CRYPTOGRAPHY: TRENDS IN TECHNOLOGY AND POLICY

 

 

 

 

Lance J. Hoffman

Faraz A. Ali

Steven L. Heckler

Ann Huybrechts

 

 

 

 

 

December 5, 1993

 

                                          

 

Prepared by

The George Washington University

Office of Sponsored Research

Subcontract No. 19K-RF105C

 

 

DOE Project No. XXXXXXX

 

 

 

 

Prepared for

Data Systems Research and Development Program

Technical Operations

Oak Ridge K-25 Site

Oak Ridge, Tennessee 37831-7620

Managed by

MARTIN MARIETTA ENERGY SYSTEMS, INC.

for the

U.S. DEPARTMENT OF ENERGY

under contract DE-AC05-84OR21400

DISCLAIMER

 

This report was prepared as an account of work sponsored by an agency

of the United States

Government.  Neither the United States Government nor any agency

thereof, nor any of their employees,

makes any warranty, express or implied, or assumes any legal

liability or responsibility for the accuracy,

completeness, or usefulness of any information, apparatus, product,

or process disclosed, or represents

that its use would not infringe privately owned rights.  Reference

herein to any specific commercial

product, process, or service by trade name, trademark, manufacturer,

or otherwise, does not necessarily

constitute or imply its  endorsement, recommendation, or favoring by

the United States Government or

any agency thereof.  The views and opinions of authors expressed

herein do not necessarily state or

reflect those of the United States Government or any agency thereof.



 

 

 

 

 

 

 

 

CRYPTOGRAPHY: TRENDS IN TECHNOLOGY AND POLICY

 

 

 

 

Lance J. Hoffman

Faraz A. Ali

Steven L. Heckler

Ann Huybrechts

 

 

 

 

 

December 5, 1993

 

                                          

 

Prepared by

The George Washington University

Office of Sponsored Research

Subcontract No. 19K-RF105C

 

 

DOE Project No. XXXXXX

 

 

 

 

Prepared for

Data Systems Research and Development Program

Technical Operations

Oak Ridge K-25 Site

Oak Ridge, Tennessee 37831-7620

Managed by

MARTIN MARIETTA ENERGY SYSTEMS, INC.

for the

U.S. DEPARTMENT OF ENERGY

under contract DE-AC05-84OR21400



 

 

CONTENTS

 

 

 

EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . .  v

 

1.  INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . .  1

 

2.  TECHNOLOGY. . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . .  3

 

3.  MARKET ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . .  7

 

4.  EXPORT CONTROLS . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . .  9

 

5.  PUBLIC POLICY ISSUES. . . . . . . . . . . . . . . . . . . . . . .

. . . . . . 13

      5.1  EXECUTIVE BRANCH . . . . . . . . . . . . . . . . . . . . .

. . . . . . 13

      5.2  CONGRESS . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . 14

      5.3  TRENDS . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . 16

 

6.  POTENTIAL SCENARIOS . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . 17

 

REFERENCES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . 19

 

      

 

      

                                          

 

 

 EXECUTIVE SUMMARY

 

 

During the past five years, encryption technology has become easily

available to both individuals and

businesses, affording them a level of security formerly available

practically to only military, national

security, and law enforcement agencies. As a result, a debate within

the United States about the proper

balance between national security and personal freedom has been

initiated. Law enforcement and national

security agencies would like to maintain tight control over civilian

encryption technologies, while industry

and individual and privacy rights advocates fight to expand their

ability to distribute and use

cryptographic products as they please.  

      

This report analyzes trends in encryption technology, markets, export

controls, and legislation.  It

identifies five trends which will have a strong influence on

cryptography policy in the United States:

      

      ~ The continued expansion of the Internet and the progressive

miniaturization of cryptographic

      hardware combined with the  increasing availability and use of

strong cryptographic software

      means that the strongest encryption technologies will  continue

to become more easily obtainable

      everywhere in the years ahead.  

 

      ~ Additional growth in networked and wireless communication

will fuel a strong demand for

      encryption hardware and software both domestically and abroad,

causing the U. S.

      high-technology industry to be increasingly interested in

selling encryption products overseas and

      in modifying current export restrictions.  

 

      ~ Due to the responsibilities and bureaucratic dispositions of

key Executive Branch agencies,

      products using strong encryption algorithms such as DES will

continue to face at least some

      export  restrictions, despite the widespread availability of

strong encryption products overseas.

 

      ~ The American public is likely to become increasingly

concerned about its privacy and about

      cryptographic policy as a result of the increased amount of

personal information available online

      and the growing number of wireless and networked

communications.  The development and

      increasingly widespread use of the National Information

Infrastructure will heighten these

      concerns. 

 

      ~ Encryption policy is becoming an important public policy

issue that will engage the attention

      of all branches of government.  Congress will become

increasingly visible in this debate due to

      its power of agency oversight and its role in passing laws

accommodating the United States~ rapid

      rate of technological change.  Agencies will remain very

important since they have the

      implementing and, often, the planning responsibilities.  Since

individuals and industry have more

      direct influence over Congress than over most other branches of

government, Congress may place

      somewhat more emphasis on personal freedom than many other

government actors.

 

Four potential scenarios are likely: mandatory escrowed encryption,

voluntary escrowed encryption,

complete decontrol of encryption, or domestic decontrol with strict

export regulations.

