CHINESE SPACE ESPIONAGE


HUGHES FORMER CEO C. MICHAEL ARMSTRONG


Military Technology for Sale
Dangerous Exports to the Chinese Army

CLICK HERE TO READ THE 5/6/03 ARTICLE ON U.S. HIGH-TECH EXPORTS TO CHINA


CHINESE FSW RECON SATELLITE


KERRY'S SECRET TIES TO BEIJING
SENATOR WON'T TALK ABOUT SPACE TECH TO CHINA

CLICK HERE TO READ THE 5/6/03 ARTICLE ON U.S. HIGH-TECH EXPORTS TO CHINA


HUGHES CEO C. MICHAEL ARMSTRONG

CLICK HERE TO READ THE 5/6/03 ARTICLE ON U.S. HIGH-TECH EXPORTS TO CHINA




LONG MARCH 2D PUTS PLA RECON SATELLITE INTO ORBIT

CLICK HERE TO READ THE 11/13/03 ARTICLE ON THE PLA MILITARY SPACE PROJECTS


HUGHES CEO C. MICHAEL ARMSTRONG

NUKES AND SATELLITES FOR CHINA

CLICK HERE TO READ THE 10/09/03 ARTICLE ON NEWSMAX.COM

DOCUMENTS OBTAINED USING THE FREEDOM OF INFORMATION ACT





SENT BY: HUGHES A/C  3-14-95  ; 1:13PM ;WASHINGTON DC OFFICE   12026475713

WHITE PAPER ON COMMERCIAL COMMUNICATIONS
SATELLITES:
ISSUES AND ANSWERS

Commercial communications satellites have been a powerful force
in promoting democratic change round the world. The sale of
US-manufactured communications satellites has contributed
positively to US balance of payments. The US continues to lead
the world in production and sale of commercial communications
satellites, but this lead is being threatened not only by
foreign competition, but also by unresponsive US export
procedures and practices.

Statement of the Problem

For more than 30 years, the US has led the world in building and
exporting commercial communications satellites. It enjoyed a
virtual monopoly for many years, and up to the late 1970's, all
operating commercial communications satellites were of US
manufacture. Competition was an entirely US affair.

This situation changed dramatically in the last decade.
Japanese, European, and Canadian firms began an aggressive
campaign to surpass the US in the sale and manufacture of
commercial communications satellites and supporting systems.
European firms competed head-to-head with the US satellite
industry, closely matching US companies in quality and often
bettering them in price. Throughout, European industry enjoyed
the aggressive support of their governments. This support was a
vital element, for example, in Aerospatiale's Turksat, Thaisat,
and Arabsat awards. In their marketing discussions with
potential foreign customers, the Europeans consistently promoted
the view that the US satellite manufacturers increasingly were
uncertain and unreliable suppliers because of the US
Government's restrictive export policies.

The US commercial communications satellite industry, the USG,
and the Congress must act now to reverse this situation and
ensure that it does not recur. An appropriate remedy is to
complete the transition of commercial (i.e. non-military)
communications satellites from the United States Munitions List
(USML) which is under State Department jurisdiction to the
Commerce Control List (CCL), which is under Commerce Department
jurisdiction. This jurisdictional change is appropriate since
the national security considerations that initially put
communications satellites on the USML are no longer valid; and
keeping commercial communications satellites on the USML puts US
industry at a competitive disadvantage in the international
telecommunications marketplace.

A Simple Solution

Under current law, many commercial communications satellites are
placed on the USML, rather than the CCL, because they have
characteristics that in the past were unique to military
satellites. Keeping commercial communications satellites on the
USML is no longer warranted. The characteristics, listed below,
now are routinely employed on commercial communications
satellites, many of which are of non-US manufacture:

- Anti-jam Capability (ie. antennas and/or antenna systems with
the ability to respond to incoming interference by adaptively
reducing antenna gain in the direction of the interference). In
today's exploding telecommunications environment, many
commercial customers wish to ensure the veracity and quality of
their signals and protect their systems from spurious commands
and interference. This capability meets a legitimate commercial
need, and is not unique to military use.

- Antennas: (with aperture greater than 30 feet; or with all
sidelobes less than or equal to -35dB; or designed. modified, or
configured to provide coverage area on the surface of the earth
less than 200nm). Commercial mobile services require large
aperture antennas with sensitive receivers. Hughes already is
employing designs for its geosynchronous mobile satellite
systems that include antennas exceeding 30 feet in diameter
commercial use. Control of sidelobe levels for today's
commercial applications is a major antenna design factor
resulting from requirements to control the antenna’s footprint
on the earth, satisfy constraints on orbital location, and meet
efficient communications payload design criteria. The current
and emerging market demand for frequency reuse, antenna spot
beams, and the commercial availability of inespensive ground
terminals are driving antenna footprints to sizes under 200 nm.
This characteristic is no longer a realistic discriminator
between military and commercial systems.

- Crosslinks (ie. intersatellite data relay communication links
that do not involve a ground relay terminal). The use of
crosslinks is another example of readily available technology
that has led to new commercial applications, such as Motorola's
IRIDIUM and Hughes' SPACEWAY. Similar systems are being
developed in Europe and Japan and will have wide spread
commercial applications.

- Baseband Processing (ie. spaceborne baseband processing that
uses any technique other than frequency translation and which
can be changed several times a day on a cbannel-by-channel basis
among previously assigned fixed frequencies). The uses of
on-board processing for commercial applicalions are many,
particularly for the rapidly-emerging mobile commercial
communications marketplace. Its applications range from routine
sorting and routing of incoming calls to maintaining compliance
with prescribed frequency spectrum management.

- Encryption deviecs. Satellites traditionally have been used
for the transmission of sensitive financial and business data
that require absolute integrity and privacy. The encryption
device is a relatively sophisticated equipment item, but is
manufactured for commercial use and, in the case of commercial
communications satellites, it generally is employed to
scramble/unscranibling video and audio programming in order to
protect this data. Once it is embedded in the satellite, the
enctyption device has no military significance.

- Radiation Hardening. Commercial communications satellites
daily operate in a natural radiation environment harmful to
electronic circuits. Hence, they need protection from the
environment in which they operate. This protection comes from
radiation hardened devices embedded in the satellite.

- Perigee Kick Motors. The perigee kick motor is of a type
routinely used to deliver commercial communications satellites
to their proper orbital slots. Using foreign manufactured
perigee kick motors on US-manufactured satellites might work and
alleviate problems associated with the USML, but it would
unnecessarily reduce US content and forfeit revenues to foreign
competition.

The above characteristics arc no longer unique to military
satellites. They are becoming increasingly common to fixed and
mobile communications systems. Hence, they should no longer
serve as the basis for keeping commercial communications
satellites on the USML and off the CCL.

In real terms, bureaucratic change simply has not kept abreast
with technological and economic realities. As a result, many
commercial communications satellites remain on the USML, and
their export is subject to the USML's many restrictions.
Removing commercial communications satellites from the USML and
placing them on the CCL largely would rectify this problem.
Commerce licenses do not require Congressional approval; they
are routinely issued in a more timely fashion; and, relative to
State Depanmcnt licenses, their issuance is less frequently
delayed by sanctions that may be imposed by the State Department
upon customer countries. Moreover, the Department of Commerce
sees promotion of exports as one of its prime roles.

US Export Policy Discriminates Against the Satellite Industry

Cunrent US export policy is applied to commercal communication
satellites in a manner inconsistent with other high-tech,
high-added-value US exports, such as the Boeing 747. The overall
technology content of a Boeing 747-400 is greater than that of
any contemporary commercial communications satellite.

The 747's inertial reference system and avionics exceed in cost,
complexity and sensitivity the satellite’s anti-jam capability,
crosslinks, and antennas. Its on-board computers provide
capability greater than the satellite's baseband processing. The
747's powerful turbofan engines are more sophisticated than any
existing perigee kick motor. Its radars surpass the technology
of the satellite's encryption and radiation hardening devices.

Nonetheless, the Boeing 747, with its state-of-the-art radar,
inertial reference system, fuel management systems, on-board
processors, and antennas, is on the CCL. With but few
exceptions, it can be exported worldwide on a pre-approved
general license.

Moreover, the 747 is delivered intact to customers. This is in
marked contrast to the delivery of a U.S. manufactured
commercial communications satellite which is delivered on orbit
and not examined or touched by the customer.

Like Boeing and other US aircraft manufacturers, the US
satellite industry believes that the new investment by emerging
nations in transportation, telecommunications, and power
generation could total $1 trillion by the end of the decade.
This will help the satellite industry boost exports and create
jobs but only if US policy allows it the freedom to effectively
compete in the global market.

