Background

Congress enacted the Communications Assistance for Law Enforcement Act (CALEA) in October 1994 and authorized $500 million to reimburse telecommunications carriers (carriers) for certain eligible costs associated with implementing CALEA capability and capacity⁹ requirements to facilitate law enforcement's electronic surveillance.¹⁰ CALEA states

a . . . carrier shall ensure that its equipment, facilities and services that provide . . . a customer . . . the ability to originate, terminate, or direct communications are capable of expeditiously isolating and enabling the government, pursuant to court order . . . to intercept electronic communications . . .

In passing CALEA, Congress was concerned that advances in telecommunications technology, such as cellular telephones and features such as call forwarding and multiparty calls, could limit the effectiveness of lawful electronic surveillance. CALEA required that carriers deploy electronic surveillance standards to ensure that technological advances in the telecommunications industry (industry) would not compromise the ability of law enforcement agencies to engage in lawful electronic surveillance.

Congress assigned overall responsibility for implementing CALEA to the Attorney General, and the Attorney General delegated this responsibility to the FBI. To carry out these responsibilities, the FBI established a CALEA Implementation Unit (CIU) in its Investigative Technology Division and the Telecommunications Contract and Audit Unit (TCAU) in its Finance Division.

The CIU was responsible for development of CALEA-mandated requirements in concert with other federal, state, and local law enforcement agency and industry representatives. Once the requirements were developed, the CIU worked with these representatives to develop and deploy necessary methods and products to implement these requirements.

The TCAU was primarily responsible for awarding and administering all agreements involving the implementation of CALEA. The TCAU consisted of a contract group and a contract audit group. The contract group drafted and promulgated the cost recovery regulations, executed RTU agreements, and obligated and disbursed funds pursuant to the RTU agreements. The contract audit group assisted in the development of independent government cost estimates for the RTU agreements and provided audit support for the implementation of CALEA.

Major Provisions of CALEA

CALEA does not change or expand the government's electronic surveillance authority. Rather, CALEA seeks to ensure that carriers will have the necessary technical capability and sufficient capacity to assist law enforcement in conducting electronic surveillance pursuant to Title III of the Omnibus Crime Control and Safe Streets Act of 1968 and the Electronic Communications Privacy Act of 1986, which extended authorized lawful electronic surveillance to communications transmitted via wireless technology. The following are salient provisions in CALEA:

• Pursuant to CALEA, the Attorney General may reimburse the carriers for modifications to equipment, facilities, or services installed or deployed on or before January 1, 1995, to meet the capability requirements. If the Attorney General does not make such reimbursement, a given carrier is deemed in compliance with CALEA for such equipment unless the equipment has been replaced, significantly upgraded, or otherwise undergoes major modification. The carriers are responsible for such CALEA compliant modifications to equipment, facilities, and services installed or deployed after January 1, 1995.

• CALEA gives certain responsibilities and authority to the Federal Communications Commission (FCC) under sections 102, 105, 107, and 109. Under section 102, the FCC has the authority to identify telecommunications services, not specifically identified in the law, that are subject to the requirements of CALEA. Section 105 of CALEA states that the FCC shall prescribe regulations to ensure that carriers conduct electronic surveillance only pursuant to a court order or other lawful authorization with the affirmative intervention of a carrier employee.

• CALEA provides for three kinds of FCC relief from the capability requirements of CALEA under sections 107 and 109: Deficiency petitions under section 107(b), compliance extensions under section 107(c) and reasonably achievable petitions under section 109(b). The FCC may grant relief under section 107(b) if industry electronic surveillance standards are deemed deficient or nonexistent. Also, the FCC may grant compliance extensions to carriers under section 107(c) if carrier compliance is deemed not to be reasonably achievable through the application of currently available technology. Finally, the FCC may grant relief under section 109(b) if carrier compliance with electronic surveillance standards is deemed too costly or technically complex or both with regard to equipment installed or deployed after January 1, 1995. Carriers may request reimbursement for these modifications provided that the FCC has ruled that such modifications are not otherwise reasonably achievable under section 109(b) of CALEA. According to FBI personnel, the FCC has not granted any relief to carriers under section 109(b) of CALEA.

• CALEA provided that telecommunications equipment manufacturers (manufacturers) cooperate with carriers in order to ensure that carriers were able to comply with CALEA on a timely basis. CALEA provided that manufacturers shall make available to carriers features and modifications, timely and at a reasonable charge, as necessary to allow the carriers to comply with CALEA requirements.

• When enacting CALEA, Congress recognized that standards for interception of electronic surveillance needed to be developed. Therefore, to develop such standards, CALEA provides for consultation among: DOJ; federal, state and local law enforcement agencies; industry standard-setting organizations; and state utility commissions.

