PAGENO="0001" ADMINISTRATION AND ENFORCEMENT OF U0S0 EXPORT CONTROL PROGRAMS 0)2 ~ HEARINGS BEFORE THE SUBCOM~IITTEE ON OVERSIGHT OF THE COMMITTEE ON WAYS AND MEANS HOUSE OF REPRESENTATIVES ONE HUNDRED SECOND CONGRESS FIRST SESSION APRIL 18; AND MAY 1, 1991 Serial 102-.72 Printed for the use of the Committee on Ways and Means ~/5~ j3/~1~? U.S. GOVERNMENT PRINTING OFFICE 51-840 WASHINGTON 1992 For sale by the U.S. Govemment Printing Office Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 ISBN O-~6-O38452-4 PAGENO="0002" COMMITTEE ON WAYS AND MEANS SAM M. GIBBONS, Florida J.J. PICKLE, Texas CHARLES B. RANGEL, New York FORTNEY PETE STARK, California ANDY JACOBS, JR., Indiana HAROLD E. FORD, Tennessee ED JENKINS, Georgia THOMAS J. DOWNEY, New York FRANK J. GUARINI, New Jersey MARTY RUSSO, Illinois DON J. PEASE, Ohio ROBERT T. MATSUI, California BERYL ANTHONY, JR., Arkansas BYRON L. DORGAN, North Dakota BARBARA B. KENNELLY, Connecticut BRIAN J. DONNELLY, Massachusetts WILLIAM J. COYNE, Pennsylvania MICHAEL A. ANDREWS, Texas SANDER M. LEVIN, Michigan JIM MOODY, Wisconsin BENJAMIN L. CARDIN, Maryland JIM McDERMOTT, Washington BILL ARCHER, Texas GUY VANDER JAGT, Michigan PHILIP M. CRANE, Illinois DICK SCHULZE, Pennsylvania BILL GRADISON, Ohio BILL THOMAS, California RAYMOND J. McGRATH, New York ROD CHANDLER, Washington E. CLAY SHAW, JR., Florida DON SUNDQUIST, Tennessee NANCY L. JOHNSON, Connecticut JIM BUNNING, Kentucky FRED GRANDY, Iowa DAN ROSTENKOWSKI, Illinois, Chairman ROBERT J. LEONARD, Chief Counsel and Staff Director PHILLIP D. MOSELEY, Minority Chief of Staff SUBCOMMITTEE ON OVERSIGHT J.J. PICKLE, Texas, Chairman BERYL ANTHONY, JR., Arkansas DICK SCHULZE, Pennsylvania HAROLD E. FORD, Tennessee E. CLAY SHAW, JR., Florida CHARLES B. RANGEL, New York DON SUNDQUIST, Tennessee ANDY JACOBS, JR., Indiana JIM BUNNING, Kentucky ED JENKINS, Georgia MARTY RUSSO, Illinois (II) PAGENO="0003" CONTENTS Page Press releases of March 28 and April 11, 1991, announcing the hearings 2 WITNESSES U.S. Department of Defense, Henry D. Sokoiski, Deputy for Non-Proliferation Policy, Office of the Assistant Secretary for International Security Affairs; Peter M. Sullivan, Assistant Director, Defense Technology Security Admin- istration; and Richard Speier, Office of Non-Proliferation Policy 8 U.S. Customs Service: Steven C. Davis, Senior Special Agent, Sacramento, Calif 116 David E. Burns, former Special Agent, Sacramento, Calif 130 Dennis J. Bass, Senior Special Agent, Baltimore, Md 164 Hon. Carol Hallett, Commissioner of Customs; and John C. Kelley, Direc- tor, Strategic Investigations Division 414 U.S. Department of Commerce: Frank W. Deliberti, Director, Office of Export Enforcement, Bureau of Export Administration; and Leonard S. Patak, Special Agent in Charge of Export Enforcement, Dallas, Tex 214 Frank W. Deliberti, Director, Office of Export Enforcement, Bureau of Export Administration; Randall Sike, Special Agent in Charge; and Jerry M. Hobbs, Special Agent, Office of Export Enforcement, San Jose, Calif 242 Hon. Kenneth A. Cutshaw, Deputy Assistant Secretary for Export En- forcement, Bureau of Export Enforcement, and lain Baird, Director, Office of Export Licensing 483 U.S. Department of the Treasury, R. Richard Newcomb, Director, Office of Foreign Assets Control, Office of Enforcement 356 U.S. Department of State, Charles A. Duelfer, Deputy for Defense Trade to the Assistant Secretary, and Director, Center for Defense Trade, Bureau of Politico-Military Affairs 542 Bryen, Stephen D., Silver Spring, Md. (former Deputy Under Secretary of Defense for Trade Security Policy and Director, Defense Technology Securi- ty Administration) 29 Casperson, Robert J., C-TEK Computers, Inc., Kirkland, Wash 283 Helmy, Abdelkader, Lompoc, Calif 134 Hinkleman, Leslie, Alcolac International, Inc., Baltimore, Md 194 Moody, Hon. Jim, a Representative in Congress from the State of Wisconsin.... 345 Moore, Portia R., San Francisco, Calif (former assistant U.S. attorney for the Western District of Washington) 259 Mukkar, Shiv Mohan, Raybrook, N.Y 289 Stark, Hon. Fortney Pete, a Representative in Congress from the State of California 314 APPENDIXES A. U.S. General Accounting Office, letter dated April 12, 1991, from Allan I. Mendelowitz, Director, International Trade, Energy, and Finance Issues.... 597 B. U.S. Department of State, letter dated April 26, 1991, from Janet G. Mullins, Assistant Secretary, Legislative Affairs 603 C. Hon. Richard L. Thornburgh, letter dated April 22, 1991, from Chairman J.J. Pickle, Subcommittee on Oversight, Committee on Ways and Means... 615 (III) PAGENO="0004" Iv Page D. U.S. Department of Justice, letter dated April 25, 1991, from W. Lee Rawis, Assistant Attorney General, Office of Legislative Affairs 616 E. U.S. Department of Justice, letter dated May 24, 1991, from W. Lee Rawls, Assistant Attorney General, Office of Legislative Affairs 617 F. Hon. Richard L. Thornburgh, letter dated June 12, 1991, from Chairman J.J. Pickle, Subcommittee on Oversight, Committee on Ways and Means ... 624 G. U.S. Department of Justice, letter dated August 1, 1991, from W. Lee Rawls, Assistant Attorney General, Office of Legislative Affairs 627 H. Additional background information: 1. Helmy case 636 2. Helmy wiretaps 690 3. Alcolac case 772 4. Global case 849 5. C-TEK case 880 PAGENO="0005" ADMINISTRATION AND ENFORCEMENT OF U.S. EXPORT CONTROL PROGRAMS THURSDAY, APRIL 18, 1991 HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, SUBCOMMITTEE ON OVERSIGHT, Washington, D.C. The subcommittee met, pursuant to notice, at 9:36 a.m., in room 1100, Longworth House Office Building, Hon. J.J. Pickle (chairman of the subcommittee) presiding. [The press releases announcing the hearings follow:] (1) PAGENO="0006" 2 FOR IMMEDIATE RELEASE PRESS RELEASE #6 THURSDAY, MARCH 28, 1991 SUBCOMMITTEE ON OVERSIGHT COMMITTEE ON WAYS AND MEANS U.S. HOUSE OF REPRESENTATIVES 1135 LONGWORTH HOUSE OFFICE BLDG. WASHINGTON, D.C. 20515 TELEPHONE: (202) 225-5522 THE~ HONORABLE J. J. PICKLE (D., TEXAS), CHAIRMAN, SUBCOMMITTEE ON OVERSIGHT, COMMITTEE ON WAYS AND MEANS, U. S. HOUSE OF REPRESENTATIVES, ANNOUNCES SUBCOMMITTEE INVESTIGATION INTO THE ADMINISTRATION AND ENFORCEMENT OF U.S. EXPORT CONTROL PROGRAMS The Honorable J. J. Pickle, (D., Texas), Chairman of the Subcommittee on Oversight, Committee on Ways and Means, U.S. House of Representatives, announced today that the Subcommittee on Oversight has been conducting an investigation into the administration and enforcement of U.S. export control programs involving the Middle East. The Subcommittee will examine U.S. Customs Service (Customs) enforcement activities in the area, and review specific cases involving the activities of Customs and the Department of Commerce associated with their enforcement of the U.S. export control laws. The Subcommittee is also examining the Department of the Treasury's (Treasury) Office of Foreign Assets Control (OFAC) which administers trade and financial sanctions against selected foreign countries. OFAC is currently developing a list of foreign individuals and firms who have been designated as agents of the Iraqi Government, and who will be prohibited from doing business with U.S. persons or companies. The Subcommittee will consider this OFAC list and other OFAC activities to determine what additional measures could be taken by Treasury to stem the proliferation and spread of weapons of mass destruction. Also, the Subcommittee will review Treasury's overall role in formulating, implementing, and enforcing trade and financial sanctions against Iraq and other Middle-Eastern countries which may pose a threat to the security of the United States. Hearings on these matters have been tentatively scheduled for April 18 and May 1, 1991. The Subcommittee will issue a press release early next month announcing the date, time, and place of these hearings and the witnesses invited to appear before the Subcommittee. In announcing the investigation, Chairman Pickle stated: "Over the past several years, U.S. companies have sold Iraq computers, electronics equipment, machine tools, chemicals, and other supplies worth billions for use in Iraqi programs to develop nuclear weapons, missiles, and poison gas. Some of these sales were made with the approval of Uncle Sam. What Saddam couldn't obtain legally, he acquired through sophisticated Iraqi underground purchasing networks that made extensive use of dummy corporations and international merchants of death. I am particularly concerned that some U.S. individuals and corporations, directly or indirectly, have assisted Saddam in his efforts. Saddam managed to exploit the export control systems in the U.S. and other industrialized nations to build weapons factories and procure the raw matsrimlm rc zco~ry to moka weap~n3 mass destruction. "Iraq is just part of the problem. The proliferation of chemical, biological, nuclear, missile technology, and materials represents an immediate threat to the security of the world community. The Subcommittee's investigation hopes to shed some light on who is acquiring sophisticated technology, machinery, and other dangerous materials, how potential adversaries are able to circumvent U.S. export control laws, and the overall effectiveness of the U.S. export control system. "Unless efforts are made to improve the Federal Government's ability to recognize illegal acquisition attempts, countries like Iraq will continue to succeed in getting chemical, biological, and nuclear capabilities with our help. The question remains whether U.S. export control systems are a match for a potential adversary who is desperately bidding to develop a sophisticated weapons arsenal." PAGENO="0007" 3 FOR IMMEDIATE RELEASE PRESS RELEASE #8 THURSDAY, APRIL 11, 1991 SUBCOMMITTEE ON OVERSIGHT COMMITTEE ON WAYS AND MEANS U.S. HOUSE OF REPRESENTATIVES 1135 LONGWORTH HOUSE OFFICE BLDG. WASHINGTON, D.C. 20515 TELEPHONE: (202) 225-5522 THE HONORABLE J. J. PICKLE (D., TEXAS), CHAIRMAN, SUBCOMMITTEE ON OVERSIGHT, COMMITTEE ON WAYS AND MEANS, U. S. HOUSE OF REPRESENTATIVES, ANNOUNCES SUBCOMMITTEE HEARINGS ON THE ADMINISTRATION AND ENFORCEMENT OF U. S. EXPORT CONTROL PROGRAMS The Honorable J. J. Pickle (D., Texas), Chairman of the Subcommittee on Oversight, Committee on Ways and Means, U.S. House of Representatives, announced today that the Subcommittee on Oversight will hold hearings to review the administration and enforcement of U.S. export control programs involving the Middle East. The Subcommittee will examine U.S. Customs Service (Customs) enforcement activities in the area, and review specific cases involving the activities of Customs and the Department of Commerce (Commerce) associated with their enforcement of the U.S. export control laws. In addition, the Subcommittee will examine the administration of trade and financial sanctions against selected foreign countries by the Department of the Treasury's Office of Foreign Assets Control (OFAC). (See Subcommittee Press Release #6, dated March 28, 1991, for additional information on the oversight investigation.) The hearings have been scheduled for Thursday, April 18, 1991, and Wednesday, May 1, 1991, beginning at 9:30 a.m., in the main Committee hearing room, 1100 Longworth House Office Building. The Subcommittee will receive testimony from representatives of the OFAC, Customs, Commerce, the Department of Defense, and other invited witnesses concerning the threat of proliferation and the effectiveness of U.S. export control program enforcement efforts. Customs and Commerce agents will provide testimony concerning specific cases of illegal exports and diversion schemes involving such commodities as mustard gas precursors, ballistic missile components, combat attack helicopters, cluster bombs, and sophisticated computer equipment with military weaponry applications. The Subcommittee has subpoenaed several witnesses found guilty of violating U.S. export control, money laundering, and other Federal statutes. In announcing the hearings, Chairman Pickle stated: "With the end of the Cold War and recent efforts to relax export restrictions on the sale of high technology products to the Soviet Union and other East European countries, concerns regarding export controls have now shifted from an East-West emphasis, to the proliferation of sensitive technology, weapons, and other materials to third-world nations. There are countries who have clandestine programs to develop chemical, biological, and nuclear capacities and sophisticated missile delivery systems. These countries seeking to develop unconventional warfare capabilities and indigenous production facilities have established complex procurement networks to acauire everything from basic chemicals and missile nose cones to high-tech computer systems with military applications. We need to assess the effectiveness of our current export control programs in stopping the proliferation of weapons of mass destruction." DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: Persons submitting written comments for the printed record of the hearing should submit six (6) copies by the close of business, Wednesday, May 22, 1991, to Robert J. Leonard, Chief Counsel, Committee on Ways and Means, U.S. House of Representatives, Room 1102 Longworth House Office Building, Washington, D.C. 20515. (MORE) PAGENO="0008" 4 -2-- FORMATTING REQUIREMENTS: Each statement presented for printing to the Committee by a witness, any written statement or exhibit submitted for the printed record or any written comments in response to a request for written comments must conform to the guidelines listed below. Any statement or exhibit not in compliance with these guidelines will not be printed, but will be maintained in the Committee files for review and use by the Committee. 1. All statements and any accompanying exhibits for printing must be typed in single space on legal-size paper and may not exceed a total of 10 pages. 2. Copies of whole documents submitted as exhibit material will not be accepted for printing. Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material not meeting these specifications will be muintained in the Committee files for review and use by the Committee. 3. Statements must contain the name and capacity in which the witness will appear or, for written comments, the name and capacity of the person submitting the statement, as well as any clients or persons, or any organization for whom the witness appears or for whom the statement is submitted. 4. A supplemental sheet must accompany each statement listing the name, full address, a telephone number where the witness or the designated representative may be reached and a topical outline or summary of the comments and recommendations in the full statement. This supplemental sheet will not be included in the printed record. The above restrictions and limitations apply only to material being submitted for printing. Statements and exhibits or supplementary material submitted solely for distribution to the Members, the press and the public during the course of a public hearing may be submitted in other forms. PAGENO="0009" 5 Chairman PICKLE. The subcommittee will please come to order. We have several panels today and several witnesses to hear, and I am sure many questions from members, and responses from the panel. I would serve notice to some of the panelists that testimony will be taken under oath. I ask then the cooperation of all the members and the audience to please take a seat. We are here today to discuss a very grave and serious subject. As the recent war in the Middle East demonstrated, all too clearly, it is very likely that our troops will again be drawn into dispute be- tween Third World nations in some manner. As we will see today, Iraq is not the only Third World country that has been building a formidable military, armed with an array of weapons of mass de- struction. Iraq is not the only country that is illegally seeking com- ponents for their weapons systems from the United States. We will also see that the United States' businesses are either wittingly, or unwittingly, assisting Third World countries in their weapons development and production programs. These are serious statements, if not accusations, which we will explore today. I am also releasing the April 1991 U.S. General Accounting Office report to the subcommittee on the U.S. controls on trade with Middle Eastern countries. That report will be available upon request or at the table. Among other things, the GAO reports that in 1990, the United States exported over $10 billion to Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Yemen, Saudi Arabia, and Syria. Needless to say, the United States is still one of the best sources of high-technology products and know-how throughout the world. That's good for the United States and good for United States businesses. Historically we have limited the sale of some high-tech know-how products to the Soviet Union and other Eastern bloc countries for national security and policy reasons. Today, because of welcome changes in our relationship with the Eastern bloc coun- tries, we are decontrolling many of these products. Meanwhile, our concerns are shifting to proliferation of weapons of mass destruc- tion and the related delivery system for those weapons to Third World countries. The administration has recently promulgated new regulations aimed at controlling proliferation to Third World countries. The theory embodied in the new regulation is that we will control only key components and materials that are absolutely necessary in order to successfully develop weapons of mass destruction and de- livery systems. The idea is to build high walls around a short list of controlled items. Today, we are going