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The Walsh Report

                                     CHAPTER 4

                          THE CONSEQUENCES FOR GOVERNMENT

    4.1      Law Enforcement

    4.1.1      Law enforcement agencies have no doubt the loss of real-time
    access to the communications of their targets would represent a body-blow to
    their investigative capacity. The cost-effectiveness of this means of
    investigation is reported comprehensively in of the Report of the Review of
    the Long Term Cost Effectiveness of Telecommunications Interception. 38
    Agencies reiterated the key role which the interception of voice and data
    communication continues to play in their investigations, illustrated this by
    the number of cases brought to prosecution which relied on intercepted
    communications to a significant degree and the proportion of these where no
    alternative means of generating critical tactical intelligence was
    available. The routine use of strong encryption to protect
    telecommunications would reduce that role to a simple indication that
    someone was using the service and, perhaps, the person with whom the speaker
    or sender was communicating. Ways may become available to generate a
    constant stream of traffic and limit even that conclusion.

    4.1.2      Less concern was expressed at the encryption of stored data,
    though numerous examples have already been encountered where law enforcement
    agencies were unable to access the data and have had to return it unread.
    The interval between search and seizure and the need then to produce
    material in court or incorporate it into a brief of evidence would normally
    allow sufficient time to decrypt if the encryption application was a soft
    one or the key/password was available. In other instances, the only solution
    would be a cryptanalytical one and there is no guarantee such would be
    forthcoming - assuming the resources were available to try.

    4.1.3      The issue of loss of real-time access to intercepted
    communications is very different from the issue of cost-effectiveness of
    interception, though there is a relationship. Because of the argued impact
    which loss of real-time access to voice and data communications would
    produce in tactical intelligence terms and in the security of evidence,
    there is need for Ministers and senior officials to have a reliable
    assessment of the operational, staffing, financial and legislative
    implications for law enforcement and the protection of national security. On
    the basis of those elements, an assessment of the risk exposure of agencies
    and the Commonwealth in attempting to pursue similar law enforcement and
    national security ends by alternative means should be prepared. The document
    will clearly be sensitive and I propose it be submitted to the Secretary of
    the Attorney-General's Department for presentation to the Secretaries
    Committee on National Security. The submission should be completed by the
    end of 1997 and be available to the further review of cryptographic policy
    recommended for that time.

    4.2      National Security

    4.2.1      ASIO expressed similar views and just as strongly, particularly
    where they affected investigations of a counter-terrorist, counter-espionage
    or politically motivated violence kind. It is the flexibility, low risk,
    relatively low cost, immediacy and guaranteed information stream which
    commends telecommunications interception to ASIO and to law enforcement
    agencies. It is not only the substance of a communication between two
    people, but whom the subject of the interception contacts, if and how the
    person behaves differently with one from others, the circle of contacts and
    services revealed, the presence of a person at the premises where a fixed
    service (telephone or computer) is located is made clear at various
    intervals, and where more than one service used by the same person is
    intercepted, further and useful comparisons may be made. All these matters
    constitute useful tactical intelligence, affecting the implementation or
    withholding of a range of other investigative actions, the coordination and
    timing of an investigation and affording the investigator the opportunity
    both to be forewarned and to monitor reactions once he/she has taken a
    decisive or recognisable action.

    4.2.2      The loss of such a flexible, immediate and low-cost source of
    information would be likely to have a substantial impact on ASIO's threat
    assessment capacity. The intelligence requirements generated by this program
    frequently arise at short notice and often in fields not routinely covered
    by ASIO or law enforcement. If Australia was to receive information from a
    cooperating foreign agency of a threat to an overseas visitor or Australian
    dignitary and the probable source of that threat within Australia, it is
    unlikely such a matter could be investigated immediately without real-time
    access to the source's communications.

    4.3      The Cost of alternatives

         [paras 4.3.1 and 4.3.2 not available]

    4.3.3      Listening devices offer immediacy only when they are monitored in
    real-time, a practice not always possible or affordable. There are also far
    longer processing times involved in evaluating listening device product than
    something like telephone interception, where the calls are immediately
    accessible and each is date/timed. Legal authority to deploy tracking
    devices, whose installation may involve a trespass onto property, remains
    under consideration so this type of aid long used by overseas law
    enforcement agencies and security services is not generally available in
    Australia. Video surveillance of particular premises carries all the
    attendant risks mentioned in relation to listening devices and video
    surveillance of public areas raises a number of significant privacy issues.
    Physical surveillance is an expensive form of coverage to mount, with
    substantial overheads and a high risk of exposure - and the further risk of
    contaminating the investigation itself.