Past DOJ OIG Reports

The Department of Justice (DOJ) Office of the Inspector General (OIG) is required by CALEA to report to Congress biannually on the equipment, facilities and services that have been modified to comply with CALEA capability and capacity requirements; whether FBI payments to carriers for such modifications were reasonable and cost effective; and projections of future costs for such modifications to meet CALEA capability requirements. We have issued three previous reports on CALEA:

• In March 1998, we reported that the FBI and the industry disagreed over what capabilities had to be provided by the industry to be CALEA compliant and eligible for reimbursement (see OIG report number 98-13). At that time, the carriers had not modified any equipment pursuant to CALEA, and the FBI had not made any payments to the carriers.

• In March 2000, we reported that the FBI had begun negotiations with carrier and manufacturer representatives to determine the most appropriate way to arrange for carriers to meet the capability requirements (see report number 00-10). The FBI determined that right-to-use (RTU) licenses for the use of the manufacturers' software would be a major cost for the carriers.¹¹ We also reported that the FBI had entered into RTU license agreements with a manufacturer (Nortel) and certain carriers to permit all carriers, who were using specified Nortel equipment, the use of the software developed by Nortel. At the time, CALEA only permitted reimbursement of carrier costs. For this reason carriers were included as parties to these agreements. Under these agreements payments were made to Nortel on behalf of all carriers who used the Nortel equipment specified in the agreement. Pursuant to these agreements, the FBI negotiated a price of $101.8 million for carrier purchase of Nortel's RTU software licenses.
  
  According to the FBI, the manufacturers would not provide the FBI with adequate cost or pricing data. As a result, the FBI was unable to determine the reasonableness of the cost of the RTU software licenses through traditional means, such as cost and price analysis. Therefore, the FBI prepared a Determination and Findings Regarding the Implementation of the Communications Assistance for Law Enforcement Act (D&F) dated June 2, 1999, prior to entering into these agreements. The D&F set forth the FBI's rationale for entering into these agreements without adequate cost or pricing data. Nevertheless, the information given to us by the FBI at that time did not provide us with an adequate basis to determine the reasonableness of these costs. Accordingly, in the March 2000 report, we were unable to offer an opinion on the reasonableness of the cost incurred for the RTU software licenses.
  
  We also reported in the March 2000 report that the FBI's Office of General Counsel had issued a legal opinion stating that the RTU license agreements were legal within the framework of CALEA. The legal opinion stated that such agreements were:
  
  

  [A] reasonable attempt to minimize the costs to the federal government because it reduces the potential for manufacturers to collect substantial profit from carriers who will in turn seek reimbursement from the federal government.

• In March 2002, we reported that the FBI had paid or obligated about $400 million for carrier purchases of the RTU software licenses to: Lucent Technologies - $170 million, Nortel - $102 million, Motorola - $55 million, Siemens AG - $40 million, and AG Communications - $30 million (see OIG report number 02-14). The FBI concluded that RTU license agreements were the most cost effective vehicles to reimburse the carriers for the use of the manufacturers' software. The FBI prepared D&Fs to support this approach because the manufacturers would not provide the FBI with adequate cost or pricing data. Thus, the information given to us by the FBI did not provide a basis to determine the reasonableness of the cost incurred for the RTU software licenses. Accordingly, we again were unable to offer an opinion on the reasonableness of these costs.
  
  We also reported that the FBI had not entered into any agreements to reimburse carriers for activation of the software developed under the RTU agreements. At that time, the FBI estimated that for each additional $100 million in funding, capability solutions could be deployed in at least 25 percent of locations prioritized by the FBI. The FBI had identified carrier equipment locations with high electronic surveillance activity and determined these to be priority locations for the deployment on the electronic surveillance standards.

9. Capability refers to the ability to meet the electronic surveillance requirements provided in Section 103 of CALEA. Capacity refers to the ability to meet the simultaneous electronic surveillance intercepts provided in Section 104 of CALEA.
10. Electronic surveillance is the interception of communications and collection of call identifying information via carrier systems pursuant to lawful government authorization in the investigation of criminal activity.
11. A RTU software license allows a carrier to activate the software once the manufacturer has been reimbursed for its development costs. However, having an RTU license does not guarantee that a carrier will activate the software.

* BECAUSE THIS REPORT CONTAINED PROPRIETARY/COMMERCIAL INFORMATION, WE REDACTED (WHITED OUT) THAT INFORMATION FROM THE VERSION OF THE REPORT THAT IS BEING PUBLICLY RELEASED. WHERE SUCH INFORMATION WAS REDACTED IS NOTED IN THE REPORT.

Proprietary/Commercial Information Redacted