to examine just how high those walls are, and I am not at all convinced that we have any walls at all, let alone high walls. The four cases that we have scheduled for today will illustrate how the game is played, who the players are, the role of Customs and other Federal agencies, and the method of di- version schemes used to circumvent our export laws. For the first time, this committee will attempt to trace cases from beginning to end. Frankly the scenarios that we will be examining will turn out to be relatively unsophisticated, yet, they appear to be difficult to detect given our current enforcement efforts. The commodities ex- ported are dangerous and deadly, yet, they were caught as a result PAGENO="0010" 6 of a lucky tip to the U.S. Government received from a business or foreign source. As far as I can determine, we have no independent focus or meaningful, systematic enforcement program of our own, in the first place, and that is why a U.S. citizen was able to illegally pro- cure and then illegally smuggle sophisticated missile technology and components to Egypt for use by Egypt and Iraq in developing the Condor II missile and upgrading their SCUD-B missiles. In the second case,, one low-level company official at a Baltimore- based chemical manufacturer was able to arrange singlehandedly for the illegal shipment of hundreds of tons of mustard gas ingredi- ents to Iraq and Iran. The third case illustrates how a foreign arms manufacturer can both legally and illegally tap U.S. technology and products to de- velop and produce cluster bombs and attack helicopters for Iraq and other Third World countries. The last case that we plan to look at today, demonstrates how unfriendly foreign governments can use one of our closest trading partners, Canada, to facilitate diversion of sensitive technology. The question I think each of us will ask at the conclusion of today's hearing is, how much of our vital technology is being smug- gled across our borders every day without our knowledge? I don't think anyone in the Federal Government knows or is set up to stop it. I think you would also find that U.S. businesses and individuals are players in export violations, either knowingly, or not. While I am one of the strongest supporters of increasing our level of international export trade, I also believe that U.S. business- es should not participate in activities or policies contrary to our na- tional security. The United States is known for its great salesmen, business salesmen. We need to make sure that the goods we sell are not later used against us by adversaries. Frankly, I think you will find that the Department of Com- merce's and the Department of State's systems of issuing licenses as well as both Customs' and Commerce's enforcement efforts are lacking. I think that a little more investigation or probing into the licens- ing process would provide suspicious results. Customs and Com- merce have little means of detecting illegal export activities unless it jumps out and smacks them in the face. As sure as I am sitting here, there will be more Iraq's in the future, because the export control system we now have in place cannot properly regulate the export of sensitive and dangerous commodities. I think it is clear that if we are going to prevent the use of U.S. resources in development and production of Third World weapons then we are going to have to take a serious look at the enforcement of U.S. export controls. This subcommittee intends to do just that, starting today. Six different Federal agencies-the U.S. Customs Service, the De- partments of Commerce, Defense, Treasury, Energy, and State-all have critical responsibilities for developing and enforcing our export programs. They need to answer some very hard questions. We will continue with these hearings again on May 1, 1991. This is then the first of two of the hearings, and the next one will be on May 1. Now, that completes the Chair's opening statement. PAGENO="0011" 7 Mr. Schuize, would you care to make a statement? Mr. SCHULZE. Thank you, Mr. Chairman. I am pleased to join you in opening our hearing on export con- trols. One side effect of the Persian Gulf war is to focus the atten- tion of the American public and press on the role of the United States in supplying weapons technology to other countries. Unfor- tunately, this is not a new story. About 50 years ago, the young people of my generation went off to serve their country in Europe and the Pacific and many of us remember photographs on the front page of the paper, at that time, where huge boatloads of scrap metal were being sold to the Japanese, and at the time, a very prominent comment was that we sold the Japanese the scrap metal from which they made the weapons to attack us at Pearl Harbor. Today, our young men and women are returning after serving their country in the Persian Gulf war. The added tragedy is that we may have sold to Iraq some of the weapons parts and technolo- gy which killed or injured our own soldiers. For example, U.S. troops have been injured after the cease fire by live cluster bombs in the field. These may have been Iraqi cluster bombs fused with U.S. detonators. Also, 13 members of the National Guard from Greensburg, Pa., were killed by the direct hit of a SCUD missile on their barracks. U.S. technology and parts may have been used to upgrade the SCUD missile used to attack Saudi Arabia and Israel. Mr. Chairman, we never seem to learn from history-Pearl Harbor, the Persian Gulf-who knows where the next location will be where U.S. soldiers may be on the receiving end of U.S.-made weapons? My objective today is to learn how our export control program is supposed to identify and control the export of weapons, parts and technology. Case histories, which we will examine, demonstrate both the success and the failings of the program. The success sto- ries show that sometimes it may work fairly well, but quite frank- ly, that's not good enough. The challenge is to plug the loopholes in the current program without going overboard. That is, we must prevent unstable and irresponsible countries from acquiring weap- ons of mass destruction without putting our businesses in a com- mercial straitjacket. There are two competing goals. How can we preserve the dynam- ic spirit of our open commercial system, but also strictly control the export of certain parts and technology? It may not be easy, but we must try and we must succeed. If we do not, then the next gen- eration of American troops may pay the real price on the battle- field in some God forsaken corner of the world. Mr. Chairman, we can learn how to improve the effectiveness of our export control program by studying the real life cases before us today, and I look forward to hearing the testimony of our wit- nesses. I might also add that perhaps, as Members of Congress, we should be a little introspective and think of the role that we have played in sending the message to the bureaucracy time after time that we want you to weaken those controls and not make them stronger. When I say this, I think of the Toshiba case, when members of this committee fought to weaken the sanctions against Toshiba PAGENO="0012" 8 after it was proven that they transferred technology to enemy na- tions. I think of the vote last year on the Hyde amendment, which would have stringently toughened the Export Control Act and where the majority of the Members, even some here today, voted against that effort to toughen that law. So, as we look, I would hope that we would look for information and perhaps be a little in- trospective and not just point the finger of blame, but see how we can cure the situation so that we do not have a repeat in the future. I thank you, Mr. Chairman. Chairman PICKLE. Thank you, Mr. Schulze. Our first witness will be Henry Sokolski, the Deputy for Non- Proliferation, Office of the Assistant Secretary of Defense for Inter- national Security Affairs. I understand that you are accompanied by Peter Sullivan, the Deputy Director, Defense Technology Securi- ty Administration. Do you gentlemen have a single statement or are you going to make the statement, Mr. Sokolski? Mr. S0K0LsKI. Yes. Chairman PICKLE. You may proceed, sir. STATEMENT OF HENRY D. SOKOLSKI, DEPUTY FOR NON-PROLIF- ERATION POLICY, OFFICE OF THE ASSISTANT SECRETARY FOR INTERNATIONAL SECURITY AFFAIRS, U.S. DEPARTMENT OF DEFENSE, ACCOMPANIED BY PETER M. SULLIVAN, ASSISTANT DIRECTOR, DEFENSE TECHNOLOGY SECURITY ADMINISTRA- TION; AND RICHARD SPEIER, OFFICE OF NON-PROLIFERATION POLICY Mr. SOKOLSKI. Thank you, Mr. Chairman. First, I want to thank the committee for holding this hearing and taking an interest in a topic which is complex and usually not very glamorous, and that is, enforcement and administration of our export controls. Effective administration and enforcement of our export controls admittedly, for the most part, is not very flashy. Most of the time it's not passing laws, or creating new multilateral regimes, but without it none of these efforts can bear fruit. Again, I commend this committee for taking the time and the effort to focus so persistently on this issue. Before I begin address- ing the specific issues posed in your letter of invitation, I first would like to give you just a brief statement on the Department's role in export administration, and export administration process. I would first like to emphasize that DOD is not a licensing agency. That responsibility lies with the Department of State for munitions items, and with the Department of Commerce for dual- use items. Of course, we, at DOD believe we are uniquely qualified to gauge the military proliferation significance of a proposed trans- fer. And, as I have stated numerous times before, we are happy to review and become even happier when we review more from either State or Commerce. Defense, as part of its responsibilities under U.S. export controls, provides assistance to intelligence and law enforcement agencies. PAGENO="0013" 9 This ranges from providing expert analyses on identifying suspect Government and technology to bringing their attention to possible acquisition of control items. The message I would like to get across today is that we can and do have the tools to make our export controls, laws and agreements effective. In fact, with increased concern about proliferation, in particular, additional laws and regulations have recently come into force, not only here, but I might add, also abroad. And control pri.. orities have begun to shift towards the security problems posed by exports to destinations outside of the Soviet bloc. In your invitation you posed a number of specific questions. I would like to try and address them briefly by giving an overview of the security threats posed by proliferation of advanced technologies with a special focus on what the committee is concerned about, which is dual-use technology. To get a better grasp of these points, I will also be discussing some of the specifics surrounding a particular development, the Condor Missile. The focus on dual-use technology, highlighted re- cently by news stories of Iraqi military schemes to procure comput- ers for their missile development efforts, and other procurement schemes to get other equipment is no accident. Whereas, 30 or 40 years ago, our Nation's most advanced tech- nologies-such as nuclear energy, missile and satellite technology, computers, communication and navigation technologies-were prin- cipally developed and advanced by our military and governmental sectors, today, nearly the reverse is the case. The best computers, some of the most innovative space launch systems, biochemical technologies, nuclear reactors, communication and navigational and satellite systems now come from the private sector and are sold primarily as commercial goods. Although our Government and military buy these goods, they are by no means the largest or the most significant customers any longer. Indeed, technologies once developed for military use are now being made available for a vast variety of commercial applica- tions. As we trade in these technologies and broaden their beneficial peaceful applications, there are unavoidable downside effects. These technologies were originally devised, after all, to secure our military super-power status and can be used by others for similar purposes. Clearly, those who would wish us or a friend harm may use these technologies against us if they acquire them. Given dual- use developments, the vast oil wealth of many Middle East nations, and the multitude of suppliers and transit points for military useful technology-dual-use or otherwise-your committee has rightly asked the question, can we cope? In specific, can counterexport controls keep up? Are they rele- vant? The short answer that I want to give today, I believe, yes. If we know what to focus on, dedicate sufficient assets on these objectives and persist, specific security benefits clearly can be realized by export controls and proper administration of such. As you know, a number of militarily useful technologies and pieces of equipment made their way into Iraqi hands. Some have used this fact to argue that export controls do not work or that our PAGENO="0014" 10 export controls are a failure. What I don't think we have focused sufficiently on, however, are some instances which I hope will become clear today in your detailed look at both the failures and successes, where our export control efforts did pay off. I think we need to focus on these to some extent, if only to figure out what we can do better by building on what works. What I'd like to do today then is to focus on one such success. I put that in quotes, because I think we need to explain in what sense we mean it to be a success. And I want also to spell out what went into making it happen. The specific case I have in mind is slowing the Condor Missile program. This is a case in which my own office, the Office of Non- Proliferation Policy, and the Defense Trade and Security Trade Ad- ministration, which supports us on nonproliferation played a role, along with Treasury, ACDA, State, Commerce and our intelligence agencies. The Condor II program was, at one time, a missile effort by Ar- gentina, Egypt, and Iraq, supported by suppliers from advanced in- dustrial nations in Europe. It originally was scheduled and on-line, producing missile in Argentina, Egypt and Iraq, well before Desert Storm. However, as you know, this particular missile was never fielded in any of these nations, much less fired at us in the gulf. Had the program been completed, our missile problems would have been much, much more daunting and considerable than those that we, in fact, faced in Desert Storm. I do not mean to belittle what we did face, but only emphasize how much worse it would * been if this program had been completed. To understand why, we need only compare this Condor II pro- gram with the Iraqi SCUD program. Roughly speaking, SCUDs, even the upgraded ones, are basically World War II vintage tech- nology. The Iraqis, in fact, had acquired several hundred from the Soviets and went about modifying and upgrading these. The Condor II, on the other hand, is similar to one of the most ad- vanced missiles ever fielded, the Pershing II. It would have been manufactured and been available possibly in much larger numbers than the SCUDs within Iraq. Also the Condor II missile was intend- ed to be much, much more accurate than existing SCUDs, and, indeed, even more so than upgraded SCUDs. This, in turn, would have made it orders of magnitude more lethal against point targets than the SCUDs that were actually fired at our troops and allies. Instead of missing their targets by kilometers, in most cases, the Condor II~ miss distance was supposed to be measured in hundreds of meters or less. With such accuracies, and the numbers serial indigenous produc- tion would have involved, Condors could have been used to perform some of the strategic functions Iraq's air force and their SCUDs could not: to knock out or stun our air operations from local air- fields, paralyze our local logistical support from ports, and destroy major air defense units and fixed command centers. These mis- sions, moveover, could have been accomplished-and I emphasize this point-.