 

 

1.  INTRODUCTION

 

 

During the past five years, encryption technology has become easily

available to both individuals and

businesses, affording them a level of security formerly available

practically to only military, national

security, and law enforcement agencies.  This availability and the

desirability of encrypting some

communications is just starting to be generally recognized by

American business, and the encryption

market is just now beginning to emerge as a significant part of the

computer security market.  As a result,

a debate within the United States about the proper balance of

national security, law enforcement, and

personal freedom has been initiated.  Law enforcement and national

security agencies would like to

maintain tight control over civilian encryption technologies, while

industry and individual and privacy

rights advocates fight to expand their ability to distribute and use

cryptographic products as they please.1 

 

This report analyzes trends in encryption technology and policy

against this backdrop.  It is one in a

trilogy of research papers being prepared under the direction of

Professor James Chandler of the George

Washington University National Law Center and Professor Lance Hoffman

of the George Washington

University School of Engineering and Applied Science, Department of

Electrical Engineering and

Computer Science.  The papers cover the following topics:

 

      Issues Regarding the Use of Cryptographic Technologies in the

Commercial Sector.  Review and

      analysis of U.S. laws, regulations, and case law pertaining to

the use of commercial encryption

      products for voice and data communications between private

parties located within continental

      U.S. boundaries and with parties in foreign jurisdictions,

including examination of all applicable

      Federal statutes, regulations, executive orders, and other

publicly available sources of legally

      binding directives.  Laws or regulations which have been

interpreted as mandating the use of

      cryptographic systems are also included. 2

 

      Foreign Encryption Technology Controls.  Identification and

analysis of foreign laws and

      regulations pertaining to the use and control of commercial

encryption products for voice and data

      communications. 3  

 

      Cryptography: Trends in Technology and Policy (this paper).

Encapsulation of current legislation

      and analysis of trends based on the above papers with future

implications for encryption

      technology and the use of commercial encryption products.

 

      This report is divided into four primary sections:

 

             ~ Technology:  future trends in high technology and,

more specifically, encryption

             technology.

      

             ~ Market Analysis:  trends in the global market for

encryption products, especially DES-

             and RSA-based products.

 

 

             ~ Export Controls: trends that may influence the wording

and implementation of laws

             restricting export of encryption products manufactured

in the United States.

 

             ~ Public Policy Issues: factors and trends that may

determine the future direction of

             policy decisions and legislation related to cryptography

in the United States.

 

After discussions of these topics, four potential scenarios are

briefly presented as possibilities.

 

The authors appreciate the constructive criticism of early drafts and

helpful suggestions made by Diana

Arrington, Donna Berkelhammer, James Chandler, Larry E. Christensen,

Dorothy Denning, Bill

Franklin, Lou Giles, Lamaris Gill, Lynn McNulty, Randolph Williams,

Doug Miller, Robert Rarog,

Allan Suchinsky, and others.  Conclusions or opinions in this paper

are, however, those solely of the

authors and are not necessarily shared by any of the other persons.

 



 

 

2.  TECHNOLOGY

 

 

Commercial encryption technology has evolved since the popular ~Data

Encryption Standard~ (DES)4 was

released to the public in 1977 and will continue to do so during the

foreseeable future.  From a situation

then when only private key systems were generally in use, public key

systems have become increasingly

popular, especially for authentication.  Detailed reviews of the

evolution of cryptography over the last

sixteen years or so can be found in [5] and [6].   In particular,

hardware encryption devices will become

smaller, users will use signatures and digests (typically public key

systems7, 8 as well as private key

systems), and encryption algorithms will become increasingly

powerful.9

 

A cryptographic system generally provides for two functions:

encryption and decryption.  The encryption

function converts data from ~plaintext,~ or normal text, into

In order to perform either of these functions (i.e. to send or

receive an encrypted message), the system~s

user must have a unique ~key,~ a sequence of bits.  This key is input

to the algorithm to successfully

perform the desired conversion.  The strength of an encryption scheme

is dependent both upon the

strength of its algorithm and, often, on the length of the keys used

for encryption and decryption.  Longer

key lengths mean more possible keys for an intruder to try and thus

imply greater security.  Encryption

and decryption are generally performed by a computer with the

assistance of hardware and/or software

cryptographic products.

 

A trend in encryption products, concurrent with the same trend in

computer technology in general, is

towards increasing miniaturization.  For example, in 1988 the primary

encryption device manufactured

by AT&T weighed seventeen pounds.  Now, with the advent of PCMCIA

(Personal Computer Memory

Card Industry Association) technology, it is widely anticipated that

one or more manufacturers will soon

release encryption-capable modems the size of a credit card. 

 

Some observers feel a trend is developing from hardware or

software/hardware products to software-only

products9, 10  because software is cheaper, easier to install and

use, and takes up less space on a computer

than hardware.  Others disagree, thinking that the future of

encryption technology may be in

hardware-based products, because they are faster, harder to

compromise, and also take up very little

space now because of developments in VLSI (Very Large Scale

Integrated) chip design .11

 

There is also a growing use of ~public-key~ cryptography systems.9,

13  Under a more traditional single

key system, the same key is used both for encrypting and decrypting

the message.  Although this is

reasonably secure, there is a risk that this key will be intercepted

when the parties involved exchange

keys.  A public key system, however, does not necessitate the

exchange of a secret key in the

transmission of messages.  The sender encrypts the message with the

recipient~s freely-disclosed, unique

public key.  The recipient, in turn, uses her unique private key to

decrypt the message.7  It is also

possible to encrypt messages with the sender~s private key, allowing

anyone who knows the sender~s

public key to decrypt the message.  This process is crucial to

creating digital signatures, as discussed

later.