    4.3.4 From disclosures made in courts and inferences to be reasonably drawn
    from briefs of evidence and prosecutions, from information in the public
    domain and on the Internet, criminals, terrorists and foreign intelligence
    officers know law enforcement agencies are able to decrypt a variety of
    commercial or 'soft' forms of encryption.

         [section of this para not available]

    There is ample guidance material available on the Internet and elsewhere to
    judge which forms of encryption are secure against law enforcement agencies'
    efforts.

    4.3.5      The listening device provisions in the Australian Federal Police
    Act 1979, confined as they are to the capture of voice (rather than sounds,
    signals, images, pictures, etc) limit that service's investigative
    capability. As computer and communications crimes are not currently
    categorised as Class 2 offences under the AFP Act, listening devices are not
    able to be deployed against these classes of activity. The original
    rationale for the drafting of the listening device provisions and those
    activity categorisations has been superseded by the changing faces of
    technology and crime. The lack of any overriding authority between the
    States, Territories and the Commonwealth in the areas of computing, and
    communications crime is probably not helpful.

    4.3.6      The investigative impact on law enforcement agencies and national
    security would be substantial if real-time access to the communications of
    subjects of investigation was to be lost. There would be a consequent
    budgetary impact as the alternate sources of information are
    labour-intensive, less flexible, involve long lead-times, incur substantial
    financial outlays and sometimes produce after-care problems. The effect
    would, therefore, be on capability.

    4.4      Decryption capability for law enforcement and national security?

    4.4.1      The encryption of stored data ranges from relatively crude forms
    incorporated by manufacturers in pocket organisers through to strong forms
    such as PGP 39. The task facing law enforcement is increasingly a
    cryptanalytical one, not one of decryption. The Terms of reference of this
    Review seek at term (f)

         an assessment of the most appropriate means offending the development,
         implementation and maintenance of a decrypting capability for existing
         and emerging technologies;

         [para 4.4.2 not available]

    4.4.3      Should a greater proportion of DSD's efforts be directed to
    support the work of law enforcement agencies? There would be sensitivity
    about such a proposal at the best of times. When Defence spending has been
    quarantined against the reduction of budget outlays elsewhere in the public
    sector, a political dimension is added to the issue. It would require the
    construction of fire- walls and special protocols to ensure security and the
    issue of evidentiary requirements would always be a vexed one. On its face,
    it is not a course which obviously commends itself. On the other hand, there
    will need to be some cryptanalytical capacity in the Commonwealth on which
    law enforcement or national security may call when the need arises. Need, in
    these circumstances, will be dictated by the immediacy and gravity of the
    contextual information. There is no sound basis, as I have indicated, for
    proposing a second cryptanalytical facility in the Commonwealth. It follows
    necessarily that whatever cryptanalytical needs law enforcement and national
    security agencies experience will have to be met from within DSD's capacity.

    4.4.4      If the level of demand should become significant, there would be
    a need to look at the mechanics of cooperative arrangements, turnaround
    times on requests, charging arrangements and the prioritising and
    channelling of requests on a national basis. That task should be picked up
    in the further review recommended for late 1997.

    4.4.5      There was strong support from the AFP, some state police forces
    and ASIO for a separate decryption capability directed primarily to law
    enforcement purposes. Currently, many law enforcement requests, including a
    significant number from overseas agencies, are directed to universities and
    institutes of higher learning which have developed reputations for IT
    excellence and seminal research. Cases were cited to the Review where
    European law enforcement agencies have contacted institutes in Australia
    seeking help. The dilemma they faced was clear - bring cases to court
    without encrypted information which they believed was critical to their
    investigation or postpone cases in the hope the encryption may one day be
    broken. Neither course affords any comfort. Many appeals for decryption
    assistance explicitly presume the universities will supply this without
    cost, because of their percentage of public funding in their budgets. Not
    surprisingly, the universities see it otherwise.

    4.4.6      If a decryption facility was to be established, both state and
    federal agencies consulted thought it should be located in a Commonwealth
    agency, funded jointly by the Commonwealth and the states, operating on a
    cost recovery basis, and function under the technical aegis of DSD and the
    specialist IT components of the law enforcement agencies. The Review was not
    persuaded, however, such a facility would achieve more than the individual
    agencies are now managing. Unless a key was obtained from the owner of the
    data or the manufacturer agreed to provide critical information, there is
    little prospect that other than very basic or crude forms of encryption
    would be decrypted. Certainly commercially available strong encryption will
    defy such an approach and will likely resist cryptanalytical attack.

