Our Passports are Outsourced

[ChamberedRound]

Sounds like this has been going on for awhile, but I had no idea. Just another reason why electronic passports are dangerous to American's privacy, and why government doesn't have our best interests at heart.

http://www.washingtontimes.com/artic...840186493/1001

Outsourced passports netting govt. profits, risking national security

By Bill Gertz
March 26, 2008

This is the first in a three-part series on the outsourcing of passports.

The United States has outsourced the manufacturing of its electronic passports to overseas companies — including one in Thailand that was victimized by Chinese espionage — raising concerns that cost savings are being put ahead of national security, an investigation by The Washington Times has found.

The Government Printing Office's decision to export the work has proved lucrative, allowing the agency to book more than $100 million in recent profits by charging the State Department more money for blank passports than it actually costs to make them, according to interviews with federal officials and documents obtained by The Times.

The profits have raised questions both inside the agency and in Congress because the law that created GPO as the federal government's official printer explicitly requires the agency to break even by charging only enough to recover its costs.

Lawmakers said they were alarmed by The Times' findings and plan to investigate why U.S. companies weren't used to produce the state-of-the-art passports, one of the crown jewels of American border security.

"I am not only troubled that there may be serious security concerns with the new passport production system, but also that GPO officials may have been profiting from producing them," said Rep. John D. Dingell, the Michigan Democrat who chairs the House Energy and Commerce Committee.

Officials at GPO, the Homeland Security Department and the State Department played down such concerns, saying they are confident that regular audits and other protections already in place will keep terrorists and foreign spies from stealing or copyng the sensitive components to make fake passports.

"Aside from the fact that we have fully vetted and qualified vendors, we also note that the materials are moved via a secure transportation means, including armored vehicles," GPO spokesman Gary Somerset said.

But GPO Inspector General J. Anthony Ogden, the agency's internal watchdog, doesn't share that confidence. He warned in an internal Oct. 12 report that there are "significant deficiencies with the manufacturing of blank passports, security of components, and the internal controls for the process."

The inspector general's report said GPO claimed it could not improve its security because of "monetary constraints." But the inspector general recently told congressional investigators he was unaware that the agency had booked tens of millions of dollars in profits through passport sales that could have been used to improve security, congressional aides told The Times.

Decision to outsource

GPO is an agency little-known to most Americans, created by Congress almost two centuries ago as a virtual monopoly to print nearly all of the government's documents, from federal agency reports to the president's massive budget books that outline every penny of annual federal spending. Since 1926, it also has been charged with the job of printing the passports used by Americans to enter and leave the country.

When the government moved a few years ago to a new electronic passport designed to foil counterfeiting, GPO led the work of contracting with vendors to install the technology.

Each new e-passport contains a small computer chip inside the back cover that contains the passport number along with the photo and other personal data of the holder. The data is secured and is transmitted through a tiny wire antenna when it is scanned electronically at border entry points and compared to the actual traveler carrying it.

According to interviews and documents, GPO managers rejected limiting the contracts to U.S.-made computer chip makers and instead sought suppliers from several countries, including Israel, Germany and the Netherlands.

Mr. Somerset, the GPO spokesman, said foreign suppliers were picked because "no domestic company produced those parts" when the e-passport production began a few years ago.

After the computer chips are inserted into the back cover of the passports in Europe, the blank covers are shipped to a factory in Ayutthaya, Thailand, north of Bangkok, to be fitted with a wire Radio Frequency Identification, or RFID, antenna. The blank passports eventually are transported to Washington for final binding, according to the documents and interviews.

The stop in Thailand raises its own security concerns. The Southeast Asian country has battled social instability and terror threats. Anti-government groups backed by Islamists, including al Qaeda, have carried out attacks in southern Thailand and the Thai military took over in a coup in September 2006.

The Netherlands-based company that assembles the U.S. e-passport covers in Thailand, Smartrac Technology Ltd., warned in its latest annual report that, in a worst-case scenario, social unrest in Thailand could lead to a halt in production.

Smartrac divulged in an October 2007 court filing in The Hague that China had stolen its patented technology for e-passport chips, raising additional questions about the security of America's e-passports.

Transport concerns

A 2005 document obtained by The Times states that GPO was using unsecure FedEx courier services to send blank passports to State Department offices until security concerns were raised and forced GPO to use an armored car company. Even then, the agency proposed using a foreign armored car vendor before State Department diplomatic security officials objected.

Concerns that GPO has been lax in addressing security threats contrast with the very real danger that the new e-passports could be compromised and sold on the black market for use by terrorists or other foreign enemies, experts said.

