Federal authorities began making a series of arrests Wednesday in an intensive investigation of China's two main state-controlled arms exporting companies for allegedly smuggling automatic assault weapons into this country, according to law enforcement officials.
The companies under investigation, called Poly Technologies and Norinco, lie at the heart of China's military-industrial complex. Poly Technologies, in particular, operates directly under the Chinese People's Liberation Army and has been run by the children of several of China's top leaders, including the son-in-law of China's ailing patriarch Deng Xiaoping.
Law enforcement officials said that representatives of the two Chinese companies had been dealing in this country with federal undercover agents working in a "sting" operation. The numbers and identities of those arrested was not available Wednesday night.
The Chinese arms dealers apparently believed that the undercover agents were mid-level American arms smugglers willing to pay up to 400% markups for the outlawed weapons. The Chinese dealers believed that the illegal weapons were going to be used by violent American gangs, the officials said.
About 2,000 fully automatic AK-47-type weapons from China were brought into the United States through the port of Oakland last March 18, according to authorities.
The undercover agents were said to have paid as much as $400,000 for the Chinese firearms.
"It's the largest seizure of fully automatic weapons in U.S. history," said one federal customs official. A complaint filed under seal in San Francisco charges two Chinese companies and eight individuals with smuggling and conspiracy to smuggle illegal firearms into this country.
The international arms case tangentially involved other Asian countries as well. The Chinese arms dealers suggested that the illegal arms could be brought into the United States under the pretense that they were being routed through this country to other nations or that they could be labeled as originating from Cambodia, Thailand and North Korea, the officials said. But authorities said it was not clear that the governments of those countries were involved or even knew of the illegal smuggling.
U.S. officials would not say exactly how high up in the Chinese arms companies the investigation had reached. But one law-enforcement official noted that "the people were in a position to deliver substantial arms and are not lower-level flunkies."
The federal case against Poly Technologies and Norinco could provoke new anti-American feelings within some of China's ruling families. Over the years, Poly Technologies' top executives have included not only Deng's son-in-law, He Ping, who for several years was president of the company, but also the children of two other longtime Chinese military leaders, former President Yang Shangkun and the late Vice President Wang Zhen.
At the same time, the arrests may enable the Clinton administration to demonstrate that it is following through on efforts to stop imports of dangerous weapons and especially munitions from China into the United States.
The investigation apparently started when a federal organized crime strike force in San Francisco began examining how gangs in the area obtained illegal weapons, federal investigators said.
During negotiations between federal undercover agents and suspected arms traffickers before and after shipment of the 2,000 weapons to Oakland, the agents were told that the Chinese arms dealers could supply "unlimited" numbers of the automatic assault weapons along with other weapons, a federal law enforcement source said.
"Undercover agents made it clear to the targets that the weapons were to be used for illegal purposes and that they were interested in more than the initial shipment of assault weapons," a federal law enforcement source said.
Before allegedly smuggling the assault weapons, the same arms dealers had illegally brought into the country 20,000 bipods, two-legged support devices for assault rifles, according to investigators. The bipods along with the assault weapons are on a list of items that cannot legally be brought into the United States, officials said. The bipods are not now "in the possession of the U.S. government," an investigator said.
Prices being demanded by the alleged smugglers were "far, far higher" than the catalog costs in countries where the weapons can be legally purchased, law enforcement sources said.
Many of the smuggled weapons appear in catalogs at prices ranging from $100 to $150 and $200, and the cost sought by the smugglers was quoted at $1,000 a weapon, one source said.
Poly Technologies is the company through which China has exported arms and missiles throughout the world. Some of the shipments have provoked diplomatic protests from the United States. The firm, known in China as Baoli, was the vehicle through which China exported intermediate-range CSS-2 missiles to Saudi Arabia. It is also said to have been marketing the shorter-range M-11 missiles that U.S. officials believed were sold to Pakistan.
The Defense Intelligence Agency, in a chart of China's defense-industry trading firms published last fall, said that Poly Technologies operates directly under the People's Liberation Army's General Staff Department, which reports to the Central Military Commission headed by Chinese President Jiang Zemin.
He Ping, the former company president is a major general in the Chinese army and once served as a military attache at the Chinese Embassy in Washington.
Poly Technologies began operating in this country nearly a decade ago, apparently seeking to make high profits by selling arms and assault weapons such as AK-47s.
In a 1993 interview with the Far Eastern Economic Review, Poly Technologies executive director Xie Datong estimated that Poly Technologies had sold about $200 million worth of guns in the United States over the previous six years through an Atlanta subsidiary, PTK.
At one point, Poly Technologies placed a large advertisement in Soldier of Fortune magazine telling Americans that the AK-47 was "an instant classic" and "the essence of practicality." But the sales of these weapons began to draw increasing federal scrutiny after an incident seven years ago in which an AK-47 was used to kill five children at a school in Stockton, Calif.
Norinco, the acronym for China North Industries Group, sells armored vehicles, artillery, infantry weapons, small arms, ammunition and radar. According to the Defense Intelligence Agency's chart of Chinese defense industries, Norinco is one of several civilian arms-sale companies that report, ultimately, to the State Council headed by Premier Li Peng.
In 1994, Congress passed a ban on assault weapons that prohibited importation of AK-47s. And later that spring, Clinton took a further step, banning importation of Chinese firearms and munitions as an outgrowth of the prolonged controversy over China's trade benefits.
The current federal investigation was conducted by the U.S. Customs Service and the Bureau of Alcohol, Tobacco and Firearms in cooperation with the U.S. attorney's office in San Francisco and under the direction of the Organized Crime and Racketeering Section of the Justice Department.
The Times learned of the federal inquiry in early May but agreed to delay publication of the story after senior representatives of the Justice and Treasury departments expressed fear that premature disclosure would jeopardize the investigation. Eventually, the New York Times also began to ask questions about the investigation.
Wednesday, fearing a leak, authorities decided to "take down" the undercover operation with arrests in the San Francisco Bay Area.
Officials said that there could be additional arrests later.
Times staff writer Robert L. Jackson contributed to this story.