    4.4.7      No distinct or quantifiable benefit would seem to flow from
    developing an independent decryption facility for law enforcement. The
    better tactic would be to enhance the computer crime and technical
    investigation areas of the various agencies, to have a small budget slice
    reserved for training and minor capital expenditure and to ensure the
    separate efforts of agencies are coordinated so the sum produces enhanced
    capability. These are essentially matters for agency management. Of them,
    the critical factors are the technical or computer competence of the people
    and effective coordination across agency lines. The Review sensed impressive
    capability existed among computer crime specialists, but the number of
    investigators dedicated to this area is small both in actual terms and in
    proportion to the whole field of criminal investigation. The view was also
    gained that there has been little migration of expertise and operating
    familiarity to the larger body of criminal investigators. If the AFP, NCA
    and ASIO are to achieve requisite investigative and analytical capability in
    a field growing much faster than the pattern of staff or capital investment
    by those agencies in the past 3-5 years, the respective managements will
    need to accord these objectives a greater call on available resources.

    4.4.8      There would be value in formalising periodic exchanges between
    DSD, ASIO, AFP and NCA at a senior technical level, so that information may
    be shared in a 'closed' forum, sterile areas of exploration avoided, attack
    techniques discussed and some measure of cooperative research agreed. This
    sort of inter-agency forum would provide an opportunity to review the
    arrangements by which requests for cooperation may be channelled from State
    and Territory police forces to DSD. Because of their compliance functions
    and their close investigative and functional roles, both the ACS and AUSTRAC
    would sensibly be included. The national and trans-national nature of
    criminal and security issues and the considerable challenge which
    wide-spread encryption will pose to law enforcement and national security
    agencies strongly suggests a State or Territory police force representative
    should be coopted to the forum. The manner of selection or rotation is
    something which could be left respectively to the forum itself and the
    Police Commissioners' conference, though a suggestion is offered at 6.3.2.

    4.4.9      I mention such a forum should be 'closed' because information of
    great sensitivity would inevitably be discussed.

         [section of this para not available]

    The purpose is not to prevent any derived knowledge from ever being
    gainfully used but to ensure conditions attaching to compartmented knowledge
    are observed, security is protected and inhibitions about the level of
    candour which might apply largely removed.

    4.4.10      Because they relate to the forum's effectiveness, the issues of
    who should chair it and to whom it should report might briefly be canvassed
    here. DSD possesses the cryptanalytical expertise. The AFP possesses the
    operational management expertise, the experience of progressing cases from
    investigation to prosecution, of supporting prosecutions and has an
    appreciation of counter-terrorist requirements through its involvement in
    the National Anti- Terrorist Plan and its participation in various standing
    committees. ASIO works closely with DSD, and also with the AFP. It does not
    have executive powers and only occasionally becomes involved, as a party, to
    litigation. Like DSD, it has an overwhelming need to protect its targeting,
    sources and methods. The NCA shares the operational imperatives of the AFP
    and ASIO, but works to a narrower investigative last. All agencies have a
    need to preserve their covert collection and investigative capability. On
    this analysis, I consider ASIO should be the initial chair of the
    inter-agency cryptographic forum and the situation should be reviewed after
    18 months. That interval should ensure judgement is made on the basis of
    solid work, not simply issues of establishment.

    4.4.11      To whom should such a body report? Because of the importance and
    the sensitivity of the matters to be addressed by the forum and the need for
    Ministers to be kept informed, the appropriate authority would seem to be
    the Secretaries Committee on National Security and then to Cabinet. 1 gave
    consideration to the Heads of Commonwealth Law Enforcement Agencies
    (HOCOLEA) but the national security interest takes the matter beyond the
    remit of that body.

    4.4.12      Knowledge of cyphertext which cannot be decrypted is more
    valuable information to a criminal, terrorist or foreign intelligence
    officer than knowledge of systems and applications which can be decrypted.
    DSD may feel understandably vulnerable in entering such an arrangement where
    such judgements are likely to emerge or be required. The current degree of
    feeling and suspicion seems born of ignorance or matters not stated rather
    than from any adverse experience. A more positive approach by both sides
    should assist to break down those barriers.