-without necessarily having to resort to chemical, biolog- ical or nuclear warheads. Conventional munitions would have prob- ably been sufficient if this program had been completed, to accom- PAGENO="0015" 11 push the missions I have just listed, which would have spelled stra- tegic failure for Desert Storm. Finally, because the Condor was designed as a solid-fuel, multi- stage missile we knew it would be more mobile-that is harder to find-fly further and faster, and be much harder for our Patriot radars to detect than any SCUD. For these reasons, even before the U.S. formally announced its adherence to the Missile Technology Control Regime in 1987, we assigned a high priority to blocking the missile's development. Using an enforcement infrastructure, that I will shortly describe, we cracked down on U.S. exports that might have otherwise have supported the Condor, urged other supplier nations to do likewise, and discussed our concerns with the customer Governments of Ar- gentina and Egypt. Several key rules were followed in this effort. First, we blocked exports even though peaceful civilian applications were claimed. In fact, the Condor was alleged by its developers to be a peaceful sci- entific sounding rocket. Despite this, the United States joined other supplier nations in denying exports to the Condor program and continued to do so to similar programs whether overtly military or allegedly for scientific purposes, as sounding rockets or space- launch vehicles. Second, we focused our efforts on blocking as many critical tech- nologies as we could. Example: guidance technology was perhaps the most critical single determinant of whether a missile will be militarily effective. It was a key focus in the interdiction of Condor and it is a key constraint still with regard to blocking development of other missiles today. Thus, for example, we have just begun in- tense discussions with our allies, in the MTCR, to add items to the control list, such as global positioning satellite navigation receivers that might be useful for ballistic missile applications. We also targeted production-related items for the Condor pro- gram trying to keep as much of this equipment from the Condor and other similar production projects as possible. Numbers matter. If they get large numbers of accurate missiles anywhere, the mili- tary operational consequences are much more profound. Of course, we tried to block as many other exports to the Condor as we could. This point I want to emphasize. We understood, how- ever, that we might not succeed in blocking all of them, indeed, we didn't. And this brings us to the third rule, which is that our aim was, and still is, to block enough technology to make a difference. Successful development in the case of ballistic missiles, like the Pershing, involves the integration or harmonizing of some 250,000 parts and it is a very expensive proposition. I think, to some extent, this is luckily the case not just for ballistic missiles, but a good number of other significant military systems. We consciously aim then to prevent enough of the key items from being shipped long enough until either the targeted program's financial or political support dried up, or until we, at least, had some effective means to cope with the threat once it arrived. I think by this criterion-and I emphasize this is a little different criterion than we normally assign to ourselves-the efforts con- cerning Condor were not only worthwhile, but had security payoffs PAGENO="0016" 12 that were significant. Even though some components slipped through, enough were denied or delayed to impact the program. Additionally, Argentine and the Egyptian Governments actually decided to help slow the program. It was at this point that Iraq started to try and take whatever they had gotten in the way of technology and apply it toward their SCUDs. Consen, the multinational organization behind the missiles development, continues to have difficulty securing all the technolo- gy needed to complete the program. Meanwhile the United States, Israel, and others are working on followons to the Patriot. Our hope is that this work will be done before Condor-like missiles are deployed in the future so that we have defenses that might work. What produced our successes, as I described them, in slowing the Condor and other similar problem programs? Clearly, the focus of this committee is appropriate since it was key to the success. Enforcement. Enforcement consisting of several key elements. The first of these elements is intelligence. I am speaking not just of intelligence collecting here-the amassing of raw reports, but of analysis-assessing and organizing this information. In addition to intelligence, however, a second element is needed-action. Domestically, in the case of the Condor, we had to review our own exports, matching intelligence about the Condor program with technical assessments of the significance and alternative uses of ex- ports. And we had to have a diplomatic understanding of the meas- ures needed to support our own export restraint with complemen- tary from other suppliers. Of course, no domestic enforcement program can stop technology transfers unless there is a corresponding international enforcement effort. This brings me to the third element-the need for interna- tional and diplomatic support. The establishment of multilateral arrangements such as COCOM, the MTCR, the Zangger Committee, Nuclear Suppliers Group, the Australia Group set the general framework for international restraint. But when it comes to specif- ics, much more needs to be done. Our diplomats, Customs officials, and intelligence specialists, in the Condor case, for example, work with their counterparts in the MTCR partner governments to ensure that U.S. denials of exports were supported elsewhere, that is, not undercut, and to identify Condor procurement overseas that needed to be stopped. As you can see, from what I've said, enforcement and administra- tion of export controls is highly manpower intensive. In the Condor case, we needed the involvement literally of hundreds of Govern- ment officials around the world, and a high enough priority to focus these officials on the effort. Again, I would like to think this effort was warranted and I believe it was. In my written testimony, I tried to address your questions on COCOM liberalization, but for the sake of short time, I will pass over that and allow that to be treated in questions and answers. I would, however, like to do one thing in closing. And that is to recognize three people in Defense-if there were other agencies here, I would perhaps add to the list much more-whom I think had the most to do, not only with the Condor, but with the enforce- ment of export controls in general. You will be hearing from one of them today, Mr. Steve Bryen, and in addition, Mr. Mike Maloof of PAGENO="0017" 13 DTSA who is here and Dr. Richard Speier who works in my office. Mr. Maloof works in DTSA. This is my counterpart, Peter Sullivan, and Dr. Speier have been on this case for a good, long period of time. Without their efforts and the efforts of people like them I would not have been able to give the testimony I gave today. Thank you. That concludes my testimony and both of us will be able to, I hope, answer your questions. [The prepared statement follows:] PAGENO="0018" 14 STATEMENT OF MR. HENRY D. SOKOLSKI DEPUTY FOR NON-PROLIFERATION POLICY OFFICE OF THE ASSISTANT SECRETARY OF DEFENSE INTERNATIONAL SECURITY AFFAIRS DEPARTMENT OF DEFENSE Mr. Chairman: I wish to thank the Committee for this opportunity to testify on what we all agree is a very important topic. Before addressing the specific issues posed in your letter of invitation, I would first like to present a brief statement on the Department of Defense's role in the export control process. My office, the Office of Non-Proliferation Policy, is concerned with threats posed by nuclear, chemical, and biological weapons and their delivery systems. In addition to supporting research in non-proliferation issues we articulate policy options to deal with these issues. Additionally, we work closely with all concerned DoD components in formulating DoD positions on the cases that are referred to us for review by either the Departments of State or Commerce. The Defense Technology Security Administration (DTSA) reviews all other license applications referred to DoD for technology security review. DTSA also provides support to my office. I would like to emphasize, however, that DOD 18 not a licensing agency. That responsibility lies with the Department of State for munitions items and with the Department of Commerce for "dual-use" items. We do believe, however, that DoD is uniquely qualified to gauge the military or proliferation significance of a proposed sale or transfer, and we are ready and eager to advise either State or Commerce when they seek our advice. DoD's role in the export control process varies considerably given the nature of the export in question, as defined by the Arms Export Control Act, the Export Administration Act, the Nuclear Non- prc)liferation Act, and various practices and procedures established by interagency agreement or executive directive. Under the Arms Export Control Act, Defense reviews applications for the export of defense articles and services. The Department of State sends these munitions applications to DTSA for DoD review. DTSA, in turn, automatically sends to my office all of their missile and space technology related cases. My staff is responsible for analyzing at least 1,500 of these cases per year, not only for DoD, but also for the interagency proliferation review groups. DoD's role in the area of reviewing dual-use technologies under the Export Administration Act is somewhat different from its handling of munitions cases. DoD reviews most dual-use export applications for exports to the Soviet Union and other so-called controlled countries. DoD also reviews certain categories of dual-use exports to other nations to determine the risk of diversion to the Soviet Union or other proscribed countries. Defense, as part of its responsibilities under U.S. export controls, provides assistance to intelligence and law enforcement agencies. This ranges from providing expert analyses on identifying suspect government and technology to bringing to their attention possible illegal acquisition of controlled items. Effective administration and enforcement of export controls is not very flashy: It is not passing laws or creating new multilateral regimes, but without it, none of these other efforts can bear fruit. PAGENO="0019" 15 I believe we do have the tools to make our export control laws and agreements effective. In fact, with the increased concern about proliferation, additional laws and regulations have recently come into force both here and abroad; and control priorities have begun to shift toward the security problems posed by exports to destinations outside the Soviet-bloc. As I will explain shortly, effective export controls for the Middle East and other non-Soviet destinations is like our efforts to stem the flow of advanced technology to the Soviets, a tedious and manpower intensive effort. In your invitation, you posed a number of specific questions. I would like to address them by briefly giving an overview of the security threats posed by the proliferation of advanced technologies with a special focus on dual-use technology. To get a bettei~ grasp of these points, I will also be discussing some of the specifics surrounding a particular development, the Condor missile program. I should say from the outset that what constitutes technologies of silitary concern is becoming increasingly diffuse and ambiguous. For example, where non-proliferation once focused almost exclusively on controlling the spread of specially designed nuclear equipment and materials, now it encospases both munitions and dual-use controls over nuclear, chemical, biological (COW), and mi~Tle technologies. We not only are controlling the transfer of major components of nuclear, CBW and missile systems, we also are controlling the technology (know-how) and dual-use items that sight help produce such systems or components. Our concerns, however, hardly stop with the technologies associated with weapons of sass destruction or the means for their delivery. We also control for munitions items and a vast number of dual-use items destined to the Soviet-bloc and other locations. The focus on dual-use technology, highlighted recently by news stories of Iraqi military schemes to procure computers for their missile development efforts is no accident. Whereas 30 or 40 years ago our nation's most advanced technologies -- nuclear energy, missile and satellite technology, computers, communications and navigation -- were principally developed and advanced by our military and governmental sectors, today nearly the reverse is the case. The best computers, some of the most innovative space launch systems, biochemical technologies, nuclear reactors, communication, navigational and satellite systems now come from private industry and are sold primarily as commercial goods. Although our government and silitary buy these goods, they are by no scans the largest or sost significant customers. Indeed, technologies once developed for the military are now being made available for a vast variety of civilian applications. The benefits of this transformation are clear: Military investments made some time ago are now enriching our entire economy and our trading partners. Our long distance phone bills are cheaper, our electrical power supply base no longer need depend on fossil fuels, our planes and ships fly more safely and certain of their course, and affordable, powerful computers have helped us in every aspect of life. PAGENO="0020" 16 As we trade in these technologies and broaden their beneficial applications, though, there is an unavoidable downside. These technologies were originally devised to secure our military superpower status and can he used by others for sisilar purposes. Clearly, those who would wish us or our friends harm may use these technologies against us. Given dual-use developments, the vast oil wealth of many Middle East nations, and the multitude of suppliers and transit points for militarily useful technology, your committee has rightly asked the question, can we cope? In specific, can our export controls keep up? Are they relevant? The short answer, I believe, is yes.. If we know what to focus our control efforts on, dedicate sufficient assets on these objectives, and persist, specific security benefits can be realized. As you know, a number of militarily useful technologies and pieces of equipment made their way into Iraqi hands. Some have used this fact to argue that export controls do not work or that our export controls were a failure. What these people have not focused on sufficiently, however, are the clear instances where our export control efforts did pay off, and how we can do better by building on what may have worked. What I would like to do today, then, is focus on one such "success," explain in what sense it was a success, and spell out what went into making it happen. The specific case I have in mind -- slowing the Condor II missile program -- is one in which my own office, the Office of Non-Proliferation Policy, and the Defense Technology Security Administration, which supports us on non- proliferation, played a role along with Treasury, ACDA, State, Commerce and our intelligence agencies. The Condor II program was at one time an effort at missile development by Argentina, Egypt, and Iraq, supported by suppliers from advanced industrialized nations. It originally was scheduled to be completed and on-line producing missiles in Argentina, Egypt and Iraq well before Desert Storm. However, the missile was never fielded in any of these nations, much less fired at us in the Gulf. Had this program been completed, our missile problems would have much more daunting and considerable than those we faced in Desert Storm. To understand why, we need only compare it with Iraqi SCUDs. Roughly speaking, SCUDs are World War II vintage technology; the Iraqis had acquired several hundred from the Soviets and went about modifying and upgrading these. The Condor II, on the other hand, is similar in many ways to one of the most advanced missiles ever fielded, the Pershing II. It would have been manufactured and been available possibly in much larger numbers within Iraq. Also, the Condor II missile was intended to be much more accurate than existing SCUDs. This, in turn, would have made it orders of magnitude more lethal against point targets than the SCUDs that were actually fired at our troops and allies. Instead of missing their targets by kilometers, the Condor II miss distance was supposed to be measured in hundreds of meters or less. PAGENO="0021" 17 With such accuracies and the numbers serial indigenous production would have involved, Condors could have been used to perform some of the strategic functions Iraq's air force and the SCUDs could not: to knock out or stun our air operations from local air fields, paralyze our logistical support from local ports, and destroy our major air defense units and fixed command centers. These missions, moreover, could have been accomplished without necessarily having to resort to chemical, biological or nuclear warheads. Conventional munitions would have been sufficient. Finally, because the Condor was designed as a solid fueled, multistaged missile, we knew It would be: more mobile (harder to find); capable of longer ranges; faster; and be much harder for our Patriot radars to detect than any SCUD. For these reasons, even before the U.S. formally announced its adherence to the Missile Technology Control Regime (MTCR) in 1987, we assigned an extraordinarily high priority to blocking the missile's development. Using an enforcement infrastructure that I will shortly describe, we cracked down on U.S. exports that might have supported the Condor, urged other supplier nations to do likewise, and discussed our concerns with the customer governments of Argentina and Egypt. Several key rules were followed in this effort. First, we blocked exports even though "peaceful," civilian applications were claimed. In fact, the Condor was alleged by its developers to be a peaceful "scientific" rocket. Despite this, the U.S. joined with other supplier nations in denying exports to the Condor program and continue to do so to similar programs -- whether overtly military or allegedly for such "scientific" purposes as sounding rockets and space launch vehicles (SLVs). Second, we focused our efforts on blocking critical technologies. Guidance and control technology is perhaps the most critical single determinant of whether a missile will be militarily effective. This was a key focus in interdiction of Condor and is a key concern with regard to blocking development of other missiles today. Thus, recently, we began intense discussions with other MTCR partners to add items that we will all control -- such as global positioning satellite navigation receivers useful for ballistic missile applications, i.e., ones that can operate at high