"The most dangerous passports, and the ones we have to be most concerned about, are stolen blank passports," said Ronald K. Noble, secretary general of Interpol, the Lyon, France-based international police organization. "They are the most dangerous because they are the most difficult to detect."

Mr. Noble said no counterfeit e-passports have been found yet, but the potential is "a great weakness and an area that world governments are not paying enough attention to."

Lukas Grunwald, a computer security expert, said U.S. e-passports, like their European counterparts, are vulnerable to copying and that their shipment overseas during production increases the risks. "You need a blank passport and a chip and once you do that, you can do anything, you can make a fake passport, you can change the data," he said.

Separately, Rep. Robert A. Brady, chairman of the Joint Committee on Printing, has expressed "serious reservations" about GPO's plan to use contract security guards to protect GPO facilities. In a Dec. 12 letter, Mr. Brady, a Pennsylvania Democrat, stated that GPO's plan for conducting a security review of the printing office was ignored and he ordered GPO to undertake an outside review.

Questionable profits

GPO's accounting adds another layer of concern.

The State Department is now charging Americans $100 or more for new e-passports produced by the GPO, depending on how quickly they are needed. That's up from a cost of around just $60 in 1998.

Internal agency documents obtained by The Times show each blank passport costs GPO an average of just $7.97 to manufacture and that GPO then charges the State Department about $14.80 for each, a margin of more than 85 percent, the documents show.

The accounting allowed GPO to make gross profits of more than $90 million from Oct. 1, 2006, through Sept. 30, 2007, on the production of e-passports. The four subsequent months produced an additional $54 million in gross profits.

The agency set aside more than $40 million of those profits to help build a secure backup passport production facility in the South, still leaving a net profit of about $100 million in the last 16 months. GPO was initially authorized by Congress to make extra profits in order to fund a $41 million backup production facility at a rate of $1.84 per passport. The large surplus, however, went far beyond the targeted funding.

The large profits raised concerns within GPO because the law traditionally has mandated that the agency only charge enough to recoup its actual costs.

According to internal documents and interviews, GPO's financial officers and even its outside accounting firm began to inquire about the legality of the e-passport profits.

To cut off the debate, GPO's outgoing legal counsel signed a one-paragraph memo last fall declaring the agency was in compliance with the law prohibiting profits, but offering no legal authority to back up the conclusion. The large profits accelerated, according to the officials, after the opinion issued Oct. 12, 2007, by then-GPO General Counsel Gregory A. Brower. Mr. Brower, currently U.S. Attorney in Nevada, could not be reached and his spokeswoman had no immediate comment.

Fred Antoun, a lawyer who specializes in GPO funding issues, said the agency was set up by Congress to operate basically on a break-even financial basis.

"The whole concept of GPO is eat what you kill," Mr. Antoun said. "For the average taxpayer, for them to make large profits is kind of reprehensible."

Likewise, a 1990 report by Congress' General Accounting Office stated that "by law, GPO must charge actual costs to customers," meaning it can't mark up products for a profit.

Like the security concerns, GPO officials brush aside questions about the profits. Agency officials declined a request from The Times to provide an exact accounting of its e-passport costs and revenues, saying only it would not be accurate to claim it has earned the large profits indicated by the documents showing the difference between the manufacturing costs and the State Department fees.

Questioned about its own annual report showing a $90 million-plus profit on e-passports in fiscal year 2007 alone, the GPO spokesman Mr. Somerset would only say that he thinks the agency is in legal compliance and that "GPO is not overcharging the State Department."

Mr. Somerset said 66 different budget line items are used to price new passports and "we periodically review our pricing structure with the State Department."

Public Printer Robert Tapella, the GPO's top executive, faced similar questions during a House subcommittee hearing on March 6. Mr. Tapella told lawmakers that increased demand for passports — especially from Americans who now need them to cross into Mexico and Canada — produced "accelerated revenue recognition," and "not necessarily excess profits."

GPO plans to produce 28 million blank passports this year up from about 9 million five years ago.

A State Department consular affairs spokesman, Steve Royster referred questions to GPO on e-passports costs.

Congress to weigh in

GPO's explanations have not satisfied lawmakers, who are poised to dig deeper.

Mr. Dingell, the House Commerce chairman, said The Times' findings are "extremely serious to both the integrity of the e-passport program and to U.S. national security" and he has asked an investigative subcommittee chaired by Rep. Bart Stupak, Michigan Democrat, to begin an investigation.

"Our initial inquiry suggests that more needs to be done to understand whether the supply chain is secure and fully capable of protecting the manufacturing of this critical document," Mr. Dingell told The Times.

