Original URL: http://www.theregister.co.uk/2008/05/09/bae_stealth_piracy_report/

US: BAE 'could have' pirated our secret Stealth 3.0 tech sauce

Arms globocorp enters grey zone?

By Lewis Page

Posted in Government, 9th May 2008 13:06 GMT

Global arms and aerospace colossus BAE Systems this week released a high-profile audit into its internal ethics and served it up with a big slice of humble pie as it promised to be a better corporate citizen in future.

But even as BAE sought to draw a veil over previous alleged indiscretions, it emerged that US officials have speculated that BAE, collaborating with US firms to build the supersonic, stealthed Joint Strike Fighter (JSF), could have allowed secret American military technology to move overseas, raising the possibility that the UK could benefit from expensive American research and development - even perhaps sell it around the world.

The American revelations come as part of a classified report by the US Defense Department inspector-general, subsequently obtained under a Freedom of Information Act request by the Project On Government Oversight. In the report, titled Security Controls Over Joint Strike Fighter Classified Technology, US investigators examine the protections around various cutting-edge technologies which are used in the new fighter.

These are quite significant pieces of kit. One version of the JSF will become the world's first ever supersonic jumpjet; all variants will include so-called "third-generation" stealth technology, intended to make them hard to see on radar or infrared while avoiding the crippling maintenance and handling issues that occurred in the F-117 stealth fighter and B-2 stealth bomber. Stealth 3.0 is seen as one of the USA's key military tech secrets, and for Lockheed - lead contractor on JSF - it is a crucial piece of intellectual property.

The particular concern over BAE's involvement in JSF is that the company also makes aircraft in the UK, typically in partnership with other European nations. America is worried that key tech such as Stealth could leak from BAE's US subsidiaries across the Atlantic to its factories in Britain, though there is supposed to be an internal company "firewall" in place which prevents this. These British factories, with full UK government consent, have famously been willing to sell to customers such as Saudi Arabia and Indonesia at times when the US government has not. And one should bear in mind that BAE doesn't just sell planes to such customers. Not infrequently, it also sells all the knowhow that goes into the aircraft.

According to the American investigators:

Foreign companies [often] prefer to acquire controlled technology without developing it themselves. [A previous US Defense report] identifies information technology, sensors, and aeronautics as technologies that generate the most foreign interest for technology theft, all of which are significant components of a modern aircraft program such as the JSF. The Government needs to be particularly vigilant of attempts by foreign-owned or -controlled companies that could benefit by acquiring critical JSF technologies. The foreign-owned parent of BAE Systems has numerous interests in aircraft development.

The US government - having spent decades and scores of billions developing Stealth and all the rest - isn't thrilled by the possibility of foreigners, including Blighty, suddenly learning how to do it for free. And it might reasonably be especially disquieted by the prospect of BAE's various far-flung customers being taught all these tricks; not to mention the many other global customers of BAE industrial partners such as Germany and Italy, who work with the UK on the Eurofighter project among others. American officials have already expressed some reservations about US military tech moving to Saudi via the Eurofighter, which is being sold there in a deal that will include "transference of technology... in the field of defense industries in Saudi Arabia, as well as training of Saudi citizens".

One may take it that the knowhow could then spread onward from Saudi to pretty much any place which can afford to rustle up a few briefcases of cash, Bentleys with solid-gold hubcaps, scantily-clad practitioners in the field of negotiable companionship and so forth. Not many people could actually use such specialised information, but there are those in Russia and China who'd love to have it.

As the Defense IG's henchmen note:

BAE Systems manufactures both [Eurofighter] Typhoon and the JSF aircraft components at its Samlesbury site in the United Kingdom. With contractors such as BAE Systems plc, and its subsidiaries working on competing aircraft, the US Government needs to implement effective management accountability and security controls to safeguard sensitive JSF technologies. Additional [Defense Department] oversight, accountability, and control would help DoD to reduce its exposure to an increased risk that unauthorized access to classified US technologies may occur. More specifically, DoD advanced aviation and weapons technology may not be adequately protected from unauthorized access at facilities and in computers at BAE Systems.

BAE might say that it is finding out how to do Stealth entirely on its own, working wholly on the UK side of the company firewall. In 2006, the UK Ministry of Defence gave BAE a £124m contract for Project Taranis, under which a working stealth aircraft demonstrator would be built for the RAF in just a few years - a remarkable feat by the Lancashire engineers, given the hugely greater amounts of time and money it took Americans to do the same.

This came just a few months after the US government, following pressure from BAE's political allies in Britain - in particular the former defence procurement ministers Lord Drayson (Labour) and James Arbuthnot (Tory) - inked a special deal letting the UK, and thus BAE plc, have wider access to JSF technology in order to support, modify and operate the jet as part of the British forces.

The US Defense IG, speaking generally of the past several years, says:

Advanced aviation and weapons technology for the JSF program may have been compromised... incomplete contractor oversight may have increased the risk of unintended or deliberate release of information to foreign competitors.

[The US Defense Department] did not always employ sufficient controls to evaluate and correct potential unauthorized access to classified US technology.

[Security inspectors] allowed the contractor to dictate what the Government could oversee... Allowing BAE Systems not to adhere to reporting requirements denies [government] representatives access to critical security information.

So the IG seems to be suggesting that BAE Systems had the ability to just move the information across the company - conceivably a matter of simply walking across a corridor, or of files being moved across the corporate network. Taking this scenario to its logical conclusion, the MoD would have actually paid BAE to launder its pirated tech under Project Taranis, and presto - BAE is in a position to sell Stealth and the rest of it to anyone approved by the British government. This would be pretty much anyone in the world, on past form.