altitudes and at very high speeds. Another key technology with Condor and other advanced missiles is stage separation technology. The reason why is simple: With staging technology, Third World missiles can be made to go further, faster, and allow the final armed stage to be such smaller. All of these things make defending against these missiles such more difficult. We are trying to make sure that other advanced missile programs now do not get this technology. We also targeted production- related items for the program, trying to keep as much of this equipment from the Condor and other similar production projects as possible, even though such of this equipment might have civil applications. PAGENO="0022" 18 5 Of course, we tried to block as many other exports to the Condor as we could. We understood, though, that we might not succeed in blocking all of them. This brings us to the third rule, which is that our aim was and is to block enough technology to make a difference. Successful development of a ballistic missile like the Pershing II involves the integration or harmonizing of some quarter of a million parts, and it is a very expensive proposition. Luckily, this1ithe case, not just for ballistic missiles, but for most other significant military systems. We consciously aimed, then, to prevent enough of the key items from being shipped long enough until either the target program's financing or political support dried up or until we had an effective military means to cope with the threat once it arrived. By this criterion, I think our efforts concerning the Condor were worthwhile. Even though some components slipped through, enough were denied or delayed to impact the program. Additionally, the Argentine and Egyptian governments actually decided to help slow the program. Consen, the multinational organization behind the missile's development, continues to have difficulty securing all of the technology needed to complete the program. Meanwhile, the U.S., Israel, and others are working on follow-ons to the Patriot. Our hope is that this work will be done before any Condor-like missiles are deployed. What produced our "successes" in slowing the Condor and other similar problem programs? Enforcement, which, in turn, consists of several key elements. The first of these is intelligence. I am speaking not just of intelligence collection -- the amassing of raw reports -- but of analysis -- assessing and organizing this information. In the case of the Condor, for example, we had to stay on top of an extremely complex transnational procurement network, which at various times included organizations based here in the U.S., a multinational procurement organization based in Europe and inter- national financing. Keeping tabs on this international network required a multilateral intelligence effort complemented by inter- agency cooperation in the United States. We fully expect the requirement for this kind of intelligence effort to grow, not diminish, in the future, as those associated with Condor and other troublesome programs realize that simple ruses -- like the claim that a program is "peaceful" -- will not open the doors to the technology that they seek. Instead, more complicated clandestine purchasing networks that can obfuscate the nature, destination, and end-use of their purchases are expected. Intelligence, however, is not enough. Enforcement's second element -- action -- is essential. Domestically, in the case of Condor, we had to review our own exports -- matching intelligence about the Condor program with technical assessments of the significance and alternative uses of exports and a diplomatic understanding of the measures needed to support our own export restraint with complementary restraint from other suppliers. This has resulted in the formation of interagency groups -- in the case of missile technology, the Missile Technology Export Control (MTEC) and the Missile Trade Analysis Groups (MTAG) -- that meet weekly to review approximately 1,500 export cases annually. PAGENO="0023" 19 Occasionally, our domestic actions must go beyond the channels of export application review to deal with exports conducted illegally. You are familiar with the case of Mr. Helmy, now serving a prison sentence for illegal activities in support of the Condor program. Of course, no domestic enforcement program can stop technology transfers unless there is corresponding international enforcement. This brings us to enforcement's third element: The need for interna- tional and diplomatic support. The establishment of the multilateral arrangements such as CoCos, the MTCR, the Zangger Committee and Nuclear Suppliers Groups, and the Australia Group set the general framework for international restraint, but -- when it comes to specifics -- much more needs to be done. Our diplomats, customs officials, and intelligence specialists in the Condor case, *for example, worked with their counterparts in MTCR partner governments to ensure that U.S. denials of exports were supported elsewhere and to identify Condor procurement overseas that needed to be stopped. Sometimes, the identification of a specific export was enough to catalyze action by foreign governments. Sometimes, we needed foreign enforcement action to unravel complex procurement activities and to prosecute criminal activity overseas. Sometimes, we needed to go beyond MTCR partners to block the Consen network. As you can see enforcement and administration of export controls is highly manpower intensive. In the Condor case we needed the involvement of hundreds of government officials around the world -- and a high enough priority to focus these officials on the effort. I think you would agree, however, that our effort was worthwhile. Finally, you have asked about the effect of COCOM liberalization on non-proliferation. Here the Adminstration has focused on two main concerns: first, that items of proliferation concern that may be dropped from COCOM be effectively controlled either nationally or in some appropriate multinational fora; and, second, that countries that benefit from such COCOM revisions, principally Eastern Europe, control the reexport of these technologies to destinations of proliferation concern. For almost one year, the Administration have been working these matters to assure that our nonproliferation interests are not adversely affected. We have received assurances from our MTCR partners that any missile-related items that fall off the COCOM list will nonetheless be controlled by each MTCR member nation for non-proliferation purposes. In the nuclear area, we have initiated an effort with other nuclear supplier countries to control nuclear, dual-use items multilaterally, including any items that might come under the COCOM streamlining. The problem of reexport controls has become a more important issue and we have begun urging other governments to adopt reexport and export control standards as strict as our own. In the case of Eastern Europe, we have begun working directly with the governments to help them strengthen their export controls. These efforts are now begining to pay off; some exports are being blocked by these nations that would have otherwise gone to trouble spots in the Middle East. More needs to be done. PAGENO="0024" 20 As for controls on the export of conventional arms and related silitary and dual use manufacturing technology, the Adsinstration is now reviewing what additional steps might be taken. Before I conclude, Mr. Chairman, I would like to recognize three Defense people who had the most to do not only with the Condor, but with the enforcement of export controls in general: Mr. Steven Bryen, Mr. Michael Maloof at DTSA, and Dr. Richard Speier. It's the efforts of people like these that make the difference. I would be happy to answer any specific questions the committee say have. This concludes my statement. PAGENO="0025" 21 Chairman PICKLE. Thank you, Mr. Sokoiski. We thank you for your positive statement. And your observation and analysis of the success that you have had with the Condor program. I observed that you have claimed a great victory in the Condor program, more claims of victory this morning than you were able to import to our committee this past week. But your statement, of course, will be a part of our record and we are glad to have it. Are you saying to me that in the Doctor Helmy case that you knew all that was going on in every instance of the Helmy case? Mr. SOKOLSKI. Absolutely not. Intelligence and enforcement is, by its very nature, very imperfect, even when we focus. I think what I'm trying to get across though is that even though things are im- perfect that if they are focused on, they can produce results. By no means is the Condor story over. We still are trying to be vigilant on that case, and in particular, given the military significance of the program. The point is that- Chairman PICKLE. But I have a feeling from your testimony that you are saying that you have known from the very beginning every step that had been taken in the Condor case, and therefore, it is a big success and you want to talk about that and not the other shortcomings? Mr. S0KOLSKI. No. I have spoken with your staff and asked whether or not it would make sense to focus on one case, and they urged me to do so. I thought I would focus on this one, since here, at least, we have some idea of what the elements are of trying to make things work and we need to do more of that. Chairman PICKLE. Well, Mr. Sokolski, I am going to ask other members if they have any questions at this point, because I also want to get to the next witness. And we have several panels to hear from today. We have your statement and it is a good statement and we are glad to have it, but I would ask if any other members would want to ask any particular questions of this witness? Mr. RANGEL. Thank you, Mr. Chairman. Mr. Secretary, in your statement, you indicate that you are not a licensing agency and that when you are concerned with dual-use items that you are ready and eager to advise either State or Com- merce. With that backdrop, has it been your experience that areas that you would like to comment on, as relates to national security, could possibly be in conflict with the State Department's opinion? Mr. S0K0LsKI. Well, as an administration official we all work to- gether, sir. I think that one of the things that has changed over the last 2 years, in particular, with the focus on proliferation, is that the amount of sharing of cases, in particular from Commerce, has increased dramatically and I think what has happened is that the character of the problem and the complexity and the need to have more people working together has become clearer and clearer. Mr. RANGEL. Let me try and clear up my question. Has it ever reached a point where, in your opinion, things were being shipped in violation or threat, rather, to our national securi- ty and while you were eager to advise the State Department, that the State Department had taken a position that politically or for- eign policywise that they would rather not have your advice? PAGENO="0026" 22 Mr. S0KOLsKI. Sir, I don't believe so. Mr. RANGEL. OK. And that would certainly apply, if you could say that generally, and your belief, that is all we want, as relates to some of the cases that we will be hearing more information on today. To your knowl- edge there was no conflict in the direction that DOD wanted to go as opposed to the direction or lack of it? Mr. S0K0LSKI. By the very nature of having a variety of agencies with very different outlooks, there is always-how shall I put it- tension, discussion, that is the reason we have meetings. However, in the 20 months that I have been in office, I have not had the problem that you are asking about. Mr. RANGEL. OK, because I can say, without fear of contradic- tion, that as it relates to drug policy where we have an offending nation, that is violating every international law, that the State De- partment would say that they are cooperating. And when you ask, why did you say that, they say, well that is the diplomatic thing to say, but you are right, they are a bunch of bums and they are not really doing anything. I just wondered as it related to national se- curity, whether those with the striped pants took the same attitude as they would not want to offend our friends and allies, even though our friends and allies were raping and violating our nation- al security? Mr. SoKoLsKI. Well, luckily I suspect that drug enforcement is not something I can speak to, perhaps. Mr. RANGEL. No one in the State Department can, so that's not a problem. And DOD is doing a good job in that area, but you don't have that type of problem, as it relates to national security? Mr. SoKoLsKI. I have not. We have disputes there that are han- dled in-house and they do listen to us. Mr. RANGEL. Thank you, Mr. Chairman. Chairman PICKLE. Mr. Schuize? Mr. SCHULZE. Thank you, Mr. Chairman. Thank you, Mr. Sokolski. Mr. Sokolski, on page 4 of your testi- mony, you say that in 1987 we assigned an extraordinarily high priority to blocking Condor II development. How did you become aware of Condor II and the potential for a technology transfer from the United States? Mr. SoKoLsKI. If I may, I would like to be able to have the person most involved in this, in my office, be able to speak to this question if that is OK? Again, I am a newcomer and I have more competent staff work- ing for me, thank God. This is Doctor Speier, an assistant for nonproliferation policy in my office. Chairman PICKLE. Will you please identify yourself, sir? Mr. SPEIER. Yes, sir, I am Richard Speier, of the Office of Non- Proliferation Policy in the Department of Defense. My last name is spelled S-P-E-I-E-R. Mr. SCHULZE. Dr. Speier, perhaps you could answer the question. How did you first become aware of the Condor II program and the potential for technology transfer? Mr. SPEIER. Within the limits of open session, Congressman, let me describe in general how we become aware of what is happening PAGENO="0027" 23 in the world. We, of course, have our own intelligence assets. In ad- dition, we have diplomatic discussions with other governments who often become aware of matters independently from the Govern- ment of the United States. In addition, we review export cases that often tip us off well ahead of time of the interests of governments in various aerospace developments. Within these broad categories we learned fairly early on about the Condor program. Mr. SCHULZE. I am trying to word this so that I can get an answer in an open hearing. Can you tell me whether it was from another foreign national or from one of the intelligence agencies or just where the information came from? Mr. SPEIER. We could go into that, Congressman, in closed ses- sion, or for the record, it is protected testimony. I would rather not go into the precise- Mr. SCHULZE. In other words, from one of the countries involved, or would you rather not answer that, as well? Mr. SPEIER. It had best stand the way we have described it. There are broad sources of information available. Mr. SCHULZE. Right. Mr. Sokolski, on page 5 of your statement you say, Argentina and Egyptian Governments actually decided to help slow the program. Can you go into more detail? That's news to me and I would like to have more detail on that if I may. Mr. S0K0LsKI. Well, I think, in fact, in the case of the Argentines it is public that the President has renounced support for this pro- gram. And I believe that it is also, as you will find later in discuss- ing this case with others, clear that the Egyptian Government cut off its support, direct support for this program. Mr. SCHULZE. Can you tell me when? Was that after we brought it to light? After we found some of this smuggling going on? Mr. S0K0L5KI. Yes, yes. Mr. SCHULZE. It was after it was exposed, not before it was ex- posed. So as a consequence of embarrassment, because their agents were in this country smuggling goods through the diplomatic pouches and so forth. Mr. SoKoLsKI. The Helmy case was very important. Mr. SCHULZE. So that it was sort of the catalyst? Mr. S0K0L5KI. It was certainly in the Egyptian case, yes, and more-there is no question that- Mr. SCHULZE. The Egyptians said that they were going to slow it down or have they actually slowed down? Mr. S0K0LsKI. I really feel that I am out of my element precisely, but clearly it was after. Mr. SCHULZE. If you don't know, you don't have to answer. Mr. SoKoLsKI. Yes. Mr. SCHULZE. But in your statement, you said that they did coop- erate and I am trying to figure out in what way? Mr. SoKoLsKI. Their support for that program was cut off after revelations and consultations. Mr. SCHULZE. After the Helmy case came to fruition, the Egyp- tians backed out of the Condor II and have had nothing further to do with it? Mr. S0K0LsKI. I would not try to make categorical statements but the support, the overt support for that program died. PAGENO="0028" 24 Mr. SCHULZE. Your agency is responsible for tracking the threat to U.S. security from illegal technology acquisition, is that correct? Mr. S0K0LsKI. My office focuses on what we call technologies of proliferation concern and the DTSA focuses on other technologies of military significance. We focus, for example, on weapons of mass destruction and means of their delivery and we are also focusing on space technologies now. Mr. SCHULZE. In your opinion, what end users pose the major threat for missile technology, for example? Mr. S0K0LsKI. Well, I think one of the great concerns that I have now and it is shared throughout the administration is that there are uses of missile technology for-as I explained in the testimo- ny-so-called scientific purposes, which produce ICBM-capable