 

Coincident with the increase in electronic communications is the need

to write one~s own signature on

both business and personal transactions.  At the moment, writing

one~s own signature requires written

messages.  Now, however, electronic communications have become so

heavily used that many business

and personal transactions will flourish between parties who never

actually see each other and physically

sign no paper; increasingly, digital signatures will be used to

provide message authentication.

 

Public-key cryptography also enables the user to produce a digital

signature by encrypting with her

private key, which, when decrypted with her public key, provides

verification that the message originated

from that user.  Possible applications for this technology include

online financial transactions and business

negotiations.

 

The DES (Data Encryption Standard) and RSA (named after its inventors

Rivest, Shamir, and Adelman)

algorithms are generally considered two of the strongest algorithms

on the market.  DES is a strong,

private-key algorithm developed by IBM and made a standard by the

United States government in the late

1970~s.  RSA, in turn, is the most popular public-key algorithm.14

It is based on prime number

generation, using the fact that it is very difficult to factor the

product of two large prime numbers.

Encryption hardware and software products incorporating DES and RSA

are widely available both

domestically and abroad.  Over two million instantiations of RSA have

been distributed in the United

States, in almost every case seamlessly embedded by the vendor.  By

the end of 1994, this number will

rise to five million and by the end of 1995, it will double.15 

 

PGP (Pretty Good Privacy), 16 which originally incorporated RSA,

employs public-key cryptography and

puts together strong algorithms for both authentication and message

transmission.  It now uses a

combination of the IDEA (International Data Encryption Algorithm)17

and DES algorithms, is free, and

can be obtained over the Internet via anonymous FTP ("file transfer

protocol").  

 

DES continues to be an important standard for encrypting data,

particularly within the U. S. and foreign

financial communities.  The National Institutes for Standard and

Technology (NIST) is in the process of

recertifying DES as a national standard for the next five years.

However, the security of DES in the

future is worrisome to some scientists, who contend that advances in

technology will soon make it

possible to break DES by ~brute force,~ using a powerful computer to

try every possible combination

of keys until the correct key is discovered.  Indeed, in ten years,

DES may no longer be secure.18    

 

In contrast, SKIPJACK, the classified encryption/decryption algorithm

used in the White House~s key

escrow (~Clipper~) initiative, utilizes an 80-bit key, 24 bits longer

than the 56-bit key used in DES.  The

interim report of the SKIPJACK evaluators chosen by NSA and NIST came

to three conclusions:19

 

             1.    Under an assumption that the cost of processing

power is halved every eighteen

                   months, it will be 36 years before the cost of

breaking SKIPJACK by exhaustive

                   search will be equal to the cost of breaking DES

today.  Thus, there is no

                   significant risk that SKIPJACK will be broken by

exhaustive search in the next

                   30-40 years.

 

             2.    There is no significant risk that SKIPJACK can be

broken through a shortcut

                   method of attack.

 

 

 

 

             3.    While the internal structure of SKIPJACK must be

classified in order to protect

                   law enforcement and national security objectives,

the strength of SKIPJACK

                   against a cryptanalytic attack does not depend on

the secrecy of the algorithm.

 

Other sources report that many industry representatives believe that

processing power doubles about every

six months to a year.  This would reduce the "safe time" of the first

point above to approximately 12-18

years, rather than 30-40 years.

 

Other escrow schemes are also available.  Micali20 has proposed a

multikey escrow capability in which

multiple trusted parties authenticate a message and/or allow

eavesdropping.  In a recent unpublished

paper, Desmedt, Frankel, and Yung state that threshold cryptosystems

(as presented at recent Crypto,

Asiacrypt, and Eurocrypt conferences) can have the same functionality

as key escrow schemes without

relying on "(expensive) tamperproof devices."21

 

The increasing use and availability of encryption technology

logically accompanies the exponential

increase in electronic communications over the past few years.

Commercial use of the Internet has

increased dramatically during the past two years, and noncommercial

use is on the rise as well.22  Indeed,

as the New York Times whimsically notes, "Forget Elaine's.  Internet

is currently the world's most

fashionable rendezvous."  It touches down in 137 countries and links

15 million to 30 million people and

is growing by a million users each month.23

      

This growth in the popularity of the Internet has created a demand

for security.  Electronic mail users

who desire confidentiality and sender authentication increasingly are

demanding encryption.  Some are

already using PGP.  Others are starting to use Privacy Enhanced Mail

(PEM), an Internet encryption

mechanism which was funded by the Advanced Research Projects Agency

of the Defense Department and

has recently been introduced as a commercial product by Trusted

Information Systems, Inc.  It uses the

DES algorithm for encryption and the RSA algorithm for sender

authentication and key management.

Privacy Enhanced Mail also provides support for nonrepudiation; this

allows the third-party recipient of

a forwarded message to verify the identity of the message originator

(not just the message forwarder) and

to verify if any of the original text has been altered.24, 25

Although PEM is not yet widespread, a number

of vendors are offering it in conjunction with or integrated into

their commercial electronic mail

applications and the European Community has adopted PEM for its

PASSWORD project26  which is part

of an attempt to establish a pilot security infrastructure for

network applications for the European research

community.  Ironically, a Federally funded chip, Clipper, now is

being pushed as a substitute for this

mechanism which has already been paid for largely by government funds

and is already in place.

