The Communications Assistance for Law Enforcement Act (CALEA), also known as the Digital Telephony Act, was passed by Congress in October, 1994. Earlier versions of the bill had been floating around Congress since 1992, but they did not gain much support until FBI Director Louis Freeh, who made this one of his top priorities, devoted considerable personal time to lobbying for the bill.
CALEA requires telecommunications carriers to provide facilities "enabling the government, pursuant to a court order, to intercept all wire and electronic communications carried by the carrier." The 1994 bill called for $500 million in funding to reimburse telecommunications carriers for the cost of implementing its requirements. This funding was approved in 1996.
Passage of CALEA was controversial, even within the Internet community. The Electronic Frontier Foundation strongly opposed the original version of the bill, but eventually participated in negotiations and added provisions that strengthened the bill's privacy protections, which led them to support the revised bill. The Electronic Privacy Information Center and the ACLU opposed the bill.
CALEA does not explicitly address encryption, although Director Freeh was clear that the FBI would subsequently request additional legislation, should encryption become a hindrance to wiretaps. In addition, top secret documents (since declassified) show that there have been plans since the Bush Administration in 1991 to use Digital Telephony as a "beachhead we can exploit for the encryption fix".
Next section of this essay: 1994: Clipper (The Escrowed Encryption Standard)