C. BOYDEN GRAY VS. SOFTWAR

   C. BOYDEN GRAY

Direct Line (202) 663-6888

WILMER, CUTLER & PICKERING
   2445 M STREET, N.W,
   WASHINGTON, D.C. 20037-1420

     TELEPHONE (202) 663-6000
     FACSIMILE (202) 663-6363

March 11, 1998

Mr. Charles R. Smith

Dear Mr. Smith:

       It has come to our attention, as counsel to the Computer
Systems Policy Project (the "CSPP"), that you are proposing to
publish in Insight Magazine a story that attempts to link
President Clinton's deputy chief of staff John Podesta, Podesta
Associates, Inc., the CSPP and Kenneth Kay, CSPP's Executive
Director, to conflicts of interest and to improper White House
access and favors in return for campaign donations. After
reviewing the article, we were struck by the large number of
factual inaccuracies throughout the article. In an attempt to
provide you with the correct information prior to press, we have
collected some of the more egregious examples below.

       Perhaps the most important error in the article concerns
the relationship between Podesta Associates and John Podesta. To
our knowledge John Podesta relinquished all equity, ownership
and control of any sort in Podesta Associates when he took his
first position with the Clinton White House in January 1993. In
the brief period during which John Podesta was not working in
the White House during the last five years, from July 1995 until
February 1997, to the best of our knowledge he never regained
any ownership in or control of Podesta Associates. Nor during
that period, to the best of our knowledge, did he violate the
one year prohibition on lobbying. Accordingly, the article' s
suggestion of improper conduct by John Podesta on behalf of
Podesta Associates and its then client CSPP appears to be
without any foundation. Any suggestion to the contrary in the
face of these facts would appear to be in blatant disregard of
the factual record.

       To the extent the article alleges that Podesta Associates
was working for CSPP prior to July 1994, the article is in
error. It was only in July 1994 that the CSPP retained Podesta
Associates for certain administrative and professional services,
and CSPP did not engage in Administration encryption issues
until November, 1995 (after John Podesta had already left his
position at the White House). In addition, Mr. Kay left Podesta
Associates in January 1997 and set up his own organization that
then took over CSPP's management from Podesta Associates.

       The article's portrayal of the Interagency Working Group
on Encryption ("IWG") plainly overstates the secretive nature of
this body. For example, in November 1995, the Commerce
Department sent out, on behalf of the IWG, a Media Advisory
seeking public comment, to the IWG, on the IWG's "Draft Export
Criteria For Key Escrow Encryption." To facilitate the
solicitation of the public comments, a meeting "free and open to
the public" was set up at which "[r]representatives from the
interagency encryption working group will discuss the draft
criteria and answer related questions." The IWG hardly sounds
like the cloak and dagger organization the article portrays.

       The article also overstates the DNC campaign
contributions of the relevant parties. Mr. Kay made only one
donation to the DNC during this period for a total donation of
$1,250 (the original donation was for $2,500 but Mr. Kay
received a painting in return from the DNC worth $1,250).  CSPP
made no contributions to the DNC.

       The article's discussion of the meetings between the CSPP
and members of the Administration is misleading. CSPP, like all
other industry groups, exercises its constitutional right to
lobby the government on issues of interests to its members. In
turn the government tries to convince industry, especially
industry leaders like the members of CSPP, of the merits of
their positions. Such communication does not fall under the
Federal Advisory Committee Act; CSPP members are not advisors,
they are petitioners. CSPP routinely requests meetings with
Administration officials when its CEO members are in Washington.
These meetings are not "secret"; their purpose is to engage the
Administration in a dialogue about matters of interest to the
industry. We understand that other industry groups have engaged
in similar meetings with the administration on encryption and
other industry issues.

       The article's discussion of the meetings between the CSPP
and the Administration is also inaccurate. For example, the
article claims that CSPP met with the IWG in January 1995. This
is incorrect--there was no such meeting. Furthermore, as
mentioned above, the CSPP did not engage the Administration on
encryption until November, 1995. The article also is incorrect
with respect to other meetings between the CSPP and the
Administration. For example, at the June 6, 1995 meeting, CSPP
did not meet with Secretaries Perry or Christopher. Nor does the
CSPP engage in biannual meetings with the National Economic
Council, with whom there is certainly no connection like that
described in the article.

       In its efforts to convince U.S. high technology companies
of the merits of its encryption policies; the Administration in
early 1996 did invite CSPP representatives with the necessary
security clearances to two classified briefings. Mr. Kay did not
participate in these briefings. It is also our understanding
that other interested industry groups were invited to
participate in similar briefings.

       Finally, it is our understanding that CSPP staff did on
several occasions try to contact you and left messages.

       Accordingly, we repeat that there is absolutely no basis
for the article's suggestion of improper conduct by John Podesta
and in view of these factual inaccuracies, as well as numerous
others not mentioned, there is very little left in the article
to support its suggestion that Podesta Associates, the CSPP, and
Mr. Kay were an "unelected, unofficial, and unaccountable fourth
arm of the government."