 

The increasing number of electronic funds transfers (EFTs) between

banks has necessitated the increasing

use of message authentication systems, to determine if a message has

originated from its proper source

and to determine if there have been any modifications.27  One

institution alone, the Clearing House

Interbank Payment System, currently moves an average of one trillion

dollars each day via wire and

satellite.28   Strong encryption is necessary to provide security and

authentication for these electronic

money transfers (and is also why export restrictions on the DES

algorithm have been relaxed for financial

institutions). 

 

Despite these leaps in technology, telefacsimile (fax) transmissions

are not yet widely encrypted, even

though fax is a widely used form of data communications.  According

to a Datapro 1993 report27,  there

are only 11 encryption devices which accommodate FAX transmissions.

It is inconvenient to equip both

the sending and receiving machine with compatible encryption before

facsimile transmission; the fax

protocol has no convenient place for inserting non-fax functions such

as encryption; and, until recently,

there has been little awareness of security threats among fax users.

However, increasing use of fax

transmissions by businesses who wish to keep their corporate

information and finances confidential and

an increasing awareness of the security problems will require the

availability of more products which

encrypt fax communications.  

 

Credit cards and ATMs are the forerunners of what may soon become

people use less pocket cash every year. Indeed, credit-card purchases

are now used for one-tenth of all

consumer payments.29  David Chaum, head of the Cryptography Group at

the Center for Mathematics

and Computer Science (CWI) in Amsterdam, has proposed a distributed

smart card system which, using

public key cryptography, allows anonymous cash embodied by the cards

to be used like real money.28

This is another consequence of the increasing digitization of

financial transactions: ~Ubiquitous digital

cash dovetails well with massive electronics networks.  It~s a pretty

sound bet the Internet~today~s

version of the Net~will be the first place that e-money will

infiltrate deeply.~ 29 

 

One of the consequences of an increasingly electronics-oriented

economy will be the need to provide some

amount of anonymity and privacy for users of such a digital cash

system in order to ensure that electronic

money remains anonymous and untraceable, except by the payer and

payee.  Government approval will

be requisite for digital cash to gain full approval by the business

community and public, and the

government may require access to these transaction records to prevent

what might otherwise become

"perfect crimes." 30  

 

In conclusion, the current trends in encryption technology include

increasing miniaturization, increasing

use of public and private-key cryptography, and the continued

development of increasingly secure

algorithms.  These trends are all coincident with the skyrocketing

use of the Internet and other types of

electronic communications, particularly electronic money

communications.

                                          



 

 

                                 3.  MARKET ANALYSIS

 

 

The market for encryption products is rapidly growing.27 This market

trend is concomitant with the

increasing use of personal computers, fax machines, and e-mail for

electronic communications.  A large

encryption market has also arisen because of wireless communications,

such as cellular telephones. There

are already 12 million subscribers to cellular telephone services in

the United States, and the trend is

toward more wireless communications in the future.  Since they are

easier to intercept than wire-based

ones, the demand for encryption technology will increase as concern

for data integrity increases.9

 

This growth in the market for encryption is occurring both in the

United States and abroad.  According

to International Resource Development, the U. S. data encryption

market reached an estimated $384

million in 1991, and will jump to $946 million by 1996.  The total

worldwide market, estimated at $695

million in 1991, is predicted to grow at a similar rate, reaching

$1.8 billion by 1996.31 

 

The encryption market is no longer left to United States companies to

dominate.  A Software Publishers

Association (SPA) survey shows 264 foreign encryption products and

288 domestic products.  These

findings contrast sharply with the large global market shares

(approximately 75%) enjoyed by United

States software publishers and hardware manufacturers in other

areas.32  Of the 264 foreign products, 123

products use DES.36 

 

Citing the relatively stringent export controls enforced by the

United States government as being one of

the main reasons for the increasing market share of foreign

cryptographic products in the global market,

many manufacturers are currently lobbying the government to relax

these export controls in an effort to

keep United States technology competitive abroad.  The SPA claims

that most software and hardware

vendors, aware of these export controls, decide not to manufacture

encryption technology because they

realize that their very best technology cannot be exported.  Thus,

they claim, there are far fewer domestic

vendors than would otherwise exist.10

 

Many commentators have speculated on the influence of the escrow

encryption standard (Clipper) on the

global market.  Georgetown University Professor Dorothy Denning, one

of the evaluators of the

SKIPJACK algorithm used in the proposed key-escrow arrangement and an

advocate of its deployment,

states that if the technology provided by Clipper catches on, it

could become the de facto standard in the

United States, either the only device or the predominant device

available on the market.33 

 

Marc Rotenberg, director of the Washington office of Computer

Professionals for Social Responsibility

(CPSR), believes that the government would be able to wield

considerable clout in making the key-escrow

arrangement a de facto standard on the market.13   He explains that

the government can exert enormous

authority on creating, developing, and enforcing technical standards

through the procurement process. 

Through this procurement process, the government can require any

manufacturer selling phones to the

government or government contractors to install the key-escrow

arrangement in their phones.  AT&T

supplies an enormous amount of telecommunications services and

equipment to the government, thus

making the government one of AT&T~s largest customers.  In response

to the Presidentially approved

Clipper initiative, AT&T has started incorporating the key-escrow

arrangement in some of its phones,

a powerful illustration of the enormous spending power of the

government.

