The 200-page document deliberately omitted any direct reference to the IMF or to the Treasury, which has a major voice in the IMF's decisions. The omission, bank officials said, was a conciliatory gesture to both institutions, which have often disagreed with the bank on strategies to fix the crisis that began 18 months ago.
The World Bank's blow-by-blow account of a series of cascading misjudgments places much of the blame on global investors who lent money with abandon to developing nations, and on Asian officials who were eager to accumulate the cash. But it left little doubt that in the bank's judgment the IMF and the Clinton administration shared responsibility for mishandling the initial response to the crisis.
The report also predicts that most of the afflicted nations will probably begin climbing out of recession next year, with growth continuing in 2000. But it warns that "there is still a substantial risk that the world economy will plunge into recession in 1999," particularly if Japan is unable to end its recession.
The World Bank report reflects a broader debate among economists and policymakers about whether decisions by the IMF and the U.S. Treasury deepened the crisis, and whether the movement in recent years to liberalize financial markets around the world should be dramatically slowed. It argues that some system should be developed to limit the rush of short-term investments into developing countries that do not yet have the regulatory systems in place to monitor how the foreign cash is spent.
"The heart of this current crisis," Joseph Stiglitz, the chief economist of the Bank, said Wednesday, "is the surge of capital flows. The surge is followed by a precipitous flow out. Few countries, no matter how strong their financial institutions, could have withstood such a turnaround, but clearly, the fact that the financial institutions were weak and their firms highly leveraged made these countries particularly vulnerable."
Neither the IMF nor the Treasury, both of which saw the report before it was published, issued any public comment on it Wednesday. There are parts they agree with: IMF and Treasury officials have often blamed the huge volume of private investment into developing countries -- and the refusal of investors to heed the risks associated with putting their money into countries with few regulatory safeguards -- for creating the conditions that led to the bust.
But they continue to defend their initial strategy of urging Thailand, Indonesia and South Korea to raise their interest rates, a classic economic solution intended to reassure investors and stabilize national currencies. In Thailand and South Korea, those rates have now declined to about 7 percent and the currencies have stabilized, developments that IMF officials say vindicate their approach.
The Bank's report argues that the strategy backfired, stabilizing the currencies at the cost of plunging the countries into deep recessions with substantial unemployment. The report asserts that the interest rate increases spread the economic pain far beyond the banks, investment funds and real estate companies that had gotten the countries into trouble to begin with, sending thousands of small businesses in to bankruptcy.
"Some estimates are that levels of bankruptcy in Indonesia now are 75 percent," Stiglitz argued Wednesday, "and, you know, you cannot have a country perform with 75 percent of its firms in bankruptcy." The report was published on the day that the board of the IMF formally began its review of the latest bailout, a $41.5 billion aid package to Brazil. While the World Bank is a major participant in that bailout, it warned Wednesday against the risk of what it termed "rescue creep" as aid packages get larger and larger.
"No reasonable amount of public money can stop a justified speculative attack" on a country's currency, the report concluded. "By themselves, larger packages worsen moral hazard problems" -- the risk that investors will expect governments to bail them out -- "and may lead to excessively tough conditions, defeating the end objectives."
The World Bank and the IMF were both created by the Bretton Woods agreement in 1944 to bring order to the world economy. The bank's primary responsibility is tending to the poor with development programs to help fend off poverty and disease; the IMF focuses chiefly on economic and monetary policy. Those differing mandates have often led them to disagreements, and two months ago Treasury Secretary Robert Rubin publicly warned both institutions that the time had come to put their differences aside. One of the many proposals floating around Washington to reform the institutions would merge their governing boards, but that would require a marriage of two very different cultures.
The IMF continues to insist that it made the best judgments it could at a time of tremendous chaos last year, when the governments of Thailand and South Korea were going through elections and seemed unable to make decisions. And it argues that its program in Indonesia was undermined by the refusal of the government of President Suharto to stick to its economic agreements, and then by the political chaos that resulted in Suharto's resignation and continues on the streets to this day.
Still, at a seminar early this week a senior IMF official conceded that the fund made some judgments "too quickly" and mistakenly thought it was seeing a repeat of past currency crises, particularly the one that struck Mexico in 1995. Several months ago, Stanley Fischer, the IMF's first deputy managing director, noted that "in most cases governments call us in only after they discover they are in a mess, usually because they didn't do things they needed to do long ago. If the problems were easy to solve, they'd do it themselves."
Many of the conclusions in the report are likely to fuel the debate over what to do next. For example, the Bank calls for a tremendous slowdown in the movement in recent years to deregulate financial markets in developing countries, a reversal of the policy that the IMF advocated as late as April 1997, just three months before Thailand's troubles touched off the crisis.
