Sale of U.S. Bomb Material to Iraq Probed : Inquiry: Justice Department officials are looking into the activities of a Los Angeles-based defense contractor and a Chilean arms dealer.

In a case that may shed light on how the West helped to arm Iraq, Justice Department officials are wrapping up an investigation into how a Los Angeles-based defense contractor supplied a potent ingredient for Iraqi cluster bombs, according to documents and interviews.

One hundred tons of munitions-grade zirconium, which intensifies burning and helps penetrate armor, were sold by a division of defense contractor Teledyne Inc. to companies controlled by Chilean arms manufacturer Carlos Cardoen between 1984 and 1988, according to court files and U.S. export licenses.

The transactions were approved by the U.S. Commerce Department although classified documents and investigative records show that U.S. officials had been warned repeatedly that Cardoen was manufacturing cluster bombs for the Baghdad regime and building a $60-million bomb factory in Iraq.

At the time, the Ronald Reagan Administration was pursuing a clandestine policy of assistance to Iraq as a counterbalance to Iranian power in the Middle East. Documents show that Cardoen remained a key part of Iraq’s arms network long after the end of the Iran-Iraq war in 1988 and into the presidency of George Bush.

To critics of U.S. efforts to appease Iraqi leader Saddam Hussein before the Persian Gulf War, Cardoen’s ability to acquire U.S. technology and material for use in Iraqi arms underscores the American policy of turning a blind eye to activities that advanced Baghdad’s cause.

Not until after Iraq went from ally to enemy did U.S. law enforcement agencies seriously pursue investigations of Cardoen’s activities in the United States, according to records and interviews with federal investigators.

The American-educated Cardoen, who became one of Chile’s wealthiest men selling arms to Mideast nations from bases in Santiago, Chile, and Miami, has maintained that he operated with U.S. approval. Attempts to reach him were unsuccessful, and his lawyers declined to discuss the investigations.

Teledyne’s lawyers argue that the sales were legal and claim that the company was unaware Cardoen was using its zirconium to build bombs for Iraq. They also contend that the U.S. government knew about Cardoen’s bomb sales to Iraq and should not have granted the export licenses if they objected.

For several months, however, a federal grand jury in Miami has been investigating possible violations of export laws in connection with the zirconium sales. According to sources involved in the case, the prosecutors and Justice Department officials in Washington are in the final stages of trying to reach a plea bargain with Cardoen. They are seeking his testimony against Teledyne in exchange for an undisclosed form of leniency, the sources said.

Sources said federal prosecutors maintain that senior U.S. officials did not know about Cardoen’s dealings with Iraq and that the export license was obtained by falsely claiming the zirconium was for mining operations.

Berkley Baker, a Teledyne spokesman, said: “We’re not going to respond to leaks from unnamed third parties. We think it is highly unethical to report them, and the company has been damaged unfairly by them in the past.”

Late last year, prosecutors met secretly with Cardoen in Jamaica in an attempt to reach an agreement acceptable to both sides, the sources said. It is likely that a deal would force Cardoen to surrender millions of dollars in assets frozen by the U.S. government last year, while removing the threat of a prison sentence.

Lawyers for Teledyne are scheduled to meet here today with Mark M. Richard, a deputy assistant attorney general, in an attempt to avoid indictment. The lawyers outlined their defenses in a letter to Richard this month and in internal memos reviewed by The Times.

Teledyne’s contention that U.S. officials knew about Cardoen’s activities could be another embarrassment for American officials, who have been criticized in Congress for allowing Iraq access to high-tech goods with military uses.

The investigation is the latest government difficulty for Teledyne. The Fortune 500 company pleaded guilty last year to criminal charges of falsifying tests on electronic relays sold to the Pentagon. The company is also under investigation for allegedly bribing Egyptian officials.

Teledyne’s Wah Chang division in Albany, Ore., is the world’s largest producer of zirconium and related alloys. Zirconium, which is resistant to corrosion, is used extensively in the chemical and nuclear industries.

In addition, munitions-grade zirconium increases the power of explosives, bombs and exploding bullets. It makes things burn hotter and longer, which can make it particularly potent for cluster bombs.

