‘Russians Sweating’ : U.S. Deters Technology Smugglers

At the Japanese port of Osaka, a container readied for shipment to the Soviet Union was labeled “ship parts.” But only a short time before, in the Swedish port of Goteborg, the same container had been labeled “equipment for oil prospecting.”

What Japanese customs agents found when they seized the cargo, however, was a computerized American sonar device. The instrument, capable of detecting submarines and mines to a depth of 39,000 feet, would have been a valuable prize in the Soviet Union’s quiet but aggressive campaign to acquire restricted Western technology.

The sonar had been tracked, almost around the globe, by suspicious agents of the U.S. Customs Service--from its purchase in New Hampshire by a small Louisiana oil drilling company, to its legal export to Norway and through a series of illegal shipments that took it to Japan, final stop on a convoluted route to the Soviet Union.

Scheme Not Unusual

The elaborate transfer scheme--still under investigation in the United States, Europe and Japan--is not unusual. The components of one large computer system bound for the Soviet Union 17 months ago, for example, were seized in West Germany and Sweden after they had first been shipped legally from New York to South Africa, where they underwent a series of ownership changes.

And an Orange County man, who federal prosecutors say tried to ship a computer system from Anaheim to the Soviet Union, flew it first to Mexico City in a rented plane before putting it aboard a jetliner bound for the Netherlands.

To officials in Washington, such costly, time-consuming and complex maneuvers are evidence that America’s controversial crackdown on illegal technology shipments to Soviet Bloc nations is working.

Illegal Exports Cited

“The Russians are sweating,” asserted William von Raab, commissioner of the U.S. Customs Service.

The crackdown on illegal exports--a campaign separate from federal counterespionage efforts--encompasses tougher export licensing procedures at the Commerce Department, beefed-up investigation and enforcement units at commerce and customs and American diplomatic pressure on Western trading partners to better protect U.S. technology.

A centerpiece of the export control effort is Operation Exodus, a 3-year-old Customs Service project established to intercept illegal technology shipments and to break up international networks of technology smugglers.

The $310,000 sonar device was one of nearly 4,000 technology shipments, with a total value of more than $250 million, confiscated through Operation Exodus since it was launched in January, 1982, with $28 million in emergency funding from the Department of Defense.

“We were losing all of our critical technology to the Russians--they were able to carry it off by the truckload,” Von Raab said. “Now, they’re using shopping bags. We’re making them pay more and take longer.”

In the past, Commerce Department licensing checks were conducted manually by four clerks with an outdated Rolodex. Now they are done by computer. Also, an undermanned Customs Service was, according to Von Raab, “more concerned about what color blazers its airport agents should wear” than about what was hidden in containers bound for Eastern Europe.

The change has been abrupt and controversial, complicated by confusion over which technologies are obsolete or still sensitive. A squabble between the Commerce Department and Customs Service over who would make that determination was largely resolved recently when President Reagan gave the Defense Department final authority in reviews of all technology export requests.

‘We’re Losing Business’

But critics say that in their eagerness to block illegal or sensitive shipments, the Customs Service and Defense Department have seriously delayed large numbers of legitimate technology exports.

“We’re losing business to foreign competitors because we’re beginning to look like an unreliable high-tech supply source,” said Warren Davis, a spokesman for the Semiconductor Industry Assn. in San Jose.

“If control is excessive, it could damage companies that the government depends upon for the innovative advances in technology that are America’s strength. If that happens, we’ll end up protecting yesterday’s technology--and the Stealth weapons of the year 2000 won’t be developed,” Davis added.

Others complain that official lists of sensitive exports include “run-of-the-mill” products with technology that is available elsewhere.

‘Speak and Spell’

“Until recently, Texas Instruments’ simple Speak and Spell game was under export controls because it has an embedded microprocessor,” said Calman J. Cohen, vice president of the Emergency Committee for American Trade, a Washington-based industry organization. “In seeking to control everything, we could end up controlling nothing.”

And in Europe, where trade embargoes have been resisted traditionally, there is growing resentment over the strings attached to U.S. technology exports to allied and neutral nations. European companies that supply controlled U.S. technology to the Soviet Bloc risk being denied access to future technology shipments from the United States.

In pending revisions to the Export Administration Act, expected to reach the House floor Tuesday, Congress would give the President authority also to bar imports from companies that illegally divert U.S. technology to the Soviets. Violators could be shut out of the lucrative American market, as well as cut off from U.S. technology supplies.

‘Our Club in the Closet’

“We’re going to force them to choose between the U.S. and the U.S.S.R.,” said Wayne A. Abernathy, an economist on the staff of the Senate Committee on Banking, Housing and Urban Affairs, which already has approved key elements of the measure.

“That’s going to be our club in the closet,” added Stephen D. Bryen, deputy assistant secretary of defense. “We’re in favor of free trade everywhere but with the Soviet Union.”

One thing is clear: Soviet Bloc countries want U.S. technology, and they are willing to suffer uncertain delivery schedules and premium prices--routinely three times market value--to get it.

Bulgaria, for example, agreed to pay nearly $7 million for equipment valued at $2 million that would have allowed it to set up an entire assembly line for the manufacture of computer discs.

Edward F. King, president of a Yorba Linda company set up specifically to service that secret contract through an Amsterdam middleman, shipped about $800,000 worth of equipment before Los Angeles Customs agents seized the rest early in 1983.

Federal authorities, in arguing for a stiff prison sentence for King, accused the former Boy Scout troop leader and father of five of “conspiring with the Bulgarians to compromise our national interests . . . (and of) conduct that may have indirectly jeopardized all Americans.” King is serving a three-year term in federal prison.