"Financial-sector liberalization," the report adds, "which can significantly boost the risk of crisis, should proceed with care -- fully and in step with the capacity to design and enforce tighter regulation and supervision." In the past year the IMF and the Treasury have begun to take the same line, stressing the need to build regulatory institutions before opening economies to huge capital flows.
The Bank, however, praised the IMF's programs in several countries, including their focus on restructuring corporations and compelling countries, in return for aid, to overhaul their bankruptcy systems and inject public funds into weak banking systems. It also credited the IMF for loosening the conditions on the bailout programs to ease the pain on the poor. Still it noted that 17 million more people in Indonesia are expected to fall below the poverty line this year, as wages collapse.
The accusation comes with Mr. Arafat in Washington for a 45-nation conference today aimed at boosting financial support for projects in areas under his control. The Clinton administration has signaled plans to announce a substantial increase in aid to the Palestinian Authority at the conference.
The Sunday Times said a general, a police chief and "other acolytes" of the Palestinian leader had received luxury apartments financed with a contribution of more than $20 million from the European Union, including some $3.3 million from Britain. The funds were distributed by the EU.
About 90 percent of the apartments went to Arafat loyalists, the paper said, citing a secret EU internal financial report. Each apartment was described as having Italian granite-fitted kitchens, three bedrooms, 1,000 square feet of space and satellite television.
The newspaper said the money had been intended to provide inexpensive housing for poor and overcrowded areas. An unnamed EU auditor said the money had been spent "without any economic controls and is not recoverable."
The accusation could not come at more unfortunate time for Mr. Arafat, who hopes to see donors to his administration contribute generously at today's conference at the State Department.
A similar conference in October 1993 drew pledges of some $2.3 billion for the Palestinians. Of that amount, $2.1 billion has been disbursed in the past five years, according to U.S. officials.
The United States, which has given $500 million in assistance to Palestinian projects over the past five years, is planning to announce "a substantial increase" in such aid, they said.
In a speech yesterday, Mr. Arafat reiterated his intention to proclaim an independent state on May 4, the end of a five-year interim period under the 1993 Oslo peace accord between Israel and the Palestine Liberation Organization.
"We should, by that time, be prepared to declare an independent Palestinian state, with its capital the holy city of Jerusalem," he said in an address to the Arab American Institute.
The future of Jerusalem figures to be perhaps the most difficult issue in the so-called "final status" negotiations between Israel and the Palestinians, which are supposed to be concluded by May.
Israel has already declared the city its eternal and indivisible capital and threatened to annex huge chunks of Palestinian land if Mr. Arafat declares a state next May.
Mr. Arafat acknowledged yesterday that western Jerusalem would remain the capital of Israel while insisting there should be a Palestinian capital in the east, where all faiths would be respected.
"We're not going to erect a Berlin Wall between the two parts of Jerusalem. The two parts ought to be open to each other," he said.
"We're looking toward a new Middle East, in which our children and their children will live together in peace, in freedom, in safety, in security and in stability."
Mr. Arafat, who is scheduled to meet President Clinton at the White House today, also praised the president for his role in brokering an interim peace agreement at the Wye Plantation in Maryland last month.
"We need his continued support," he said. "There are enemies of this peace in more than one place. We need to be vigilant in order to protect the peace of the brave."
Mr. Clinton plans to visit Israel, the West Bank and the Gaza Strip in two weeks. He will address the Palestinian National Council and oversee implementation of a critical element of the Wye River peace accord.
The council, meeting in Gaza on Dec. 14, is due to reaffirm the revocation of clauses in the PLO charter calling for Israel's destruction.
Mr. Arafat also had lunch yesterday with Secretary of Commerce William M. Daley and 15 American business leaders.
Mr. Daley said he hoped today's conference, which will be attended by officials from more than 40 countries, will stimulate the private sector to be more active in investing in Palestinian areas.
"I am committed to helping Chairman Arafat involve the business community in the Middle East peace process," Mr. Daley said. "A lasting peace can only be built on economic stability and jobs."
Through lenient guidelines and roving wiretaps, encryption keys, and other invasive surveillance techniques, the FBI not only has the capacity, but the authority, to track down even the most personal piece of information. Nothing is off-limits-where you shop, what you buy, who you talk to on the phone, what you say, all of which are added to your personal file kept by the FBI.
