How defense giant SAIC made $3.5b in 5 years

In the Hall of Fame of missed business opportunities, a special place is reserved for Emmit McHenry.

In 1995, McHenry sold his small company called Network Solutions for $4.7 million to the secretive and powerful San Diego defense giant SAIC.

Five years later, McHenry’s business sold again for $3.5 billion.

Network Solutions (known today as VeriSign) administers a database of 90 million domain names that includes all the dot-coms on the Internet (including this one). This database told your computer where to find the page you are now reading. Without it, there would be no Internet as we know it. No Google. No Amazon.

If you haven’t heard the full story of SAIC and Network Solutions it’s because the full story hasn’t really been told before. SAIC hasn’t exactly tooted its own horn on the whole the Network Solutions saga. Many were outraged that the government had granted the employee-owned company what amounted to a license to print money.

In this 2-part piece by my friend Bruce Bigelow at Xconomy, a local San Diego business website that I have done some work for in the past, got SAIC founder Robert Beyster to tell the story.

In SAIC’s hands, McHenry’s small company turned out to be “unbelievably profitable,” says  Robert Beyster, the scientist who founded and ran SAIC until his ouster from the company in 2004. In fact, thanks to Network Solutions, SAIC may have been making too much money:

X: Why did SAIC decide to do the partial IPO in 1997? Did that turn out to be a smart thing to do? SAIC sold 3.3 million common shares, or a 21 percent-stake in Network Solutions, raising more than $59 million. SAIC retained almost 12 million shares of the stock, which carried preferential rights that basically preserved 96 percent control of the company.

JRB: The value of NSI was becoming so great that we wanted to take some of the profits we had made off the table in case of difficulties later on. (emphasis added)

There were — and still are — many people who think this never should have been allowed. The Internet had its origins in a network created by a research unit at the Pentagon and thus belonged to no one. The National Science Foundation oversaw the domain name registration database, a job that it contracted out to Network Solutions.

If McHenry didn’t realize what he had, SAIC sure did. A few months after SAIC acquired the company, the government amended the terms of Network Solutions’ contract. The amendment allowed SAIC to charge $100 to register a domain name (subsequently lowered). Equally important, the contract amendment allowed SAIC to keep 70 percent of the revenue, and gave the company a monopoly over the business.

This monopoly began to rub people the wrong way, and a spate of lawsuits were filed. So SAIC turned to its friends in Washington, says Mitch Daniels, who engineered the Network Solutions deal:

MD: We spent significant amounts of time and money at NSI educating the public, Congress, and senior government officials about aspects of the business that were really important: the Internet, domain names, Internet security, major policy questions involved with domain names, and keeping the “A” server and the other domain names servers running and secure. From 1995 until 2000, we brought at least one-half of the entire United States Senate and House members as well as senior White House and cabinet-level officials to tour our facilities in Herndon, VA.

Even if McHenry had hung on to the company, he would have been unable to marshal the kind of firepower that SAIC had in Washington. After a court held that Network Solutions was assessing an illegal tax, Congress in 1998 slipped language into an appropriations bill that retroactively made this “fee” legal. (See Thomas v. Network Solutions.) One of SAIC’s lobbyists in 1998, incidentally, was the ethically challenged former San Diego congressman Bill Lowery.

Last month, SAIC moved its headquarters to McLean, Va. At last report, it had annual revenues of more than $10 billion.

As for McHenry, he’s moved on and tries not to dwell on what could have been.

CIA Lawyers and the "Legal Principles" memo

This month’s issue of The American Lawyer includes a piece I wrote on the CIA’s Office of General Counsel. Click here to read it (.pdf).

An interesting legal issue that I didn’t mention in the piece involves a document released to the ACLU in August titled “Legal Principles Applicable to CIA Detention and Interrogation of Captured al-Qa’ida Personnel.”(.pdf)

It was written by unnamed CIA attorneys with help from John Yoo, the attorney in the Justice Department’s Office of Legal Counsel. The OLC provides authoritative legal advice to the Executive Branch, and Yoo authored a whole bunch of controversial opinions dealing with torture and wiretapping and who knows what else that were later rescinded.

