The Security Traders

As Washington prepares to spend tens of billions of dollars on homeland security, companies are gearing up for the biggest government bonanza since the Cold War.

The full-page ads that Siebel Systems began running in Beltway publications like Government Executive last January were certainly eye-catching. "Who Are the Mohammed Attas of Tomorrow?" the headline asked, accompanied by a grainy surveillance photo of the September 11 hijacker passing unhindered through airport security in Portland, Maine. The copy pitched the software giant's new data-sharing product, Siebel Solutions for Homeland Security, as a tool for officials seeking to combat terrorism: "With Siebel, they can better monitor, analyze, and share up-to-the-minute intelligence and coordinate the appropriate response."

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The multimillion-dollar ad campaign, which also included radio spots, was the most visible component of Siebel's post-9/11 marketing push, but not the most important. Former Montana Governor Marc Racicot, who now heads the Republican National Committee, is a Siebel board member, and the company soon announced that he had privately touted the software in a meeting with newly appointed Homeland Security Director Tom Ridge. In November, at a time when many tech companies were cutting back on their Washington operations because of the recession, Siebel hired Thomas Gann, a longtime Sun Microsystems lobbyist, as its vice president for government affairs. And company founder Thomas Siebel, who gave $500,000 to Republican congressional candidates in 2000 and oversees a corporate PAC that became the nation's second largest in 2001, was invited in February to make an appearance before the House Subcommittee on Technology and Procurement Policy. "Had such technology been in place prior to September 11," he boasted of his software, "there may have been a different outcome." Siebel Systems is hardly the only company to recognize the War on Terrorism's lucrative promise. For this year alone, the federal government has allocated nearly $30 billion for everything from the congressionally mandated overhaul of airport security to hacker-proofing software for government computers. Many of these expenditures may soon be controlled by the Department of Homeland Security, the new agency being created as part of the biggest bureaucratic reorganization since the late 1940s. Under President Bush's plan, the department would be second in manpower only to the Pentagon and have sweeping authority to "prevent terrorist attacks within the United States, to reduce America's vulnerability to terrorism, and to minimize the damage and recover from attacks that may occur."

No matter what the department's ultimate shape, fulfilling such an expansive mission will clearly include disbursing tens of billions of dollars to the private sector. "Industry players are looking to the federal government as their salvation," explains Peter Swire, an Ohio State University law professor who advised President Clinton on privacy issues. "Many companies that rode the dot-com boom need to find big new sources of income. One is direct sales to the federal government; another is federal mandates. If we have a big federal push for new security spending, that could prop up the sagging market."

Technology companies have been the most aggressive in marketing their wares as vital to the War on Terrorism. Software titans like Oracle and Sun, anxious to find new customers for their database programs and Web servers, are pushing for the creation of a national identity-card system. Old-line defense contractors like Raytheon and Northrop Grumman, stung by the decline in demand for big weapons systems after the end of the Cold War, are recasting themselves as security providers, hiring "homeland security directors" and pitching their technologies to shield nuclear plants or retrofit the Coast Guard's patrol boats.

Small startups peddling silver bullets--from fake-document detectors to anthrax-handling robots to dubious "brain finger- printers"--may have the most to gain. A year ago, for example, fledgling InVision, a California-based maker of explosives-detection systems, was forced to lay off 6 percent of its workforce. But the company hit the jackpot in March, when the newly created Transportation Security Administration placed a $170 million order for its detectors. A few weeks later, InVision raised more than $90 million by selling a raft of shares for $36.50 a pop; on September 10, the stock had traded for just $3.10. Shortly afterward, the company's ceo announced that thanks to the federal action, its order backlog was "by far the largest in the company's history."

The throng of companies angling for security profits includes more than just high-tech firms. Credit-reporting bureaus are pushing their services, claiming they can identify terrorists by monitoring consumers' spending habits. Drug companies have banded together to stress the importance of stockpiling drugs and vaccines to counter bioterrorist attacks. Even architects are getting in on the act, forming the "Security Design Coalition" to promote their industry's ability to help the federal government secure the thousands of buildings it operates nationwide.