 

However, the Federal government does not represent a large percentage

of the market or the revenue for

all American companies providing communications or computer

technology.  For example, Bill Ferguson

of Semaphore Communications Corp. states that government purchases

are less than one percent of

Semaphore~s global sales potential.  With trade restrictions applied,

the government still supplies less than

five percent of Semaphore~s expected sales.34   Companies such as

Semaphore and many represented by

the SPA see foreign markets as potentially larger sources of income

than the U. S. government and

therefore want trade restrictions relaxed so that more market

opportunities can open up.  As it stands

now, many in the encryption industry fear that products using the

Clipper chip will be effectively

unexportable due to United States government retention of the

keys.35,36

 

The Clinton administration has stated that use of a key escrow system

will not be mandatory ("The

Administration has progressed far enough in its review to conclude it

will not propose new legislation

to limit use of encryption technology.")37.  However, if this

decision were reversed (perhaps by a later

administration), there is some danger that the proposed key-escrow

arrangement could function as a

Prohibition and the organized crime that

resulted from it, the key-escrow arrangement could encourage contempt

for law enforcement and a

complete disregard of the law.35  Doug Miller of the SPA feels that a

black market would almost certainly

arise if the United States government makes some standard

mandatory.10 

 

Given the increased use of computers and networks, a steady increase

in the market for encryption

products is likely, as is a continued expansion into this market by

foreign manufacturers.  United States

hardware and software producers, stymied by relatively stringent

export restrictions imposed by the

United States government and possibly further hindered by the

necessity of accommodating what may be

an unexportable Clipper standard, may find it even more difficult to

remain competitive players in

international markets.

 

 



 

                                 4.  EXPORT CONTROLS

 

 

Existing controls on the export of encryption software and hardware

has been a topic of concern for

United States manufacturers and vendors. Despite a February 1991

COCOM decision to decontrol all

mass market software, including encryption software, as other

commercial, dual-use items, United States

export control policy continues to categorize many encryption items

as ~munitions-related~, thereby

subjecting them to applicable export laws.38  Anyone wishing to

export the strongest encryption products

is therefore required, under the Arms Export Control Act, to obtain

individual licenses from the Office

of Defense Trade Controls at the State Department (though some

products of lesser strength are under

the control of the Commerce Department).39  This has led to a

prohibition on export of encryption

products using the popular and relatively powerful DES algorithm for

file and data encryption (except

for financial applications and use by subsidiaries of U. S. companies

abroad).

      

Obtaining a license for these restricted encryption products includes

a review of the product by the

National Security Agency (NSA) to determine its exportability.

According to Allan Suchinsky, Chief of

Electronic and Combat Systems Licensing at the Office of Defense

Trade Controls at the Department of

State, this process normally takes between one and six weeks.40

According to some officials and business

people, however, a newly developed encryption product can actually

take up to ten months to go through

the review process, although products employing certain algorithms

are either on a list of automatically

approved items or eligible for ~fast track~ consideration. In the

high-tech arena where product cycles are

often measured in months, large market shares can be lost due to such

delays.  Some industry

representatives have complained that the average time it takes to

obtain a similar license for encryption

products outside the United States is much less.34 

 

The market analysis above describes the steadily growing global

market for strong encryption products,

one that is potentially worth millions (if not billions) of dollars.

But United States manufacturers believe

that their hands are tied by stringent export laws which, for

export of encryption products of DES strength or stronger to anyone

other than financial institutions. 

They also believe that foreign manufacturers in Europe and elsewhere

are not similarly restricted, and

are free to manufacture and export DES- and RSA-based products. This

asymmetry in export laws has

undesirable consequences for United States manufacturers of

encryption products.

 

DES-based products are already being used in encryption products

manufactured in foreign countries

including Japan, Russia, Germany, France, Austria, UK, Switzerland,

Netherlands, Austria, Australia

and Sweden.32  The DES algorithm, in fact, is also freely obtainable

via the Internet, as is DES-based

encryption software. The encryption ~genie~  would appear to be out

of the bottle, and at this point it

is not clear to United States companies  why the State Department is

inhibiting the wide proliferation of

DES technology,41 now that it is not in a position to prevent it.

Along with this, one must consider the

trends towards implementation of encryption products in software, and

the miniaturization of encryption

hardware. Taken together, these trends indicate that it will become

increasingly difficult to enforce the

existing export laws, and tougher to prevent the spread of

DES-caliber algorithms.  Despite this, many

government officials have continued to speak strongly in favor of

continued restrictions on DES, stating

that attempting to control export of products using the algorithm

still prevents a significant number of

international terrorists, criminals, and unfriendly foreign powers

from acquiring advanced encryption

technology.  As a result, they believe that export restrictions on

DES remain in the United States~ best

interest, even if they may not always be fully effective.40 

 

The current export restrictions have a detrimental effect on many

U.S. companies.  According to Addison

Fischer of Fischer International, ~export controls are estimated to

have cost Fischer International millions

of dollars in lost revenue for cryptographic products"42  due to

rejection by foreign customers of the

weaker encryption products United States companies are forced to

supply, lost sales opportunities, and

delays with paperwork necessary for obtaining the appropriate

licenses.  And since DES is already easily

available overseas, Fischer feels that existing export restrictions

are simply placing an embargo on United

States DES-based products. Similar complaints have been voiced by

other United States companies.  The

Computer Systems Security and Privacy Advisory Board agrees that

"current controls are negatively

impacting U. S. competitiveness in the world market and are not

inhibiting the foreign production and

use of cryptography [DES and RSA]." 43

 

Thus, if the United States government continues to control

DES-strength encryption manufactured in the

U.S., the following results may come to pass:

 

      ~ Foreign competitors of United States encryption companies

will likely gain control of the

      global market for encryption products.