The “Legal Principles” was drafted in the spring of 2003. Why it was drafted isn’t clear. A few months earlier, Yoo had given the CIA specific advice on the interrogation of Abu Zubaydah, (.pdf) whom President Bush called one of the top three leaders in al-Qaida.

The key difference between the classified Yoo memo and the CIA’s “Legal Principles” is that the latter broadened the application of “enhanced” interrogation, including the waterboard, to apply to anyone connected with the terrorist group.

The “Legal Principles” memo also set no limits on the number of times that the waterboard could be applied, and it added new techniques such as diapering to the list of approved interrogation techniques previously authorized.

Thus the document provided the legal cover needed for aggressive interrogation of all al-Qaida personnel, not just one.

Or did it?

Whether or not the Justice Department formally approved the “Legal Principles” and with it, the expansion of the CIA’s interrogation program, is now a matter of dispute.

The Office of Legal Counsel at the Justice Department said the undated and unsigned bullet points do not constitute a formal opinion, and that this position was made clear to the CIA.

According to the CIA’s Office of General Counsel, the “Legal Principles” memo “embodies DoJ agreement” that the Justice Department’s opinion “extends beyond” the interrogation of a single detainee.  The agency also cited a  National Security Council meeting in July 2003, during which Attorney General John Ashcroft approved use of multiple applications of the waterboard on other detainees.

Even with Ashcroft’s verbal assent, it became clear that the CIA was legally on shaky ground without a formal opinion.

In a review of the interrogation program, CIA Inspector General John Helgerson apparently recommended that CIA lawyers seek a formal opinion from the Justice Department confirming the conclusions outlined in the bullet points.

In March 2004, CIA General Counsel wrote Jack Goldsmith, head of the Justice Department’s Office of Legal Counsel, and asked him to “reaffirm” these “Legal Principles.” Goldsmith declined to do so.

The debate over the “Legal Principles” memo isn’t merely academic. The question of who authorized what is a critical one, especially as a federal prosecutor is reviewing the interrogation program to see whether crimes may have been committed.

As human rights lawyer John Sifton asked, “Without formal authorization, how can anyone involved in the subsequent authorization assert that their actions were legally authorized?”

The “Legal Principles” memo may be the most overlooked document in the whole torture debate.

The Strange Case of Mohdar Abdullah

Did the U.S. government consider designating San Diego college student Mohdar Abdullah (left) as an enemy combatant after the 9/11 attacks?

The suggestion appears in one of several 9/11 Commission memoranda that were recently released by the National Archives and that make it clear that U.S. authorities viewed Abdullah as a major threat. An enemy combatant designation would have allowed President Bush to order Abdullah detained indefinitely in Guantanamo or military brig.

Ten days after the attacks, Abdullah was arrested as a material witness to the 9/11 attacks and shipped off to New York. Prosecutors there considered charging him along with Zacarias Moussaoui, who is serving life in prison for conspiring to kill Americans in the 9/11 attacks but ultimately decided not to.

Commission documents show that Abdullah presented a dilemma for the government, which believed that he knew much more about the attacks than he would admit, but lacked sufficient evidence to support a terrorism charge. Abdullah was charged with visa fraud and deported to Yemen in 2004.

“If anyone in San Diego had prior knowledge of the 9/11 attacks it would be Abdullah,” one unnamed FBI agent told the Commission.

Abdullah had befriended the two hijackers when they lived in San Diego in 2000 and admitted helping the two men obtain state identification, contacting flight schools on their behalf and translating for them. Abdullah knew the pair had extremist leanings and sympathized with them, according to the 9/11 Commission’s final report. After Hazmi after he left San Diego, he remained in contact with Hazmi.

For three weeks before the attacks, Abdullah had been acting strangely. Several witnesses described him as nervous, paranoid and anxious. He stopped using the phone and didn’t show up at work or school.

On the morning of Sept. 10 at the Texaco station where Abdullah worked, an FBI source reporting hearing Abdullah saying something like, “It’s finally going to happen.” That night, Abdullah wanted to marry a young woman he had met a few months earlier, according to FBI Special Agent Daniel Gonzales.