mis- siles that frankly are not economically viable, in my opinion, for any other purpose but military application. Now, I understand that others have different views than perhaps that jaundiced opinion that I have, but that is a major concern. Overt military programs have a way of flagging themselves a lot more loudly. The difficulty with sounding rockets, space-launched vehicles and the like are tougher, because in a sense they are out in the open. Mr. SCHULZE. Well, can you be more specific in what end users might pose a threat today? Mr. SoKoLsIu. I think, clearly, the Middle East and the Koreas are key concerned areas right now. And the tragedy about this field is that the areas can change. The Middle East, unfortunately persists as the number one problem area. Mr. SCHULZE. How about for biological or chemical warfare tech- nology? Mr. SoKotsKI. Definitely the same would apply. Mr. SCHULZE. The Middle East, as well? Mr. S0K0ISKI. The Middle East. Mr. SCHULZE. How about nuclear technology? Mr. S0K0LsKI. I would have to say, again, that the Koreas and the Middle East are very, very high on our concerned list and have been for some time, and I am afraid to say, unfortunately probably will for some time to come. Mr. SCHULZE. How about conventional weaponry technology? Mr. S0K0L5KI. Well, I would turn to DTSA with regard to that insofar as that is what they cover. But clearly you know the admin- istration is concerned about the Middle East, as well. Mr. SCHULZE. That's the major area? Mr. S0K0LsKI. Well, and a concern of Congress, judging from the intercourse we have. Mr. SCHULZE. Well, I have to agree with you, the concern now. I didn't see this concern 6 months ago, 9 months ago, a couple of years ago. The thrust in Congress, in my opinion, has been in the other direction. The thrust in Congress and the politically popular position has been, "let's loosen up and let's sell everything to any- body." That has caused me a great deal of concern, over the years, and I am happy now to see some balance in this. Mr. SOKOLSKI. Well, I have a little story to tell. I used to work up here. I worked for-when I first started-for a little known Senator from Indiana who is now Vice President. And I can remember PAGENO="0029" 25 having a letter with, I believe Senator Proxmire's signature, a dis- tinguished Senator from Wisconsin, saying that we should perhaps put Iraq on the terrorist list. This was, I think, in 1985. And then Senator Quayle signed it and I remember that was it. We could not get any other signatures. So it's a concern; however, I must say that the people at DTSA and the people working in the various agencies on proliferation issues have been very clearly con- cerned about these issues for a very long time. Mr. SCHULZE. But how much influence have you had throughout the administration? The word that I get is really not much. That you have had a great deal of concern and that concern has been genuine, but you have not always been able to persuade the rest of those involved to your point of view. Is that a correct characteriza- tion? Mr. SoKoLsKI. I think that that is a little unfair and let me ex- plain why. We now have what is called a PCC, a Policy Coordina- tion Committee. They called them SIGs. Every administration changes the names of these interagency groups. We did not have that before. And we now have an office at the DAS level, the Deputy Assistant Secretary level, that is my office, focused on the security dimension of proliferation and that was not the case before. I think that it is clearly one of the things that Bush has commit- ted himself, as one of the seven key areas when he campaigned for office. I think that is different. I don't remember that being the case before. I think that, yes, I would probably take some exception to that. Mr. SCHULZE. OK. In your opinion, is Iraq still a threat? I mean when you read off the list of threats in the Middle East, does that include Iraq? What is your opinion? Mr. S0K0LsKI. I paraphrase my superior's comments and his su- perior's comments. As long as Saddam Hussein is there we have to be extremely vigilant. Mr. SCHULZE. How do you feel about the adequacy of existing control programs to control weapon proliferation in the third world and the Middle East right now? Mr. S0K0LsKI. I think the amount of authority we have is tre- mendous. And partly, and I will be candid, as a result of both our commitment to nonproliferation and the attention, because of the news, we now have authority we did not have before which is good. The President spelled that out, and Congress legislated. I think assets are being moved and we are moving in the right direction. Mr. SCHULZE. What improvements need to be made? Mr. S0K0LsKI. If I dare say so-I think one of the key improve- ments is happening right here in this room. Part of the problem has not only been that there have been more important things on the news, but that we have only now gotten oversight in a very se- rious fashion in the way that this committee is doing it. I keep tell- ing people oversight has a tremendous impact on getting our atten- tion and honing our skills. Mr. SCHULZE. Are export control civil penalties adequate? Mr. S0K0LsKI. I believe I would like DTSA to answer that since they are very heavily involved in the enforcement area, but my PAGENO="0030" 26 belief is that in the authorities that have been given under EPCI and under the Congress' missile technology control efforts we have new potent tools that we did not have before. Mr. SCHULZE. So you feel you are sort of on the verge of a new era? Mr. SoKor~sKI. Let's just say that I am a very busy boy. And when I first started I was not as busy. Mr. SCHULZE. I would be happy to have the answer, whether Mr. Sullivan feels that the civil penalties are sufficient and whether they comprise an adequate enforcement tool? Mr. SULLIVAN. The general civil penalties under the EAA are- well, the EAA has lapsed but at least the legislation before it lapsed, provided rather modest civil penalties. That is an area where I think some consideration could be given to upgrading them, at least indexing them to inflation and commensurate with some of the significant risks involved. Mr. SCHULZE. Do you have any further suggestions along that line where they might be? I would be happy to have those in writ- ing when you have time. If you want to sit down and send those to us, I would appreciate having it. In your opinion, either of you, how effective are Commerce denial orders? Mr. S0K0LsKI. I think again I would defer to DTSA for a reason. The number of dual-use cases we see concerning nuclear and mis- sile issues is a function of what Commerce chooses to give either the Department of Energy or directly to the interagency groups. In the case of missiles we have, I think in the last year had something less than 100 cases referred so that our load is not very high, our experiential load. Before, I might add, we had many, many fewer, virtually zero. We're hoping that that number will increase even more. But DTSA has much more detailed experience in their field. Mr. SCHULZE. Mr. Sullivan. Mr. SULLIVAN. I would simply add that denial orders are merely one important tool. They have to be considered in the context of criminal sanctions and civil penalties and the like, as well as multi- lateral enforcement efforts. Mr. SCHULZE. Mr. Sullivan, reading between the lines of what you are saying, I am getting the impression that they are not very effective. Mr. SULLIVAN. I would not say that. What I was pointing out is that you need an array of tools for enforcement and compliance with the law. They range everything from exporter cooperation to prosecutions. The export control system like the tax system re- quires voluntary cooperation as well as enforcement. Mr. SCHULZE. But denial orders are an essential part of that arse- nal? Mr. SULLIVAN. It is an essential part of the arsenal and it is an important part of the arsenal. But it takes a lot more than simply denial orders. It takes an effective investigation and enforcement, criminal prosecutions, the imposition of civil penalties when appro- priate but also a concerted multilateral effort with multilateral partners, as well, to ensure that they enforce their national laws. Mr. SCHULZE. Thank you. Thank you, Mr. Chairman. PAGENO="0031" 27 Chairman PICKLE. Thank you, Mr. Schuize. Now, Mr. Sokoiski, I want to move on to the next panel but I want to ask you a question separate and apart from Mr. Schuize's immediate line of questioning. Under the terms of the United States' cease-fire agreement, Iraq must disclose by today, April 18, the location of all of its chemical stockpiles, nuclear materials, and ballistic missiles which are to be destroyed several months later. Has Iraq complied with this agreement? Mr. S0KOLSKI. You know, we were talking about that last night. And I guess I don't know the answer. We were waiting to get the definitive answer. Chairman PICKLE. Does anybody at the table know that? [No response.] Chairman PICKLE. You have no idea whether they have complied or not? Mr. SOKOLSKI. It was my understanding listening to this morn- ing's news that they had, but I really need to get back to you on that. The State Department, I think is the appropriate place that would get it first. It is like our cases from Commerce, we have to get them from another agency. Chairman PICKLE. One other question of a general nature, now that the hostilities with Iraq are over with and you have examined the battlefield, have you found any material or weapons that Iraq used that had been manufactured or supplied by the United States or its allies? Have any of the materials that the Iraqis used against us, were they of U.S. production and source? Mr. S0K0LsKI. We're reviewing. I can tell you that in a general sense, Western equipment, clearly Western equipment got into their hands. As far as U.S.-specific, we are reviewing. I, personally, do not know, DTSA may have more knowledge. Mr. SULLIVAN. Mr. Chairman, there has been concern through- out the conflict and before the conflict about what technology may have come from western sources. There is a collection effort to pick up things from the battlefield and exploit it and review it. That's an ongoing process. It is very complex and it needs to be correlated with the body of intelligence information we have. Chairman PICKLE. Would you supply, for our committee, the names and the sources of the Western countries that might have participated in this, will you? Mr. RANGEL. Mr. Chairman? I thought we have seen and heard things on television that identified American manufacturers who had exported arms to Iraq. Mr. S0K0LsKI. There's no question, sir, that there were U.S. ex- ports in support of military systems. Mr. RANGEL. Well, what was the Chairman's question then? Mr. S0K0LsKI. I was answering the question with regard to whether U.S. weapons or munitions had made it into Iraqi hands. I don't personally know of that, but you are right. As far as technol- ogy- Mr. RANGEL. Well, have there been reports on television that U.S. arms and munitions have been exported to Iraq by American manufacturers? That has been publicly reported. PAGENO="0032" 28 Mr. S0K0LsKI. I don't think we exported weapons. What clearly is the case when you saw Hewlett-Packard machines on television when they launched one of their missiles, there is no question that U.S. technology did make its way to programs that had important military implications. Chairman PICKLE. Well, if that is so, why would you hedge to answer my question? Mr. SOKOLSKI. About weapons. I am sorry, I thought you had asked me about weapons. Chairman PICKLE. I asked you did any American equipment. get used against us? Mr.. S0K0LsKI. Certainly indirectly, the short answer is, yes. Chairman PICKLE. I don't want to prolong this line of question- ing. We have you here, as a witness, to try and get background about the difficulty. We do not propose to prolong a big debate with you on this testimony that we were late in receiving. And we do not want to ask questions that would be uncomfortable for you to answer or uncomfortable for our Government, but we are trying to get background on this thing. Now, the next witness we have here is one of the gentlemen you have alluded to for appreciation for the success that he has done. A Dr. Steven Bryen. Mr. SoKoLsKI. Right. Chairman PICKLE. I am going to ask that you gentlemen just move over, if you will, and if Dr. Bryen would come on up here and summarize his statement. Dr. Bryen, are you here? Mr. BRYEN. Yes, sir. Mr. ANTHONY. Mr. Chairman, would you yield to me, for a moment, before the next witness? Chairman PICKLE. Yes, and Dr. Bryen, would you have a seat up here for just a second? Mr. ANTHONY. Mr. Chairman, I would like to have the attention of the two witnesses who just spoke. Before we go to the next wit- ness, I have been very quiet during this period of time because I really wanted to get into two specific cases concerning the reconfig- uration of a commercial helicopter into military use and very so- phisticated computers that can be used for military application as well as commercial application. But you made a statement a while ago based on Mr. Schuize's question, is Iraq still a threat? I might not have gotten it exactly correct, hut you said as long as Saddam is in power, we must be extremely vigilant. Well, that is today, after the war and after the peace treaty has been signed. I would think that that same admonition would apply prior to and while we knew that there was this huge military buildup going on. The questions that have been asked and the answers that you have given to Mr. Pickle and Mr. Rangel I find to be extremely vague, evasive, and totally unresponsive to the situation at hand. There have been numerous accounts that there are at least 40 specific cases right now, under investigation, by the Customs De- partment where there were parts and weapons systems that were specifically being sought by Iraq and that even faxes were being transmitted on the day that the war occurred. In specific responses PAGENO="0033" 29 to questions about, have you gone to the battlefield, no, that is somebody else's responsibility. Have you found the chemical stock- piles and have they been destroyed? No, I might hear about that at some later date on the news. I have got a whole list of other ques- tions that I wanted to go into in that same regard, Mr. Chairman. I think what I would like to do to make sure that this record is extremely clear and tight is to submit these to the witnesses in writing so that you will have proper time to respond. You should get whatever authority you need from officials above you to sani- tize your answers, and then submit it to us for the record and review in case we then need to submit some additional questions. Mr. S0K0LsKI. We would be glad to do that, sir. Mr. ANTHONY. I want to say I came into this hearing trying to be very straightforward in terms of just examining what the record is. But I am beginning to get extremely disappointed in terms of the response. It may be that you don't have the authority from the higher-ups to be any more specific than you are today, but we can discuss that at another day. Chairman PICKLE. Thank you, Mr. Anthony. Now the Chair has invited Dr. Stephen Bryen, president of Delta- tech in Silver Spring, Md., to make a statement in connection with this general problem that we are talking about. The primary purpose is for us to examine three or four cases we have. I don't intend to pro- long this part of the testimony. But, Dr. Bryen, would you care to summarize in just a few minutes any statement that you would want to make that is in addition to what these gentlemen have made. You were part of the operation, and since now have set up, I guess, your own operation. Would you proceed to make your state- ment? I am going to ask you to summarize in 3 or 4 minutes, if you will? STATEMENT OF STEPHEN D. BRYEN, PH.D., PRESIDENT, DELTA- TECH, SILVER SPRING, MD. (FORMERLY DEPUTY UNDER SEC- RETARY OF DEFENSE FOR TRADE SECURITY POLICY AND DI- RECTOR, DEFENSE TECHNOLOGY SECURITY ADMINISTRATION) Mr. BRYEN. Thank you, Mr. Chairman. I will be quite happy to summarize it and submit the entire statement for the record. Chairman PICKLE. It will be included. Mr. BRYEN. You are correct. During the period of 1981 until 1988, October of 1988, I served as Deputy Under Secretary of Defense for Trade Security Policy, and also as the Director of the Defense Technology Security Administration, which I helped found in 1985. During that period, we made a number of efforts to try and deal with East-West transfers of technology and what we call now the proliferation problem. You have to understand, first of all, Mr. Chairman, that the De- fense Department has a limited role, even as I speak, a limited role in its ability to oversee or to be involved in export licenses. There are two kinds of export licenses. There are munitions licenses. Munitions deal with actual weap- ons of war. Those are handled by the State Department, as you know, and the Defense Department sees all of those. There is no 51-840 0 - 92 - 2 PAGENO="0034" 30 difficulty there. Then there are what are called dual-use licenses which are administered by the Commerce Department. In the East-West context, the Defense Department sees most of those. In third countries, it is extremely limited. Before 1985, the Defense Department saw nothing in regard to West to West. After 1985, largely because of the diversion problem, technology going to third countries and then going to the Soviet Union-and a lot of kicking and screaming, I might add-we were able to extract an agreement that ~was approved by the President that