    4.4.13      At paragraph 3.5.4, it was concluded areas of expertise in
    computer crime investigations will likely determine the priority with which
    certain criminal investigations are initiated and a particular challenge for
    agency managements will be to maintain and develop the number of staff with
    the requisite skills. The inter-agency forum could play a useful role in
    coordinating capital investment and personnel development plans for this
    area in the member agencies.

    4.4.14      The need for law enforcement and national security to initiate a
    dialogue with the IT industry, carriers and service providers was mentioned
    at paragraph 3.7.5. Such a task would logically be undertaken by forum
    representatives.

    4.4.15      It may be that some memoranda of understanding would be required
    to protect technology transferred between agencies and sensitive operational
    methods against disclosure in court proceedings or discovery processes. If
    indicated, such devices should reinforce the special compartment in which
    this information is located.

    4.5      Public Key Infrastructures

    4.5.1      The reactions of foreign governments to the availability of
    stronger forms of encryption has varied. Some require import licenses.
    Russia, India, France, China and Israel are among those and Russia and
    France require those who wish to use encryption to obtain state licences.
    The Belgians discovered they had passed a law in December 1994 which might
    prohibit the use of unescrowed encryption. At the time it went unnoticed as
    part of a larger law. The law adds a condition under which
    telecommunications equipment may be seized, namely in case of end equipment
    which renders interception ineffective. It has not been enforced as the
    Belgian Institute for Posts and Telecommunications remains unclear of its
    consequences. 40 The example is cited as a salutary warning of the fate
    which may befall premature policy initiatives.

    4.5.2      The efficacy of legislative measures to limit or control
    importation, let alone the political and public policy wisdom of pursuing
    them when the Intemet offers a range of encryption applications, seems
    doubtful in the extreme.

    4.5.3      Export controls on cryptography and cryptographic products have
    long been in place in Australia. They interlock with controls imposed by a
    number of countries, principal among them the United Kingdom, Germany,
    France and the United States - generally thought to produce more than 70% of
    the world's software. Contemporaneous with calls for government not to
    interfere with the availability of cryptography for the privacy protection
    of citizens have been calls for export controls to be ameliorated.

    4.5.4      The lack of enthusiasm with which American commentators greeted
    the series of United States government proposals, culminating in the formal
    Administration statements on 11 July 1996, to establish a key management
    infrastructure, under which the needs of quality assurance, integrity, data
    retrieval and public safety would be accommodated, broadly reflects the
    reaction of those consulted by this Review. 41 Few felt key escrow
    arrangements could be argued as secure and less considered government ever
    acting as an escrow agent to be appropriate.

    4.5.5      The American proposal for a commercial encryption policy is based
    on a global key management infrastructure that supports digital signatures
    and confidentiality. Independent entities, key escrow agencies, would verify
    digital signatures and also hold spare keys to confidential data. Those keys
    could only be obtained by persons or businesses that have lost the key to
    their own encrypted data, or by law enforcement officials acting under
    proper authority.

    4.5.6      Pressure created by the United States' computer industry and
    users eventually caused three Bills dealing with cryptography to come before
    the US Senate, two of which propose the abolition of export controls. The
    Republican candidate for the Presidency, Mr Robert Dole, was a co-sponsor of
    one of the bills. The Commerce Committee of the Senate scheduled a vote on
    one measure for September 12, 1996, but this was delayed because of other
    business. With the conclusion of the final session of the 104th Congress
    before the November elections, the measure will have to be revived by the
    returned Administration and the next Congress. The White House was
    originally expected to introduce its own legislation around mid-September,
    offering special arrangements for industry segments such as finance, health
    care and insurance. In turn, those sectors were expected to support
    government key escrow systems, which would have the effect of making them
    mandatory. 42 The July 1996 United States Administration statement
    foreshadowing the liberalisation of export controls for certain commercial
    encryption products seemed, also, an attempt to dispel Clipper suspicions.
    43 The terms and conditions attaching to that forecast liberalisation of
    export controls were eventually set out in the Vice-President's statement of
    1 October 1996. 44

    4.5.7      While performance standards and key recovery, alone with some
    relaxation of export controls are noted as the main features of the July
    1996 American proposal, there was no attempt to hide the principal drivers -
    on the one hand, the requirements of national security and law enforcement;
    on the other, the export interests of the United States.