Ten times larger than the former op center, SIOC houses 184 computers, greatly increasing the FBI's ability to monitor activities. But whose activities are being monitored? In 1983, the "Smith Guidelines" were established to govern FBI investigations. These are far less restrictive than the previous guidelines, allowing the FBI to initiate an investigation without the prerequisite of an "actual or imminent commission of a violent crime." Unlike city police who must have "probable cause" for a search, the federal police must not adhere to that higher standard. Instead, the FBI must only has to certify that the information it seeks is "relevant to an ongoing criminal investigation."
The 1994 Communications Assistance for Law Enforcement Act (CALEA), which allows the FBI to assist in establishing standards for the development of our nation's communication's systems, boosted the FBI's electronic surveillance capability. While FBI Director Louis J. Freeh claims CALEA was meant to keep law enforcement surveillance up-to-date, groups such as the Electronic Privacy Center fear that it will become a "blank check for electronic surveillance... [that] if left to the FBI, will threaten the privacy of all Americans."
Another threat to privacy is the "roving" wiretap order, which authorizes the FBI to tap a phone without specifying the phone to be tapped-including any phone that the subject used or was near. The roving wiretap, which was passed in a closed-door session by the House in October, authorizes FBI access to pen registers and permits the use of devices that record numbers called and received from a particular phone. It also authorizes access to travel records of flights, hotels, and car rentals.
As if this invasion of privacy was not enough, the FBI is asking Congress to pass an encryption reform bill. Encryption is the technology that can encode or scramble computer files, emails, and telephone calls so that they are protected from prying eyes. However, the FBI wants the key to your encryption codes so that they can help themselves to a buffet of personal information by accessing your tax returns, your bank records and credit history. As Rep. Bob Goodlatte (R-VA) said, "Encryption is to digital communications what deadbolt locks are to doors." If the anti-crypto bill passes next session, our doors will not only be unlocked but thrown wide open.
Who is the FBI tracking with their Orwellian-type surveillance and roving wiretaps? Historically, the popular targets were residents whose political or speech associations were perceived by the FBI as threatening to the status quo, such as John Lennon, who was investigated by the FBI for years because of his opposition to the war in Vietnam.
The FBI continues to keep tabs on politically active individuals, irregardless of any suspicion of criminal activity. A federal appeals court ruled last year that the Privacy Act of 1974, which restricts the government's gathering of personal information, does not prohibit the FBI from maintaining files on U.S. citizens, regardless of whether or not the information is related to any ongoing investigation.
The invasive surveillance technology and the compilation of personal files by the FBI prompt Orwellian comparisons. Considering that approximately one house on every street in America could be tapped at any given time, be careful what you think, what you say, what your write and where you go because Big Brother is watching and listening from the fifth floor of FBI headquarters in Washington, D.C.
I have a feeling that the United States government is more corrupt today than at any other time in its history. I am not saying that there are more people on the take, that there are more bribes. I am not talking about Whitewater or comparable incidents. I am talking about a government corrupted by power. I am saying that the government has no sense of accountability or responsibility, and that the government of the United States actually views us, not as its citizens, but as its subjects. It has completely lost complete sight of the premise that the federal government derives its power from the states and from the people, and not the reverse. I have found few days to be as enraging as those during which the Senate debated the Mitchell Health Care Plan. I read in the text of the plan that the states were allowed to levy taxes on the health care premiums of their citizens so that the states could pay for the new obligations that the federal government was imposing on them. The fact that we were permitted to do this, and that no one seemed to think that this was anything unusual, tells you how far we have gone down the road to statism. Both parties, each for slightly different reasons, shoulder significant levels of guilt in this matter.
The federal government expresses its newfound dominion in a variety of ways. It exerts pressure through its courts, through the executive branch and through Congress. The federal government is now forcing the states to struggle with the imposition of unfunded mandates, a powerful concept under which the federal government tells the states what they must do and directs them to do it in the absence of federal funding.
Congress long ago began to sense the rising tide of anti-tax sentiment and it just slipped the bond, ordered the States to raise taxes, and got out of it quite well. Congress also withholds funds in order to coerce the states' behavior. Look at what is happening in Virginia. While the EPA turns down plan after plan, the federal government threatens to withhold highway funds. The government also withheld funds from Wyoming for a long time because we did not raise the age of drinking for teenagers.
Some of the problems that we are now having are directly related to the Tenth Amendment. The federal government is a temptress. It holds out the promise of things to the states, but its promises are conditional. The Goals 2000: Educate America Act is one instance where this happened. The Crime Bill is another example. The idea is that if states conform their penal code to a concept developed in Washington, then money will be available for them to build prisons and hire police. The only problem is that to get the money, states have to cede authority back to the federal government.