gave the De- fense Department a limited number of categories for review to a limited number of countries. At the time there were 15 countries. I may be out of date, but I think it is down to about seven now. It is a bit of an atrocious system. For example, licenses going to defense ministries in some of the countries of concern-Iraq or Iran, for example-if they are not in those specific categories that the Defense Department does see, the Defense Department never knows about the transactions. So during the 1980s, a very large amount of what I would call military-type equipment, military-type trucks, equipment for military aircraft being sold to the Iraqi Air Force, even equipment to repair rockets that went to the Iraqi Air Force, was approved without the Defense Department being con- sulted in any way. This blindsides our military authorities. No matter what you think of it, they just don't know what is going on. Not only that, the information on these licenses is not shared, so far as I know is still not shared, with the different enforcement agencies like the U.S. Customs Service. So one of the results is that if they have been tracking a case and watching some activity that they know is bad, if there is a license in the system, they will never know about it. By the way, most of the diversions that we see-not all of them, but the largest majority of the diversions of technology that occur, is smuggled technology. It usually starts out with some kind of li- cense that is generally falsified in some way or another. Another extraordinarily serious problem is the fact that quite a lot of sensitive equipment is never put through the licensing proc- ess. The Commerce Department has the ability to classify materials as to what are called "general destination." A big part of the infra- structure that went to Iraq, the American component of it, got there because the Commerce Department simply said these things didn't require licenses. For example, one that didn't get there that almost did was the Consarc furnaces, these high-temperature furnaces that were prob- ably going into the Iraqi nuclear program. And they were classified by the Commerce Department as general destination. In July of last year, a huge, refurbished forge that was in Pennsylvania, a company in Pennsylvania asked "do we need a license?" and they were told they didn't need a license to sell the forge to Iraq. And this was the forge that was used to make 16-inch guns for our bat- tleships. It probably was going to Iraq for the super-gun project. In my statement, I go through a lot of these examples, but the point of it all is that the system that we have, in my opinion, is nonfunctional in respect to the proliferation problem. So I have to tako, politoly, I hopo, exeoption with my friends from th@ Defense PAGENO="0035" 31 Department. I don't think the system is functioning for a number of reasons. One is that it is poorly administered here. The second is that our European allies have made a god-awful mess by exporting sensitive technology. And the kind of equipment that they have been willing to release-the Germans, for example, and their in- volvement in chemical weapons-is atrocious. I saw Hans Deitrich Gentscher saying the other day that we should put Saddam Hussein on trial for war crimes. What about the German companies that supplied the chemicals? Are they not equally culpable? What we need to have is a multinational system of controls that has political support and that is coordinated among the member countries. And the only institution that can- Chairman PICKLE. Do we have any kind of a multinational system- Mr. BRYEN. No, sir. Mr. PICKLE [continuing]. Organization in place today that can perform that function? Mr. BRYEN. Well, we have an organization in Paris called COCOM that could perform the function if it was authorized to do so, but it has not been authorized to do so. Otherwise, there are some specific arrangements, let's say on missile technology, but they are not really institutionalized in the formal sense. [The prepared statement and attachments follow:] PAGENO="0036" 32 PARTIAL TEXT OF REMARKS OF DR. STEPHEN D. BRYEN PREPARED FOR DELIVERY TO THE COMMITTEE ON WAYS AND MEANS, SUBCOMMITTEE ON OVERSIGHT, APRIL 19,1991 Our ability to prevent the proliferation of weapons of mass destruction to countries is extremely limited. The reasons for this are (1) the near collapse of our own domestic export control system and that of our allies to the point where no system in the West can be relied on to operate effectively to restrain the sale of goods, technology and know-how to produce weapons of mass destruction; (2) the disintegration of the COCOM system and, with it, multinational controls on critical technology; (3) the absence of international cooperation on enforcement where proliferation controls are involved. The result is that the proliferation of weapons of mass destruction will continue; that such weapons will get into the hands of dictators such as Saddam Hussein or fall into the hands of terrorists. This, I believe, is a growing threat to world peace. We are approaching a shift of emphasis away from conventional-type weapons toward a new stage emphasizing unconventional weapons. Unconventional weapons are weapons of mass destruction which are capable of destroying civilian populations. They are also weapons that can be used on the battlefield even though some, such as chemical weapons, are banned by international agreement. Surely this is an issue that should have the complete attention of the President and the national security community. One would think it would be a major topic for NATO, for the European community, for the United Nations. In fact, while some give lip service to the subject, little is being done and the situation continues to grow worse. Inept, unskilled, and misled bureaucracies continue to give permission to companies to export goods that should be restricted, materials that can be used for manufacturing and developing unconventional weapons continue to go to end users that are known to be unfriendly and dangerous. Let me describe a current case that is illustrative. As we speak, a shipment of eight crates sits under detention in Newark New Jersey. This is a shipment of special purpose pumps that were going to be used to pump a very thick material called nitrocellulose lacquer. Nitrocellulose lacquer is treated chemically to form ball powder which can, in turn, be used to manufacture gun propellants, or when dissolved in nitroglycerine, becomes a major constituent of double based propellants for rocket motor applications. It can also be used for making plastic explosives, like the explosive used to blow up Pan Am 103 over Lockerbie, Scotland. It is useful to know that most terrorists got plastic explosives from Eastern Europe. The explosives had been produced in Czechoslovakia by a company called Semtex. With the end of Communist rule in Czechoslovakia, the Czech government has taken steps to restrict the sale of Semtex explosives. There is reason to believe that some countries, and terror groups, may have been looking for a substitute source of supply. Written on the seized boxes is the destination: `Sazemane Sanaye Defae Jomhouri Islarni Iran (Chemical). The translation is: Defense Organization of the Islamic Republic of Iran (Chemical). These pumps were approved by the Commerce Department and interdicted by the Customs Service as they were about to be leave the United States. Understanding how this happened illustrates quite clearly that the export licensing system we have does not work. The company shipping these pumps was well aware of where they were going. They clearly understood the pumps would handle nitrocellulose lacquer. Moreover, PAGENO="0037" 33 this was not the first shipment. Two other shipments were made during the 1980s. The background on these other shipments is murky. I do not know whether there were export licenses, though suspect there may have been because the company made an inquiry to the Commerce Department to determine if these pumps were export controlled. They also told the intermediate consignee that they would have to provide end use information to the government. In asking the Commerce Department if a license was needed to ship these goods to Iran the company did not, however, say who the end user in Iran was or indicate the material that was going to be handled. Commerce officials asked no questions of the company. They replied to the company that the pumps were "general destination' which means no license was needed. The result was the company went ahead and shipped the goods. Now they are in detention and the Commerce Department is trying to figure out how to reverse its previous decision. This technique is what is called a "commodity classification." In essence what happens is that companies ask the Commerce Department whether or not they need a license. If they are told they do not, then the company is free to ship any goods to any destination. For example the Consarc furnaces were classified by the Commerce Department as GDEST or general destination. More recently, specially designed solenoids for rocket separation, bound for Iraq, were classified as GDEST by the Commerce Department. According to the Los Angeles Times the same official responsible for the Consarc case is the one who approved the rocket solenoids. There is little or no oversight in the export control system. I see no evidence of quality control as a reasonable person would understand it. There are many examples where sensitive commodities and technology are routinely approved without any questions being asked. There are other cases, some I have been personally involved in, where sensitive goods are approved in defiance of warnings by experts that the products will be used in a manner contrary to our national interest. A case in 1990 for Iraq is an example. This case was for a special analytical instrument and some related general purpose computers. The Defense Department, which only heard about this case because of the computers, objected to this proposed export on the grounds that it was for an instrument that could be used for chemical weapons development and testing. There was collateral intelligence backing up the Defense claim. The Commerce Department decided to fight the Defense Department's assessment. Instead of taking up the issue on the merits --could the spectrometer be used for chemical weapons? -- Commerce instead decided to demonstrate that (a) the controls on these goods were Foreign Policy controls and therefore outside of the jurisdiction of the Defense Department and (b) there was nothing in the regulations relating these spectrometers to proliferation controls. Regulators inside the Commerce Department were instructed to find a way to override the Defense Department's objections. The effort was successful and, despite continued complaints by the Defense Department, Commerce licensing agents succeeded in their mission. Thanks to efforts like this one here in the United States, and the actions of many of our European allies, Iraq became the world's largest producer of chemical weapons and nerve agents. Obviously there is something wrong in a system where, despite clear cut evidence, the agency with supervisory, legal, responsibility to regulate sensitive exports is, in fact, doing everything it can to promote exports and to neutralize those in the government who object. The most corrosive aspect of all of this is that America lost its credibility as a PAGENO="0038" 34 result of these blunders made by our licensing system. Again the example of the spectrometer instrument is illustrative. Remarkably it was seized by German customs on the way to Iraq according to a German television station that reported the seizure. From the pubflcity, German companies were aware that America was in the business of supplying state of the art analytical equipment of the type needed for chemical weapons manufacturing and testing. While they probably did not need any encouragement --all the evidence is to the contrary-- still this information afforded these companies considerable political protection as they carried on their effort to supply Saddam Hussein and his minions. If challenged they could, and they did, direct their authorities to licensing decisions made in the United States. Ineffective officials in the German government, not known for preventing German companies from exporting weapons related technology, took American actions as proof that these exports had political backing from America. If America was doing it, then it was good business and good politics. During this time, and still today, Commerce is classifying millions, if not billions, of dollars of sensitive goods as general destination -telling American companies that export licenses were not needed to ship to Iraq, even to clearly identified military users there. In this way a great deal of the infrastructure Saddam Hussein needed to support his military buildup came from the United States. None of this will be found on the `list" of exports supplied to the Congress by the Department of Commerce and recently released after being `sanitized.' It is my own belief that there is far more exported under advisory opinions and preemptory declarations of "general destination' than what was actually licensed. There were no limits to these advisory findings. For example, a company called West Homestead in Pennsylvania was preparing to sell a refurbished forge to Iraq as late as last July and they were advised that no license was needed. This forge is, I understand, the same forge that was used to manufacture 16 inch gun barrels for our battleships. Other examples include huge petrochemical complexes which required no export licenses. As former Secretary of State George Schul~ told the London Financial Times, the Commerce Department encouraged his company to go ahead with the deal. It was the former Secretary, not any regulatory body, who became disturbed about the multi-million dollar project and its possible use by Iraq for chemical weapons production. It was his decision to take action to stop the project. Beyond general destination declarations by the Commerce Department there was also the concealment of information about military exports to Defense organizations in Iraq, Iran and to other countries. So far as I am aware, the Defense Department was never told about direct transfers to the lraqi military. Approvals included military trucks, including some that could be used for tank transport or for missile launchers, equipment for Iraqi military training aircraft, helicopters, communications gear and radars. One of the licenses approved to Iraq's Air Force was for the repair of jet engines and rocket casings. It is my belief, based on what I experienced during my tenure in the Defense Department, and what has come to light since I left government service, that a deliberate effort was made to keep these license applications out of the hands of the Defense Department, away from the Customs Service, even from the intelligence agencies. Information was concealed. This even occurred in some cases where the Defense Department had reviewed a license application and made objection. Rather than tell the Defense Department the objection was being rejected, Commerce went ahead and approved the application, sometimes months afterwards. These examples and my own experience convince me that the best course of PAGENO="0039" 35 action is to take export licensing out of the Commerce Department. The Commerce Department is a trade promotion agency. Giving it a contradictory mission -- to restrict sensitive trade--creates confusion and conflicts. For example, Commerce Department officials are not given incentives for stopping trade deals --they are rewarded for helping encourage trade deals. Licensing officials who say "no" will not be on the career enhancement track. Compared to America, what happened in Europe was even worse. The European countries cravenly exported an endless array of sensitive goods. I think there is a general attitude among some Europeans that, if things deteriorate in the Persian Gulf or in the Middle East, the United States can be counted on to fix the problem. This dangerous thinking, coupled with cultural, historical and political attitudes that are sometimes cynical, sometimes reminiscent of some of the behavior that led to the Holocaust, allowed companies in Europe to sell a range of machinery, technology and know-how for programs including (1) missile technology; (2) nuclear technology; (3) and chemical weapons technology, including nerve agents. Just a few days ago a senior German official declared that consideration should be given to charging Saddam Hussein with war crimes for the acts he committed against the his own people, which were described as genocide. What about the companies that put into the chemicals into Saddam Hussein's hands? Aren't their acts the acts of war criminals? The issue of enforcement, of responsibility, and of sanctions against wrong- doers is of extraordinary importance. Any reform must include strengthening export enforcement --in particular making the laws and penalties sharper and harder hitting. I salute the decision by United States District Judge Stanley Sporkin in the case of Consarc Corporation and Consarc Engineering, Ltd. against the Iraqi Ministry of Industry and Minerals, Rafidain Bank of Iraq, Pittsburgh National Bank, and the Royal Bank of Scotland PLC. Judge Sporkin ordered the largest punitive damage award in United States legal history against a foreign government. Judge Sporkin found that Iraq had intentionally misrepresented the end use of the Consarc furnaces it was buying. The