Unnecessary controls adversely affect America's ability to
compete. Tight controls stifle our access to new markets. Tight
controls also serve to discourage customers from buying US, and
ultimately motivate them to accelerate the development of
indigenous capabilities, thus giving them the potential to
compete with US industry.

Conclusion

The global arena in which the US satellite industry once reigned
supreme has irrevocably changed. Foreign competition is keen and
it is abetted by a US export policy that not only discriminates
against satellite manufacturers, but also imposes delays that
call into question their reliability as suppliers. Moving US
manufactured satellites off the TJSML to the CCL will alleviate
this problem, .and should contribute directly to the
competitiveness and growth of the US satellite indusuy.

Recommendation

Remove commercial communications satellites and related data
from the USML and put them on the CCL!

8 March 1995





STATE DEPT. CHARGE LETTER TO HUGHES AND BOEING CONCERNING TRANSFER OF DEFENSE TECHNOLOGY TO CHINA

CHINESE LONG MARCH & CSS ICBM
CLICK HERE TO READ THE 1/14/3 ARTICLE ON NEWSMAX.COM


United States Department of State

Bureau of Political-Military Affairs
Office of Defense Trade Controls

Washington, D.C 20037

December 26, 2002

Larry D Hunter
General Counsel
Hughes Electronics Corporation
200 North Sepulveda Boulevard
El Segundo, California 90245-0956

Douglas G. Bain
Senior Vice President & General Counsel
The Boeing Company
100 North Riverside
Chicago, Illinois 60606


Re:      Investigation of Hughes Electronics Corporation and
Boeing satellite Systems (formerly Hughes Space and
Communications) Concerning the Long March 2E and Long March BE
failure investigations, and other satellite-related matters
involving the People's Republic of China

Dear Messrs. Hunter and Bain:

(1)      The Department of State ("Department") charges that
HUGHES ELECTRONICS CORPORATION (hereinafter "Respondent HE",
which includes Hughes Network Systems, Inc.) and BOEING
SATELLITE SYSTEMS (hereinafter "Respondent BSS") formerly HUGHES
SPACE AND COMMUNICATIONS ("HSC") (hereinafter, "Respondents"
when referred to jointly) violated the Arms Export Control Act
("Act") and the International Traffic in Arms Regulations
("ITAR" or "Regulation" in connection with their misconduct
related to the January 1995 failed launch of the Long March 2E
rocket carrying the APSTAR II spacecraft1 the February 1996
failed launch of the Long March 3E rocket carrying the INTELSAT
708 spacecraft, and

----------------------------------------------------------------
1 The Boeing Company purchased Hughes Space and Communications
from Hughes Electronics on January 13, 2000

________________________________________________________________
                                                               2

other matters set forth herein concerning their business
activities with China.  One hundred twenty-three (123)
violations are alleged at this time.  The essential facts
constituting the alleged violations and the regulatory or other
provisions involved are described herein.  The Department
reserves the right to amend this charging letter (See 22 C.F.R.
S 128.3(a)), including through a revision to incorporate
additional charges stemming from the same misconduct of the
Respondents in these matters.  Please be advised that this is a
charging letter to impose debarment or civil penalties pursuant
to 22 C.F.R. S 128.3.

* * *

PART I - RELEVANT FACTS


Jurisdictional Requirements

(2)      Respondents HE and BSS are corporations organized under
the laws of the State of Delaware.

(3)      Respondents are -- and were during the period covered
by the offenses set forth herein - - engaged in the manufacture
and export of defense articles and defense services and so
registered with the Department of State, Office of Defense Trade
Controls ("ODTC") in accordance with Section 38 of the Act and S
122.1 of the Regulations.

(4)      Respondents are U.S. persons within the meaning of S
120.15 and, as such, are subject to the jurisdiction of the
United States, in particular with regard to the Act and the
Regulations.

(5)      China Academy of Launch Technology ("CALT"), China
Great - Wall Industry Corporation ("CGWIC"), China Satellite
Launch and Tracking Control ("CLTV"), China Aerospace
Corporation ("CASC"), China International Trust & Investment
Company ("CITIC"), China United Telecommunications Satellite
Company, China Overseas Space Development & Investment Company,
Commission for Science, Technology & Industry for National
Defense ("COSTIND"), Sino-Canada Telecommunications and
Investment Management Company, Ltd, Asia Pacific Satellite
Telecommunications Company ("APT" formerly "APSAT"), Asia
Pacific Mobile Telecommunications Company ("APMT") Asian
Satellite Telecommunications Company, Ltd ("ASIASAT"), Societe
Europeene des Satellites ("SES") and

________________________________________________________________
                                                               3

other persons so identified below all are foreign persons within
the meaning of S 120.16 of the Regulations.


US-PRC International Agreements on Space Launch

(6)      on December 17, 1988, the United States and the
People's Republic of China ("PRC") signed an international
agreement in Washington, DC. entitled "Memorandum of Agreement
on Satellite Technology safeguards Between the Governments of
the United States and the People's Republic of China," which
entered into force upon signature. This agreement specifies the
security procedures to be followed for launch of
U.S.-manufactured satellites from the territory of the PRC and
also expressly prohibits U.S. persons from providing "any
assistance" to the PRC relating to the design, development,
operation, maintenance, modification, or repair of the launch
facility or launch vehicle.2


OPTUS B2

(7)      On December 21, 1992, a PRC Long March 2E space launch
vehicle ("SLV") carrying the OPTUS B2 satellite manufactured by
Respondents exploded shortly after liftoff from China’s space
launch facility (Xichanq Launch Center). The satellite was
exported to the PRC for launch pursuant to a State Department
munitions license issued by ODTC, which provided for U.S.
Government (i.e., through Department of Defense personnel)
monitoring of all phases of the launch

----------------------------------------------------------------
2 The 1988 Agreement was superceded upon entry into force by a
similar U.S.-PRC agreement done at Beijing on February 11, 1993,
containing the same prohibition.  The agreement also bars the
PRC from seeking such assistance and, together with the
prohibition on the provision by U.S. persons of such assistance,
provides the fundamental conditions sine qua non the United
States has licensed the export of commercial satellites to the
PRC for launch into outer space.  The requirement to comply with
these bilateral agreements has been routinely incorporated as a
condition of the export license authorizations provided by ODTC
to U.S. satellite manufacturers.  See para. (7) above.  In a
letter dated December 3, 2002, Respondent's stated their view
that the agreement (rather than reflecting a ban on the
provision of assistance by U.S. persons) is more accurately
described as reflecting a mutual understanding of the PRC and
the USC.

________________________________________________________________
                                                               4

and which required that all of Respondents' employees and agents
conform strictly to the aforesaid Satellite Technology
Safeguards Agreement, specifically by prohibiting "any  ..
technical assistance whatsoever to its (Respondents') Chinese
counterparts which might assist China to design, develop or
enhance the performance of any of its contemplated or existing
Long March launch vehicles or missiles."

(8)      Following the OPTUS B2 failed launch, the Respondents
concluded that the PRC's SLV nose cone (or fairing) was a
principal cause of the failure and sought advice from ODTC on
whether a license would be granted to hold discussions with the
PRC on this matter, following which consultation with ODIC the
Respondents concluded that "a license request would almost
certainly be denied (by ODTC) if even the slightest possibility
or inference, real or perceived, remained undispelled (sic)
that the technical data could directly or indirectly impact PRC
ballistic missile interests."3  In the event, the Respondents
decided not to seek a license from ODTC, but did proceed to
conduct a launch failure investigation into the causes of the
OPTUS B2 SLV failure, which would inform their approach in
subsequent matters, described below.4

----------------------------------------------------------------
3  April 9, 1993, memorandum from Majors (Hughes Washington
Director for International Affairs) to Leedle (Hughes Technology
Export Control Coordinator).