And that's just the beginning: Because federal expenditures on homeland security are projected to rise dramatically in the coming years -- and because every aspect of civilian life, from food distribution to public transit, could be affected -- a wide range of industries ultimately stands to benefit. "The private sector is going to play a much more important role in homeland security than it did in national security" in the past, says retired Air Force Colonel Randy Larsen, director of the anser Institute for Homeland Security, a think tank created by the rand Corporation. "In the 21st century, they are going to play an important operational role, not just provide bombs and bullets."

The fear among critics of this nascent "security-industrial complex" is that companies will use their new clout to push self-serving agendas. Already, credit-card companies have sought looser restrictions on consumer privacy, and drugmakers have asked to be exempted from antitrust laws in connection with anti-bioterrorism efforts. "There's a real element of patriotism to much of what these companies are doing," Swire says. But, he adds, "My concern is that the fight against terrorism could become a convenient way to undermine civil rights and consumer protections."

Following september 11, the private sector was quick to offer its assistance, and its products, to the federal government. The Federal Aviation Administration was besieged with 23,000 proposals for new airline security devices, ranging from "smart" closed-circuit television systems to minivan-size explosives-detection tools. "We've got every salesman -- 20,000 of them, I think -- approaching us about how they've got some machine that will take care of everything," Transportation Secretary Norman Mineta told the Senate Appropriations Committee in May. "Including not only detecting explosives, but athlete's foot as well."

A slew of Beltway companies are eager to offer those salesmen a helping hand. For $395, newcomers to the government procurement game can purchase Potomac Tech Wire's Directory of Homeland Security, which lists contact information for more than 500 federal and state agencies that might have antiterrorism cash to spend, from the FBI to Alabama's Department of Agriculture.

In July, National Trade Productions Inc. held the first-ever govsec convention, "the only event that brings together physical security and information security vendors with users from the federal, state, and local governments." Highlights of the $670-a-head gathering at Washington's convention center included closed-door sessions on "How to Make a Buyer Out of General Services Administration" and "How to Get Your Product Certified."

Scores of technology companies are creating new divisions exclusively devoted to homeland-security product lines. Axcess, a Dallas-based network security provider, launched a "homeland security team" that consists of selling radio transponders that can verify the identity of vehicles entering sensitive areas. Raytheon created its own homeland-security division after September 11 in order to re-pitch its Phalanx cannon -- installed on several Navy ships -- as a protective device for nuclear power plants.

Some firms have tried novel ways of publicizing their products. In May,Visionics, a company that makes facial-recognition systems, donated several of its devices to the National Park Service. Two of the cameras, which scan faces in a crowd and compare them to a database of terrorist mug shots, were installed beside the ferry that shuttles visitors to the Statue of Liberty over the Memorial Day weekend. The test uncovered no potential evildoers, but the com-pany released a statement patriotically affirming that it welcomed "the opportunity to respond swiftly and appropriately to the urgent call for heightened security." The move garnered coverage in the New York Times, though the article did not mention that in a recent test of Visionics' system at the Palm Beach airport, its error rate had exceeded 50 percent. But publicity is no substitute for a Washington presence, a fact that has convinced even low-profile startups to enlist experienced lobbyists. Toronto-based AcSys Biometrics worked with two former congress- ional staffers, John Edgell and Jeff Taylor, to press for a new ins computer system that could incorporate the company's facial-recognition products. L-3 Communications, which builds explosives-detection units, now counts among its lobbyists such K Street stars as Linda Daschle, former deputy Federal Aviation administrator and wife of the Senate majority leader. And Visionics (now Identix) opened a Washington office last December to -- as the company's ceo put it in a statement -- "maintain our visibility with the nation's leadership."

In addition to seeking direct government contracts, companies are anxious to promote legislation that compels agencies and businesses to buy their products. InVision and L-3 Communications, for example, got a major boost from the passage of the Aviation and Transportation Security Act, under which the government will provide $1 million explosives detectors for 429 major airports. L-3, which manufactures its detectors in the home district of House Appropriations Committee Chairman Bill Young (R-Fla.), received a $162 million contract from the Transportation Security Administration to deliver 100 of the machines, even though its technology has been assailed as unreliable and error prone by officials at the faa and the National Research Council. Imaging Automation, a small New Hampshire firm whose BorderGuard machine can identify fake visas, projects a 300 percent increase in revenue this year; its boon was the Enhanced Border Security and Visa Entry Reform Act, which requires the Immigration and Naturalization Service to spend millions on security upgrades.