Mr. Stupak said that considering the personal information contained on e-passports, "it is essential that the entire production chain be secure and free from potential tampering." He added: "The GPO needs to make every effort to ensure that future passport components are made in America under the tightest security possible."

Michelle Van Cleave, a former National Counterintelligence Executive, said outsourcing passport work and components creates new security vulnerabilities, not just for passports.

"Protecting the acquisition stream is a serious concern in many sensitive areas of government activity, but the process for assessing the risk to national security is at best loose and in some cases missing altogether," she told The Times.

"A U.S. passport has the full faith and credit of the U.S. government behind the citizenship and identity of the bearer," she said.

"What foreign intelligence service or international terrorist group wouldn't like to be able to masquerade as U.S. citizens? It would be a profound liability for U.S. intelligence and law enforcement if we lost confidence in the integrity of our passports."

[ChamberedRound]

Part 2 of this series of articles:
http://www.washingtontimes.com/apps/...338588834/1001

GPO profits go to bonuses and trips

By Bill Gertz
March 27, 2008

The Government Printing Office in Washington, D.C., recorded record profits of about $100 million over the past 16 months.

Part two of a three-part series on the outsourcing of passports.

When the government's main printing agency booked $100 million in unexpected profit it went on a spending spree: large bonuses to top managers, trips to Paris and Las Vegas, and an official photo of the boss that cost $10,000.

The bonuses, some nearly as high as $13,000, and travel are raising questions among congressional investigators and Government Printing Office officials about whether the agency is misusing its newfound wealth and whether it received the proper authority for some of the larger compensation payments from the Office of Budget and Management.

Additionally, investigators are looking into whether Public Printer Robert C. Tapella paid close to $10,000 for photographs of himself for his office and during his swearing-in ceremony in November.

The spending comes as GPO recorded record profits of about $100 million over the past 16 months by selling blank passports produced by its printing and binding services to the State Department at more than twice the cost. The investigation also has raised security concerns about the use of overseas companies for components and assembly of the computerized electronic passports.

GPO spokesman Gary Somerset said the process for "goal-based performance" bonuses began five years ago and enables employees "to earn bonuses based on performance of the agency as a whole" as well as individual job performance.

The bonuses are part of a 2005 plan by GPO, which is a monopoly printer for the U.S. government, to generate greater revenues under the assumption that a private-sector business model is more efficient, GPO documents show.

Mr. Somerset said all travel was authorized in line with government regulations and funded through GPO's operating budget.

"GPO officials from all business units are continuously researching ideas and innovations in order to stay on the cutting edge of new technology for the 21st century," he said. "That requires GPO officials to travel domestically and internationally to pursue new manufacturing techniques, participate in conferences supporting the agency's mission of digitizing government documents, and meeting with officials from other countries ensuring the interpretability of the e-passport with supporting countries."

Mr. Somerset initially denied Mr. Tapella spent nearly $10,000 for a singled framed photograph.

Later, however, Maria S. Lefevre, GPO's chief of staff, said the work contracted for Mr. Tapella's official portrait, "was expensive," but said the high costs came from securing copyrights for five photos from the photographer. She said the costs were similar to what other government agencies pay for such portraits.

Ms. LeFevre said the purchase order for the photo for $10,000 included about $8,900 for the portrait, and an additional $2,600 for commercial photographs taken at Mr. Tapella's swearing-in ceremony Nov. 6.

Bonus question

Bush administration officials and congressional investigators said they are concerned about some of the travel by senior GPO officials and the bonuses they received.

Investigators say that at least 25 GPO officials received bonuses of between $2,000 and $12,920 that totaled $181,593. The bonuses were paid for fiscal 2005 and fiscal 2006, but have not yet been paid for 2007, investigators said.

Initially, the bonuses were only given to senior level executives, but later payments were given to other officials.

Ben Brink, the GPO official in charge of making secure documents like the e-passport, received a $5,000 bonus. Mr. Brink was the official who worked out a deal with the staff of Sen. Trent Lott, Mississippi Republican, to shift the location of a secure passport production facility from Nevada, to Mississippi's Gulf Coast, an area devastated by Hurricane Katrina and vulnerable to severe weather.

Steven Shedd, GPO's chief financial officer, was paid a $12,920 bonus, and William Boesch Jr., the GPO comptroller, was paid $12,128 in bonuses. GPO Chief Information Officer Reynolds Schweickhardt, was paid $8,816 in bonuses, and Bruce O'Dell, director of technology integration and transformation at GPO, was paid about $8,500 in bonuses.

