THE "EXPLOITABLE" CHIP

TOP SECRET


December 23, 1992
Director Sessions
Re:  Use of the Clipper Chip in AT&T TSD 3600 During Phase II of
Production

This document is classified "SECRET" in its entirety unless
otherwise indicated.

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I have discussed this matter at some length with NSA
representatives, including Chief Counsel Stewart Baker, and with
Associate Deputy Attorney General Geoff Greiveldinger, John
Collingwood and Mr. Bayse and Mr. Kallstrom.

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1 - Mr. Bayse                1 - Mr. Kallstrom
1 - Mr. Davis                1 - Mr. Moschella
1 - Mr. Collingwood

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FBI and DOJ officials believe that, although we would be
adequately protected if the current administration (General
Scrowcroft or above) approved the course of action set forth
above, and the Congressional and new administration briefings
were done promptly, there is not a substantial practical
advantage in achieving this at this point.  We also believe that
going forward with the installation of the Clipper chip based on
the approval of the current Administration has some potential
pitfalls.  The most serious concern is that the scenario
regarding the use of the "exploitable" chip could surface
publicly during the transition period or shortly after the
Clinton administration arrives, but before they approve the
proposed overall solution.  If that happened, it might result in
their being pushed toward disavowing the prior Bush
Administration approach in order to avoid the controversy,
rather than the Clinton administration moving forward with us in
a consolidated effort to convince Congress and the public of the
merits of our position.

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My recommendation to you is two fold:

That you consider making one last effort today or tomorrow
(personally or through Mr. Bayse) to convince General Scrowcroft
that we need his approval now to:  (1) request AT&T to use
Clipper in Phase II (expected to begin in early February 1993),
(2) brief key Congressional leaders on the problems and our
proposed short and long term solution, and (3) brief key
transition (or newly appointed Clinton administration) officials
regarding the same matters.

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Both Mr. Bayse and I have attempted to contact CIA officials but
as of this time we have been unable to get any feedback as to the
Agency's position.  Mr. Bayse expects to hear from Admiral
Studeman later today, and we will communicate his position to
you by telephone.

Mr. Bayse and I are available today to discuss this with you.
(I will be on AL tomorrow (Thursday), but in the area and
available by pager.)

J. R. Davis
12/23