 

      ~ United States companies will lose significant market share in

the global market for encryption

      products. They are likely to lose sales opportunities as they

compete in the electronic security

      market against products based on DES and RSA with their own

weaker versions based on RC2

      and RC4.

 

      ~ DES strength encryption will continue to proliferate to

foreign destinations, either through

      foreign companies or through the ever-growing Internet. The

effort of current United States

      export policy to inhibit this by restricting exports on

DES-based technology is unlikely to

      succeed.

 

      ~ If, indeed, United States companies get displaced in the

international encryption marketplace,

      United States ~national security~ will also be threatened by a

weakened domestic encryption (and

      computer) industry.

 

 

In July 1992, the Software Publishers Association reached an

agreement with the Bush Administration

that would permit an expedited 7-day review process for products

based on RC2 and RC4 algorithms. 

These algorithms are still much weaker than DES; but they are also

stronger than any other algorithms

which were exportable prior to this agreement.  This was an important

development in the effort to

decontrol the export of encryption products from the United States.

Projecting forward from this

milestone, it is likely that as the private sector continues to push

for further relaxation of these controls,

more and stronger encryption products will be put on similar

 

The Federal government seeks to encourage the use of key escrow

systems for encrypting

telecommunications.44  The standard proposed for these systems, the

"Clipper" escrowed encryption

standard,45  is particularly noteworthy in light of the fact that law

enforcement officials, with a court

order, can obtain both parts of a special key that enables them to

decrypt transmissions encrypted with

a particular chip.  At the time of this writing, how Clipper will be

treated for export purposes is not

clear.  If it is treated the same way as DES, it will certainly

provide another example of the Byzantine

nature of U. S. export policy.  In any case, it is likely that

foreign customers will reject these products,

due to fears of both United States tampering and the possible

existence of a secret ~trap door,~ which

would enable unauthorized parties to decrypt Clipper-encrypted

transmissions, even without the escrowed

parts of the special key.  Chris Sundt of the multinational

International Computers Ltd. (ICL) claims this

very fear will be the basis of rejecting Clipper as an encryption

alternative in international markets.46  

Other United States based companies share his concern that the key

escrow chip is effectively

unexportable.47 

 

In spite of the concerns described above, it appears unlikely that

United States export laws will become

as relaxed as those in many European countries.  DES-based products

for file and data encryption will

probably not be removed from the munitions list in the near future.

Almost everyone interviewed for

this report felt that NSA will continue to play an increasingly

dominant role in the debate over

cryptography in the U.S., and will continue to have influence much

stronger than NIST~s on encryption

policy issues.  NSA will continue to strongly voice its opinions to

the President and pressure him to keep

DES-based encryption on the munitions list and under the jurisdiction

of the Department of State.

 



 

 

5.  PUBLIC POLICY ISSUES

 

      

5.1  EXECUTIVE BRANCH

 

Due to the increasing public availability of strong hardware- and

software-based encryption products, a

debate over their regulation and use is emerging.48   The debate over

Clipper and regulation of other

encryption technologies is, in many ways, the continuation of an

ongoing discussion in the United States

about the proper balance between national security and individual

freedom of action.  On one side of the

debate are those agencies charged with defending America from crime,

terrorism, and external threat,

such as the Federal Bureau of Investigation (FBI), the National

Security Agency (NSA), the Central

Intelligence Agency, the Department of State, and the Department of

Justice.  These powerful agencies,

in turn, are challenged by advocacy groups and high-technology

industries, which place a greater

emphasis on individual rights, in particular personal privacy, or

corporate profits.  The United States

Congress may play a major role in determining the balance between the

two.

 

There are several powerful agencies which are leading the

Administration~s effort to control encryption

technology.  First and foremost among these is the National Security

Agency, which for years was the

sole controller of strong encryption in the United States.  NSA has

two primary goals on its agenda.  The

most overt one is the protection of United States national security,

which the NSA does largely with the

help of signal intelligence.49  If terrorists of foreign agents were

to obtain and use strong encryption

hardware or software, NSA~s efforts to learn about and thwart their

activities would be considerably more

difficult.  Indeed, as Marc Rotenberg of Computer Professionals for

Social Responsibility comments, the

continued development of encryption technologies poses one of the

most significant challenges the agency

has faced during the post-Cold War era.13 

 

Less obvious but also important is NSA~s effort to protect its

preeminent role in civilian cryptography. 

For years, NSA had almost complete control over developments in the

encryption field.  In recent years,

however, this control has begun to erode as private firms and

individuals have begun aggressively

developing and using encryption technologies.  The end of the Cold

War and the assignment of

responsibility by the Computer Security Act of 1987 50 for

development of federal unclassified computer

security standards (including cryptography standards) to NIST has

threatened many aspects of NSA~s

traditional role.  Doug Miller of the Software Publishers Association

observed that ~NSA throughout its

existence . . . has had every incentive to delay the inevitable~

(individuals obtaining full control of their

own cryptography).10 

 

The FBI is primarily concerned with investigating serious crimes and

thwarting domestic terrorism.  In

a small number of important cases, such as those involving drug

trafficking, organized crime, or

terrorism, the FBI gathers information via wiretaps.  Indeed,

wiretaps have been used in to gather

evidence in 90% of terrorism cases brought to trial.51  However, the

FBI has not been able to point to

a single case to date where encryption has hampered their

investigation of a case.