         [remainder of this para not available]

    4.5.8 The United Kingdom government has taken a similar path. On the 11 June
    1996, a policy paper was issued publicly. 47 This announced the adoption of
    licensed and regulated Trusted Third Party (TTP) services as the core of its
    arrangements. 48 Without giving a binding commitment, it noted licensing
    might be predicated on an examination of applicants' fiduciary
    responsibility, competence to provide services in this sector and commitment
    to modern management principles! The purpose of the licensing policy is to
    preserve the ability of the intelligence and law enforcement agencies to
    fight serious crime and terrorism by establishing procedures for disclosure
    to them of encryption keys under warrant. The UK Government announced
    legislative proposals would be brought forward after further consultation on
    detailed policy elements.

    4.5.9      The British paper did not distinguish between authentication and
    confidentiality keys, though the Royal Holloway proposal on which it is
    founded did, and foresees some relaxation of export controls. For a time it
    offered the advantage over the early Clipper schemes of an offer of key
    back-up for data retrieval purposes, but the July 1996 American key
    management infrastructure proposal also included that element.

    4.5.10      At its essence, the TTP proposal provides users with key
    management services and law enforcement agencies with warranted access to a
    particular user's communications. Like the American proposal, the scheme
    would be voluntary but creates new points of vulnerability where the keys of
    participants may be attacked. The cost would be borne by the individual.

    4.5.11      Trusted third party encryption is much more problematical in
    relation to telecommunications than for stored data. It is difficult to
    imagine trusted third party encryption becoming the norm unless governments
    put substantial sanctions in place. For those to be meaningful will require
    close coordination and global agreements to cover a global market. The
    importance of the efforts by the Australian government and OECD partners to
    reach an acceptable draft of cryptography guidelines is underlined here as
    global agreements will only be secured on the basis of internationally
    accepted principles.

    4.5.12      The French government has adopted a mandatory third party scheme
    which will result in some relaxation of the earlier ban on cryptography.
    Like the others, it does not distinguish between authentication and
    confidentiality keys. One is tempted to say it poses the same problem for
    criminal prosecutions but the French approach to these matters necessitates
    more specialist information than is available to this Review. The
    government, of course, picks up lawful access to the key under the scheme.

    4.5.13      While a number of governments have taken legislative or
    regulatory action, more seem to have been monitoring developments and
    turning their minds to data protection and privacy legislation. Within the
    European Union and the OECD, significant effort is being devoted to
    international draft principles covering the use of cryptography, for which a
    target date of February 1997 has been set. The OECD is considering
    undertaking a review of the 1980 privacy guidelines and intends to review
    the 1992 IT security guidelines next year. Some work on intellectual
    property requirements remains outstanding.

    4.5.14      In Australia, a group representing government, industry and
    users produced several iterations of a public key authentication framework
    (PKAF) proposal. 49 This scheme would be voluntary, not subject to
    government licence and would deal only with authentication. The PKAF
    function is that of a certifying authority, not a trusted third party or
    escrow agency. Keys would have to be generated in accordance with the scheme
    to ensure integrity and security, no key would be retained by PKAF and no
    government access to the scheme is proposed. The proposal was developed
    under the aegis of Standards Australia and conforms to both management and
    technical standards. Its adoption will require amendment to the Evidence Act
    or the Acts Interpretation Act to provide for a digital signature to have
    the same force and effect as a hand-written signature.

    4.5.15      It is unclear how the Australian market will develop, though
    electronic commerce and the trans-national nature of so many commercial
    operations suggest the lead of major trading partners will likely be
    followed. For the moment, the PKAF project appears to have lost some
    momentum and the expected launch of products by potential service providers
    have been delayed. There will almost certainly be a public requirement for
    agencies which provide third party, data recovery and, possibly, key
    generation facilities. Some form of registration of these service providers,
    as in the telecommunications field, would seems sensible to ensure public
    confidence and operating integrity and would be helpful to law enforcement
    agencies and the protection of national security. It would be in the
    national interest, given the community's future reliance on the integrity of
    digital signatures, for the bona-fides of these providers to be vetted as a
    condition of registration. The framework for that registration process
    should be put in place promptly.

    4.5.16      The United Kingdom intends to bring forward legislative
    proposals to address the licensing of trusted third parties. 50 The
    statement issued by United States Vice-President AI Gore on 1 October 1996,
    addressing the liberalisation of export controls, advised these would be
    conditional upon industry commitments to build and market future products
    that support key recovery. 51 The proposal 'presumes' trusted parties will
    be designated by users, but does not address or exclude the issue of
    licensing. The statement makes clear that law enforcement access, under
    proper authority, would only be to the user's confidentiality key. A
    condition of registration, which might carry benefits such as inclusion in
    public directories and approval for products/services to be used in
    government and financial sector dealings, could be that keys would be made
    available to the AFP, NCA or ASIO on production of a lawful instrument.