The State is endlessly thumbing its nose at property rights. It is only now becoming a political liability to ignore them. Friedreich A. von Hayek, the Nobel Prize-winning economist, said that property is the key to guaranteeing freedom. According to von Hayek, any state which controls the power of property and production controls everything, and under these conditions, there can be no liberty or democracy.
In 1993, Secretary of the Interior Bruce Babbitt gave an interview to Rolling Stone Magazine. The interviewer asked Babbitt about the concept of property rights. Babbitt replied that the old Anglo-Saxon idea of lines in the ground is no longer useful, that we have to develop a more communitarian sense of the rights of property. In response, the startled Rolling Stone interviewer commented that, in a more hysterical time, that notion would have been called communistic. My feeling is that you do not have to have lived in a hysterical time to have that reaction.
There are astonishing threats to free speech on the part of the federal government. Not the least of these threats is the recent Department of Housing and Urban Development (HUD) assault on a Berkeley group protesting the establishment of a housing project for the homeless in their neighborhood. The group was being investigated for violation the Fair Housing Act, simply for voicing their opinion that the housing plan had not been well thought out. Apparently, the government has decided that you may not object to administrative decisions under the Fair Housing Act.
The Environmental Protection Agency (EPA) told my community of Sheridan, Wyoming that it was in danger of putting the health and well-being of all of its citizens at risk if it continued to use its present water supply system. The EPA, pursuant to the Safe Drinking Water Act, ordered Sheridan to install a new drinking water supply system. The community and the county worked with the EPA to develop a new reservoir and a new delivery plan and the plan was deemed acceptable by the administrators of the Act. There was debate in the community, as there always is within a community, over whether we ought to tax ourselves to implement the plan. On the day of the vote on the taxation issue, the EPA Region VIII Director issued a press release stating that if Sheridan did not vote to tax its elf, it would be fined an amount that would exceed our total assessed valuation within ten days of the imposition of the fine. At that moment, we should have told the federal bureaucrats that they could be the mayor and county commissioner of Sheridan, that the county was theirs. But we did not tell them this and we voted to implement the plan.
Then, we were told by administrators of the Clean Water Act that we were going to flood some wetlands. The fact is that the wetland that we were flooding had been created by the original reservoir. Nonetheless, the EPA told us that we could not do it. Then the Corps of Engineers also said that we could not do it but then informed us that people would die and we would incur a large fine if we did not do it. So the community asked us, the congressional delegation, to get involved and see if there was a solution. In response, the Corps of Engineers and the EPA threatened the community for approaching their elected representatives. In my experience, threats of retaliation for appeals to elected representatives are not unique. In short, the EPA said that we had not adequately assessed the alternative of condemnation. Keep in mind that this was a situation where a community's needs were more than fully satisfied by its existing water supply system, despite the fact that it had not quite satisfied all the ins and outs of the EPA. It seems very peculiar that under these circumstances the federal government would complain that the community failed to examine whether it had the authority to take water from some citizens of the community that is needed by other community residents.
Every American is familiar with the Declaration of Independence's flowing statement, "We hold these Truths to be self-evident, that all Men are created equal, that they are endowed by their Creator with certain unalienable Rights, among these are Life, Liberty, and the Pursuit of Happiness - That to secure these Rights, Governments are instituted among Men, deriving their just Powers from the Consent of the Governed... Every school boy and school girl knows it. It is published and promoted all the time. I suspect, however, that far fewer people are familiar with the passage which directly follows it, the portion which states that "whenever any Form of Government becomes destructive of these Ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its Foundation on such Principles, and organizing its Powers in such Form, as to them shall seem most likely to effect their Safety and Happiness." This is not a call to tear up the Constitution and start over. I do not believe that the Constitution is the problem. I do submit that there is an increasingly contentious relationship between our government and its citizens or, as I perceive it, the government and its subjects. Where does this contentiousness come from? It comes from within the bowels of the unelected bureaucrats - not identifiable, not removable. No one knows how to get at a government that reacts in such ways.
The topic chosen for this conference brought to mind an article I wrote for Notre Dame Law School's Journal of Legislation entitled, "Tyranny in America: Would Alexis Recognize This Place Today?" In his book, Democracy in America, Alexis de Tocqueville assessed the prospect of despotism materializing in the United States. De Tocqueville asserted that, "the species of oppression by which democratic nations are menaced is unlike anything which ever before existed in the world... Contrary to mankind's previous experience with despotism, de Tocqueville predicted a new form. De Tocqueville continued, "if despotism were to be established amongst the democratic nations of our day, it might assume a different character; it would be more extensive and more mild; it would degrade men without tormenting them... I have no fear that they will meet with tyrants in their rulers, but rather with guardians."