4  While there is information available to ODTC indicating that
violations of the Act and the Regulations occurred in the OPTUS
B2 matter, it has decided not to bring charges owing to the
passage of time and contradictory recollections of persons
involved in these matters, and the further opinion that the
charges detailed herein provide an adequate basis for addressing
the underlying patterns of misconduct.  The Respondents do not
deny their failure to obtain a license, but maintain they
obtained approval from a Department of Defense monitor prior to
making disclosures to the Chinese.  Respondents also assert that
the Department "well knows" that their decision not to seek a
license "coincided with a decision not to furnish any
information that could qualify as technical data or a defense
service."  However, the Department has no such understanding or
knowledge; quite the opposite is true: The Respondents have
repeatedly asserted throughout this investigation that none of
their conduct in any of the matters touched on in this

________________________________________________________________
                                                               5

APSTAR II


(9)      On January 26, 1995, a PRC Long March 2E space launch
vehicle ("SLV") carrying the APSTAR II satellite exploded
shortly after liftoff tram China's space launch facility. The
APSTAR IL satellite was also manufactured by the Respondents
pursuant to a contract with the Asia-Pacific satellite
Telecommunications company ("APT") located in Hong Kong, which
was then and remains today "owned or controlled" (as these terms
are understood in the Regulations at S 122) by various PRC
entities.  The APSTAR II satellite had been exported to the PRC
launch pursuant to an export license issued by the Department of
Commerce.  That export license, while not requiring U.S.
Government monitoring of the launch or other specific
prohibitions on assistance to China's SLV program (unlike the
earlier State Department licenses for OPTUS B2 and the first
APSTAR satellite), also did not --indeed, lawfully could not --
provide -authorization for Respondents to engage in the unlawful
conduct alleged below in violation of the Act and the
Regulations.5

----------------------------------------------------------------
charging letter qualifies as a "defense service" either because
it excluded technical data (in their opinion) or because it is
Constitutionally protected "speech", while ODTC has repeatedly
admonished Respondents and their attorneys that the AECA and
ITAR properly regulate on U.S. security and foreign policy
grounds the conduct of U.S. persons who aid and abet the space
launch and/or intercontinental ballistic missile programs of
foreign powers, that Respondents are improperly conflating the
laws and regulations governing the conduct of their corporations
abroad in respect to foreign space and missile programs with the
laws and regulations governing the exercise of "speech" (which
are in no manner at issue here) and that, because of security
and foreign policy considerations, the United States has long
held by the ITAR (with which regulations Respondents are fully
familiar) that a defense service requiring approval by ODTC of a
technical assistance agreement may occur even when all the
information relied on in furnishing the defense service to a
foreign power is in the public domain.

5 Hughes initially received approval from the State Department
in March 1993 17 or the APSAT (later termed APSTAR) program,
which was then defined to cover two series 376

________________________________________________________________
                                                               6

(10)     Following the APSTAR II launch failure, the
Respondents, APT, CGWIO and the insurance firm, Johnson &
Higgins, signed a memorandum of understanding in which they
agreed "to cooperate with each other in a Spirit of mutual
benefit and cooperation to prepare information concerning the
APSTAR-2 mission failure...  Each of the parties will use their
best efforts to prepare the necessary information as soon as
possible to assist APT’S business operations..- APT, Hughes and
OGWIC agree that they will each cooperate and coordinate all
investigations of the probable cause of

----------------------------------------------------------------
satellites for APT, Ltd. in Hong Kong. However, in August 1993
the State Department imposed missile sanctions (Category 2) and
determined that the export of communications satellites
containing Missile Technology Control Regime ("MTCR") Category 2
items to the sanctioned Chinese entities was prohibited and
suspended access to any MTCR related technology by PRC
nationals.  In January 1994 the State Department terminated the
suspension with respect to all PRC nationals, but continued to
prohibit access to any MTCR related technology by any PRC
national affiliated with the Chinese Ministry of Aerospace
Industry or any Chinese government activity relating to missile
development or production, electronics, space systems or
equipment, and military aircraft.  Ten such Chinese activities
were enumerated as examples to Hughes, including CGWIO, CASC, et
alia.  Faced with these developments in USC policy, Hughes had
in the interim redefined the second APSTAR satellite based on
its 601 series and, in the interim (November 1993), sought and
received approval for the export of this satellite from the
Department of Commerce.  The Respondents have maintained (most
recently in a letter dated December 3, 2002, that no violation
occurred in this matter because the Department of Commerce was
"well within its authority" to approve release of the launch I
failure material that was given to the Chinese in the APSTAR II
failure investigation through a commodity classification (CCATS
#G000824, dated August 26, 1995).  However, the record indicates
Respondents knew chat the Apstar II launch failure investigation
was properly within the coverage of the ITAR and, hence,
required Department of State approval; in any case, the
Department of Commerce has said it erred in that matter.

________________________________________________________________
                                                               7

failure of the APSTAR-2 mission in a spirit of mutual benefit."6

(11)     By letter dated January 31, 1995, Respondents informed
PRC authorities that "Hughes is prepared to fully cooperate with
you in investigating this failure so that we may quickly resume
launches of the Long March. I have instructed our people to make
available whatever data and resources are required to understand
the cause and fix the problem.  Again, I want to make clear that
I strongly support our mutual cooperation, including meaningful
technology transfer, and I am prepared to bring the full
capability of Hughes to the partnership."7

(12)     Notwithstanding the established prohibitions and
restrictions contained in the US-PRC bilateral agreement, which
formed an essential basis for the launch of all U.S.
manufactured satellites from the PRC, and notwithstanding
Respondents’ careful understanding of these prohibitions and
restrictions (from prior discussions with and licenses approved
by ODTC), Respondents took numerous actions, some of which are
described herein, in violation of the Act and the Regulations.
Notably, Respondents decided to form and direct a launch failure
investigation beginning in January 1995 and continuing
throughout much of that year.  The investigation involved the
formation of several groups of leading technical experts from
China and the U.S., which throughout the investigation engaged
in an extensive exchange of technical data and analysis,
producing a wide range of unauthorized technology transfers and
the violations enumerated in PART II, below.8  Additionally,
both

----------------------------------------------------------------
6  Memorandum of Understanding Concerning the Mission Failure,
dated January 26, 1995, between He Kerang, APT Satellite co,.,
Ltd., Yu Pusheng, China Great Wall Industry Corp., Donald
Cromer, Hughes Space and Communications and Paul B. O’Connor,
Johnson & Higgins Insurance Company.  

7  Letter dated January 31, 1995, from Steven Dorfman, Senior
Vice President, GM Hughes Electronics to Minister Liu Jiyuan.
China Aerospace Corporation.

8 An HSC facsimile message dated May 14, 1995, describes the
scope of technical interchange with APT officials; "(W)e of
course briefed APT about everything, including the fairing
concerns.  APT had been present in all of the failure meetings
to date, and has copies of everything from both sides."

________________________________________________________________
                                                               8

parties contracted an independent investigation team of private
consultants and aerospace industry experts.9

(13)     At no time did the Respondents seek or receive a
license or other written approval concerning the conduct of
their APSTAR II failure investigation with PRC authorities or
the experts who participated in that investigation as required
by Section 38 of the Act and relevant provisions of the
Regulations.  Such approval would not, of course, have been
forthcoming in view of the established legally binding
prohibition in the 1993 (and predecessor) US-PRC agreement and
as reflected in the prohibitions and limitations contained in
prior export authorizations related to China that ODTC had
furnished to Respondents.  This said, Respondents HE and BSS
have continued to maintain that the reason no written approval
was sought was because none was required.10

(14)     Instead, a March 21, 1995, internal memorandum of
Respondents summarized the corporate strategy for the APSTAR II
failure investigation:

----------------------------------------------------------------
9  Indeed, the scale and depth of technical assistance furnished
to Chinese authorities in this matter is indicated by the
organizational structure of the failure investigation: a Failure
Investigation Team was formed to examine all aspects of the
failure, including the satellite and rocket and "external
interfaces" with CALT, CGWIC, et al, and produced a 38 page
report based on the work of seven specialized sub-teams
(spacecraft debris, material properties, video analysis,
telemetry, coupled loads, structures and aerodynamics) drawing
on the experiences of members who also worked on the Optus
failure; & Spacecraft Focus Team reviewed the work of the
Failure Investigation Team and produced an 84-page report
assessing whether and how the satellite might have been a
contributing factor in the failure; an Independent Review Team
provided Respondents with an independent assessment of the work
of the other teams; an International Oversight Team reviewed the
work of both sides and included representatives of China and
Respondents, as well as third party foreign nationals.  The IQT
met on three separate occasions between April and June.