But of course that isn't true, as everyone involved will tell you. BAE - without any reference to information it had been given as a result of the F-35 programme - is simply able to develop working Stealth planes for approximately one or two per cent of what it cost the USA.

The Reg asked BAE whether Taranis incorporated any US technology, whether obtained as part of JSF or not: and how it could be that the UK is able to develop Stealth 3.0 so much more quickly and cheaply than America.

A BAE spokesman said "certain elements of the Taranis programme are classified, and therefore we are unable to respond to your specific questions".

Asked about the heavy hints dropped in the IG's report, the spokesman told us that "the JSF programme is one of the most heavily audited in the world," and passed on a statement:

The DoD IG explicitly found no instances of unauthorized access to classified or export control information on the JSF program. We strongly disagree with the IG's suggestion that nonetheless, such information may have been compromised in some unidentified way by unauthorized access at BAE Systems. There is no basis whatsoever for that conclusion.

BAE Systems takes very seriously its obligation to protect classified and export controlled information and has a compliance program that reflects the highest of standards. BAE Systems has a long and proven track record of safeguarding sensitive information entrusted to it.

BAE Systems also strongly disagrees with the suggestion that we did not perform required audits and fully comply with our Special Security Agreement. That suggestion is simply false.

BAE Systems previously has requested a meeting with the IG to resolve what appears to us to be a misunderstanding of the underlying facts.

And you do have to say, reading the IG's report, that nothing was actually found to back up the quite explicit speculation regarding BAE. The only concrete criticism offered in the report - other than censure for the Defense Security Service oversight officials - is that BAE was occasionally a bit high-handed in its dealings with the inspectors. One can see why a security-minded American would view BAE's Lancashire plant with concern, but it lies outside the US Defense Security Service's (and Defense IG's) jurisdiction, and was pretty much beyond the scope of the investigation.

The conclusion to be drawn, perhaps, is that someone in the Defense IG's office is very concerned about BAE, but has no proof of any wrongdoing and no real means of getting any. The Defense IG's office haven't as yet responded to requests for comment.

It seems, then, that BAE's support in Washington may occasionally be a bit patchy - but you can't say the same of London. The company has a lot of very important friends in the British government, and this is a thing which is becoming increasingly hard to understand. The prospect of job losses in Lancashire is no doubt a worrying one for Labour politicians, but we get the job losses anyway. BAE, for instance, has lately sold off its interest in Airbus and with it the wing factories in Wales and Bristol. Sackings can be expected at these plants in the near future, as Airbus struggles to deal with its current problems - many workers have already been shifted onto subcontractor status as a preliminary step. In fact, the UK workforce of BAE has dwindled by 15 per cent since 2003, to just over 30,000 at the last count. The company has cut jobs in the UK for almost its entire history, in fact - firing more than three out of every four Brits it employed in 1990.

But why does the American government put up with BAE, allowing the company to dictate terms to its oversight officials and - perhaps, the IG seems to speculate - slip billion-dollar US tech secrets overseas at will? (The company has seemed to resell US knowhow via its UK factories before this.)

The thing is that BAE has taken all the many billions it has made, mainly from lucrative UK military contracts - also from selling off British factories originally given to it gratis by the government* - and used the cash to buy up American plants and personnel. As the US Defense report notes:

BAE Systems Inc [the US subsidiary of BAE plc] is the largest foreign-owned or -controlled defense contractor in the United States. It employed 45,000 employees and generated annual sales in excess of $10 billion in 2005.

As of 2005, then, BAE had roughly three US employees for every two Brits - and this ratio will only have gone up further with the Airbus sale, the money from which was used to buy Armor Holdings in America. So far from being a huge booster for the UK economy, BAE seems to be a channel by which government-created capital and jobs leave the country.

But US employees in such numbers give BAE a lot of clout in America, just as it has here in Blighty. So much clout that the Armor buy was OK'd in Washington despite the fact that the firm was under federal investigation over long-running Saudi Arabian bribery allegations.

Last week, funnily enough, saw the release by BAE of the Woolf report (pdf) into its business ethics, commissioned by the company after the furore following the news of that selfsame federal investigation. (The UK's corruption probe had been previously suppressed by the Blair government, in a move recently described as "abject surrender" by British judges.) Lord Woolf and his fellow ethicsperts-for-hire have avoided looking at the Saudi corruption allegations, however, saying:

Our task is not to conduct an inquiry into the truth or otherwise of the criticisms made of past conduct. We are concerned with the Company’s present activities and, in particular, to ensure that it has the necessary policies and procedures in place to reduce, as far as is practicable, the risk of such allegations being made in the future.

Woolf and Co reckon annual ethics audits from this point on will clean up BAE's image in jig time. These audits, one might suggest, will need to address the possibility of BAE using its transatlantic position to sell closely held American weapons technology from the UK - certainly given that this possibility is being speculated on in US government documents.

The copying of American pop songs by Russian download sites may not be a big deal, after all; but bootleg superjets from Russian or Chinese factories would be a serious problem, if only because we Western taxpayers would soon get hit with a bill for some kind of sixth-generation aerospace deathware to stand the putatively pirated stealth fighters off.

That would, overall, appear to be a copyright-busting business model which could genuinely work; but not in favour of the customer. ®

*Not just weapon and aircraft ones. BAE was effectively paid to take the Rover Group off the government's hands in 1988; it sold its remaining 80 per cent stake in 1994 for £800m.