His warnings are pertinent to the topic of this conference because he describes self- government as America's greatest virtue and its most sturdy impediment to tyranny. Self-government was the bulwark which could ultimately protect the people of the United States from the advent of, what he termed, "administrative despotism". He felt the key to preventing ad- ministrative despotism was maintaining and recognizing the fundamental differences between a centralized government and a centralized administration of that government.
He elaborated on it by noting that the former exists in America, but the latter is nearly unknown there. If the government, after having established the general principles of government, descended to the details of their application and if, having regulated the great interests of the country, it could descend to the circle of individual interests, freedom would soon be banished. It is a very prophetic view of what we might do to ourselves as a nation with the democracy that we possess. The original Articles of Confederation failed largely because the sovereign states retained total control over the powers of taxation, the raising of armies, and the regulation of commerce. As a result, the premise of the constitutional scheme devise the delegates to the Constitutional Convention in 1787 was increased centralization of power and authority at the federal level. It was never their intent, however, that the administration of the central government was to be handled by or directed from the federal level. Far from it, Alexander Hamilton in the Federalist 17 and 31, and James Madison in 46, repeatedly expressed their devout belief in, and the citizens' strong preference for government of a proximate nature.
De Tocqueville's description mirrored this conception of American governance. He noted that, in the American republics, the secondary affairs of society had never been regulated by central authority and nothing to date has revealed its desire to interfere in them. The splendor of American society in those days was the almost invisible nature of government from the perspective of the average citizen. Even when the federal government was empowered to act, it was largely incapable of forcing its will upon the citizens. If there was tremendous dissatisfaction with a directive of the federal government, state and local officials had sufficient stature and power to obviate what they believed to be illicit or malevolent actions. Also, the state and local officials were generally recognized as being closer, in terms of interest, to the people that were served, and thus in a better position to understand and respect the needs and desires of citizens. When the central government issued a decree, it had to entrust the execution of its will to its agents, over whom it frequently had no control. The townships, municipal bodies and counties form numerous concealed breakwaters which served to check or part the tides of popular determination. If an oppressive law were passed, liberty would still be protected by the method by which the law is executed.
With the modern advent of the unfunded mandate, of the overzealous bureaucrat, of coercive federal court orders and of the blackmail of States and localities though the attachment of strings to the granting of federal funds, the federal government circumvents all the protections that we thought were in place against administrative despotism. The statist view, and again I think that both parties are guilty of a major statist view, is that society has changed so dramatically that ordinary citizens cannot be trusted to make complex decisions themselves. Since citizens cannot be relied on to make enlightened and responsible decisions, the federal government has to determine the proper course for its citizens and ensure that its directives are enforced. This approach fundamentally asserts that self-government is ideal if it is simple and convenient, but not worth pursuing if it proves challenging or difficult. The principle of allowing citizens to make those choices for themselves which most directly affect them should be considered inviolable, irrespective of changing political climates, but it has not been considered inviolable.
According to de Tocqueville, self-government is not only ideal but necessary since, even if the citizens of a nation are ignorant, apathetic, and selfish, any attempt by government to make the important or difficult decisions for them would only further aggravate these tendencies, not improve them. The reason is simple: it is precisely the exercise of self-government which makes citizens more attentive, more active.
A marvelous example of the enervating effects of democratic participation occurred following an incident in Kentucky in which a man in a pick-up truck drove up the exit ramp of an interstate highway. He was drunk. He crashed into a busload of children, burning them all - it was a terrible, terrible thing. The county in which it took place began to think that it was alcohol, not this individual, who was to blame. A referendum was put on the ballot forbidding all alcohol, in any form, for sale or consumption anywhere within the county. In a county averaging forty percent participation in the electoral process, eighty-eight percent turned out to turn down that initiative. So, when affected, people do participate.
What has happened, though, with the advent of the Civil War, the Supreme Court's ever expansive interpretation of the Commerce Clause, the New Deal, the Warren Court's Activism, and the Great Society is that the locus of power has shifted decidedly to the central government. The citizens of America are beginning to be fed up with this and have declared this shift in power to be a failure. One of the most fascinating parts of this rejection by the American people is what is happening in the area of postal services. With Federal Express, United Parcel Service, faxes and other things, we are now bypassing a government function that is largely viewed as inefficient.
In the area of security, the American people have basically declared that the police and the courts have not protected the country. There are neighborhood watches. There are external security systems around housing complexes. There are even some cities barring access to the city from the surrounding areas with gates and other methods of protection. In New York City, there are the Guardian Angels, and in most communities there are shopping malls.