    4.6      International Agreements

    4.6.1      There may be some requirement for the Australian Government, for
    electronic commerce or similar purpose, to put in place systems which
    interlink with the American, the British or some other proposal which wins
    sufficient global support. 52 This will depend, in part, on the specific
    features of the arrangements implemented by those governments and their
    interoperability with the requirements for a Public Key Authentication
    Framework outlined in the Miscellaneous Publication released by Standards
    Australia in November 1996. The British Government paper of 11 June 1996
    spoke of the need for common architectural framework in different countries
    to support the provision of integrity and confidentiality and saw encryption
    algorithms on the International Standards Organisation register as a
    sensible benchmark. Agreement on international, and therefore interoperable,
    standards is a core objective of the OECD group developing guidelines on
    cryptography.

    4.6.2      Until broad agreement on standards and architecture is secured,
    it would seem premature to enter any bilateral negotiations, though clearly
    substantive discussions on the issues must proceed.

    4.6.3      The review encountered significant scepticism about mandated key
    escrow or TTP systems. The national sovereignty of the agencies providing
    these services could not be guaranteed, with consequent implications for the
    national interest. There is the strong likelihood that these agencies would
    become the major targets of foreign intelligence services. When an agency
    owner provides a key, under lawful authority, to a law enforcement agency
    questions of integrity about that key would arise. The PKAF proposal
    outlines a precise set of obligations and actions where a private key is
    known or suspected to be compromised. Certainly the key has to be replaced,
    the certificate containing the associated public key revoked and the fact
    notified promptly on a Certificate Revocation List. Where a key is
    surrendered to a law enforcement authority in response to a search warrant,
    the question arises how the compromised nature of the key would be advised
    to the owner and what liability may be carried by the law enforcement agency
    or the service provider? While separation of the authentication key pair
    from the confidentiality key pair would go a long way to reduce this
    problem, the need for clear policy definition is clear. An early and clear
    statement from government that it has decided the issues of authentication
    and confidentiality are to be separated would be of significant benefit.

    4.6.4      Law enforcement agencies and ASIO will need to address the
    reciprocal arrangements for the acquisition of keys which they would seek of
    others and will be sought of them. The sensible course would be to cover
    such exchanges by memoranda of understanding, after normal agency and
    Ministerial processes of approval.

    4.7      Third Party Systems

    4.7.1      If there is a single lesson to emerge from the ill-fated
    'Clipper' debate in the United States, it is that attempts by government to
    mandate any cryptographic technology solution or the use of government
    escrow or recovery agents are doomed to failure. Whether and how private
    citizens or corporations choose to recover data or protect themselves
    against a shut-out is for them alone to decide. It is interesting to note a
    recent IT industry paper builds a proposal around a key recovery system
    rather than an escrow System. 53  No user key would be held by the key
    recovery agency or agencies. The algorithm/s employed would be publicly
    available, there would be no limit on key lengths and the self-escrowing of
    keys would be permitted. On production of a court order or warrant, and with
    the presentation of some intercepted traffic between the party in question
    and another, the key recovery agency would be able to reconstitute the
    message without recovering the key. While this proposal may meet data
    retrieval requirements, it is likely to lack evidential value for a
    prosecution.

    4.7.2      The proposal overcomes many of the deficiencies of the escrow
    system, but two seem to linger: the first is the vulnerability which
    attaches to the operation of the key recovery agencies. The system's
    developers envisage a number of large agencies in a variety of countries,
    with users deliberately spreading some of their data vulnerability
    off-shore. They then ask the question could agencies in a variety of
    countries be equally susceptible to inducement whether from a drug cartel or
    a particular government. The second residual problem is the extent to which
    'serious' criminals will avail themselves of such a system without
    suspecting they are buying a Trojan horse. There is ample evidence
    law-breakers continue to use means of communication when they believe them
    possibly to be compromised and this tendency is advanced by some to argue
    that criminals will not take extraordinary measures to secure their data. IT
    industry representatives, the AFP, the NCA, ASIO and state police forces
    consulted all considered encryption would routinely be employed when it was
    generally available, simple to use and effective. Those conditions will
    imminently be met.