 

Several developments, however, are making these wiretaps

progressively more difficult to conduct.  Two

of these are the increasing complexity of the United States

telecommunications infrastructure and the

gradual replacement of copper wires by fiber optics, which can carry

thousands of conversations in a

single strand of fiber.  Both of these changes make it more difficult

for agents, even with phone

companies~ help, to isolate individual conversations.49   In

addition, the development of publicly available

encryption threatens to delay or prevent the FBI~s ability to utilize

the contents of these wiretaps.  This

poses serious risks to the lives and safety of the American people

whom the FBI is charged to protect,

especially in cases where the Bureau is relying on real-time

interception of phone calls to protect citizens

from harm or to apprehend a suspect.52 

 

Most of the other executive agencies and departments involved in the

regulation of encryption technology

have similar agendas:  protecting American citizens from harm and

defending their areas of responsibility

and influence within the government.49 

 

There are Constitutional issues related to encryption controls, and

the Clinton administration recognized

this when it announced the Clipper initiative.44  Its later review

has so far found no impinging on

Americans' Constitutional rights.37   Our colleagues at the GW

National Law Center basically agree.2,3 

Other lawyers have differing points of view.53, 54

 

Professor James Chandler of the George Washington University National

Law Center observes that some

United States industries and proponents of individual rights tend to

place a stronger emphasis on freedom

of action than national security and thus oppose stringent

limitations on encryption technology.55   The

software publishing community and vendors of hardware-based

encryption devices have generally focused

their opposition on current United States export restrictions, which

cost them millions of dollars

annually.11  Making a somewhat different argument, individual rights

advocacy groups such as Computer

Professionals for Social Responsibility (CPSR) and the American Civil

Liberties Union (ACLU) assert

that government is too often intrusive in people~s lives and needs to

be restrained in this domain.  As a

result, they tend to oppose any policy initiative which would

increase the ability of the government to

monitor activities of persons.55

 

 

5.2  CONGRESS

 

Congress, with its power to make laws and oversee the activities of

federal agencies, can be a significant

factor in this ongoing debate.  While the players named so far have

their own, narrowly defined agendas,

Congress~ actions are more likely to pay closer attention to the will

of the American people, on whose

vote and support their jobs depend.  Indeed, this dynamic has already

been demonstrated.  

 

In 1991, the FBI sponsored the Digital Telephony Proposal, which

required telecommunications

equipment manufacturers and service providers to make sure that their

products had a built-in means

whereby law enforcement officials could successfully tap into any

conversation provided they obtained

a warrant.1  This initiative was undertaken by the FBI in response to

increasing fear that with the advent

of digital phone lines, fiber optics, and advanced telephony in

general, law enforcement might no longer

be able to conduct wiretaps in the near future.  Unfortunately for

the FBI, the Digital Telephony Proposal

angered a large number of voters and telecommunications equipment

manufacturers, who in turn put

pressure on their congressmen.10  As a result, the proposal was never

allowed to reach the House floor.

 

Congress has very recently mandated a comprehensive study of

cryptography technology and national

cryptography policy by the National Academy of Sciences.56

Opponents pointed out that this proposal,

while in some ways meritorious, might also have the effect of

preserving the status quo for several years,

even though the status quo was characterized by some as early as 1981

as needing to be "realigned to

promote both national security, broadly defined, and encourage

private-sector competence in designing

and applying secure systems."57  The study will start up in  late

1993 or early 1994.  

 

Marc Rotenberg of CPSR observed that the FBI and NSA have learned

from the fate of the Digital

Telephony Proposal and have attempted to avoid Congressional

intervention with the Clipper initiative

by going through the White House instead of Congress.   Barring such

intervention at this point, he feels

the administration will likely face only limited opposition within

the Administration to the Clipper

initiative.13  Thus, any slowdown of this initiative is more likely

to materialize, if it does at all, in

Congress.  As more people perform an increasing number and range of

transactions over electronic

networks, they are becoming increasingly concerned about the

integrity of their personal information and

about maintaining their privacy.  Of those interviewed in a Macworld

poll released July 1993,58 78%

expressed concerns about their personal privacy (up from 64% in 1978)

and 68% felt their privacy was

threatened by computers (up from 38% in 1974).  Other independent

surveys confirm this trend.59  While

many of the survey results relate specifically to databases, often in

specific sectors such as credit

reporting, computer systems as a whole, including those with insecure

communication lines, are coming

under increasing scrutiny.  Congress will be placed under escalating

pressure to pass new laws governing

information technology, especially with the increased attention being

devoted to the design and

development of the National Information Infrastructure.60

 

Congress~ decisions in this area and indeed the outcomes of the

debate over encryption policy in general

will be the result of the ongoing struggle in American society among

government, individuals, and

industries.  Although this struggle will likely result in

oscillations in policy, national security may be

gradually redefined in terms of economic security.  This is the

expectation of Professor James Chandler,55 

who anticipates that controls on the export of encryption hardware

and software will eventually be lifted.