10 December 3, 2002, Letter to ODTC Director Lowell from HEC/BSS
Counsel Randall Turk, Esq (Baker Botts).

________________________________________________________________
                                                               9

     "(I)n the 82 (OPTUS 82) investigation, communication
     between companies was limited due to Government Monitor
     oversight from DOS (Department of State) and fear by the
     Chinese that Hughes was trying to prove that the fairing
     was at fault.... (K)eep communication open with the Chinese
     long enough to get the information needed to understand
     the fairing and the rocket - Without Government monitor
     (now under the Department of Commerce license) and without
     the appearance of pointing our finger, the Chinese have
     been much more open to giving data we need."11


(15)     This strategy was further influenced by Respondents'
business interests in securing future contracts with the PRC and
with Asian satellite companies in which PRC influence figured
prominently, and concern that U.S. Government policy constraints
on technology transfer as administered by ODTC were an
impediment to achieving these interests.  A May 2, .1995,
internal memorandum of Respondents regarding a meeting with APT,
summarizes this assessment:

     "ARSTAR 2 and APMT decisions (discussed further below) will
     be within a global context (technology transfer, launch
     vehicle commitments, long term manufacturing partnership
     with China).  Key to that global context is technology
     transfer.  This made it extremely clear that it is time for
     Hughes to either "put up or shut up" in regard to meeting
     their (sic) previously stated commitment of transferring
     technology to China.  If we want to win APT (APMT) Hughes
     must make real commitment to transferring technology to
     China.12

INTELSAT 708 and APSTAR lA

(16)     On June 23, 1995, the Department of Commerce approved
an export license for Respondents to export the APSTAR lA
satellite to China for launch on the Long March 3B 5EV and sale
to APT.  The Commerce license specifically

----------------------------------------------------------------
11  Hughes Space and Communications Company document dated March
21, 1995, Strategy for APSTAR Failure Investigation.

12  Hughes Space and Communications facsimile message dated May
2, 1995, from Steven Dorfman to John Konrad et al., Subject:
Status and Recommendations May 2 Meeting with APT.

________________________________________________________________
                                                              10

provided, in part, that “technical data or assistance related to
the design, development, operation1 maintenance, modification,
or repair of the Chinese launch vehicle is not authorized under
this license.13

(17)     On February 15, 1996, the PRC’s Long March 3B SLV
crashed during a tailed attempt to launch the INTELSAT 708
satellite manufactured by Space Systems/Lora]- ("SS/L") -

(18)     On February 22, 1996, Respondents' Chairman at the
Board wrote to Chinese General Shen Rongjun (then Deputy
Director of the Commission for Science, Technology, and Industry
for National Defense "COSTIND") and asked "if there is anything
we at Hughes Space and Communications can do to support your
investigation into the cause of the loss (i.e., LM 3B and
INTELSAT 708)."14  The next day, February 23, 1996, Respondents'
Chairman wrote to Major General Hu Shixiang, Director of the
Xichang Satellite Launch Center, to assure him of his "personal
support and that of my company as you investigate the causes for
the loss."

(19)     On March 9, 1996, Respondents’ personnel met with
Xichang launch center authorities, toured the crash site,
conducted a site survey, and developed a list of twenty-five
items that required resolution before the launch of APSTAR lit
could take place later that year, which launch was slated to
rely on the LM 3 SLV.15

----------------------------------------------------------------
13  Department of Commerce export license no. D-219965.

14  Respondents maintain that the CEO Cromer letters were merely
an expression of condolence for the deaths of Chinese citizens.
It is true that the letter to Major General Hu Shixiang (but not
the letter to General Shen Rongjun) did offer condolences for
the loss of life in its introductory paragraph as follows:
"Please allow me to express my sincere condolences for the loss
of the Long March 3B carrying Intelsat 708.  I was particularly
saddened to learn there may have been a number of lives lost,
including some of your own personnel.  I was gratified to hear,
however that damage to your facilities was relatively light and
I know you will soon be fully operational once again."

15  Respondents suggest their motive for this activity, which
concerned chiefly repairs of the facility, was to ensure the
safety of their own personnel and have continued to assert that
"the site survey was perfectly lawful" (December 3 letter from
Turk to Lowell. However, this assertion also 

________________________________________________________________
                                                              11

(20)     On March 10, 1996, Respondents' personnel presented
CALT, CGWIC, and APT with the results of its survey.

(21)     On March 14, 1996, Respondents' personnel met in
Beijing with APT, CLTC, OMIT, CGWIC and representatives of the
international insurance industry in which Respondents and
Chinese authorities were informed that: (a) a final report on
the root causes of the INTELSAT 708 launch failure would be
required, as well as (b) a review of the report by an
independent oversight team.  These requirements were fully
consistent with the groundwork already laid by Respondents who
had already informed Chinese authorities on March 10, 1996, that
more information would be needed to convince the insurance
underwriters that an adequate investigation had been conducted
to isolate the cause of the LM-3B failure and that a detailed
presentation would be needed to convince the, underwriters that
the LM-3 launch vehicle (slated to launch Respondents' APSTAR lA
satellite) was substantially different from the LM-3B and thus
did not run the risk of experiencing the same failure.

(22)     Chinese authorities initially invited Respondents to
head up the oversight team for INTELSAT 708 (as it had done for
OPTUS B2 and APSTAR II), but in the event, Respondents declined
and opted to participate in an SS/L led investigation.16

----------------------------------------------------------------
ignores the fact that the prohibition on assistance to the PRC
launch program extends explicitly to the PRC launch "facility"
(See para. 6, above), as long stated in the US-PRC bilateral
agreement.  

16 Apparently in order "not to rock the boat" while an export
license application for yet another satellite export involving
China (ie, APMT) was undergoing review in the USG (April 8,
1996, memorandum from Herron to Cromer) and in light of
Respondents' assumption that SS/L's chairmanship would act as a
"buffer" for it (e.g... an April 9, 1996 response to Herron from
Steinhauer opines that "it is in HSC advantage to stay engaged.
An outside consultant may buffer HSC somewhat relative to the
technology transfer issue."  Also, a May 6, 1996, message to
SS/L from Steinhauer referring to "detailed suggestions for
specific testing in the controls laboratory, for specific fixes
to the IMU (inertial measurement unit) single point wire solder
joint

________________________________________________________________
                                                              12

(23)     Notwithstanding the Respondents' decision to opt for a
lower profile in the 1996 SS/L-led failure investigation by the
Independent Review Committee,17 they nevertheless participated
fully in the 1996 launch failure investigation both through the
assignment of two top technical personnel, often playing a
leadership role both within the IRC in troubleshooting problems,
and independent of the IRC, through separate, technical meetings
with Chinese authorities.  For example:

  (a)  On April 10, 1996, Respondents personnel faxed nine
  questions pertaining to the LM 3B failure to GW Aerospace
  Corporation, a U.S.-based consulting company owned by CGWIC,
  which were to be forwarded to the LM 3B program office in
  Beijing "in order to ensure that the anticipated.  Chinese
  failure report considered specific concerns related to the LM
  3B failure ... and impact the cause may have on Hughes
  decision to launch the ABSTAP. lA satellite."18

  (b)  On April 25, 1996, Respondents personnel met with GW
  Aerospace personnel to discuss questions drafted in
  preparation for the second IRC meeting, in which Respondents'
  personnel subsequently reported that they had "thoroughly
  discussed the possibility of any other control and guidance
  system failure causes, specifically including the eight-engine
  performance and structural issues.  We discussed the
  eight-engine (LM 3B) versus four-engine (LM

----------------------------------------------------------------
failure" notes that "the committee could be approaching the
border of technology transfer, i.e., how to improve the launch
vehicle" and asks "will SS/L be the filter for tech transfer
issues?"  (Respondents maintain that, despite appearances to the
contrary, there is no connection between any of the preceding
discussions and "the decision for Loral to take the lead with
respect to oversight of the investigation.")

17  Charges associated with SS/L's conduct related to the IRC
were resolved through a Consent Agreement entered into between
SS/L, Loral Space & Communications and the Department in January
2032.

19  Hughes Space and Communications facsimile transmission dated
April 10, 1996, from R. Steinhauer, Hughes Chief Scientist, to
Tian Guodang, GW Aerospace Corporation, Subject: Questions for
the APSTAR lA Insurance Meeting.

________________________________________________________________
                                                              13

  3A) lift off vibration and acoustic environment at the IMU.
  CALT will have to investigate this further."19

  (c) On April 30 and Pay 1, 1996, Respondents in a "splinter
  group" of IRC experts concerned with attitude control advised
  the Chinese of tests that could be done using equipment
  available at CALT's factory in order to replicate the launch
  failure and confirm the Chinese theory of the IMU in the LM-3B
  failure scenario, as well as differences between the LM 3B and
  LM 3 IMUs.20

APMT and Sino-Canada

(24)     On May 8, 1998, Respondents announced that they had
concluded a contract with Asia Pacific Mobile Telecommunications
Satellite (APMT), a company sponsored by Chinese and Singapore
partners, for a satellite based mobile phone system.  The turnkey
system was to include two satellites to be launched from China
on the Long March 3B SLV, five gateways, one network operations
center, one satellite operations center and an initial purchase
of 70,000 user terminals, with the ground network equipment and
handsets to be provided by HUGHES NETWORK SYSTEMS.21

(25)     APMT's Chinese shareholders and partners included
China Satellite Launch and Tracking Control General, China
United Telecommunications Satellite Company, China Overseas
Space Development & Investment Company.