Much later, Abdullah’s fellow inmates told the FBI that he had bragged to them of advance knowledge of the attacks, but authorities couldn’t substantiate the reports.

Abdullah denied foreknowledge of the attacks.

Gonzales described Abdullah as “a ‘slick’ and charismatic ‘liar.’” The unnamed San Diego FBI agent described Abdullah as a “goofball” and didn’t think he was a willing facilitator for the hijackers.

In their efforts to deport Abdullah, U.S. authorities were “running against the clock,” Justice Department officials told 9/11 Commission staffers in 2004.

Exactly what this means is unclear. The full explanation remains classified, but there’s no doubt that authorities didn’t want to let Abdullah go.

“The fear was a worst-case scenario where the opportunity to deport disappears, criminal charges do not materialize, and Abdullah succeeds in his habeas petition and is walking the streets,” Jonathan Cohn of the Justice Department told Commission staffers.

The return of Soviet-style "active measures?"

Was Iran really the target of the planned missile defense system in Poland and the Czech Republic? Or was it Russia?

President Obama announced today that he was scrapping Bush administration plans to locate a radar system and 10 ground-based interceptors in Eastern Europe that were aimed, he insisted, at Iran — not Russia.

But a better question might be: Does it really matter?

Plans to build a midcourse radar in the Czech Republic (with Raytheon serving as prime contractor) stirred up massive opposition. A fascinating view on this comes from the Czech intelligence service, the BIS, which has been publicly reporting for several years about the anti-radar campaign.

In its 2007 annual report, the BIS reported that Russia’s foreign intelligence services were active in the Czech Republic:

Last year’s operations of the Russian services in the Czech Republic were mainly related to the plan of building components of the US anti-missile defence system in our country, and to Russian disputes with Baltic states. Efforts to set up concealed channels of influence in the frame of Czech government and political structures continue unabated.

In the first place, the Russian services attempted to establish contacts with public opinion-makers, political circles and the media and infiltrate organizations influencing public opinion to win them over for supporting Russian interests in debates on the issue of locating an American radar in the Czech Republic.

One of these concealed channels may have been the No to the Bases movement, which includes MIT professor Noam Chomsky on its list of supporters. No to the Bases has denied any involvement from Russia, but Czech intelligence believes the group’s well-intentioned supporters are actually unwitting pawns of Russia. The BIS reportedly was highly suspicious of free billboards given to the campaign.

The BIS reported in 2008 that Russian intelligence activity had reached a high level of intensity, and had returned to the “Soviet practice of active measures” — propaganda and disinformation — “as an important instrument for promoting foreign-policy interests of Russia in the world.” The BIS compared the efforts to 20th century Soviet espionage practices successfully applied to influence the peace movement in Western Europe.

In this CNN interview, retired Maj. Gen. Oleg Kalugin, former head of KGB operations in the US, described these “active measures” as “the heart and soul of the Soviet intelligence. The goal, he said, was to “weaken” the military, economic and psychological climate in the West.

In this sense, whether or not the missiles were aimed at Russia was almost irrelevant. The Czech radar had become part of Russia’s  broader geo-strategic campaign of gaining influence in the region, according to the BIS:

Seen in a wider context, their aim is not only to feed opposition against the radar, but also to create an impression that under the patronage of the EU and NATO the Nazi ideology is being rehabilitated in Europe and the decisive contribution of the Soviet Union to the defeat of Nazism in the World War II is being denied.

One example of this could be the recent release of what Russia’s intelligence service, the SVR, said were documents showing Poland’s collaboration with Nazi Germany during World War II.

According to BIS, the operations of the Russian services targeted at the Czech Republic and its allies may be a part of a broader and prolonged campaign designed to undermine the EU and NATO integrity, isolate the United States (or encourage isolationist moods in the USA) and regain control over the security of the once Soviet-ruled territories in Europe, irrespective of the results of the anti-missile radar negotiations.

With today’s move, the Obama administration certainly didn’t give Russia any reason to think its campaign wasn’t working.