Trade groups have also been stepping up their support for specific bills -- and the lawmakers sponsoring them. In June, the Security Industry Association threw a reception raising more than $10,000 for the campaign coffers of Rep. Jerry Weller (R-Ill.), author of a bill that allows corporations to write off expenses for buying security devices. Computer security firms, for their part, have been promoting the Cybersecurity Research and Development Act, authored by Rep. Sherwood Boehlert (R-N.Y.), which would earmark $880 million to combat the possibility of a digital terrorist attack -- a scenario the industry has been raising since last September. The legislation outlining the creation of the Department of Homeland Security has also been tagged with a number of cybersecurity riders, many of them pushed by Rep. Tom Davis (R-Va.), whose district in suburban Washington relies heavily on the technology industry.

Manufacturers of alarms that indicate the presence of smallpox or anthrax, meanwhile, were thrilled by the passage of a $4.6 billion anti-bioterrorism bill last spring. The bill, which among other things calls for stronger security for food and drinking-water supplies, was a godsend to small companies like Cepheid, a Silicon Valley firm whose handheld anthrax detector was used at last winter's Olympics in Salt Lake City. Another potential beneficiary was Northrop, which is seeking to sell the U.S. Postal Service an anthrax detector it is co-developing with two other companies.

Thanks to vigorous lobbying from drug companies, the bioterrorism law also included a provision expanding a contentious program that allows companies to expedite the approval of new medications by paying special "user fees" to the Food and Drug Administration. Public interest groups have complained that making the FDA more dependent on industry funding -- which under the new system will provide an estimated 55 percent of the agency's drug-review budget -- will compromise the objectivity of the government's review process. The industry's main lobby group, Pharmaceutical Research and Manufacturers of America (PHRMA), contends that drugmakers also need relief from federal antitrust laws, which in its view could prevent its mem-bers from cooperating on anti-bioterrorism projects. In February, phrma representatives met with Ridge to make their case; association spokesman Jeff Trewhitt told reporters that Ridge "was very quick to say, ‘If you go down that road of collaboration and run into an antitrust problem, you will of course get back to me for another discussion, won't you?'"

Ever since his appointment on September 20, Ridge -- who has frequently spoken of his en- thusiasm for "leading edge" solutions from the private sector -- has been very open to meeting with industry representatives. Unisys chairman Larry Weinbach, a longtime friend of the former Pennsylvania governor, scored an audience last fall to pitch his company's systems-integration services as key to helping defense and intelligence agencies communicate with one another. Oracle founder Larry Ellison also met with Ridge in the weeks immediately after the attacks to propose a "national database" that would combine a vast array of government data with biometric information such as thumbprints and iris scans. "Gaining entry to an airport or other secure location," Ellison explained in a Wall Street Journal article in October, "would require people to present a photo id, put their thumb on a fingerprint scanner, and tell the guard their Social Security number." The database, he went on, could be linked to a digital id card that could ultimately replace driver's licenses and Social Security cards. Ellison's proposal came on the heels of a Pew Research Center study in which 70 percent of those surveyed supported a national id scheme. In addition to lobbying Ridge, Ellison has pitched the idea to Attorney General John Ashcroft and officials at the CIA and the FBI.

Oracle has long had a close relationship with the government. The company was founded to assist the cia with a database project code-named Oracle, and a quarter of its licensing revenue still comes from federal contracts. For the national id project, Ellison has proposed donating the requisite software to the government; he has said that there could be "no question of corporations benefiting," though observers note that companies frequently give away software, then charge for upgrades and maintenance. Also last fall, Ellison hired former CIA executive director David Carey to run a new Oracle division charged with creating homeland-security and disaster-recovery products; Carey promptly secured his own meetings with Ridge, Ashcroft, and fbi director Robert Mueller.