 

There are already some signs that Congress may be willing to ease

restrictions on the export of

encryption products and perhaps in other encryption-related areas as

well.  In early 1991, the Software

Publishers Association suggested an amendment to the renewal of the

Export Administration Act that

would have transferred authority over software exports to the

Commerce Department.  This amendment,

the Levine Amendment, was accepted by the House Foreign Affairs

Committee, prompting aggressive

lobbying by the National Security Agency of key congressmen in order

to prevent inclusion of this

amendment in the reauthorization bill.  Despite this lobbying, the

full House kept the amendment in the

Export Administration Act reauthorization.61  NSA later succeeded in

persuading President George Bush

to promise a veto of any reauthorization bill which included the

Levine Amendment or similar provisions,

but this incident does demonstrate Congress~ more liberal stance on

encryption export regulation.  And,

of course, there is a different administration now in power.  H. R.

3627, introduced in the closing days

of Congress' 1993 session,62 effectively does the same thing, and it

is conceivable that it will pass in

1994.

 

 

5.3  TRENDS

 

To summarize public policy trends,

 

crime, the FBI and the

NSA will continue to advocate restraints on encryption technology and

encourage the

development of encryption devices and telecommunications systems

which allow the

government to continue conducting wiretaps.

 

within the government, most likely at the expense of NIST.

 

technology, the NSA will

likely continue to favor closed forums where it can present

sensitive, classified material

which may not have been obtained had U. S. enemies been able to

obtain effective

encryption.  These forums such as the National Security Council, will

be favored by them

over open ones.  The agency will continue its effort to keep relevant

decisions out of the

hands of Congress. 

 

will place

increasing pressure on the government to liberalize restrictions on

the use and export of

encryption software and hardware.

 

action taken to

reverse the Clinton administration~s progress on the Clipper

initiative or the current

system of export controls will involve Congress as well as the

executive branch.  The

judicial branch (notably the Supreme Court) has not had occasion to

rule on the issues

surrounding the debate.

 



 

 

                            6.  POTENTIAL SCENARIOS

 

 

If and when a new cryptography policy emerges, there will be winners

and losers among the pool

of ~players,~ a pool that roughly consists of law enforcement

agencies, United States

manufacturers and vendors of encryption products, and the United

States public. Based on the

results of the preceding analysis, four scenarios can be envisioned.

 

      1. Complete decontrol of cryptography.  The use of strong

encryption by the United

      States public, as well as its export by United States

manufacturers, could be completely

      decontrolled by the government at the direct expense of law

enforcement and national

      security.  This would please some members of the public, for

they would have

      maintained control over their privacy. United States

manufacturers of encryption products

      would also likely benefit from this move. 

 

      2. Domestic decontrol of cryptography with export regulations.

Strong encryption could

      remain decontrolled for use by the general public, but strict

regulations would remain on

      its export. While the American public would still be relatively

content, United States

      industries would lose sales and potential market share due to

exclusion from the lucrative

      international market for encryption products.  The large

domestic market, however,

      would remain open, guaranteeing some revenues for encryption

product manufacturers. 

      Law enforcement agencies, on the other hand, would lose in the

short term in either of

      these scenarios, because their electronic surveillance

abilities would be diminished.

 

      3. Voluntary escrowed encryption.  Escrow a de facto standard.

(This is the Clinton

      administration's proposed scenario.)  The escrowed encryption

standard could become

      a de facto national standard for voice, fax, and data

communications over the public

      switched telephone network.  While other encryption products

would be built, they would

      gain little market acceptance because of demand for

interoperability.  Thus, law

      enforcement would be able to listen in on most transmissions.

The encryption technology

      might be exportable to countries that implemented the same or a

similar scheme and

      agreed to cooperate in international investigations.  United

States manufacturers might

      gain or lose in this scenario; they would gain only if Clipper

received widespread

      acceptance.  Law enforcement agencies would gain.

 

      4. Mandatory escrowed encryption.  The government could choose

to keep complete

      control over encryption and enforce a technology similar to the

escrowed encryption

      standard.  Law enforcement agencies would come out as winners

for having maintained

      their surveillance capabilities.  But a black market for

foreign encryption products

      smuggled into the United States would probably be created by

members of the public,

      including criminals, who desire more secrecy.  How United

States companies would react

      in this scenario depends on whether this government enforced

standard is designed to be

      exportable or not.  If it is unexportable, United States

companies currently involved in

      the manufacture and sale of encryption products would be almost

completely blocked

      from the international market and would be restricted to

marketing the government

      enforced standard domestically. This would result in

considerable financial loss for the

      industry.  If, on the other hand, the standard is an exportable

item, and designed with an

      eye to the requirements of the international market, then

United States companies would

      be better off and could maintain a level of international

economic competitiveness.

 

It is very difficult to determine which scenario is most likely and

what its consequences really

might be.  The policy debate has to date been carried out with each

side making their own

assumptions, not all of which are publicly stated.  The economic

implications for the Clipper

proposal have not been examined adequately.43   Use of an explicit

model of the situation would

make these assumptions explicit, thus contributing to an informed

discussion.

      

Recently, a user-friendly computer model64  based on an Excel

spreadsheet has been developed

to investigate the costs, risks, and benefits of issues related to

the National Information

Infrastructure.  Issues addressed include digital telephony, export

controls of cryptography, key

escrow systems, security features in communications hardware, etc.

It is designed to allow users

with varying political perspectives to make tradeoffs based on varied

parameter values, which the

users have complete control over.  While conceding that no

mathematical model can adequately

represent intangible values or political tradeoffs completely, it

offers a useful first step towards

a common ground for analyzing at least some of the problems described

above.  It has recently

been offered to both to government and its opponents in the key

escrow debate.  Though it is

beyond the scope of this particular project, some of the

investigators of this study plan to use it

to further explore the scenarios above.

          

 

 

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