    4.7.3      The Review formed the opinion that some form of third party
    system would commend itself as the best option for government and a sales
    pitch based on data recovery and public safety would be more likely to gain
    community acceptance than one founded on law and order, or even less, for
    essential tax collection purposes! No person consulted disputed the need for
    the state to be able to move quickly when confronted with kidnapping, the
    threat of terrorism or the abuse of children. At a level of principle, that
    consensus, wrapped in the delivery of a useful service such as data
    retrieval, offers the best 'hearts and minds' approach. The appeal of each
    of the three 'Clipper' versions was based on the needs of law enforcement
    and national security - those appeals were greeted with some cynicism. This
    is not to say that high-flown principle does not carry some weight but third
    party service providers will be in business to make a profit.

    4.7.4      The assumption that encryption users would require some form of
    third party system rested hitherto on the premise that software based
    methods would be employed to generate encryption materials. While the
    software approach still predominates, a shift towards primarily hardware
    based solutions is starting to revise thinking. The need for emergency data
    recovery, date/time stamping and non-repudiation facilities is certain to be
    felt and that means trusted third parties will have a place. As a passing
    comment, use of the Internet seems to have increased the community's level
    of data security consciousness. The realisation that using the Internet in
    open mode to buy tickets for a function on a particular date may be to risk
    advertising one's house may be empty on that evening would be disquieting!

    4.7.5      While the American and British proposals both envisage law
    enforcement and national security agencies serving legal instruments on TTPs
    or escrow agencies and obtaining the specified keys, the confidentiality of
    such arrangements is not guaranteed and the integrity of investigations is
    sometimes put at risk. Problems of leakage of information from
    telecommunications carriers and companies providing pager services to the
    subjects of law enforcement investigations are currently experienced in
    Australia and may be expected to continue. The post 1 July 1997 deregulated
    climate is unlikely to temper this pattern.

    4.7.6      Users of TTPs, escrow arrangements or key recovery agencies will
    need to ask themselves to what extent those service providers should be
    trusted. The British Government has formally proposed a licensing system and
    a Federal Bureau of Investigation/Department of Justice proposal outlined
    the US Administration's views of the characteristics it considered should
    attach to the service provided and those providing the services. Licensing
    systems, or their equivalents, do not guarantee ownership of such agencies
    will remain in the national interest, nor that those involved would remain
    immune to inducements or coercion, but they do provide a measure of public
    confidence. In that fabled New World Order of which public commentators are
    wont to speak, key recovery agencies, escrow agencies and TTPs will become
    major intelligence targets for all countries with a capability to match
    their desire. It will be possible for the risk factor to be reduced, where
    users have the wit and resources to spread it across jurisdictions and
    different control interests, to have some objective testing of the 'trust
    quotient' of service providers, but not finally to eliminate it.

    4.7.7      How then to address the question of trust? Users cannot be
    expected to presume the bona fades of those providing third party services
    and the integrity of commercial and personal transactions will rest on that
    of the service providers. This dictates, in view of the potential for
    corruption in this industry sector, a form of screening and registration
    will be essential. The procedures used in several States and Territories to
    assess potential casino operators would be a useful initial model for the
    integrity checking process. In view of the pace at which technology has been
    developing and the cost and consequences of leaving the process of
    regulation too late, it would be prudent for government to indicate early
    its intention to apply a system of registration and take the administrative
    steps to implement it.

    4.8      The Internet

    4.8.1      Cryptography today can scarcely be discussed or viewed outside
    the context of the Internet. Designed originally by the United States
    Department of Defense to be a centre-less anarchic system and then taken
    over by the academic community, it continues to defy attempts to regulate
    it. In the course of the 1996 US presidential election campaign, President
    Clinton promised to build a new network. It was not clear if this would be a
    second Internet, if it was intended to incorporate some form of central
    control or key nodes or the extent of its relationship with the existing
    Internet. What is clear is the problem will remain as long as the current
    net exists and many will defend its right to longevity.

    4.8.2      In such a fluid context, to mandate processes is a questionable
    course as it will not automatically direct or prevent the conduct to which
    they are directed. Professor Dennis Longley observed, 'the Internet can
    always refigure itself around restrictions or regulations'. 54 There have
    already been knee-jerk reactions in various parts of the world to
    developments on the Internet but reasonably clear indication that few, if
    any, of those proposals will work and the dangers they are intended to avert
    or contain may sometimes have been over- stated.

