One of the nation's leading defense laboratories sold one of the world's 100 fastest computers at a bargain-basement price to a U.S. firm controlled by a Chinese citizen in late 1998.
Ten months later, fearing that the supercomputer's parts could end up in China, lab officials hurriedly repurchased the machine at nearly three times the sale price.
In a detailed report released last week, the Energy Department's inspector general faults officials at Sandia National Laboratories for ignoring risks to national security in the botched deal. While finding no evidence that security actually was damaged, the report paints a damning picture of the lab's handling of a piece of advanced technology used during the mid-1990s in highly classified nuclear weapons research.
The new report concludes that the sale took place without the knowledge of senior lab and administration officials. Those involved in the deal treated the computer as just another item of surplus equipment, neglected to apply controls required for potential exports and failed to review operating manuals and data storage disks sent with the computer, the report says.
Soon after the sale, the report reveals, lab officials dismissed suspicions voiced by the computer's manufacturer, Intel Corp., that the buyer might transfer some parts to China. Only when press reports last summer called attention to the sale and highlighted the buyer's Chinese citizenship did Sandia officials reclaim the computer.
"We found the process used to sell the computer to be seriously flawed," said Gregory Friedman, the Energy Department's inspector general, in a summary of the 24-page report.
"If the sale were done today, at a time we're sensitized to espionage, it would be an act of stupidity," responded Pace VanDevender, Sandia's chief spokesman, in a telephone interview. "But at the time, China was a friend, with 'most favored nation' status. And senior U.S. officials were visiting there, normalizing our relationship."
Nevertheless, the episode has deeply embarrassed Sandia and compounded concerns about lax security at the national laboratories. News of the sale coincided in the past year with a congressional probe of China's alleged theft of U.S. nuclear secrets as well as criminal charges against Wen Ho Lee, a former physicist at Los Alamos National Laboratory who is accused of mishandling classified data.
Sandia officials, while acknowledging some mistakes, insist that national security was never jeopardized by the round-trip journey of the Paragon XPS supercomputer from Sandia to a California warehouse and back again. They note that the machine was sold without its classified parts and would have been expensive and inefficient to operate. They also say the buyer had led them to believe he wanted to refurbish the computer and resell it to an Internet service provider in California.
"He showed up in a flatbed truck to move the computer," VanDevender said. "This was consistent with his role as an entrepreneur looking to make a deal. Had he really been tasked by China to purchase the computer, he would have been instructed to handle it differently, since it's fragile and not something you bang around."
But other government experts say the Paragon could have been reassembled and made operational again. Citing government and industry experts, the Energy Department report says it "could still be useful in a weapons program."
"For the most part, Sandia treated the Paragon as if it were any other piece of excess property," the report says, "when in fact, it was a supercomputer that had been used in the department's nuclear weapons program."
Sandia originally purchased the computer for $9.56 million in 1993 and used it to model nuclear weapons accidents and simulate the impact of nuclear shock waves on weapons components, among other functions.
After five years, lab officials deemed the Paragon obsolete. By then, Sandia had purchased another supercomputer 15 times more powerful. Lab officials also were concerned about the older computer's reliability and were eager to avoid its estimated $3 million annual maintenance and operating costs.
Unable to interest any other U.S. government agencies in the system, Sandia sold it in September 1998 for $31,000 to EHI Group USA in Cupertino, Calif. A principal in the company, Korber Jiang, is a Chinese national, although Sandia officials say they were unaware of that at the time.
A senior Energy Department official described EHI as a small business dealing in electronic products and other items and selling mostly to the local community.
Last July, Sandia bought the computer back from EHI for $89,000. Lab officials agreed to the higher price to allow Jiang "to preserve face with his joint-venture backers in China" and cover the cost incurred in storing the computer for 10 months, according to the report.
If restored to operation, the report says, the Paragon computer would be one of the 100 fastest in the world, with a capability of 190,000 million theoretical operations per second (MTOPS). At the time of the sale, Commerce Department regulations imposed export constraints on computers exceeding 2,000 MTOPS.
Nonetheless, Sandia officials never treated the computer as a potential national security risk. The lab's only risk assessment, the report says, consisted of Sandia's "property administrator" asking an unidentified lab employee in early 1998 whether another supercomputer was a "high-risk" item.
"The property administrator was told that the other supercomputer was not high-risk, but was export controlled due to its speed," the report says. "The property administrator said that he applied this information to the Paragon and determined that the Paragon was not a high-risk item."
Sandia officials also overlooked the shipment of 34 manuals and guides, which were buried beneath computer cables in boxes sent with the computer. And they neglected to screen 134 unclassified data storage disks.
"While there is currently no evidence that the 'unclassified disks' contained classified information relating to Sandia's classified operations of the Paragon," the report says, "Sandia did not know the exact nature of the information contained on the 'unclassified' disks at the time the Paragon was sold. In fact, no one at Sandia attempted to make the determination."
Grilled about the sale by a House Armed Services subcommittee last October, C. Paul Robinson, Sandia's director, said that had he known of Jiang's nationality, he would have sought to prevent the sale. But he said civil rights laws limit a seller's ability to refuse to deal with a legitimate U.S. firm on the basis of the citizenship of the firm's officers. He recommended new regulations banning the sale of export-controlled items to U.S. companies run by citizens of adversarial nations.
Since recovering the Paragon computer, Sandia officials say, the lab has revised its procedures for disposing of equipment and begun training employees to better identify sensitive sale items.