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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