(26)     In June 1995 Sino-Canada Telecommunications and
Investment Management Company, Ltd. was incorporated in
Macao, having its principal place of business at the Hotel
Fortuna, in order to explore telecommunications

----------------------------------------------------------------
19  Email message from R. Steinhauer to John Smay et al. dated
April 26, 1996, subject; Discussions with Huang Zuoyi

20  Letter from Wah Lim, Senior VP, SS/L, to Liu Zhixionq, VP
CGWIC regarding Second IRC Meeting in Beijing.

21  The U.S Government ultimately rejected the export license
application for this project when by letter dated February 24,
1999, the Department of Commerce informed Hughes of its
intention to deny several license applications for APMT in light
of concerns expressed by the Department of State regarding the
planned launch services.

________________________________________________________________
                                                              14

opportunities in the PRC related to APMT.22  Sino-Canada's
managing director, Suen Yan Kwong, was the founder of Chung Kiu
Telecommunications (CKT), which had invested in cellular
telecommunications for use under special network by China's
People's Liberation Army (PLA) in military districts along the
coastal provinces.

(27)     On January 2l, 1999, in the course of a meeting with
ODTC it Washington, D.C., Respondents' Vice President and
General Counsel advised that Respondents had become concerned
about a $5 million foreign sales agreement with Sino-Canada
related to APMT entered into by Respondents (which had not been
reported to ODTC at the time of Respondents' technical
assistance agreement submission for APMT on June 1, 1998 as
required by S 124.12(a)(6)), and that Respondents had retained
Kroll Associates to examine this matter ($500,000 had already
been paid to Sino-Canada and an additional $25 million was held
in escrow).  ODTC requested a statement as to whether any of the
payments concerned, in particular, political contributions,
which Respondents subsequently reported negatively, and whether
the Kroll report would be made available to ODIC, which
Respondents have declined to furnish on the grounds of
attorney-client privilege.23


APMT and Shen Jun

(28)     On July 9, 1996, Respondents submitted a munitions
export license application to ODTC seeking authorization for one
of its employees, Shen Jun, described as a dual Canadian Chinese
national, in order to provide Chinese-English language
translation and interpretation support for the

----------------------------------------------------------------
22  Respondents advise that opportunities related to APMT was
not the sole business activity of, or the sole purpose for,
Sino-Canada's incorporation.

23  Respondents now maintain that their prior General Counsel
erred in that meeting and that, while there were preliminary
discussions with Kroll about conducting a background
investigation of Sino-Canada, Respondents ultimately elected to
have the background investigation conducted by outside counsel
other than Kroll (which investigative report has similarly been
withheld from ODTC by Respondents).

________________________________________________________________
                                                              15

preliminary design phase of the APMT satellite project.24  In no
place in that submission nor otherwise did HUGHES SPACE AND
COMMUNICATIONS COMPANY inform ODTC that this individual was, in
fact, the son of PLA General and COSTIND Deputy Director Shen
Rongjun, 25  which fact was material to the U.S. Government's
consideration of whether the license application should be
approved or denied.26


(29)     The record indicates that Shen Jun’s role for
Respondents went well beyond that of an interpreter/translator
and more closely resembled that of an intermediary with his
father, General Shen, and other PRC space authorities, in order
to cultivate their support in various matters of interest to
Hughes, including the handling of the APSTAR II launch failure
investigation and the APMT contract.27

----------------------------------------------------------------
24  This license application was initially approved, but
subsequently suspended by ODTC when it became known that Shen
Jun was the son of Shen Rongjun.

25  According to a September 20, 1995 memorandum, Hughes
regarded General Shen Rongjun as "the most important Chinese
space official."

26  Respondents have maintained as of December 3, 2002, that
this information was not material and that its omission was
proper because there is no place in the munitions license
application for them to disclose father-son relationships
between General officers at the People's Liberation Army who are
overseeing a project they are working on and their foreign
national employees working in U.S. facilities on the same
project.

27  An August 8, 1995, memorandum from Bruce Elbert reports on
APMT related activities by Shen Jun:  "in a telephone
conversation last night with Jun he provided the following
information after having talked to important people involved
with APMT ... Lockheed Martin has sweetened their bid with
technology transfers on launch vehicles and changed their
price...  These points were reiterated by the highest official
he interfaced with Jun has the worry that if it goes wrong in
Munich (an apparent reference to an APSTAR II launch failure
briefing to insurance providers) we open the door for Lockheed
Martin and their unique proposal for technology transfer on the
launch vehicle.  This could result in our not getting into the
final round of APMT negotiations."  The memo goes on to report
that Shen Jun has been asked "to make a proposal to CASC and
CGWIC that they describe their

________________________________________________________________
                                                              16

ASIASAT 3


(30)     By letter dated November 12, 1999, Respondent BSS
provided a pre1iminary notification to ODTC of an intended
voluntary disclosure of violations of the Regulations related to
its ASIASAT 3 program, a satellite manufactured for the Asia
Satellite Telecommunications Company in Hong Kong, whose
principal owners are China International Trust & Investment
Company (CITIC) and Societe Europeenne des Satellites (SES, a
company incorporated in Luxembourg).28  By letter dated February
9, 2000, Respondents advised ODTC that its internal audit (now
complete) had concluded its employees had provided ASIASAT
personnel with technical data that exceeded the scope of its
Department of Commerce license (and which was subject to State
Department jurisdiction).

(31)     The unauthorized disclosures concerned two categories
of information.  First, unit-level FECMA (failure modes and
criticality analysis) and worst case circuit analysis for the
ASIASAT 3 satellite, which constitutes detailed design
information subject to control under the Regulations and
generally not releasable to foreign persons, had been made
available to the ASIASAT organization in 1996 in five volumes of
technical data.  ODTC directed Respondent BSS to seek the return
of this data from ASIASAT following the submission of the
voluntary disclosure in February 2000, but Respondent was unable
to effect the return of all the information from ASIASAT.
Second, following abandonment of an ASIASAT field office at
Respondents El Segundo, California premises, Respondent Boeing
discovered additional technical data that had been
(presumptively) accessible to a PRC national employee of ASIASAT
assigned to the El Segundo field office.  This technical data
concerned production information for certain subsystems,
including the Xenon ion propulsion system, which information as
also generally not releasable to foreign persons.

----------------------------------------------------------------
redesign of the LM-2E fairing and that Hughes discuss what it
will do only if we use the LM-2E again."

28  ASIASAT 3 was launched on December 25, 1997, from the
Baikonur Cosmodrone in Kazakhstan, but did not reach its proper
orbit when the upper stage of the Proton rocket failed.

________________________________________________________________
                                                              17

ASTRA 1G/1H


(32)     By letter dated September 17, 2001, Respondent Boeing
voluntarily disclosed to ODTC that its personnel improperly
transferred controlled technical data to SES during a 1995
critical design review for the ASTRA lG satellite and a 1995
preliminary design review for the ASTRA 111 satellite, which
satellites were being exported and sold to SES pursuant to a
Department of Commerce license.  The technical data improperly
disclosed in this instance, as in the ASIASAT 3 matter, above,
exceeded the conditions of the Commerce license (and required a
State Department license, which was not sought) and concerned
electrical power subsystems that contained unit level FECMA and
worst case circuit analysis; such detailed design information is
generally not releasable to foreign persons.


License and Reporting Requirements

(33)     S 126.1(a) of the Regulations provides that it is the
policy of the United States to deny, among other things,
licenses and other approvals) destined for or originating in
certain countries, including china.

(34)     S 126.1(e) of the Regulations provides that no sale or
transfer and no proposal to sell or transfer any defense service
may be made to any country referred to in this section and that
any person who knows or has reason to know of any actual
transfer of such services must immediately inform ODTC.

(35)     S 127.1(a) (1) of the Regulations provides that it is
unlawful to export or attempt to export from the United States
any defense article or technical data or to furnish any defense
service for which a license or written approval is required
without first obtaining the required license or written approval
from the Office of Defense Trade Controls.

(36)     S 127il1a) (3) of the Regulations provides that it is
unlawful to conspire to export, import, reexport or cause to be
exported, imported or reexported, any defense article or to
furnish any defense service for which a license or written
approval is required without first obtaining the

________________________________________________________________
                                                              18

required license or written approval from the Office of Defense
Trade Controls.

(37)     S 127.1(a) (4) of the Regulations provides that it is
unlawful to violate any terms and conditions of licenses or
approvals.

(38)     S 127.1(b) of the Regulations provides that any person
who is granted a license or other approval is responsible for
the acts of employees, agents, and all authorized persons to
whom possession of the licensed defense article or technical
data has been entrusted regarding the operation, use,
possession, transportation, and handling of such defense article
or technical data abroad.