Every one always says, what do you mean malls? How are malls relevant to this discussion? My answer is that malls are what cities used to be. Go to a mall on a Saturday night and you see families walking safely with each other. You see young couples. You see people shopping. You see them standing in line for theaters. You see them at cafes enjoying themselves, feeling perfectly secure. Why? Because malls are private property and private security arrangements keep vagrants and other people out of them. In contrast, cities are not allowed to keep these people off the street.
In the area of education, there is a large move now toward privatization. States are beginning to experiment with all kinds of vouchers and other sorts of things. Families, not rich families but poor families, are trying to escape an educational system that is failing them and that is keeping them where they are. All around America you see people beginning to take action. If we are going to change, it seems to me that several things have to take place. It is critical that the size and scope of government, both in manpower and resources, be severely limited. When people are talking about reducing taxes, it is the only means by which to reduce government. The government that is so big that it does not have to concern itself is too big to be a free government and it is becoming less free. Some of us believe that there ought to be an experimental assault on article III, section 2, pruning the right of the court to make certain decisions.
I honestly believe that we are at a sort of watershed time now, and I believe that watershed can actually work to our direct benefit if we recognize what must happen. Government cannot prescribe morals, but it can get out of the way. It can allow the can allow speech. I believe there are five legislative points and five points for any presidency that are important. Whatever they propose ought to be judged according to this five principles: 1) whether it restricts the growth of government; 2) whether it expands personal liberty; 3) whether it will it create economic growth; 4) whether it will foster America's traditional value; and 5) whether it will ensure American security.
The report was written by James Sasser, ambassador to China and former Tennessee senator. Sasser sent his report to the White House, the State Department and the Commerce Department. Sasser, by the way, is the target of an (as yet) unrelated Department of Justice investigation that resulted in 47 indictments against a million-dollar Democratic donor and Sasser associate, Franklin Haney.
The Sasser report contradicts Clinton administration claims that advanced communications exports to China were for "civilian" projects. The report states that the Chinese Army was keenly interested in obtaining U.S. communications technology and the purchases were being financed by Far East billionaire, Li Ka-Shing.
In April 1994, the Clinton administration announced a new license policy for U.S. telecommunications exports. Exports sales for "commercial" applications would, according to a Commerce Department document, "use a General License, GLX which does not require prior U.S. government approval for export."
In 1995, Congress requested the Government Accounting Office do a report on a "civilian" GLX license for a Chinese project called "Hua Mei." The result was a report that reads more like a high-tech thriller than a bland audit report.
According to the GAO, Hua Mei, a joint U.S.-China hotel venture, was no ordinary Chinese "Red Roof" inn. The GAO noted the Chinese partner, Galaxy New Technology, was also owned and operated by the Chinese Army.
"In 1993, SCM Brooks Telecommunications entered into a joint venture with Galaxy New Technology, a Chinese company controlled by the Commission of Science, Technology, and Industry for National Defense (COSTIND), an agency of the Chinese military," the report said.
COSTIND, according to the GAO, "oversees development of China's weapons systems and is responsible for identifying and acquiring telecommunications technology applicable for military use."
The recently released 1996 report written by Sasser states that the People's Liberation Army (PLA) was also directly involved in the so-called "civilian" Chinese fiber optic communication systems. Sasser's report noted that the PLA actively worked on an MPT fiber optic network that the Clinton administration stated was "civil" for the House National Security Committee.
"For example," wrote Sasser, "in laying long-distance fiber optic lines for the MPT's telephones and digital data network, the PLA has provided soldiers to do much of the work. The PLA cadres are considered disciplined and hard working. Once the cable has been laid, the MPT typically allocates some of the bandwidth to the PLA."
"The PLA is already involved in telecommunications in a number of other areas," stated Sasser in his report. "The PLA is probably involved in operation of some networks, particularly in southern China."
Yet, according to a 1996 Department of Defense document written to Rep. Floyd Spence, chairman of the House National Security Committee, the Hua Mei fiber-optic system was a "civilian" enterprise.
"Hua Mei Telecommunications is a civil end user," states the 1996 Defense Department report for Spence. "And that the equipment will be used for a civil end use. We are aware that the Commission on Science, Technology and Industry for National Defense (COSTIND) is a part owner of Hua Mei."