Iraqis told the company the furnaces were going to be used to manufacture medical prostheses when in fact the furnaces were going to be used for nuclear weapons development. In his decision Judge Sporkin pointed out an important problem that plagues the export control system. He said" "I gather there is no compliance mechanism that is built into the end user certificate, and I don't see why somebody ought not to be working on that concept. ... (You're) going to have to design some system where the Government has the right to police this end user certificate and to make sure the product being used, hasn't been resold, hasn't been altered." This is a valuable suggestion and needs to be adopted into law. In addition, sanctions are needed against companies, including foreign companies, that knowingly export sensitive goods that can be used for the manufacture of weapons of mass destruction. Procedures need to be established so that legal action can be brought against them in this country if they operate in the United States, export to the United States, or own or manage facilities in the United States. The fact is that sanctions can work. In the Toshiba case the result of sanctions was a determined action in Japan to clean up their export control system. From what I have seen, the results are impressive and demonstrate the value of sanctions, or the threat of sanctions. Instead of sending polite diplomatic messages to our allies, and urging them to do a better job. sanctions put teeth into the system and force them to take us seriously. I would even go further. We need a special office in the Justice Department PAGENO="0040" 36 that can treat complaints made by American companies who have reason to believe their competitors are cheating and exporting export controlled goods and technology. Such an office would be charged with investigating these allegations and, if true, taking steps to impose sanctions on the foreign companies including import restrictions and restrictions on their ability to participate in Federal procurement under the Federal Acquisition Regulations. Enforcement also has to be multinationalized on a cooperative basis with allied countries if it is to work. I know from experience that this is a difficult problem. To do it a consensus is needed which, at present, does not exist. We should take the lead in creating the consensus. The center of our efforts should be focused on COCOM. COCOM was created originally to regulate West to East trade in high technology that could be used for military purposes. I want to broaden significantly COCOM's mandate. But there is an imminent risk that COCOM itself is about to disappear. The threat to COCOM is centered on an extraordinary set of negotiations now taking place among the COCOM members intended to `streamline' and significantly "liberalize" the COCOM list. This streamlining effort will make available worldwide a vast array of technology essential to weapons manufacturing. COCOM's members are preparing to release from control powerful computers that can be used in real-time military applications such as ballistic missile control centers, fire control systems, advanced communications, and weapons design; semiconductors and semiconductor manufacturing for advanced high speed micro chips including RISC-type microprocessors, digital signal processing circuits, gate arrays, and custom chips ideal for military applications; very high precision machine tools including grinding machines to an accuracy of 2.5 microns and cutting and turning machines with accuracies of under 5 microns which will provide to any country in the world machines to manufacture literally any kind of high quality weapons system. COCOM's members have already agreed to release highly sensitive night vision equipment and manufacturing know how that will now be available world wide. The U.S. and the allied countries will immediately lose their ability, taking advantage of infra red and thermal imaging systems, to operate at night against the enemy. This advantage will be lost forever. These COCOM decisions mean weapons proliferation on a world-wide scale. The United States and the COCOM member countries base their export controls on the C000M list. Once any good, technology or service is taken off the COCOM list, it is "GDEST" as the Commerce Department is fond of saying. It can go to Libya, or Iran, or Iraq, or Syria or North Korea, or China or the Soviet Union without license or regulatory intervention. The ostensible reason for decontrolling these vital technologies has been the desire among the allies to help Gorbachev. Little or no attention has been paid to what the Soviet Union will do with this technology, or what impact these decisions have on the rest of the world. The most important arms exporter in the world is the Soviet Union. It is the Soviet Union's only significant industrial export. It brings them precious hard currency just at a time that their other exports, especially oil exports, are falling because of production problems and oil field depletion. It is hard to understand how it is in our interest to promote Soviet arms exports by allowing them to improve their weapons and make them more competitive in international sales. As Dessert Storm showed clearly, Soviet technology was second best. The administration's continued support for the ongoing COCOM liberalization is puzzling. Has the President been told what is going on and the risks for the United PAGENO="0041" 37 States in this policy? Does the administration understand the imminent weapons proliferation impact of this policy? A better and more sensible course of action is to reinforce COCOM at this critical time and enhance, not diminish, its mission. To do that, the liberalization will have to be suspended. COCOM is a vital organization for our national security. The fact is that COCOM was able to prevent Soviet acquisition of advanced weapons technology and, thereby, prevented the export of modern weapons that could stand up to those we bought for our own Armed Forces. We built our national security on superior technology. We did it because it we recognized that the way to cope with the massive Soviet arms build up was to field better and more capable weapons systems. We believed, and we were right, that high technology weapons save money in the long run and, even more importantly, save lives. The few casualties on our side in the Gulf Conflict proves this to have been a good policy. The Soviet Union understood the importance of technology and they tried, and still are trying, to steal ours for their military programs. The barrier to their efforts was a tiny, underfunded, organization in Paris, COCOM, that became the bane of the Soviet military. On countless occasions Russian leaders complained about COCOM to Western political leaders, demanding they give up on the COCOM embargo. To us this was convincing evidence that COCOM was effective in assuring Western security. COCOM can play a role in regulating goods, products and technology that can be used for weapons of mass destruction that might go to non-COCOM members. The basic formula is simple. COCOM would be chartered to identify those technologies most essential for chemical weapons manufacturing, nuclear weapons fabrication, missile delivery systems, etc. Some of the work has been done already; some can be accomplished by carefully studying what Iraq got from the West. Once the list is formulated and accepted by the COCOM members, exports of the listed goods to non-COCOM members will be have to be cleared by the COCOM organization. The country desiring to export the products will have to provide convincing evidence the transfer is for acceptable civilian purposes. COCOM will review these transactions and will decide if sufficient information has been provided and if it is credible and meets accepted standards as to proposed end use. To assure performance by the recipient of the technology --the end-user in export control parlance-- COCOM could require inspection or verification. In especially sensitive cases COCOM itself, or its authorized agents, would carry out the inspection checks. Such a system has significant advantages. First, it avoids focusing on specific `bad guy" countries. Many of our allies are sensitive about naming controlled countries. It complicates normal trade relations and creates political problems. Rather than focus on countries, COCOM would focus on handling certain technologies and reviewing where these products and technology are going and for what purpose. COCOM could, in such an environment, maintain its confidential internal process and thereby protect each member country's political interests and standing. Second, the system will be far more effective than any national licensing system acting independently. The litany of mistakes made can be reduced by multinationalizing the process. Now, with other friendly and allied countries carrying out mutual oversight, each member country would have to take steps to make sure the information it presented was accurate and reliable and the assessment made balanced. One result will be to contribute to improving each nation's internal licensing system. It will do this by setting higher standards and by making proliferation control PAGENO="0042" 38 credible and supportable internally. Third, the system will have the ability to verify approved exports. This is somewhat different from current COCOM practice in regard to West to East transfers where the predisposition was toward denial of sensitive exports. In non-COCOM member countries --e.g., North-South transfers-- there is more complexity because the more clear-cut adversarial situation between NATO and the Warsaw Pact will not exist. Some of the affected countries might be friendly. Some of them may be democratic in character. A more flexible and responsive approach in this framework is essential if the system is to retain political support once it is started. Fourth, the system will provide a mechanism for coordination and assure consistency in practice among member countries. Right now there is no consistency. On any single day the United States, just as its allies, is making decisions on proliferation cases that, at best, can be called erratic. A coordinated system would be a giant step toward ending this chaos. Fifth, the system will create the international institutional framework to support coordinated enforcement. Once there is a broad agreement to internationalize the effort, there is ground for the enforcement agencies to cooperate openly and share a common agenda. That is an improvement over current conditions, where enforcement is the exception rather than the rule and where customs agents in other countries and courts try to operate in political conditions hostile to their efforts. On too many occasions customs agents and state prosecutors have been frustrated and repressed by governments who did not want their companies investigated or prosecutions to take place. Sixth, a multinational system will, almost certainly, have the support of industry, particularly if it can be managed on an efficient basis. The conditions exist today to create a world-wide system based on networked computers that, rather than inhibit exports, will expedite legitimate exports by assuring effective licensing practice and coordinated handling of these transaction from the stage of application all the way through to the actual shipment of goods. Naturally this will require standardization of the nomenclature for identifying exports. A goodly amount of work has already been done by C000M to establish a framework for this and, while much has to be done and funds will be needed, the idea is realistic, the technology exists, and the benefits are considerable for all concerned. In summary, we have one of two choices. Either we can reform the system we have, or we can take our chances in a world that will rapidly become more dangerous and threatening. In deciding where we go from here we should keep in mind that the weapons of mass destruction in the hands of the Iraqis got into their hands because Western democracies sold Iraq the lethal technology. This happened in spite of numerous agreements, conventions and undertakings related to proliferation. Examples include the Geneva conventions, the Nuclear Non Proliferation Treaty, the Missile Technology Control Regime. To me this says the system we have is not any system at all. It is non- functioning. It tells me that these agreements lack the proper institutional framework and political support to mean very much. We can change that by a wholesale reform of the system. We have to change our own export control system and we have to put in place a multinational framework to assure coordinated and effective controls over weapons of mass destruction. PAGENO="0043" FO~(.CT/ IPCILLTY 5~RIA EJcVPT LW~A IR~ PIJUST,8N . IRAN lIDIA ~REJ{FIM ~IAZ1L 11<- DG A~T FIPCTGI 8~IR ~tw LAN~ PI~61tO1 RD~SSDG FM~I111Y 10O~T ATODC G~R El-RI/A Y TMWU 8 L1W41L*1 ~T#R 1L EM L/w~ aN~ 20 E(GA WATT ~4 RICIOR TAJIAA FIN*ICLAL AssIsTNa - - I SIHALA &cNLAL RfiNT KALUTA- EHAIaMIff PI10TtDf- FIBWX1SSIN 1/duTY 94*LL lOT WI 1/duly ~C R~R 706 RA1VMYDOI K/RAdIAl- RiJTQAl~M GAS aNu~lftUT FIFWCI/& ASSIST/HI - - - 1IJIAI1}%k 1/dullY osuaaj< R/dTEl~ TPMJZ I -T/MJZ II S/ID 16 5 1/dILITIES M~ ftlI(WD 10 ~ DfVVL~D GAS ~DURIflUT /L4~E WI EST /1-4MM c~ OJIITIBA 2 3 GAS P/R/~4~ D6TH~E PATMINIA ATIDIA I AlW-P~ II EM~kIS( /LIXRIA RA-6 ~1EAN ~aOff 810 04 I I -f PAGENO="0044" U~LWIK ~&D-O AL-FATM T~41L-I R~S ~M1 MISSILES MISSILE SS-21 I ~ - ~ ~ - - I ~ * ~ 14k11 I t&~NE21 IMitWA II ~DJTER SS-.30 M-9S _________ MISSlI I V~GAN 1974 _JL.......~._ ~fl~fl ss-1eoe 1131 RNL2~ SVM) 16 1?oss LB/St ~O fl~ 7 ISR4tJ.. ~iflt &B 114XEC1 396 ~I 1t&~*N aSwl I NC 1964 JNJIR a~xJ1/2B~~ - (EGMI 1962 196-AL- 1962 ~J ZME~ PIRN19~ (11 > SY> JR 9)1) 8 PIRNIY~ * ` U a - -_ Lu' I I I PAGENO="0045" (}CMICAL acfrN RWIAA 150 ~GN1 1974 a~~ow1 (2020IPG ~)R}G 1906 saaW S#MINIA PAIOilN 00(ICAL RWI4k 200 R~ awtEx(?) 106 F#LLWØH 9:11) 8 ~LIW1W M-QMN SS-21 SAM~ 16 aLI~UW ~J 7M8~ __ - - - - - ~ - I - - cw oo~'s BIOLOGICAL t~06 ~6 101 F~S ~ 9~ S~'LWi1 PM( ~ BIO10#CT(~I UILIT~RY RAXR'16 (I({~5I 4e) WIXR M~ CGOItR C130 TNIOR 10n ~IM 787 TfrNZR BIG GIl 11< & Dl WAIl ~II6 9PL1E115 aN~ ______ - WEST TO ARAB ____ ARAB TO ARAB PAGENO="0046" 42 Chairman PICKLE. Well, Dr. Bryen, we have listened to the De- fense Department make their general statements and talk rather confidently about their successes they have had. Your testimony though is very strong that while we have had some successes, we have got some great weaknesses. And let me just read for the com- mittee for the record to make sure that we understand that you say our ability to prevent the proliferation of weapons of mass de- struction is extremely limited. The reason for this is the near col- lapse of our own domestic export control system and that of our allies to the point that no system in the West can be relied on to operate effectively to restrain the sale of goods, technology and know-how. And, two, the disintegration, as you said just now, of the COCOM system. And third, the absence of international coopera- tion of nonenforcement. And you just point out then that the result here is that the pro- liferation of weapons of mass destruction will continue and that some weapons will get into the hands of dictators, such as Saddam, unless we change our system. And you point out that there is very little oversight of the export control system. Now, your testimony is full of examples of goods that are sitting on docks now, labeled for shipment, that would be items of possible destruction and damage for the United States. We are not going to go into those because we did not have this hearing for that purpose today. I simply wanted to have your views from a person who is a part of the integral operation of the defense system who is now a part of the private business who now observes to us in testimony that we are in poor shape, at this point, as far as controls are con- cerned. I will not proceed on this as a committee now, any further except to say to either to Mr. Sokolski or Mr. Sullivan, either one, what response do you have to make to this statement that he just made? Mr. S0K0L5KI. I would like to say two things. First of all, with regard to the problem of authority, I think one of the key frustra- tions in the Defense Department throughout the 1980s was that dual-use items that were not specifically listed as items of prolif- eration concern for nuclear purposes, there was no authority, we were told by Commerce, to deny. One of the first things that we did when we got into office here in the Defense Department was to push to make darn sure that we had got that authority. One of the things that has happened is that- Chairman PICKLE. And Commerce said, no, you could not do this. And why would they give you the denial? Mr. SoKoLsKI. What is that? Chairman PICKLE. Why would the Commerce Department say that you could not put anything through? Mr. SOKOLSKI. Because the way in which the regulations and the laws were written the only thing that you could control for, for proliferation purposes is nuclear or items on the missile control annex. And there are an awful lot of things like computers that of a certain size that are not on those lists. And yet, they could and they did contribute to both missile and nuclear. The Consarc case was a classic example as well. What we have done is to change that, at least as far as authority. You have to enforce what authority you have. But before we did PAGENO="0047" 43 not even have the authority. Under the EPCI and by Executive order though we are now reviewing cases of countries, one of which clearly now is