    4.8.3      The anarchic nature of the Internet may have conditioned the
    United States Administration's approach to cryptography policy. As recently
    as 25 July, FBI Director Louis Freeh said if the current 'voluntary' policy
    failed, he would seek mandatory domestic controls on cryptography, while
    conceding these too may not work - they were simply the logical progression
    of his thinking. 55 If one had to pick a single characteristic which
    epitomised public policy, pragmatism would beat logic every time. Dorothy
    Denning, a staunch advocate of the American 'law and order position', argued
    in a web debate that an encrypted Global Information Infrastructure is
    without precedent in world history. That is right , and so is the GII
    itself. The public discussion needs to offer more than the prospect of
    losing one's encryption keys and/or facing the depredations of organised
    crime and terrorism before general support for government arranged key
    management infrastructure wills be elicited. It is a question of balance.

    4.8.4      There are powerful benefits to be reaped by our citizens and our
    community from the ready availability of encryption in terms of privacy,
    commerce, the range of on-line services which might be accessed from home,
    inquiries which may be initiated discreetly, payments made and a range of
    others. There remain, for law enforcement agencies, concerns about the
    legally unclear (in terms of the TI Act) role of Internet service providers,
    jurisdictional confusion as to service of warrants, uncertainty about the
    telecommunications market in Australia after 1 July 1997, the potential for
    people to use satellite telephones which transmit and receive directly from
    satellites located over South-east Asia and other matters. LEAC, supported
    by an annual telecommunications interception conference, should provide the
    avenue for meeting these concerns or feeding them into other established
    channels.

    Footnotes:

    38 See Attachment 6 of the Barrett Report.

    39 PGP - Pretty Good Privacy - a strong encryption package that utilises
    RSA, designed by Paul Zimmerman and published on the Internet. The US
    Government charged Zimmerman with breaching export controls but dropped the
    suit after more than two years when it could not establish if Zimmerman
    placed PGP on a server or someone stole it.

    40 Crypto Law Survey, Version 4.2, July l996, available
    http://cwis.k-ub.nirfrw/people/k-oops/lawsurvy.htm

    41 The first of two statements released by the White House on 12 July 1996,
    titled Administration Statement on Commercial Encryption Policy July 12
    1996, is shown at Annex C of this report. The second statement issued on the
    same date was titled US Cryptography Policy: Why We Are Taking the Current
    Approach.

    42 EPIC Alert, Vol. 3.16, September 12, 1996, item 4. p 4.
    (http://www.epic.org/)

    43 The first use of key escrow, dubbed Clipper. was in 1993. Clipper was a
    hardware chip that allowed digital telephone users to make secure calls but
    also allowed the government. under lawful authority, to intercept calls.

    44 The full text of the Vice-President's statement is shown at Annex F of
    this report.

    45 The only way of finding out if Smith or Jones is using double encryption
    (with a non-escrowed key) would be by decrypting their files/communications
    with their escrowed keys and observing the decrypted data is still
    unintelligible. Warrants would have to he obtained to verify people are
    playing by the rules or else their privacy would be violated.

    47 Paper on Regulatory Intent Concerning Use of Encryption on Public
    Networks, issued by the Department of Trade and Industry, 11 June 1996. This
    paper is repeated at Annex D.

    48 A solution first advanced by the Royal Holloway group of the University
    of London.

    49 A draft Australian Standard on Strategies for the Implementation of a
    Public Key Authentication Framework in Australia was issued for comment by
    Standards Australia on 1 April 1996 and was released as a Miscellaneous
    Publication (MP75) on 5 November 1996.

    50 See Annex D

    51 Statement of the Vice-President, AI Gore, released by the White House on
    1 October 1996. Copy attached at Annex F.

    52 cf conclusion at 1.1.19 of this report.

    53 The Need for a Global Cryptographic Policy Framework - An IBM Position
    Paper, August 1996.

    54 Professor Dennis Longley, Director Information Security Research Centre,
    Queensland University of Technology, in a presentation to the Joint
    Australian/OECD conference on Security Privacy and Intellectual Property
    Protection in the Global Information Infrastructure, 7-8 February 1996,
    Canberra.

    55 Louis J Freeh, Director of the FBI, testimony before the Commerce
    Committee of the Senate of the United States Congress. 25 July 1996, quoted
    in Epic Alert, Volume 3.14 of August 1, 1996.

    Chapter 5

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