A cluster bomb opens at a programmed height above the ground, releasing hundreds of smaller anti-personnel bombs over a wide area. Zirconium helps the bomblets burn through the armor of tanks and personnel carriers.

Between 1984 and 1988, Teledyne Wah Chang sold 100 tons of munitions-grade zirconium, worth about $2 million, to companies controlled by Cardoen, according to Commerce Department export licenses and federal court records in Miami.

The license applications filed by Teledyne claimed that the material was to be “an incendiary agent in explosive gels for mining.” The approvals contained a prohibition against using the zirconium in any nuclear applications or reselling it to another country.

The transactions were arranged by Swissco Management Group, a Miami company that the government says was controlled by Cardoen. Although the export licenses said that some of the zirconium was going to Peru, authorities said that it all wound up at Cardoen’s bomb factory in Chile.

In a civil suit filed against Cardoen in Miami last April, the U.S. attorney said the export licenses were obtained by Swissco and Teledyne under false circumstances. The suit charged that the zirconium was used to produce hundreds of lethal cluster bombs for Iraq.

The suit portrays the exports as part of an elaborate organization of shell companies and sham transactions set up by Cardoen and associates to produce $200 million worth of cluster bombs for Iraq using U.S. materials and then conceal the profits.

The April suit was the first serious action taken against Cardoen in the United States. It occurred nearly eight years after the CIA and the State Department became aware of what the Chilean arms manufacturer was providing to Iraq, the documents show.

The first indication of Cardoen’s ties to Baghdad occurred in an ironic manner. In December, 1984, the State Department received a complaint from Iraq that Cardoen was selling cluster bombs to its enemy, Iran.

The U.S. Embassy in Santiago was asked to find out what Cardoen was up to. In response, the U.S. ambassador there said he was told by a high-ranking Cardoen official that the company was not helping Iran, according to a classified cable dated Dec. 28, 1984.

“Furthermore, sales to Iran would presumably endanger Cardoen’s existing, presumably lucrative market for cluster bombs in Iraq,” wrote then-Ambassador James Theberge.

Ten months later, Theberge left as ambassador and became a consultant for Cardoen’s Swissco Management, where he remained until his death in 1988. While on Cardoen’s payroll, Theberge was on the CIA’s senior review panel, a group of outside experts that reviewed the most sensitive intelligence data and provided assessments to the agency’s director.

CIA records show that the agency never identified the potential dangers of Theberge’s twin posts, according to a Senate report. But the CIA had identified Cardoen by 1984 as “the primary supplier of cluster bombs to the Iraqi government and an important supplier of other categories of ordnance to Iraq and other Middle Eastern states,” according to the Senate report.

There were other government warnings about Cardoen. Among them was an April, 1987, State Department analysis which said: “Cardoen is best known as the producer of cluster bombs. Approximately 60% of total production is exported to Iraq. Recently Cardoen Industries has been contracted by Iraq to construct on a turnkey basis bomb-manufacturing facilities.”

In February, 1988, a U.S. Customs Service agent filed a detailed report with headquarters on Cardoen’s corporate structure. It noted that Cardoen was a major manufacturer of cluster bombs, grenades, helicopters and military vehicles. In addition, said the agent, Cardoen was setting up a company in Spain to assemble cluster bombs and produce helicopters for Third World countries.

Commerce Department regulations require checks with the State Department and other agencies before munitions items are exported, and records show that some checks were made on the zirconium. But the licenses were approved and no action was taken to stop Cardoen’s access to U.S. technology until after the end of the Gulf War.

Cardoen denounced the investigation as a witch hunt and, in a private letter to the U.S. ambassador to Chile, Charles A. Gillespie Jr., on April 24, 1991, he contended that he had “followed the U.S. signals” about arms sales.

“I have always kept you and your staff well informed about my activities,” he wrote.

While the Justice Department and U.S. attorney’s office in Miami declined to comment on the criminal investigation of Cardoen, sources familiar with the inquiry said Cardoen’s lawyers have tried to use the letter and similar communiques to portray their client’s activities as part of U.S. policy.