Manufacturing equipment such as that sent to the Bulgarians by King is typical of what seems to be high on all Soviet Bloc shopping lists.

“They know what they want--right down to the brand name and model number,” said Alan D. Walls, special agent in charge of the Los Angeles Customs office. “And they want equipment that they can use to make their own systems.”

“I think that’s a good indication of their weakness,” said Bryen at the Pentagon. “They’ve found it difficult to fabricate quality high-tech products. They have no modern quality controls. They’re very interested in our automated industrial control systems and robotics, for example.”

More than $1 million in computer-aided design and manufacturing equipment--computer systems capable of extreme precision in automated manufacturing--allegedly were shipped to the Soviet Union and East Germany by way of Canada, West Germany and Switzerland, according to a federal grand jury indictment returned last year in Boston.

Among the 12 corporate and individual defendants named in a 23-count indictment were MLPI Business Systems of Phoenix and Leslie Klein of Canada, a former refugee from the 1968 Soviet invasion of his native Czechoslovakia. They are awaiting trial.

One of the largest known illegal diversion cases--the estimated 30-ton shipment of a powerful mini-computer system to Moscow in 1983--is believed by U.S. intelligence sources to have provided the Soviets with the capability of manufacturing high-grade semiconductors, the small silicon chips that are the powerful brains of modern computers.

However, part of the shipment--a $1.5-million VAX 11/782 mini-computer--was intercepted at the last minute aboard a Soviet-bound ship at Hamburg by German and U.S. customs agents. Richard Mueller, a West German businessman accused of arranging the shipment, is a fugitive from both U.S. and German indictments and believed living in South Africa.

Soviet buyers also acquired $6.5 million in equipment for a broad variety of manufacturing uses with the aid of a Maryland middleman who shipped it to the Soviet Union via West Germany and Austria. That export conspiracy led to the 1984 indictment of D. Frank Bazzarre, former chairman of Technics Inc.

Investigators examining a list of illegally exported equipment found products with critical military applications--such as equipment used to manufacture advanced integrated circuits, essential to most sophisticated weapons systems, and a bubble memory tester used to “harden,” or make immune to radiation damage, sensitive computer memory devices.

When Commerce Department investigators served a search warrant on his office in the fall of 1983, Bazzarre quietly excused himself from his corporate board meeting and fled to Europe with his wife. Last month he returned to plead guilty to export violations and is awaiting sentencing.

American middlemen are essential to any technology diversion attempt. “They can’t just send Ivan the Terrible into Hewlett-Packard to say he wants to buy their latest red hot items--they can’t be that open,” said customs’ Von Raab.

Government prosecutors say that for more than five years Charles J. McVey II of Villa Park in Orange County shipped everything from computers to software and components to the Soviet Union. In a 1983 indictment he was accused of exporting the goods under false documents.

According to court records, McVey even sent employees to Moscow to hold computer training classes for Soviet engineers. McVey’s network collapsed at a time when he was taking extra precautions to smuggle one computer system past U.S. Customs authorities. He flew the computer from Southern California to Mexico in a private plane and loaded it aboard a jetliner bound for Amsterdam.

However, the jetliner made a scheduled stop in Houston, where customs agents found the container and replaced its cargo with sand. The sand went on to the Space Institute of Moscow, and McVey fled the country. He remains a fugitive and is believed living in Switzerland.

“I find totally reprehensible that someone would make a profit on goods traded with the Russians,” said Von Raab, whose agents have intercepted scores of technology shipments and replaced the products with sand or dog food.

The crackdown on U.S. technology transfers to the Soviet Bloc comes after years in which American communications and microelectronic technology was sold openly and legally to the Soviet Union under relaxed trade rules.

“The microelectronics incorporated into Soviet weapons today are all uniquely Western,” said Bryen. “The Russians have it and we made it possible.”

He said the technology gap between the superpowers narrowed during the 1970s but is growing again “to our advantage” because of the tighter export controls.

There are signs, however, that the gap Bryen sees may be tested again as foreign advances in technology reduce American controls over it.

“The U.S. is no longer the Lone Ranger of technology. . . . Other countries are making technology,” said William Archey, assistant secretary of commerce. “Foreign availability (of technology) in the future will be the toughest nut to deal with. How the hell are we going to be able to stop others from selling technology that we don’t control?”

But Davis of the Semiconductor Industry Assn. said America’s technology lead and national security are better served by exploiting innovation in a free market than by imposing severe controls.

“We are by far the leading innovator in the world,” he said. “If we keep advancing, and the Russians find a way to jam some old technology, like an 8-bit firing mechanism, we won’t care because we’ll already be using the newest 32-bit mechanism.”

However, acquisition of Western technology has saved the Soviets millions of dollars in research and development costs. Secret documents, prepared by the Soviet Union’s Military Industries Commission and published recently in Paris after they were obtained by French intelligence agents, showed that Soviet aircraft makers saved about $65 million in 1979 alone from smuggled Western technology.

The Soviets, scoffing at Operation Exodus as “a fiasco on every count,” officially dismiss claims of U.S. technological superiority as naive and erroneous. Aleksandr Yasnev, a Soviet radio commentator, said in a report broadcast last fall:

“Surely, it would be naive to think that technology import curbs can hamper the development of the country that launched the first . . . satellite, ushered in the era of manned space flight and is creating the most advanced . . . orbital space stations.” The Soviet Union, he added, “relies entirely upon its own scientific, technological and industrial potential.”

Yasnev’s remarks were broadcast a few days before the computerized American sonar device was seized in Japan on its way to the Soviet Union.

The United States and its allies are at odds over what high-tech shipments should be restricted. Details in Business.