Ellison isn't the only high-tech executive plugging a national id card. Sun Microsystems ceo Scott McNealy, whose company makes powerful network computers, has also endorsed the idea, though without putting forward a specific proposal. Companies that could manufacture the actual cards, such as Polaroid, also stand to gain, as do data-profiling companies like Alpharetta, Georgia-based ChoicePoint. And if such enthusiasm for surveillance seems odd coming from an industry that has cultivated a libertarian image, Ellison and others counter that the private sector has been gathering extensive data on individuals for years. "This privacy you're talking about is an illusion," Ellison told the online trade magazine SiliconValley.com last year. "All you have to give up is your illusions, not your privacy."

Though a national id system has been endorsed by several congressional leaders, its status is murky -- in large part because Ridge's Office of Homeland Security refuses to release any information pertaining to its study of Ellison's proposal. Ridge's office has challenged a Freedom of Information Act (foia) request from the Electronic Privacy Information Center, a Washington-based watchdog group; epic has since sued to force the release of the documents.

The new Department of Homeland Security may never have to worry about such legal headaches. The administration has been pushing for a blanket exemption for all the department's activities from both foia and the Whistleblower Protection Act. "It's extreme, because data that would have been [public] coming from other agencies will be covered up if the Department of Homeland Security gets ahold of it," says Ohio State's Swire. "Companies [will] be able to turn information over to the government and prevent that information from being available." For example, if the foia exemption remains, a biometrics vendor could quash unflattering test results by submitting them to the department, which would then shield that data from public inspection.

The national ID card is only one of numerous antiterrorism proposals that require comprehensive access to data once deemed private. Among the most hotly debated of these is an expanded passenger-screening program the faa is now testing. The system uses credit information to check whether a passenger has engaged in "suspicious" activity, such as paying for pilot lessons, purchasing one-way tickets for friends on the same flight, or moving frequently.

Credit-reporting bureaus and financial-services companies argue that the screening program and other terrorist-tracking systems will work only if privacy laws are relaxed.

In April, a group calling itself the Center for Information Policy Leadership invited Experian, Visa, Fidelity, and 13 other companies to a New York meeting to discuss how consumer databases could be used to fight terrorism. "We have to think about how to use information to create profiles about what a bad guy might look like," a spokesman told reporters. But a memo circulated by the group suggests another set of priorities: to challenge privacy laws that have "unintended, adverse economic impact." As it turns out, the center is a division of Hunton & Williams, a Washington law firm that has frequently worked with credit companies to oppose privacy legislation.

The center has not outlined a legislative agenda. But one law that financial-services companies would like to see amended is the 1970 Fair Credit Reporting Act, which limits the circumstances under which credit bureaus can sell credit reports. Rewriting the act may help companies share information with the faa, but it would also make it far easier for them to sell personal data to insurance companies and direct marketers.

Chris Hoofnagle, staff counsel at epic, the electronic privacy group, fears that passenger-screening databases, combined with relaxed privacy laws, will lead to innocent citizens being fingered as potential terrorists because of "suspicious" patterns on their credit reports -- reports that in 30 percent of all cases contain serious errors. "For years, we in the privacy community have been saying, if you give data to a private corporation, eventually it will land in the public domain," says Hoofnagle. "Well, looks like we've arrived there."

Privacy fears, however, are not a priority as Congress and the administration continue to wrestle over long-term strategies for the War on Terrorism. Bush's latest plan, far more ambitious than his original homeland-security blueprint, calls for a string of measures, including the deployment of "smart border" technology for detecting hazardous cargo and fake visas; major equipment and personnel upgrades for the Coast Guard; and expanded use of sensors to detect nuclear and biological materials. The total package, the White House estimates, could require upwards of $100 billion a year from federal, state, and local sources combined.

Congress has criticized the specifics of Bush's plan, but few on Capitol Hill have seemed inclined to challenge the president's proposed level of homeland-security spending. And companies are getting the message. "It's free government money right now," says John Pike of the think tank GlobalSecurity.org. "You don't see a lot of lobbying going on for the defense budget because everybody knows who's got the contracts." But the new homeland-security budget, he adds, is another matter. "For specific sectors and specific companies, it's going to be generating a feeding frenzy. It already has."

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