(39)     S 127.1(d) of the Regulations provides that no person
may willfully cause, or aid, abet, counsel, demand, induce,
procure or permit the commission of any act prohibited by, or
the omission of any act required by 22 U.S.C. S 2778, 22 U.S.C.
S 2779, or any regulation, license, approval, or order issued
thereunder.

(40)     S 127.2 of the Regulations provides that it is unlawful
to use any export document containing a false statement or
misrepresenting or omitting a material fact for the purpose of
exporting any defense article or technical data or the
furnishing of any defense service for which a license or
approval is required.

(41)     S 130.9(a) (1) of the Regulations requires that each
applicant must inform the Office of Defense Trade Controls as to
whether it or its vendors have paid, or offered or agreed to
pay, in respect of any sale for which a license or approval is
requested:  (i) political contributions in an aggregate amount
of $5,000 or more or (ii) fees or commissions in an aggregate
amount of $100,000 or more.  If so, an applicant must provide
the detailed information specified in SS 130.10 and 130.11

* * *

PART II - THE CHARGES

APSTAR II
________________________________________________________________
                                                              19

Charges 1-3

(42)     The Respondents violated 22 C.F.R. 5. 127.1(a) (3) when
on or about January 26, 1995, and continuing over the course of
the next eight months, they conspired with Chinese authorities
and other third party foreign nationals to furnish defense
services to China related to the failure and future functioning
of the Long March 2E space launch vehicle (SLV) following the
APSTAR II accident, for which a license or other written
approval was required; violated S 126.1(e) concerning prohibited
exports, when they offered defense services (i.e., "proposed")
in connection with the tailed launch of the Apstar II; and also
violated S 127.1(d) when they willfully caused or aided,
abetted, counseled, demanded, induced, procured or permitted the
commission of an act prohibited by a regulation issued pursuant
to 22 U.S.C. S 2778.

Charges 4-14

(43)     Respondent BSS violated S 127.1(a) (1) of the
Regulations when, without the required license or other approval
from ODTC, the Failure Investigation Team provided expert
analysis and advice in spacecraft debris, material properties,
video analysis, telemetry, coupled loads, structures and
aerodynamics1 summarized in a 38-page report; when the
spacecraft Team provided expert analysis and advice in assessing
the work of the Failure Team and whether or how the satellite
contributed to the failure, summarized in an 84-page report;
and, when the international oversight Team provided expert
analysis and advice in three meetings held between April and
June 1995 during which the results of the investigation were
discussed.

Charges 15-17

(44)     Respondent BSS violated S 127.1(a)(1) of the Regulations
when, on or about February 10, 1995, without the required
license or other written approval from ODTC, it identified for
Chinese authorities the incorrect seating during flight of the
LV clamp band; diagnosed that LV clamp band slippage was
possibly caused by vibrations and the choice of lubricant on
the band; and recommended review of this area by Chinese
authorities prior to future flights.

________________________________________________________________
                                                              20

Charges 18-20

(45)     Respondent BSS violated S 127.1(a)(l) at the
Regulations when, on or about February 10,1995, without the
required license or other written approval from ODTC, it
identified for Chinese authorities possible design flaws in the
venting system of the payload fairing (or nose cone at the
rocket); compared it to Western standards; and recommended that
Chinese authorities review this area prior to future
launches.

Charges 21-23

(46)     Respondent BSS violated S 127.1(a) (1) of the
Regulations when, on or about February 10, 1995, without the
required license or other written approval from ODTC, it
provided for Chinese authorities expert identification of
possible design flaws in the nose dome of the fairing and of
similarities in the probable failure of the nose dome for both
Apstar II and Optus B2 detected by Respondents' analysis of
payload fairing debris recovered from the two accidents.

Charges 24-25

(47)     Respondent BSS violated S 127.1(a) (1) of the
Regulations when, on or about February 9-10, 1995 and May 8,
1995, without the required license or other written approval
from ODTC, it provided for Chinese authorities expert
identification of inaccuracies, omissions and the like
associated with Chinese debris investigation and, further,
provided insights into U.S. analytical techniques concerning
recovered debris1 which Respondent supported with technical
drawings, photographs and modeling where expedient.

Charges 26-31

(48)     Respondent BSS violated S 1271(a) (1) of the
Regulations when, on or about February 13, 1995 and April 12-13,
1995, without the required license or other written approval
from ODTC, it identified for Chinese authorities telemetry data
as an important - - if not that most important - - source of
information regarding the failure; it disclosed to China how
their (i.e., CALT and CGWIC) analysis of telemetry data revealed
deficiencies with respect to four

________________________________________________________________
                                                              21

areas -- trajectory corrections due to wind shear effects,
incorrect interpretations of accelerometer data, a probable
anomaly with the clamp band, and a probable fault with the
payload fairing venting process --; and it outlined for China
the history of the flight compiled from telemetry data,
including seventy-seven individual points that were critical to
the Respondents' analysis.

Charges 32-36

(49)     Respondent ESS violated S 127.1(a) (1) of the
Regulations when, on or about February 13, 1995 and May 8, 1995,
without the required license or other written approval from
ODTC, it jointly conducted with Chinese authorities a
re-analysis of the coupled load analysis (CLA)29, in which
expert advice was shared by Respondent with respect to U.S.
expertise in modeling, calculations and methodologies in order
to affirm or critique pre-flight modeling conducted by the
Chinese, alone, and to demonstrate, in particular, deficiencies
in china’s pre-flight CLA with respect to its failure to account
for high winds aloft and buffeting and the Long March 2E's
guidance system failure to compensate for upper level winds.

----------------------------------------------------------------
29  CLA simulates and assesses interplay of the loads on the SLV
during flight, including interaction of the SLV and the
satellite.  The Respondents concluded that the Chinese had not
performed an analysis of the cantilevered loads from the payload
stack to the fairing and, hence, had no real idea of the true
loads on the fairing arising from wind shear and buffeting.
Respondents have maintained as at December 3, 2002, that they
did not "jointly conduct" a CLA and that all they did "was check
to be sure chat it (Hughes) had properly prepared the Hughes
data for the CLA" and did not overlook anything.  (See December
3, 2002 letter from Turk to Lowell.)  However, according to
information in Respondents' own files, the coupled loads team
"reviewed all of the coupled loads analysis information that was
available...  - They compared the flight data from the
spacecraft accelerometers that have flown on the Long March, the
Atlas, and the Ariane.  They traveled to Beijing to work beside
the CALT engineers to review and participate in the Coupled
Loads Analysis methodology. (emphasis added)  They expanded the
standard spacecraft dynamic model (normally good to 75 Hz) to be
valid up to 100 Hz."  See HSC 002803.

________________________________________________________________
                                                              22

Charges 37-38

(50)     Respondent ESS violated S 127.1(a) (1) of the
Regulations when, on or about March 8, 1995, without the
required license or other written approval from ODTC, it
compared and contrasted for Chinese authorities China's CLA with
Western expert analysis related to the U.S. Atlas and French
Ariane SLVs.

Charge 39

(51)     Respondent BSS violated S l27.l(a) (1) of the
Regulations when, on or about June 14, 1995, without the
required license or other written approval from ODTC,
Respondent's consultant furnished to Chinese authorities in a
letter dated June 14, 1995, addressed to Liu Zhixiong (CGWIC
Vice President) and Donald Cromer (HSC Vice President)
conclusions with respect to the APSTAR II launch failure, as
well as its likely cause and suggestions for further evaluation
by China.30

Charges 40-41

(52)     Respondent BSS violated S 127.1(a) (1) of the
Regulations when, on or about March 15, 1995,31 without the
required license or other written approval from ODTC, it
provided to Chinese authorities the results of an analysis of
China's payload fairing and identified flaws in the rivets used
to secure the zipper area of the fairing.32

Charges 42-43

----------------------------------------------------------------
30  Respondents assert that the characterization of the IOT team
member as "Respondents' consultant" is a mischaracterization and
chat in sending the referenced letter, the person was acting as
an independent member of the lOT and not as Hughes' agent.
However, information available to ODTC confirms that Respondents
in fact, arranged this person's participation in the IOT and
that Respondents viewed him as their "consultant."