According to the Clinton Defense Department, the COSTIND Hua Mei network was just another PLA money-making enterprise. "We have no information to indicate that the PLA expects to use or benefit from the system directly, other than by deriving profit from the investment. Indeed, the Chinese military C4I infrastructure is largely separate from the civil system, the latter of which is managed by the Ministry of Posts and Telecommunications (MPT)." In comparison, the 1996 State Department report alleges that the Ministry of Posts and Telecommunications (MPT) and Chinese billionaire Li Ka-shing were both directly involved with the PLA in financing U.S. communications exports to China.
According to the report written by Sasser, "Already, foreign companies are interested in the new PLA-backed entity that is likely to emerge over the next year. Recent press reports indicate that Hutchinson Whampoa may be involved with the PLA about possible funding options."
Hutchinson Whampoa Ltd. is owned by the Chinese billionaire Li Ka-Shing. Ka-Shing is the sixth richest man in the world, owner of the giant Far East investment firm Cheong Kong Holdings.
Bill Clinton personally tasked two special Democratic National Committee million-dollar donors to travel on the "Presidential Business Development Mission" to Red China in 1994. Li Ka-Shing met with Loral CEO Bernard Schwartz, millionaire-investor Sanford Robertson and Commerce Secretary Ron Brown in August of 1994, during the Hong Kong leg of the far-east trade mission.
DNC donors Bernard Schwartz and Sanford Robertson were supplied the dossier of Li Ka-Shing prior to the trade trip to Beijing in August 1994. Li Ka-Shing, according to the White House-supplied dossier, was also a "member of the board of directors of the China International Trust and Investment Corporation (CITIC)."
CITIC is the bank of the People's Liberation Army, providing financing for Chinese Army weapons sales and western technology purchases. CITIC serves as the chief investment arm of China's central government and holds ministry status on the Chinese State Council.
Ka-Shing is well known in Chinese military circles. Li Ka-shing played a significant role in the attempted purchase of the Long Beach Naval station for the China Ocean Shipping Company (COSCO). COSCO is owned by the Chinese government and carries PLA weapons exports to the middle-east.
Li Ka-Shing also owns most of the dock space in Hong Kong. Li Ka-Shing and COSCO co-own the ports at both ends of the Panama Canal (Atlantic and Pacific). In 1997, Ka-Shing obtained Clinton administration financing for four huge container vessels to be built for COSCO in Alabama. The ship deal fell apart when it became public in December 1997.
In 1997, Rep. Henry Hyde wrote Attorney General Reno a letter outlining his concerns about Galaxy New Technology. According to Hyde, "In 1994, sophisticated telecommunications technology was transferred to a U.S.-Chinese joint venture called HUA MEI, in which the Chinese partner is an entity controlled by the Chinese military. This particular transfer included fiber-optic communications equipment which is used for high-speed, secure communications over long distances. Also included in the package was advanced encryption software."
However, in 1996, Defense Department officials were adamant that there was no need to check the Chinese firm, Galaxy New Technology, since it was led by a civilian, Madam Nie Lie. Still, DoD officials did admit that Galaxy New Technology head Madam Nie Lie was also the wife of Chinese Army General Ding Henggao, commander of the Chinese unit COSTIND.
Galaxy New Technology staff wear green, have little red stars and they kill for a living. In fact, the so-called "civilian" firm was heavily laced with Chinese Army officers and experts.
One member of Galaxy New Technology management, according to the 1996 Defense Department report, was Director and President "Mr. Deng Changru". Mr. Deng Changru is better known as Lt. Colonel Deng Changru of the People's Liberation Army, head of the PLA communications corps. Another interesting staff member from Galaxy New Technology was co-General Manager "Mr. Xie Zhichao." Lt. Colonel Xie Zhichao, is also the Director of the COSTIND Electronics Design Bureau.
The report by Ambassador Sasser blows the lies away and reveals the truth about the PLA and Clinton. The claim by the Clinton administration that Hua Mei was a "civilian" project was a cover up of the military export of a secure -- nuclear-hardened -- communications system for the PLA.
President Clinton knew exactly who he was dealing with and what they wanted. He personally approved the meetings with Chinese Army officials.
Clinton personally benefited from Chinese Army donations laundered through American hands. In return, the Hua Mei fiber-optic network is currently being used by the PLA General Logistics Division to provide reliable communications during nuclear warfare.
"I was humiliated -- I couldn't believe it was happening," said Richards, who is black and has joined a civil rights lawsuit against Customs. "They had no reason to think I had drugs." Richards, 27, isn't alone.
Officers last year ordered partial or full strip searches or X-rays for 2,447 airline passengers, and found drugs on 27 percent of them, according to figures compiled by the Customs Service.
Customs officials say tough tactics are necessary to catch the growing number of smugglers who swallow cocaine-filled balloons, insert packages of heroin into their body cavities, even hide drugs in a hollow leg or under cover of a fake pregnancy.
