Commerce Secretary Daley Calls Crypto Policy Implementation a 'Failure'

(April 16, 1998)  Secretary of Commerce William Daley, Jr., told a gathering at the Willard Hotel in Washington DC on Wednesday that implementation of encryption policy in the U.S. "has been a failure," and that "the global market is rendering our policy obsolete. And I fear that will soon make our products obsolete as well."  The speech was a criticism of FBI Director Louis Freeh's anti-encryption campaign.

Secretary Daley reported that:

The reality is that encryption products are rapidly multiplying in the global market. At the end of 1997, we estimate there were 656 encryption products in 29 countries outside the United States. There are major producers in Germany, Ireland, Canada, Israel and Great Britain. They are competitive with anything U.S. producers can make. And they can supply almost all the needs of computer networks.

And most of these producers do not need an export license if they want to ship encryption software -- a tremendous market advantage. Our policy, ironically, encourages the growth of foreign producers at the same time it retards growth here.

The Federal Bureau of Investigation and the White House are the two opponents of domestic use and export of encryption products.  While there is considerable support for strong encryption on Capitol Hill, FBI lobbying of members of key committees has so far prevented any strong encryption legislation from passing.

The Commerce Department, which has the mission of promoting American business, has a record of  supporting development of the computer and internet industry.  This has sometimes put the Department at odds with other elements of the executive branch.

Daley stated that unwillingness to compromise is a problem.

"The ultimate result will be foreign dominance of the market. This means a loss of jobs here, and products that do not meet either our law enforcement or national security needs. We are headed down a lose-lose path. And we have to get back to win-win."

The speech coincided with the release of a major Commerce Department report.  Both the speech and the report are titled "The Emerging Digital Economy."  The text of the 60 page report is available at the Commerce Department website in HTML.  The entire report with exhibits (300 pages) is availble in PDF.