Gregory Brower, the GPO general counsel until last year, also received a $7,500 bonus. Mr. Brower, now U.S. attorney in Nevada, made a key legal opinion that permitted GPO to make large profits from the sale of passports to the State Department, despite laws restricting GPO to operating at basically a break-even business model.

Chief Human Capital Officer William Harris was paid $10,792, and a GPO production manager, Robert Schwenk, was paid $11,400. Another production manager, Jeffrey Bernazzoli, was paid $9,645.

Beth Telford, secretary to the public printer, also received a $2,000 bonus. Judith Russell, GPO's superintendent of documents was given a $7,500 bonus, and Veronica Meter, GPO's public relations director was given a $6,336 bonus.

Profit limits

Critics, however, said generating large profits is not part of GPO's allowed operating regulations, which limit the agency to operating at a break-even business model.

The pressure to generate GPO revenue has brought results. Investigators say overall revenues generated by GPO increased sharply from $775 million in fiscal 2006, to $888 million last year to a projected level of just over $1 billion this year. All the added revenues come from GPO's Security and Intelligent Document unit, which makes the blank e-passports.

"Encouraging increased revenues is proper for the private sector," said one administration official close to GPO. "But for a government monopoly, it translates into higher costs for customers and for the American taxpayer."

Additionally, records obtained by congressional investigators show unusual travel by senior GPO officials to conferences and other events in such places as Las Vegas; Atlantic City, N.J.; London; Paris; Hamburg, Germany; and Tokyo, among other locations.

Mr. Brink, the assistant public printer for Security and Intelligence Documents, for example, traveled to Paris in June 2006 for an electronic-passport forum that cost more than $5,000. He also traveled to London in May 2006 for a trip that cost $3,800.

Mr. Brower, who was the general counsel and acting inspector general, also traveled extensively throughout the United States, and Rick Grasso, GPO's information technology specialist, made trips to London; Osaka and Tokyo, Japan; Bangkok and numerous domestic U.S. trips between 2003 and 2007, totaling more than $50,000.

Former Public Printer Bruce James logged about $22,000 in travel including a trip to Paris in June 2006 that cost more than $15,000.

James A. "Tony" Ogden, a GPO lawyer and adviser, also made extensive travel costing more than $21,000, including a 2004 trip to Hawaii and a 2006 trip to Paris. He also traveled to Hamburg and Milan, Italy, in 2006. Mr. Ogden is currently the GPO inspector general.

Mr. Tapella, the current public printer in charge of GPO, also traveled extensively when he was GPO chief of staff, spending more than $50,000, including two trips to Paris in 2006 that cost $17,000.

Security question

Additionally, The Washington Times' investigation disclosed that the security of the blank-passport production involves computer chips purchased in Europe and then shipped to Thailand for outfitting with a wire antenna that transmits personal data to an electronic scanner at U.S. border entry points. Security specialists said the use of foreign chips and assembly abroad makes the blank passports, a key travel document, vulnerable to theft or counterfeiting.

GPO officials, however, insist the production process is secure.

A Dutch company that assembles e-passport covers in Thailand, Smartrac Technology Ltd., said it could not guarantee steady production of passports and warned in its annual report that social unrest in Thailand could halt production.

Internal GPO documents obtained by The Times revealed that GPO has faced security problems related to passport production, including the use of unsecure FedEx couriers.

Officials at GPO, the Homeland Security Department and the State Department said they review security of overseas suppliers and that the production process is secure.

GPO said it chose foreign suppliers over U.S. chip manufacturers because no U.S. companies could make the chips needed.

[docwatson223]

Most of the people here in NoVa and the People's Democratic Republic of Maryland are .gov, .mil, or are part of that outsourcing effort. The USG would be absolutely monstrous - far, far more than it is already - without the literally thousands of companies and tens of thousands of contractors that make it run today.

I'm not sure why you are shocked by that - Harrisburg operates the same way but on a much smaller scale.

As far as the tech goes, it's a case of 'lowest-bidder wins'. Talk to your Senator or Congressman because that crap happens all the time.

[TaePo]

Let's not forget things like voting machines and most of our IT is being awarded to overseas companies.

I have not investigated, but I am willing to bet most of our smart bomb tech and parts are from overseas or designed to spec overseas if not manufactured.

The next world war will prove interesting on many fronts.
Economic - everyone is tied-in to everyone else.
Capability - Will Mexico and Japan be building our tanks and jeeps or selling us the steel for them? (Assuming we stay allies)

Will this stabilize the world or set it up for a big fall?