Do political donations buy licenses to cheat?

Insight on the News, Nov 17, 1997 by Charles Smith

Vice President Al Gore said he did not violate the law by making phone calls for donations from the White House; President Clinton confidently told the Washington press corps in March: "I don't believe you can find any evidence of the fact that I had changed government policy solely because of a contribution." Whether the Clinton administration's actions -- or deliberate inaction -- benefited any large contributor "chiefly" or "primarily" rather than "solely" because of a donation probably is an issue that only God can answer. But whether California investment banker Sanford Robertson's investment firm reaped rich rewards soon after Robertson made a large donation to the Democratic National Committee, or DNC, in 1996 there can be little doubt.

According to Gore's call records of November 1995, the vice president intended to call Robertson, a longtime Clinton backer, to seek a $100,000 donation. Robertson, who denies that Gore called him, nonetheless gave $100,000 to the Democrats in January 1996, with $80,000 of soft money going to the DNC and $20,000 of hard money directly to the Clinton-Gore campaign.

Three months later Robertson's investment banking firm, Robertson, Stephenson & Co. raked in a financial advisor's fee of $2 million for its role in aiding the merger of two large computer-security firms, RSA Data Security Inc., or RSA -- the largest U.S. encryption software company -- and Security Dynamics Technologies Inc., or SDTI, shortly after RSA had obtained an exclusive deal to pursue encryption research with the People's Republic of China. The merger of the two companies took place three months after an agreement was signed between James Bidzos, head of RSA, and the Chinese government for the purpose of performing joint research on encryption.

RSA is a leading-edge company in developing "public-key encryption," a type of strong encryption that allows the sender and the receiver to exchange messages without the need to meet beforehand to exchange keys. RSAs product is used by banking and financial institutions to send and verify transfers of funds and is considered the industry's standard means of funds verification.

Bidzos said in an electronic interview that the deal was a "memorandum of understanding," or MOU, with China's Laboratory of Information Security, or LOIS, and the Ministry of Foreign Trade and Economic Cooperation, or MOFTEC. Bidzos said the deal only applies to products that legally may be exported to China.

How important was this deal? According to an official of an RSA competitor, the MOU was a highly significant accomplishment for a U.S. company "The RSA-MOU with China is an historic moment, akin to Lindbergh crossing the Atlantic for the first time," said Rich Ankey, vice president of Certco, a banking and finance-information security firm based in New York City. No other company, including Sun Microsystems, has this kind of agreement with the Chinese, according to Ankey, who added: "There is no doubt that RSA has positioned itself on the inside track with the People's Republic of China, and the MOU certainly made RSA much more valuable to Security Dynamics."

Securities and Exchange Commission records show that before the merger RSA was worth at most $226 million, and that SDTI paid $285 million for RSA's stock. According to Bidzos, RSA currently is worth about $296 million -- a good profit by any standard. The merger was routinely reviewed and approved by the Justice Department, according to Thomas Eddy, the Robertson, Stephens partner who advised SDTI on the merger.

True, Bidzos, who stood to gain a great deal from the China deal, donated nothing to the DNC. However, the following sequence of events is worth noting: According to SEC documents filed at the time of the merger, the SDTI president Charles Stuckey discussed with Bidzos the possibility of merging their two companies in November, 1995, just a month after Bidzos had made a preliminary visit to the Peoples Republic of China. Within days of that meeting, Robertson's name was on Al Gore's call list. In late January of 1996, Robertson's $100,000 was received by the Democrats in Washington. A few days later, Bidzos signed the MOU with China; three months later SDTI merged with RSA to the mutual benefit of all parties.

Some lawmakers concerned about RSA's "joint-research" project wonder whether the Clinton administration is preaching strong control of encryption and practicing the opposite. Rep. Curt Weldon, Pennsylvania Republican and chairman of the House National Security subcommittee on Military Research and Development, is one. "We have been working with the administration to slow the availability of selling encryption technology to developing powers like China," Weldon told Insight, adding: "If this [joint research] is the case, it is treason." Weldon said he was "dismayed that the administration was leading the effort to sell this kind of technology to an adversary." He also complained that if the "administration had sold out its own tough policy against encryption exports in exchange for campaign donations, this could be grounds for impeachment."