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17 July 2003

Wall Street Journal, July 17, 2003

Concerns of Wiretapping Imperil a Planned Merger


On March 5, 1921, four miles off the Florida coast, a U.S. warship fired a warning shot across the bow of a Western Union ship laying a new underwater communications cable.

The SS Robert C. Clowry had been putting the final touches on a new wire routing telegraph and phone traffic between the U.S. and Brazil over British-controlled cables. The U.S. was desperate to prevent that because it knew the British tapped those lines to eavesdrop on commercial and governmental messages. The warning shot worked: The Clowry's captain, shaken, headed for Miami, leaving the cable to sink to the ocean's floor unfinished, according to a best-selling book on U.S. electronic surveillance, "The Puzzle Palace," by James Bamford.

The hundreds of thousands of miles of fiber-optic cables that snake across ocean floors and along railways today carry masses of Internet data instead of telegrams. But preventing other countries from tapping the lines -- while ensuring that U.S. intelligence services can still do so -- is such a high priority for the U.S. that the government may kill a high-profile telecommunications merger to guarantee it.

That could spell bad news for Singapore Technologies Telemedia Pte. Ltd, whose bid for ailing U.S. telecommunications concern Global Crossing Ltd. has run into serious opposition in Washington.

Global Crossing, which operates a 100,000-mile fiber-optic network, filed for bankruptcy in early 2002 and is running out of cash, according to testimony in bankruptcy court. If the STT deal fails, some analysts worry about Global Crossing's ability to survive.

At issue is the question of whether putting Global under foreign control would harm U.S. national security by enabling foreign interests to learn whom the U.S. is wiretapping, while increasing their ability to snoop on U.S. industrial and military secrets.

People familiar with the Global Crossing review say that the Pentagon is also keen on keeping the network in U.S. hands for fear that it could be used to cripple public Internet and voice communications. Acting on an internal recommendation, Pentagon officials recently sent a memo to the Treasury Department, which manages the Committee on Foreign Investment in the U.S., the multiagency task force that will make a final recommendation to the White House about whether to allow the merger; the memo urged that the deal be rejected on national-security grounds, according to people familiar with the matter. Maj. Paul Swiergosz, a Pentagon spokesman, confirmed that a decision had been communicated to the panel but declined to comment further.

Such a stance would conflict with other U.S. policy goals, such as ensuring free trade in as many foreign markets as possible. In May, President Bush held a public ceremony in honor of a new U.S.-Singapore free-trade pact, saying he believed in the "power of free enterprise and free trade to improve lives." Singapore Prime Minister Goh Chok Tong recently sent a letter to Vice President Dick Cheney urging the deal be cleared, according to two people familiar with the letter.

The Global Crossing deal has split the cabinet agencies that constitute the foreign-investment committee. Members of the Commerce Department and the U.S. Trade Representative are eager to cement ties with Singapore and give a boost to the ailing telecom sector. The Pentagon, and some in the intelligence community, favor blocking it.

The full panel is expected to open a 45-day investigation into the deal, say people familiar with the matter, after which the president will have 15 days to make a final decision. Treasury spokesman Taylor Griffin declined to comment.

Most, if not all, of the U.S. undersea tapping is done by the National Security Agency, whose work is classified and thus unquantifiable. However, U.S. law forbids the NSA to intentionally intercept and process the phone calls and e-mails of U.S. citizens -- most of the undersea cable traffic -- without court approval.

In any event, the U.S. intelligence community is wary of opening up new avenues for potential foreign data-intercepts. "There is a valid concern about who has access to the cables because those people also have access to whatever information goes across them," says Mr. Bamford, whose most recent book, "Body of Secrets," is about the NSA.

When it comes to complying with voice wiretap requests from the Justice department, foreign telecom concerns typically promise to seal off tapping activities inside the U.S., and have them staffed only by U.S. citizens. A person familiar with the deal says that STT and Global Crossing have made concessions "an order of magnitude" greater than what's been done before. Those concessions include requiring as many as 10 network engineers to receive U.S. security clearances; storing all customer and network data in the U.S.; and employing a third party to audit the company's compliance with the government agreement.

Ironically, fiber-optic technology was once touted as being impervious to wiretapping. It works by translating phone calls, faxes, e-mails and encrypted data files into beams of light that travel through a single strand of glass as thin as a human hair. Most undersea cables can carry billions of messages per hour.

The NSA spent more than 15 years working to develop the technology to tap these cable strands. The Navy has almost finished outfitting the nuclear-powered submarine USS Jimmy Carter with state-of-the-art technology for undersea fiber-optic taps, according to people knowledgeable about it.

The government can find ways to address its national-security concerns short of blocking an STT-Global Crossing deal outright, says Todd Malan, the executive director of the Organization for International Investment, a trade association representing U.S. subsidiaries of foreign companies. "We can't let national security become a ruse for banning foreign investment outright," he says. "If we start doing that to foreign companies, foreign governments will do that to ours."

--Neil King Jr. contributed to this article.

Write to Yochi J. Dreazen at yochi.dreazen[at] and Dennis K. Berman at dennis.berman[at]