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FBI vs Silicon Valley: Guess Who's Winning?

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   Just a few weeks ago, it looked as if High-Tech Land was near victory
      in a protracted war with Washington. Its objective: relax export
    controls on software and hardware that encrypt into unbreakable code
         everything from corporate secrets to personal diaries. An
    industry-backed bill to ease the curbs, pushed by Representative Bob
        Goodlatte (R-Va.), was sailing through key House committees.
   But with the doggedness of a gumshoe, Federal Bureau of Investigation
     Director Louis J. Freeh has handed the techies a stunning setback.
   Raising the specter of pedophiles, drug dealers, and terrorists hiding
      their dirty secrets in electronic code, Freeh has been pressing
       Congress to go beyond export controls and impose unprecedented
           restraints on encrypted products in the U.S., as well.
   He's winning. On Sept. 9, the House National Security Committee gutted
    the Goodlatte bill's provisions liberalizing encryption exports. Two
    days later, the House Intelligence Committee added domestic controls
   that guarantee law enforcement officials access to coded information.
    Curbs are vital so ''we do not plow into the Information Age having
       weakened our ability to protect the national security,'' says
                Committee Chairman Porter J. Goss (R-Fla.).
    Capitol Hill's about-face has high-tech execs and civil libertarians
      aghast. The issue has united the likes of Microsoft, Intel, auto
    makers, and phone companies with the American Civil Liberties Union
                  and religious broadcaster Pat Robertson.
    VIOLATING PRIVACY? They see Big Brother not only hampering commerce
   but also violating rights to privacy and free speech. Freeh's plan to
     guarantee police access to decoding ''keys'' would be technically
     impossible or hugely expensive, says Microsoft Corp. lobbyist Jack
   Krumholtz. ''We risk impeding the growth of electronic commerce,'' he
     warns. Adds Rhett Dawson, president of the Information Technology
      Industry Council, which represents computer producers and users:
    ''There is a sense on the Hill that this is a good time to run over
            Fourth Amendment'' limits on searches and seizures.
      Freeh's proposal would require everyone who encrypts data to use
      technology that permits law enforcers to break the code. In one
     approach, company or personal records would be encrypted in easily
     breakable code--or the decoding keys would be held by a designated
    party, such as a central repository in a company. Police could then
    get a court order and obtain the keys without the users' knowledge.
   ''Not only does the government have the right to break down your door,
   but your door can't be stronger than their battering ram--or you must
    leave a key at the police station,'' fumes Stephen D. Crocker, chief
     technology officer at Cybercash Inc. It's a dramatic expansion of
      police wiretap power, warns Donald Haines of the ACLU. ''It puts
                            everyone at risk.''
   Freeh counters that a world in which criminals have unbreakable codes
   poses a real threat to law enforcement. That argument has swayed many
                lawmakers, who fear appearing soft on crime.
      Just a few years ago, the campaign to curb encryption was waged
   largely by the super-secret National Security Agency. It aimed to keep
     state-of-the-art products out of the hands of foreign terrorists.
     Since the U.S. was the world leader in data-scrambling technology,
    that meant extending cold war export controls. ''It would have been
   very difficult for an agency no one ever heard of to fight Bill Gates
      and the entire software and hardware industry,'' says Washington
     attorney and former NSA official Stewart A. Baker. ''Freeh can.''
   Stung by their sudden defeat, industry and civil liberties groups are
     holding emergency meetings to plan an all-court press. Their first
     goal: prevent the House Commerce Committee, next in line to take a
   crack at the Goodlatte bill, from also adding domestic controls. After
       Commerce votes in September, lobbying will shift to the Rules
   Committee, which must sort out several radically different versions of
    the legislation and send one along for a vote. The coalition is also
              fighting a strict encryption bill in the Senate.
   Meanwhile, the industry is trying to figure out where the White House
   stands. Vice-President Al Gore and Commerce Under Secretary William A.
     Reinsch, who oversees export policy, say the Administration still
   doesn't support mandatory domestic curbs--and the FBI chief is merely
    expressing his own views. Opponents don't completely buy that. Freeh
       may be out on his own, but he's clearly got the backing of the
   Administration, says Rebecca Gould of the Business Software Alliance.
           ''There's no doubt there's been a change in policy.''
   The likely outcome: a tactical retreat by industry to avoid an all-out
     rout. The techies have long rejected a compromise, believing they
   would prevail. Now, pressure from the coalition of business and civil
     libertarians will probably prevent Congress from imposing domestic
     controls. But the price will be living with a modified version of
     export controls. ''For once, they are in a position where they may
   have to negotiate,'' says Reinsch. The electronic wizards seem to have
           met their match in a Washington cop named Louis Freeh.
                           EDITED BY OWEN ULLMANN
                               By John Carey
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