Sincerely,

CC2

Mr. Paul Rodriguez
Insight, The Washington Times Corp.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
CHARLES R. SMITH
SOFTWAR

MARCH 12, 1998

C. BOYDEN GRAY
WILMER, CUTLER, PICKERING
FAX 202/663-6363

REF:  ENCRYPTION AND SUPER COMPUTER EXPORT ARTICLE AND JOHN
      PODESTA

Dear Sir:

Thank you for responding, however, I must clearly note that Mr.
Podesta has chosen NOT to answer the list of questions submitted
to him in writing as per his request.  I reserve the right to
publish those questions along with the fact that Mr. Podesta has
elected not to respond.

In addition, I wish to point out some very important errors in
the letter that you have presented in defense of Mr. Podesta.

First, you claim that Mr. Podesta joined Podesta Associates in
July of 1995.  Your claim is in direct conflict with Federal
Election Commission records which show that Mr. John Podesta
donated campaign monies prior to July of 1995 using Podesta
Associate as his employer.  I, therefore, note that according to
the Federal Election Commission, Mr. Podesta was employed and
paid by Podesta Associates prior to his term of service that you
have indicated.  This error begs the question of does anyone
know exactly WHEN did Mr. Podesta join the employ of his brother
in 1995?

Secondly, you assert that the CSSP did not discuss encryption
issues with the administration until November 1995.  This is in
direct conflict with a briefing memo sent to Ron Brown by
current BXA head William Reinsch on June 1, 1995.  This memo was
obtained from the Commerce Dept. using the Freedom of
Information Act.  In this memo Mr. Reinsch states the CSPP had
plenty of previous contact with administration officials prior
to June 1, 1995:

  "At present, CSPP has not decided whether it will challenge
   the government's export limitations of encryption...  A CSPP
   source has stated that their study was commissioned because
   there was concern that the Administration study would not
   include sufficient industry input... We recommend you urge
   continued close contact between CSPP and the NEC on this
   issue."

William Reinsch To Ron Brown, June 1, 1995

Furthermore, Mr. Reinsch notes that a government survey on
encryption was given to CSPP members prior to June 1, 1995 and
he urged Secretary Brown to "encourage the CEO's present to send
in their responses".  This memo is clear evidence that your
claim that the CSPP did not present such issues before November
1995 is false.

Then there is your claim that Mr. Kay donated only $1,250
dollars to democratic candidates - the other $1,250 being
returned to him in the form of a "painting".  This is in
contrary to the Federal Election Commission donation records for
Mr. Kay who listed his employer as "Podesta Associates" and far
less than the FEC records show.  The painting matter also raises
more questions of the relationship between the Democratic
National Party and Mr. Kay.  What painting?  How much is it
worth?  Who painted it?  Why did the DNC sell it?

Another admission you make in your response is that secret
meetings with CSPP members did take place.  What meetings?
What policy was discussed?  Who was invited and what waivers
were issued for their exposure to classified materials?  Why was
the public cut out of a "domestic" issue such as the security in
place in their bank accounts and on their home computers?

Another point you make is that there is no connection between
Podesta and Associates and Mr. John Podesta.  In fact, Podesta
and Associates sent an unsolitcited fax to me no more than 30
minutes after I received the response from Mr. Michael B.
Waitzkin, White House Counsel.  At no time was I able to get
anyone at Podesta and Associates to respond to my inquiries.  At
no time did I send my fax number to Podesta and Associates.  Of
course, their fax is a denial of the proposed article and their
claim that Mr. Podesta was employed starting in July of 1995.
The rapid and co-ordinated response by Podesta and Associates
with the White House Counsel is a clear demonstration of exactly
HOW CLOSE the relationship is.  

Of great concern to me is one whole subject/issue has been
avoided altogether.  The illegal export of US built super
computers to nuclear weapons labs in Russia and China.  I note
that CSPP member Silicon Graphics and Podesta Associates client
IBM exported those computers without license to Arazmas 17, a
Russian nuclear weapons lab.  The primary topic of the June 1,
1995 memo to Ron Brown was the CSPP closed meeting on June 6,
1995.  According to Mr. Reinsch's memo, the June 6, 1995 meeting
was on the "current export control levels for computers".  I
would like to note here for you that those illegal exports took
place directly after that closed meeting. 

Finally, Mr. Podesta has responded through White House attorney,
Michael B. Waitzkin, that he sought and was granted a waiver
from conflict of interest from White House Counsel in 1997.  I
note that Mr. Podesta obtained that waiver some four years after
his original term of service, AFTER the closed meetings were
held and AFTER the exports took place.  Perhaps, you can supply
a copy of that waiver since Mr. Podesta has failed to respond to
my request for that information.  

Best Wishes,

Charles R. Smith
SOFTWAR


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