Inquiry Seeking Paisley Foreign Business Ties : Connection to Israeli Defense Firm Probed

Federal investigators believe that former Assistant Navy Secretary Melvyn R. Paisley had extensive foreign business connections, including links to an Israeli defense firm, government documents disclosed Friday.

The warrant for a search of Paisley’s Virginia home indicates also that investigators pursuing allegations of fraud in Pentagon contracts sought evidence that Paisley and others targeted in the probe maintained foreign bank accounts and interests in foreign corporations.

The warrant, along with a handwritten list of 62 items that federal agents seized from the Paisleys’ suburban McLean, Va., home on June 14, was released Friday by the U.S. District Court in Alexandria, Va., apparently as the result of a clerical error.

U.S. Atty. Henry E. Hudson, who has been coordinating the nationwide investigation into bribes al legedly paid to Pentagon officials for confidential defense contract information, has argued strongly against the release of such documents.

The search warrant, in specifying items to be seized in a search of the Paisleys’ home, significantly broadens earlier disclosures about the inquiry. The eight-page warrant makes clear that federal agents are seeking evidence that Paisley--the most senior official implicated thus far--had improper business relations with foreign firms and may have maintained foreign bank accounts.

Previously, documents and federal sources had confirmed that Paisley was suspected of providing confidential Pentagon information to domestic firms and defense consultants. He served as the Navy’s top procurement official from November, 1981, to April, 1987, before becoming an industry consultant.

Among the items sought by federal investigators were a confidential 12-page memorandum on a visit to China that is not further described. Paisley traveled to China in early 1985.

Also listed as sought in the search were an internal Navy study of a proposal to produce the F-18 fighter jointly with France; a Telex message from the embassy of an unnamed West European country producing an advanced European fighter aircraft; documents discussing a “master plan” being drafted by the Navy to assess future military needs of U.S. allies, and a letter, apparently from German officials, discussing a radar project.

Paisley’s foreign connections raise questions about the potential for leaks of classified military information to foreign governments. Assistant FBI Director James Gear said earlier this week that investigators have not yet found evidence that U.S. national security had been compromised, but he noted that the investigation was far from complete.

The warrant shows that investigators were seeking evidence of Paisley’s association with an Israeli company called Mazlat, which was established in 1985 to produce new models of unmanned drone aircraft for the U.S. Navy. The next year, the Navy awarded a $26-million contract for 24 drones to a consortium formed by Mazlat and the AAI Group, a defense firm based in Baltimore.

The two-page list of items seized from Paisley’s home includes one document described as a $50,000 “consultant agreement” on the drone project between Mazlat and Lorena Overseas, S.A.

Paisley’s association with Lorena Overseas, a foreign firm not previously mentioned in federal court documents, was left unclear, as was his reason for possessing a copy of the agreement.

The search warrant specifically sought “letters, notes, and documentation relating to Paisley’s involvement with Simhoni and Schiller, or their company Mazlat.”

An Israeli Embassy spokesman said the Simhoni mentioned in the warrant appeared to be Maj. Gen. Uri Simhoni, who completed a three-year assignment as Israel’s defense attache in Washington in August, 1986. The spokesman said Schiller may be Gen. Zvi Schiller, who served as an assistant military attache to the United States in the early 1980s. Gen. Zvi Schiller has been listed in news reports as the president of Mazlat.

The losing competitors for the drone project, among them Developmental Sciences, a division of Lear Siegler, had earlier charged that the Navy had unfairly favored the U.S.-Israeli consortium by tailoring technical requirements to match the consortium’s designs.

“We never even got to compete, because the Navy favored them very strongly,” said Gerald Seemann, the president of Developmental Sciences. He added: “We felt they had made a deal with the Israelis.”

Technology Leaders

The Israelis have long been world leaders in the technology of battlefield reconnaissance drones, and the Mazlat agreement in 1986 was signed at a time when then-Defense Secretary Caspar W. Weinberger was seeking to expand U.S.-Israeli cooperation in defense production.

A further but indirect link between Paisley and Israel was suggested by the warrant’s pursuit of documents relating to “Pocal.” Pocal Industries Inc. is a U.S. branch of an international munitions firm, Etablissements Salgad, a London-based firm whose main production facility was in Israel, according to a 1981 news report.

The Paisley search warrant was the second so far to identify the McDonnell Douglas F-18 fighter program as one in which insider information may have been provided to companies competing for billions of dollars in foreign sales. Investigators are pursuing leads that McDonnell Douglas received confidential data that gave it an advantage in a fierce competition with General Dynamics, which produces the F-16 fighter.

A number of the items listed for seizure in the warrant were identical to those sought in a warrant served on McDonnell Douglas Corp. the same day. Paisley’s clients after he left the Navy included McDonnell Douglas.

The Paisley warrant authorized agents to seize “any and all documents or information pertaining to foreign bank accounts or interest in foreign corporations, including Mazlat, that Paisley might have pertaining to himself, Galvin, Gaines or others . . . .”

William M. Galvin is a Washington defense consultant and business associate of Paisley and Paisley’s wife, Vicki. James E. Gaines was Paisley’s deputy and personal assistant in his Navy post and in Paisley’s earlier career at the Boeing Co. in Seattle. The homes and offices of both men were also searched on June 14 during the raids at 38 sites nationwide that led to public disclosure of the 2-year-old probe.

Investigators believe that, after Paisley left the Navy Department, he was able to obtain information about the defense needs of foreign countries directly or sometimes through Gaines, who remained at the Pentagon. Paisley and Gaines at times obtained the information from foreign military attaches, a source close to the investigation alleged, adding that Paisley would then pass it on covertly to one or more of his clients.

An FBI spokesman, Milton Ahlerich, said: “Whether any classified information was passed to foreign governments has to be seen as the investigation develops.”

Contributing to this story were staff writers Melissa Healy and Ronald J. Ostrow in Washington and Greg Johnson in San Diego.