U.S., Thales at Odds Over Request for ITAR-free Satellite Design Information

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PARIS — A U.S. State Department investigation of whether European satellite manufacturer Thales Alenia Space has illegally included sensitive U.S.-built satellite parts in spacecraft launched aboard Chinese rockets has remained open for more than three years because of a dispute over what information Thales should be required to submit, according to a company official and State Department documents.

The probe began as an inquiry into whether satellite hardware covered by the U.S. International Traffic in Arms Regulations (ITAR) had been integrated into satellites the Franco-Italian manufacturer billed as free of such items and thus eligible for launch on China’s Long March rocket. U.S. government policy bars the shipment of ITAR-controlled technology for launch aboard Chinese rockets.

But after receiving documentation showing the disposition of the ITAR-controlled hardware that Thales had received — documentation Thales said proved it had not been sent to China — the State Department broadened the inquiry to include every component on the Thales satellites.

Thales has refused to provide these data on the grounds that doing so would violate French law and contravene contract agreements with its satellite customers.

The dispute has led some in the State Department to suspect Thales may somehow be violating U.S. law in its satellite sales to China. The company has sold half a dozen satellites labeled “ITAR-free” in the past six years that were launched by Chinese Long March rockets or are expected to be.

In 2011 the government of Turkmenistan ordered the latest ITAR-free satellite as part of a contract that includes a launch aboard the Chinese rocket. China has slated the launch of two more Thales-built ITAR-free satellites for 2012, both owned by APT Satellite Holdings of Hong Kong.

In 2010, the State Department accused Thales of refusing to cooperate with a department-ordered “Blue Lantern” inquiry, which began in 2008, to determine what components are on Thales’ ITAR-free satellites.

In a report issued in late 2010 summarizing its fiscal-year 2009 investigations of technology exports, the State Department’s Directorate of Defense Trade Controls (DDTC), without specifically naming Thales, said the company declined to provide information to dispel concerns about “end product re-exported to China containing [U.S. Munitions List] components.”

The company “refused to provide information regarding the country-of-origin for many parts and components used in its ‘ITAR-free’ satellite sold to China,” the DDTC report said.

With the two sides apparently at an impasse, three prominent U.S. House lawmakers on Dec. 19 wrote U.S. Secretary of State Hillary Clinton asking why Thales had not been punished given that “State Department personnel appear to have concluded that there is a high probability that [Thales] illegally exported ITAR-controlled technology to China.”

The letter was signed by Reps. Ileana Ros-Lehtinen (R-Fla.), who chairs the House Foreign Affairs Committee; Frank R. Wolf (R-Va.), chairman of the House Appropriations commerce, justice, science and related agencies subcommittee; and Michael R. Turner (R-Ohio), chairman of the House Armed Services strategic forces subcommittee.

Asked to respond to the letter and to the DDTC evaluation, a senior official with Thales Group, the parent company of Thales Alenia Space, said he did not dispute the motivation of the letter’s authors, but concluded that they are misinformed about the state of play between his company and the State Department.

“I find it hard to believe that anyone [at the State Department] would believe that,” Edgar Buckley, Thales Group senior vice president for Europe and NATO relations, said. “The people in Congress who

wrote that letter are trying to protect U.S. interests and I have no problem with that. The question is: Have they been properly informed? I think not.”

Buckley, a British national, is a former NATO assistant secretary-general for defense planning and operations, and a former assistant secretary of state in the British Ministry of Defence. He is Thales Group’s principal representative, with Thales Alenia Space Chief Executive Reynald Seznec, in the discussions with DDTC.

In a Jan. 5 interview, Buckley confirmed what Wikileaks reports of State Department cables had already disclosed: Thales received a Blue Lantern inquiry in 2008 and since then has been in discussions with State Department personnel over what the company can and cannot provide by way of documentation.

The State Department inquiry, Buckley said, “asked for details about the disposition of everything we had received under 23 licenses [for ITAR-controlled components], plus the complete design of the Spacebus [satellite] platform and a list of all components.

“On the ITAR items, we had no problem. Thales has been building an ITAR-free satellite and we were aware that caused concerns in Congress. We immediately went back and said, ‘Here is a complete account of all the material given under these 23 licenses.’ None of it was used in an ITAR-free satellite. We said: We can give you the ITAR accounting so you can be reassured that we have accounted for the material.

“As for the satellite design, we said we cannot do that. We will give an outline of the design. And we cannot give you a complete list of components. We cannot do that under French law.”

Thales Group purchased the company now called Thales Alenia Space in 2007 and had performed a series of due-diligence audits of the space division as part of the acquisition. Thales said it would also provide the State Department with copies of the audits, conducted by internal and external auditors.

Buckley said the audits concluded that ITAR accounting at the company was satisfactory, but could be improved to prevent a Thales supplier from falsely or mistakenly claiming that a given satellite subsystem contained no ITAR-controlled parts when in fact it did.

“The audits recommended that we have a better ‘challenge’ procedure in our process,” Buckley said. “We then ordered another audit to show that we had done this.

“This was in early 2009. The response of the State Department was: ‘We would still like to have other information.’ Then we got another Blue Lantern letter.”

“We have sent hundreds of pages of documents. They continue to insist on a list of all U.S.-origin parts on the satellites — now not just the ITAR-controlled hardware, but all U.S. parts. We maintain we cannot do that. We fully understand this is a source of frustration at DDTC. But if you give people a list of all components, you give away design information. It is competitively sensitive.

“What the Department of State wanted was to find out everything about our satellites and check that against everything they know about ITAR. A subsequent request was for information on 30 licenses — some the same as before, so it brought the total to about 43 now. We provided this information. But they are frustrated they have not gotten all the information on non-ITAR components that they ask for.”

Buckley said Thales is now trying to find a way to deliver more information to DDTC using a procedure similar to the “data rooms” that companies set up to let prospective buyers review sensitive information in advance of a merger or acquisition. Those reviewing the material typically sign nondisclosure agreements.

“We have cooperated and we are still trying to cooperate fully with the inquiries,” Buckley said. “Believe me, we certainly do not like to receive Blue Lantern letters.

“The export of telecommunications products is regulated in France, just as it is in the U.S. We have a very strong, robust, extensive export control regime in place and we absolutely hate having a disagreement with State on this. We want to come to a compromise that reassures them without violating French law or commercial agreements with customers. The fact is, we haven’t found any instance of noncompliance.”