"We still have a major drug problem in this country," Customs Commissioner Raymond Kelly said in an interview Wednesday. "We have to do this."
Richards and others who have sued Customs have alleged they were targeted because of their race. Sixty percent of those pulled aside last year for body searches or X-rays were black or Hispanic, Customs figures show. Thirty-three percent of Hispanics who were searched were found to have drugs compared with 31 percent of blacks and 26 percent of whites.
Kelly said race isn't a factor. "There are higher risk countries and higher risk flights," he said. "Those flights may be more populated by a particular ethnic group."
Last year, the Customs Service seized 858 pounds of cocaine and 803 pounds of heroin attached to or inside international air travelers' bodies, officials said. More than 70 percent of the heroin seized at airports was smuggled that way.
Acknowledging that searches "can get pretty traumatic," Kelly said Customs is reviewing its policies and experimenting with new technology that might reduce the number of body searches. The review comes after several lawsuits and complaints from travelers who say they suffered abusive treatment and hours of confinement. For instance: A Florida mother says her baby was born prematurely because Customs officials forced her to take a prescription laxative when she was seven months pregnant. In a lawsuit filed last month, Janneral Denson, 25, said she was taken from the Fort Lauderdale-Hollywood International Airport and shackled to a hospital bed for two days so inspectors could watch her bowel movements. She says her son, born 12 days later, suffered damage.
Two Jamaican-born U.S. citizens each filed a $500,000 claim in September over body cavity searches and X-rays in Tampa, Fla. One of the women learned afterwards she was pregnant and agonized that her fetus might have been harmed, according to their attorney, Warren Hope Dawson. The baby was born healthy. Customs policy requires a pregnancy test before a woman is X-rayed, but Dawson said the pregnant woman was not tested.
A 51-year-old widow returning from an around-the-world trip was held for 22 hours at a San Francisco hospital, x-rayed and given the same powerful laxative. Amanda Buritica of Port Chester, N.Y., won a $451,001 lawsuit last February. A Boston nurse, Bosede Adedeji, won $215,000 in a similar lawsuit in 1991.
Customs officials note that fewer than 2 percent of the 68 million fliers who pass through Customs each year have their luggage opened. Far fewer -- about 49,000 people -- are personally searched, usually with a pat down.
The 1,772 strip searches last year ranged from people told to remove their socks to passengers like Richards who were ordered to take off their underwear and bend over. Strip searches are performed by officers of the same gender.
The Customs review found 19 passengers who were subjected to pelvic or rectal exams by doctors while inspectors watched. Drugs were found in 12 of those cases.
Congress and courts have given Customs broad authority to search for drugs, weapons and other illegal imports.
The Supreme Court ruled that Customs officers at airports and border crossings don't need the probable cause or warrants that police need to search possessions. Customs officers can perform a strip search based on "reasonable suspicion" that someone might be hiding something illegal.
A Customs handbook obtained by The Associated Press advises officers that reasonable suspicion usually requires a combination of factors, including someone who: appears nervous, wears baggy clothing, gives vague or contradictory answers about travel plans, acts unusually polite or argumentative, wears sunglasses or acts sick. Race isn't cited.
Customs officers can detain people for hours, even days, without allowing them a telephone call to a lawyer or relative or charging them with a crime. Inspectors say they keep detainees from making calls so that drug associates aren't tipped off. Generally, if someone is detained for eight hours or more, a federal prosecutor is notified.
Richards is among more than 80 black females who filed a class-action lawsuit claiming they were singled out for strip searches at O'Hare because of race and gender.
The plaintiffs include a 15-year-old girl, a mentally retarded woman, and a woman who uses a wheelchair. Many decided to sue after seeing news reports on Chicago's WMAQ-TV about strip searches of black women.
The agency has hired an outside contractor to review how inspectors deal with the public, and is exploring ways to make the system less hostile. In a test at Miami and New York airports, some passengers selected for strip searches are given the option of having an X-ray instead. The service is also studying new imaging technology that shows things hidden under people's clothes.
Customs officers seek passengers' written consent for an X-ray, but it isn't required. Some travelers say they felt coerced.
Las Vegas police officer Rich Cashton said a Customs inspector who stopped him at Los Angeles International Airport last year grew angry when Cashton asked what would happen if he refused an X-ray.
"He said, 'If you don't sign this form, I'm going to take you down to the hospital and pump your stomach," Cashton recalled. "He was using that threat as intimidation to make me sign a consent form, which is definitely illegal."
Cashton, who identified himself as a police officer, was let go.
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