    Mr. BERMAN. I know nothing in your legislation. But I do want to make a point that the Administration draft bill that is floating around on the Internet would inhibit the development of voluntary key recovery systems. It is going to have just a counterimpact, because while we say it is voluntary, I think when you dot the I's and cross the T's, they are really talking about the government-dominated key recovery system where 90 percent of their concerns are ensuring access to keys by government agencies on an instantaneous basis and not dealing with the real security problems that are created every time you have third-party access guaranteed further and further away from the end user.

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    So the government, while saying that this is not a secure system to have key recovery unless we come in here is going to have the adverse consequence and make people very leery of developing and using such products.
    Mr. WALKER. And let me say I agree that the proposed legislation that was floated by whoever in the Administration, which they apparently are now giving up on, it sounds like would have been detrimental to this.
    I am proposing exactly the same thing that Tom and others are talking about, that we have voluntary user-controlled key recovery. If that comes into place, then law enforcement, if they get a search warrant, is going to be able to come in, look at your computer, look at whatever information you have, and that is fine. We have search warrant; we have wire tap legislation; that is fine; they don't need any more than that. And if key recovery is going to become something that grows in the industry—which we believe it will, the Administration believes it will—I think we may have found the solution to this problem without having to go through any more legislative process.
    Maybe it is reasonable to pass your bill——
    Mr. GOODLATTE. If the Administration would back off from severe export controls and back off from this effort to impose what I would call mandatory, you may call it voluntary, but I think the underlying effort is still to create a mandatory—I am glad to hear them say they don't want it, because I think that is the first step toward getting rid of that policy.
    I hope we are all in agreement that my legislation is designed to promote both the use of encryption and key recovery, and we would welcome comments from anybody about efforts to make sure we are promoting key recovery. We are very desirous of doing that.
    Mr. GAGE. I am a member of the Federal networking committee advisory committee, it is a group that advises the Federal Government on what directions to take in all networks and all institutions of the Federal Government, and we felt it necessary 2 weeks ago to explicitly state that though it may be appropriate for national policy to limit the deployment of Federal production systems—that is, to keep things from moving out into the embassies or something—or even control some private systems, you cannot constrain research or experimentation on security or privacy technologies. Our point is to prohibit the mandatory enforcement of key recovery mechanisms on those that are evolving the way the Internet works.

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    And I just point out when Kasparov gave up a draw to Big Blue, to Deep Think, the thing playing chess, the Internet chat room came up with—I am sorry, Kasparov gave up, accepted defeat, when it could have been a draw. And on the Internet, a group of people found the pathway, the proper chess game that would have beaten Big Blue and forced a draw. Kasparov hit his head and looked off into space, and somebody watching him said, and he said that was all there was to it. The Internet came up with a new solution that the world's chess champion and the best chess playing computer couldn't come up with. We are watching that same change in the Internet, and it is necessary that we not have an Assistant Secretary Reinsch act as the gateway controlling all advancing technology.
    Mr. GOODLATTE. So competition is a good thing here, in chess as well. I have to say that I am very supportive of you, as you know, with this legislation, but in that match, I am on Kasparov's side.
    Madam Chairman, thank you very much.
    Ms. ROS-LEHTINEN. Mr. Goodlatte, it was a pleasure having you here. You are a welcome addition. You are welcome back any time.
    We have another hearing, I think, next week at 2:30 on another subject, but please come back. We welcome Mr. Luther.
    Thank you to both sets of panelists and most especially to our second set. And thank you, Mr. Gage, for your demonstration. And we thank the audience for sticking around as well.
    The Subcommittee is now adjourned.
    [Whereupon, at 12:06 p.m., the Subcommittee was adjourned.]


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