31  See Apstar 2 Failure Investigation Report Structure's Group
Status Report of March 15, 1995.

32  A "zipper" holds the fairing’s two halves together.

________________________________________________________________
                                                              23

(53)     Respondent BSS violated S 127.1(a) (l) of the
Regulations when, without the required license or other written
approval from ODTC, it identified for Chinese authorities
possible design flaws and improper installation associated with
the launch vehicle clamp band.33

Charges 44-45

(54)     Respondent BSS violated S 127.l(a)(1) of the
Regulations when, without the required license or other written
approval from ODTC, it identified material and design faults
with the Chinese-manufactured interface adapter and recommended
to China more detailed analyses and development tests on
specific interface hardware and integrated spacecraft, third
stage and adapters for the future.34

Charge 46

(55) Respondent BSS violated S 127.1(a) (1) of the Regulations
when, on or about April 21, 1995, without the required license
or other written approval from ODTC, it provided to Sun Jiadong
copies of the APSTAR II failure review charts and the APSTAR II
failure review status report.

Charge 47

(56)     Respondent BSS violated S 127.1(a) (1) of the
Regulations when, on or about April 24, 1995, without the
required license or other written approval from ODTC it
provided to a third country foreign national 35 copies of the
same (as in Charge 45. above) APSTAR II failure review charts
and the APSTAR II failure review status report.

Charges 48-55

(57)     Respondent BSS violated S 127.1(a) (1) of the
Regulations when, on or about May 22, May 23 and June 5, 1995.
without the required license or other written approval

----------------------------------------------------------------
33  See Apstar 2 Failure Review Management Splinter Meeting of
April 12, 1995.

34  See Structure's Group Status Report of April 12, 1995.

35  Pierre Madon, a foreign national member of the APSTAR II
launch failure international oversight team.

________________________________________________________________
                                                              24


from ODTC, it provided briefings to Sun Jiadong and the same
third country foreign national (as in Charge 47, above)
concerning LM-2E failure conclusions; telemetry information;
response to CALT video; and, interstage conclusions.

Charges 56-60

(58)     Respondent BSS violated S 1271(a) (1) of the
Regulations when, on or about October 25, 1995, at a meeting in
Beijing, without the required license or other written approval
from ODTC, it provided detailed briefings to Chinese authorities
and APT (as well as other foreign persons) concerning the APSTAR
II failure investigative process, its summary conclusions,
failure scenarios, fishbone diagram and corrective actions.

Charge 61

(59)     Respondent BSS violated S 127.1(a) (1) of the
Regulations when, on or about October 31, 1995, at a meeting in
Munich, without the required license or other written approval
from ODTC, it provided similar briefings (as in Charges 56-60,
above) to fifty-one foreign persons representing insurance
underwriters.

Charge 62

(60)     The Respondents violated S 126.1(e) of the Regulations
when they tailed, until directed to do so in writing by ODTC in
May 1996, to inform ODTC of the actual transfer of defense
services they had made, or knew or had reason to know of, as
outlined above, to a country prohibited by S 126.1(a).


INTELSAT 708

Charges 63-64

(61)     Respondent BSS violated S 127.l(a) (1) at the
Regulations when, on or about March 9, 1996, it conducted a
survey of the crash site of the INTELSAT 708 spacecraft and
China's Xichang space launch facility and on or about March 10,
1996, it described for Chinese authorities twenty-five (25)
corrective actions chat China needed to implement at the Xichanq
space launch facility in order to ensure

________________________________________________________________
                                                              25


Respondents' commitment to the launch of APSTAR lA on the Long
March 3 SLV.36

Charge 65

(62)     Respondent BSS violated S 121.1(a) (1) of the
Regulations when, on or about April 15-16, 1996, without a
license or other written approval from ODTC it participated in a
briefing hosted by Chinese authorities on the Long March 3B
failure and outlined its (Respondent's) findings for the benefit
of insurance brokers from the aforesaid launch site survey of
the crash.

Charge 66-67

(63)     Respondent BSS (formerly HSC violated S 126.1(e) of the
Regulations when on or about April 16, 1996, it agreed to the
charter for an Independent Review Committee (IRC) proposed by
Chinese authorities for the INTELSAT 708 launch failure
investigation which charter itself contemplated the transfer of
defense services to a country referred to in S 126.1, without a
license or other written approval from ODTC and Respondent HE
also violated S 126.1(e) when it failed to immediately inform
ODTC of the proposed transfer, HE having known of the proposed
investigation as a result of its senior management's visit to
the PRC on the proposal after April 9, 1996.

----------------------------------------------------------------
36 Respondents have maintained as of December 3, 2002 (ID) that the
25 action items were authorized under the Commerce license
pursuant to "Go/No Go Criteria Exchange" and "Safety Plans."
However, Respondents own tiles indicate that they, themselves,
did not consider the 25 action items to be covered under the
rubric of range safety; certainly there is no basis in practice
to support any such interpretation by Respondents.  See HSC's
June 27, 1996 Report to ODTC on Alleged Violations of the ITAR
(p. 4).  More fundamentally, it is clear that the 25 action items
related principally to the repair of the launch facility (i.e.,
"items to be fixed or replaced"; e.g., windows, electrical
supply, etc.), that repair of a space launch facility is
quintessentially a defense service, and that assistance in the
repair of the launch facility is expressly prohibited by the
U.S.-PRC bilateral agreement.

37 Respondents maintain that the general prohibition on
proposals to furnish defense services to countries

________________________________________________________________
                                                              26

Charge 68

(64)     Respondent BSS violated S 127.1(a) (1) of the
Regulations when, oh or about April 26, 1996, without a license
or other written approval from ODTC its chief scientist, one of
two expert representatives in the IRC, discussed thoroughly with
GW Aerospace 38 possible failure causes other than the control
and guidance, including engine performance and structural issues
associated with Long March 3B.39

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proscribed at S 126.1 does not apply in this instance because
the agreement of their experts to the defense services envisaged
in the IRC charter proposed by Chinese authorities does not meet
what they consider to be a limiting definition of "proposals" in
S 126.8.  However, that latter provision merely details the
procedures to be followed for prior notification and prior
approval (which Respondents did not follow in any case) when
proposals are made to sell or transfer significant military
equipment; it does not provide a limiting definition of the term
“proposal” as used in S 126.1(e).  In fact, the term "proposal"
as used in S 126.1(e) appropriately covers the acceptance of
proposals made to U.S. persons by senior military authorities of
proscribed destinations, as well as proposals initiated by U.S.
persons.  In the case of the IRC charter, each member, including
Respondents' personnel, agreed to the terms of the charter.
Regardless of how "proposals" with regard to proscribed
countries may be initiated, S 126.1(e) makes abundantly clear
that it is the policy of the Department of State to deny such
proposals.

38  GW Aerospace is a U.S. based consulting firm owned by CGWIC.

39  Respondents have contended as of December 3, 2002, that the
purpose of the meeting was simply for Steinhauer to be brought
up to date on the results of the recent IRC meeting in Palo Alto
and that information flow in this meeting was from GW Aerospace
to their chief scientist Steinhauer - not the other way around.
However, Mr. Steinhauer’s own report of the meeting with GW
Aerospace is at odds with this contention as he describes
detailed technical discussions between himself and Huang Zuoyi,
the former chief designer of the Long March 2C while at CALT:
"Thoroughly discussed the possibility of any other than control
& guidance system failure causes, specifically including the
eight-engine

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                                                              27


Charges 69-77

(65)     Respondent BSS violated S 127.1(a) (1) of the
Regulations when, on or about April 10, 1996, without a license
or other written approval from ODTC, its chief scientist
transmitted nine questions concerning the launch failure
investigation by facsimile to GW Aerospace for forwarding, in
turn, to the Long March program office in Beijing, which
questions were provided "in order to ensure that the anticipated
Chinese failure report considered specific Concerns related to
the LM-3B failure and impact the cause of the failure may have
on Hughes decision to launch APSTAR lA satellite."40

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performance and structural issues."  Also, "discussed the
eight-engine versus four-engine lift-off vibration and acoustic
environment at the IMU" and that "unusual acoustic reflections
could be involved" which "CALT will look at...."  In addition,
Huang and Steinhauer discussed the details of the specific area
where CALT believes the failure site to be located, leading
Steinhauer to conclude that the Chinese probably have a very
poor design with respect to manufacturability, particularly in
respect to the soldering procedures in the LM3B IMU final
assembly.

40  Facsimile transmission from Steinhauer to Tian Guodang of GW
Aerospace.  Again, Respondents have asserted as of December 3,
2002, that these questions were about the LM 3B and concerned
tests that were performed prior to flight.  which cannot qualify
as defense services.  Even had these questions generally
concerned prior tests (which they did not).  Respondents'
conclusion would still be wrong as such questions would
nonetheless serve to direct Chinese authorities in their
investigations to help explain the launch failure. However, in
this instance the questions, themselves, were clearly,
designed to lead to the identification of the root cause of the
failure for purposes of assuaging insurance underwriters and do
not generally concern prior tests.  For example, question no. 4)
was:  "Did problem occur in flight after lift-off, or was it
pre­existing?"  Question no. 7) was: "Explain three oscillations
during 22's flight?"  Question no. 9) was:  "Understand that launch
vehicle platform at pad was rotated in order to correct for
laser alignment of launch azimuth very close to lift-off of the
LM 3B.  Describe this activity and its implications on the launch
performance." 

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                                                              28


Charges 78-101

(66)     Respondent BSS violated S 127.l(a)(l) of the
Regulations when, without a license or other written approval
from 0DTC, during the first IRC meeting (April 22-24, 1996, Palo
Alto), together with other international experts who comprised
the IRC, it delineated for Chinese authorities twenty-four areas
41 for further technical investigation and/or analysis upon
concluding that simulation tests and other analysis presented to
the IRC by CGWIC and CALT could not fully explain why, where or
when the Long March rocket's inertial measurement unit (IMU)
failed.  Delineation of the twenty-tour areas was for the
purpose of identifying critical details of the failure mode then
unanswered and of identifying corrective action by Chinese
authorities based on the most likely cause(s) of the LM-3B
failure and the isolation of these causes from the PRC's LM-3
rocket to be used for the, then, upcoming launch of APSTAR lA
manufactured by Respondent.

Charges 102-112

(67)     Respondent BSS violated S 127.1(a) (1) of the
Regulations during the second IRC meeting (April 30-May 1, 1996,
Beijing), when, without a license or other approval from ODTC,
after reviewing extensive documentation provided by Chinese
authorities and interviewing or hearing presentations from over
one hundred Chinese engineers and technical personnel, together
with other international experts, it joined other IRC members in
furnishing unauthorized defense services in eleven areas.42

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41  These 24 areas set forth in the form of detailed technical
questions and/or guidance or recommendations for specific
follow-up analysis covered a range of potential factors
associated with design, operation, manufacturing, testing and
performance of PRC rockets, including the LM-3B, LM-3 and
LM-2E.

42  Specifically, the IRC; (1) concurred that the most likely
failure mode was the inertial platform; (2) urged the Chinese to
perform additional hardware in the loop testing or (3) computer
analysis to simulate the complete failure cycle; recommended (4)
additional acceptance test procedure, (5) design for
producibility, (6) reliability operation, and (7) better IMU
assembly procedure; (8) validated that the

________________________________________________________________
                                                              29

Charge 113-114

(68)     Respondent BSS violated S 127.1(a) (1) of the
Regulations when, without a license or other written approval
from ODTC, on or about May 1, 1996, it suggested to other IRC
members, some of whom were foreign persons within the meaning of
the Regulations, that the Beijing Control Institute should set
up a way to incorporate an intermittent wire into their control
simulation test and demonstrate the exact proposed failure
scenario responses, such that China could confirm or refute its
prior conclusion as to the cause of the failure 43 and when it
suggested that a higher fidelity failure scenario test be
performed in the CALT Control Institute laboratory.

Charge 115

(69)     Respondent BSS violated S 126.1(e) of the Regulations
when it tailed to inform ODTC of the planned export of the IRC
report to Chinese authorities.


APMT and Sino-Canada

Charges 116-117

(70)     Respondents violated S 130.9 of the Regulations when
they failed to make timely disclosure of $5 million in
commissions paid and promised to Sino-Canada in connection with
the procurement of the APMT satellite and also violated S
127.1(d) when they willfully caused, aided, abetted, counseled,
demanded1 induced, procured or permitted the

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LM-3 and LM-3B inertial platforms are separate and distinct
owing to the LM-3's different inner gimbals drive circuit and
redundancy by design; and specified additional test/analysis
verification in three areas (9-11) continued study by the
Chinese of the telemetered 15 Hz resonant frequency (to include
interviews of technical personnel who installed the IMU); and
drawing up of a detailed list of IMUs of the LM 3A, 3B and 3C
(to include their production, assembly, test locations and
mission assignments).

43  May 1, 1996, Steinhauer email to Herron regarding Smay test.

________________________________________________________________
                                                              30


omission of an act required by a regulation issued pursuant to
22 U.S.C. S 2779.

APMT and Shen Jun

Charge 118

(71)     Respondent BSS violated S 127.2 of the Regulations
concerning misrepresentation and omission of material facts when
it failed to disclose in connection with the submission of
munitions license application no. 678638 on or about July 9,
1996, that Shen Jun was, in fact, the son of General Shen
Rongjun whose interest and influence Respondents were
cultivating in connection with the APMT procurement and in other
matters concerning satellite-related exports to China more
generally.44

ASIASAT 3

Charges 119-121

(72)     Respondent BSS violated the provisions of S 127.1(a)
(1) when in 1996 its employees provided ASIASAT personnel with
detailed design technical data that exceeded the scope of its
Department of Commerce license (and which was subject to State
Department jurisdiction), without the required license or other
written approval from ODTC, concerning unit-level FECMA, worst
case circuit analysis, and the Xenon Ion propulsion system.

ASTRA 1G/1H

Charges 122-123

(73)     Respondent BSS violated the provisions of S 127.1(a)
(1) when in 1995 its employees improperly

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44  As noted at footnote 26, page 11 of this draft charging
letter, Respondents contend that the fact of the son-father
relationship between their employee on the APMT project and the
PLA general officer overseeing the APMT project was not material
to the license application because there is no place on the
license application for disclosing such familial relationships
of their employees with senior military officers of the PRC.

________________________________________________________________
                                                              31


transferred detailed design technical data to SES during a
1995 critical design review for the ASTRA 1G satellite and a
1995 preliminary design review for the ASTRA 1H satellite,
without the required license or other written approval from
ODTC.

* * *

PART III - ADMINISTRATIVE PROCEEDINGS

(74)     Pursuant to 22 C.F.R. S 128 administrative proceedings
are instituted against Hughes Electronics Corp., including
Hughes Network Systems, and The Boeing Company Boeing Satellite
Systems (formerly Hughes Space and Communications) for the
purpose of obtaining an Order imposing civil administrative
sanctions that may include the imposition of debarment or civil
penalties.  The Assistant Secretary for Political Military
Affairs shall determine the appropriate period of debarment,
which shall generally be for a period of three years in
accordance with S 127.7 of the Regulations.  Civil penalties,
not to exceed $500,000 per violation, may be imposed in
accordance with S 127.10.

(75)     A Respondent has certain rights in such proceedings as
described in S 128, a copy of which I am enclosing.  You are
required to answer the charging letter within 30 days after
service.  A failure to answer will be taken as an admission of
the truth of the charges.  You are entitled to an oral hearing
if a written demand for one is filed with the answer or within
seven (7) days after service of the answer.  The answer, written
demand for oral hearing (if any) and supporting evidence
required by S 128.5(b) shall be in duplicate and mailed or
delivered to ALJ Docketing Center, U.S. Coast Guard, 40 south
Gay Street, Room 412, Baltimore, MD 21202-4022.  A copy shall be
simultaneously mailed to the Director, Office of Defense trade
Controls. Department of state, 2401 £ Street, NW, Washington,
D.C.  If you do not demand an oral hearing, you must transmit
within seven (7) days after the service of your answer, the
original or photocopies of all correspondence, papers, records,
affidavits, and other documentary or written evidence having any
bearing upon or connection with the matters in issue.  Please he
advised also that charging letters may be amended from time to
time, upon reasonable notice. Furthermore, cases may be settled

________________________________________________________________
                                                              32


through consent agreements, including after service of a
charging letter.

(76)     Please be advised that the U.S. Government is free to
pursue Civil, administrative, and/or criminal enforcement for
violations of the Arms Export Control Act and the International
Traffic in Arms Regulations.  The Department of State's decision
to pursue one type of enforcement action does not preclude it or
any other department or agency of the United States from
pursuing another type of enforcement action.

(77)     In this regard, please permit me to recall that I have
previously provided you with a copy of a letter dated November
13, 2002, addressed to me by the Assistant Commissioner for
Investigations, U.S. Customs Service, informing me that U.S.
Customs is considering bringing civil forfeiture proceedings
against property owned by you.  Under federal law, property
involved in violations of the AECA and certain other statutes
(e.g., Money Laundering Control Act, 18 U.S.C. 1956) is subject
to civil forfeiture.  This includes real estate that is used to
facilitate these violations.

Sincerely,


William J. Lowell
Director

Enclosures

cc: Artis N. Noel
Counsel
General Motors Corp.

Robert Catania
Chief Counsel
Boeing Satellite Systems, Inc.

Richard Hoglund (Acting)
Assistant Commissioner
(Investigations)
U.S. Customs Service


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