Iraq, where before we did not have authority. The frustration that Dr. Bryen talks about was more than just real, it was damnable. That has changed. Mr. SCHULZE. Mr. Chairman, if you would yield on that point? Mr. Sokolski, wasn't that the thrust of the Hyde amendment last year in the Export Administration Act-where he wanted to give the President more authority to add things to the list-which was defeated by Congress? Mr. S0K0L5KI. Well, luckily there were other bills, and more im- portant there were other actions by the President that at least is getting precisely the authority issue- Mr. SCHULZE. But it was done by Executive order then? Mr. S0K0L5KI. Yes. Mr. SCHULZE. Although Congress denied that by voting against the Hyde amendment, I believe? Mr. S0K0L5KI. Well, we are operating under Executive order now to get at the very cases and get referred to things that previously we had difficulty getting referred to. Mr. JENKINS. Mr. Chairman, let me pursue that for just a moment. You say you now have the authority but have not had the authority in the past? Mr. S0K0LSKI. The authority to get cases going to projects of pro- liferation concern, whether they are CBW missile or nuclear, and cases whether they are on specific proliferation technology lists or not, yes, those regulations are now being drafted. Mr. JENKINS. So we simply did not have any regulations in place; the executive branch had the authority to do that but it has only now given you regulations that afford a degree of protection? Mr. S0K0LSKI. That's correct, sir. Mr. JENKINS. So there is nothing that the Congress needed to do, the executive branch has had this authority all along? Mr. S0K0LSKI. Well, certainly the argument is there that seizing upon the authority already latent in law and in the Constitution is what we needed to do. The important thing is that I think we are doing it. Mr. JENKINS. Well, I think that what the oversight committee needs to know is whether you need any other law passed to give you any wider control or authority? Do you need something more than what you have now? Mr. S0K0LSKI. I would like to take that for the record. My im- pression is that the problem is not authority, it has to do with assets and enforcement and focusing those. Mr. JENKINS. So you have legal authority to control these sales of weapons systems or whatever the commodity may be, and the prob- lem is a matter of enforcement? Mr. S0K0LsKI. The authority that was lacking with regards to weapons of mass destruction and the means of delivery that pro- duced many of the cases that Dr. Bryen rightly is concerned about, that authority now is being drafted into regulation. We did not have that before. Mr. JENKINS. Instead of being drafted- PAGENO="0048" 44 Mr. SOKOLSKI. Some of those have been announced. The CBW reg has been announced. In fact, it has made some news. Mr. JENKINs. Well, I guess the point I'm trying to make, and the subcommittee hearings obviously point to the existence of some problems, is whether we need to enact additional laws to give you the authority to do what needs to be done in this area? Or can you do it without any additional laws being passed? Mr. S0K0L5KI. I believe the biggest challenge we face is enforcing the laws we have. I think our plate is pretty full. Mr. JENKINS. All right, now, has your Department ever talked to Commerce about giving them a list of the things not to sell? Mr. SoKoLsKI. Frequently. Mr. JENKINS. And they have ignored your recommendations? Mr. SOKOLSKI. They are listening more and more, sir. In fact, as a result of that we are finally getting cases that we previously were not getting. Mr. JENKINS. But in the past, obviously, they must have ignored your recommendations, is that right? Mr. SOKOLSKI. I wouldn't characterize it that way. Mr. JENKINS. Well, they didn't pursue your recommendations in stopping the sales, did they? Mr. S0K0L5KI. I would have to say that there were disagree- ments, yes, sir. Mr. JENKINS. Well, Dr. Bryen seems to think, based upon his ex- perience, that it is quite obvious that there has been a proliferation of sales made over the past few years that are not in our best inter- est and that Commerce has simply ignored the Defense Depart- ment's recommendations, is that not correct? Mr. S0K0L5KI. Sir, I would say as an administration official we work together and I believe the results that are beneficial with regard to getting the authority is a result of working together? Mr. JENKINS. Dr. Bryen, would you like to respond to that? Mr. BRYEN. Yes. Well, I would make a couple of suggestions that might be helpful. First of all, I have to preface this by saying that in my testimony I say quite clearly that I don't think the Com- merce Department ought to be in this business. Mr. JENKINS. I read your testimony. I understand your point. Mr. BRYEN. I think it is a trade promotion agency and it is at cross-purposes in the business of trying to regulate national securi- ty type exports, but putting that aside for a moment, I would do some other things short of that major change. One is that I would simply. require that all licenses be shared with all the national se- curity agencies. It can be done electronically, but let them look at what is going on, step one. And step two, I think is I would create a right, a simple right that if any agency, the Energy Department for nuclear, the Defense Department for military, intelligence if they think there is something going on, they should have a role. But if any of these national security agencies say "stop," it stops. And you create a way for that to be reviewed at a high level. It is a very simple idea, but it seems to me that it could be put into legislation and it would make a heck of a difference in this process. Mr. SCHULZE. Would the gentleman yield on that point? Mr. JENKINS. Yes, I would be happy to yield. PAGENO="0049" 45 Mr. SCHULZE. If I am not mistaken, the Export Administration Act that Congress passed last year gave more authority to Com- merce and less to DOD. Mr. BRYEN. That's right. Mr. SCHULZE. So is this Congress heading in the wrong direction, in your opinion? Mr. BRYEN. Well, I didn't like that bill and I think it was in the wrong direction, but I think it also is a little beside the point, be- cause the major issue is, "if you don't know about it, it doesn't matter anyway." And you have an agency-and it is not only the Defense Department I am talking about-it is the enforcement people at Customs. I sat in another congressional committee a month ago and we were talking about Iraq and the list, you know, this famous list that was provided by the Commerce Department to the Barnard Government Operations Committee. And they asked the Customs Service about the list and they never got it. They had asked four times for it and were refused. Mr. SCHULZE. This is crazy. I think what we ought to be doing is making sure that everybody has access to the information that has a responsibility by law to protect the national security. Mr. JENKINs. Yes, I appreciate that, and I think DOD is attempt- ing and is making progress, but I think they have a lot of difficul- ties thrown in their way, and that maybe we ought to know more about this. Let me ask one final question about whether or not we have ade- quate laws as far as violations, criminal prosecutions and that type of thing. I was thinking and maybe we already have this, that in civil for- feiture cases dealing with drugs or illegal alcohol or fruits of the crime, we sometimes go up-we almost always go immediately for the vehicle that is transporting the illegal cargo. We seize it. We go to the homes or whatever of the people involved where they have made money and we pursue civil forfeiture cases. If a company knowingly illegally ships banned materials to a country, can we, in addition to pursuing criminal presecutions, seize company assets? I mean that type of authority sort of makes a company think. Mr. SULLIVAN. I would have to just defer to the Commerce and Customs witnesses because they know the remedies under the law. I am really not sure. I think there must be, at least, some seizure authority under the statues that Customs operates, but I am not sure that they are quite as broad as you are suggesting. You are suggesting some kind of RICO-style forfeiture type provisions, and I am not sure that under the export control laws they are quite that broad. Mr. JENKINS. I have prosecuted many cases in which vehicles used to transport illegal materials were seized. Seizure was rather effective in those cases. It seems to me that it would be even more of a problem were a company to knowingly sell, in violation of law, materials that could be used by one of our enemies. And why shouldn't you have the authority, or the U.S. Government have the authority, to seize the assets of the company for doing it? The point I am making is that it would make one more careful in who they sell to. PAGENO="0050" 46 Mr. BRYEN. Mr. Jenkins, that makes great sense. I would just like to highlight the other side of the problem which is what hap- pens when our allies do this. I want to take the Condor case as an example. In the Condor case, major European companies, like Mes- serschmidt, MBB, were involved in-I think it became in violation of international agreements, particularly the missile technology and control agreement. And we did nothing about it really. But it seems to me that what we really need to have is the abili- ty to cut these people off if they persist in violating, whether it is the convention on chemical or biological weapons or the missile technology regime. There are two things we can do. I mean we can have import restrictions on them if they do that and they do more business here usually than anywhere else. And the other thing we ought to look very keenly at is restricting their ability to partici- pate in Federal contracts under the Federal acquisition regula- tions. Half the people that supplied Iraq have got business with the Defense Department and are making money off the U.S. taxpayer. It seems as though that is a little bit crazy. We ought to have some toughening up of the laws in that respect, which would then give the Government the leverage needed to say, "Look, either cut it out or we cut you out." / Mr. JENKINS. Or maybe we could take away their most-favored- nation treatment? Mr. BRYEN. That's right. Chairman PICKLE. I thank you, Mr. Jenkins. The Chair would re- quest that we move on. We could spend all day on this very same question and go talk about it over, and over again and not come to any definite conclusion. The testimony that Mr. Sokolski has given us has been helpful and it is positive and upbeat in nature, but it is quite obvious, based on what other witnesses have said and what testimony has been introduced, that there is very little oversight in the export control program. That you either did not have the au- thority cr they did not give the authority, that is to Commerce, and/or State did not give you the authority through the executive. Whether Congress is derelict or whether we need to do more, the main thing is to come together with some kind of accumulation with an approach that controls our licensing and our operations program. This is a subject that is very involved and very complicated. I don't propose that we go any further in trying to lay these kinds of questions out. I do propose that we go forward on the cases that we have in front of us. Unless some member has any questions-- Mr. SCHULZE. Mr. Chairman, we have some questions of Mr. Bryen, if we may? Chairman PICKLE. All right, can you- Mr. SCHULZE. We don't want to take any more time than your side took. Chairman PICKLE. That's fair enough, proceed. Mr. SCHULZE. First of all, Mr. Bryen, I would like your opinion, from your previous position, just your feeling on the cooperation and the thrust of Congress in this area? Perhaps, mistakenly, over the 14 or 16 years that I have been involved with trade, I get the feeling that the thrust of Congress has been to tell the bureaucracy to loosen up. I have been against that tide. But I have felt that I PAGENO="0051" 47 have consistently lost, time after time. How does the bureaucracy view this? Have you felt that we are saying to you, ease off, or do you feel that we have been saying, be rigid and follow the letter of the law? Mr. BRYEN. Well, I have felt the same way you felt, the first answer. During the 1980s, largely because of the work of my agency and my department and our Secretary, we attempted to toughen up export controls, particularly to the Soviet Union. And that was a wrenching and painful process internally as much as externally. And part of it required a lot of discipline. Mr. SCHULZE. Were you over there during the Toshiba affair? Mr. BRYEN. I was the one who, along with Mike Maloof, who is sitting behind me, who discovered the Toshiba case. Mr. SCHULZE. So when we ended up saying, oh, boys, please don't do it again, what kind of message did that send over there? Mr. BRYEN. I don't agree with that. I think the Toshiba case is a very interesting one because you know there is a Toshiba sanction that was put on by the Congress and it was- Mr. SCHULZE. Yes, but we did not say, you are not going to do any more business in this country. Mr. BRYEN. Well, it worked. The fact of the matter is that Japan, and I personally looked into this in great detail, because I was very skeptical, but Japan did an extraordinary job in terms of disciplin- ing its own companies. They have more control over their compa- flies than we do because of the way that their structure is. But they did an extraordinary job in tightening up their export con- trols. Mr. SCHULZE. So you think that even though it was not as tough as some of us wanted, it really was effective? Mr. BRYEN. Well, they believed it was. And I think it was. Mr. SCHULZE. I would like to yield to Mr. Shaw, at this point. Mr. SHAW. Thank you, for yielding. Mr. Bryen, later in today's hearing we're going to examine the Global computer case with the Commerce Department. However, much has been said in public already about the companies relating to the Global case. By way of background, can you explain the op- erations of Chilean arms manufacturer, Carlos Cardoen, and his re- lationship to Global? Mr. BRYEN. I am probably the wrong person to ask that question of. We did not, at least during my tenure, we did not know that much about Cardoen. That has mostly come to light since I left office. But I believe there is a grand jury looking into that whole business now, so that I think we have to wait a little longer. Cardoen is alleged to have been smuggling, at least that is what I read in the press, or alleged to be involved in smuggling, U.S. tech- nology through Chile that went on to Iraq, for the manufacture of things like cluster bombs. And so it is a very serious business, but I don't really feel that I am an authority on it, and don't know that much about it. Mr. SHAW. Well, isn't it true that he is the largest private arms manufacturer in Chile? Mr. BRYEN. In Chile, I think that is quite right, yes. Mr. SHAW. And isn't it also true that he bought Global to test his attack helicopter prototype? PAGENO="0052" 48 Mr. BRYEN. That's what I understand. Again, Mr. Shaw, you are asking me to comment authoritatively on this, and I am only read- ing about Cardoen in the press. Mr. SHAW. What about the Swissco operation, are you familiar with that? Mr. BRYEN. The Swiss Government? Mr. SB[AW. Swissco. Mr. BRYEN. No, sir, I am not. Mr. SEAW. It is a development company in Miami. Mr. BRYEN. No, I know of it, but again, it is largely based on press accounts, so that I am not an authority on that. ~Mr. SHAW. Thank you, I yield back my time. Mr. SCHULZE. How did Cardoen obtain his cluster bomb technolo- gy? Mr. BRYEN. I am going to again say that the knowledge of this has developed since I left office. We did not really know about it and I know there is an investigation ongoing by a grand jury, at the present time. But I think what we are looking at is an alleged smuggling operation in defiance of the law. The components are munitions controlled components. Mr. SCHULZE. That type of technology transfer is restricted? Mr. BRYEN. Oh, for sure, and if it is proven, and I say so careful- ly, but if this is proven that this occurred, and our laws were vio- lated, he or the company- Mr. SCHULZE. Well, you are aware of International Signal then from Lancaster, have they ever been prosecuted? Mr. BRYEN. I don't know the answer to that, I am sorry. There is a point I would like to raise about this smuggling, versus export controls and distinguish for you something. The Helmy case which you are going to look into is largely a case of smuggling. I read the sentencing decision with some care last night because I knew you were taking this up. It is a straightforward violation of our laws, mislabeling and all of that. It was equipment and goods being smuggled out on Egyptian military airplanes that were here as a courtesy. The difference between smuggling and export controls is impor- tant, however, in one regard. It is something that we pointed out very often with respect to the Soviets and it is equally true for the Iraqis. If you sanction a transfer, legally sanction a transfer, then all the technical help, all the know-how goes with the license. If it is smuggled, you are on your own. The point I would make in this regard is the reason the Condor program collapsed-it was not voluntarily ended, it collapsed-was because we were able to persuade by leveraging them, the German companies and the Italian companies-to get out of the business. It was a matter of putting the heat on them and saying you are not going to sell anything to the Defense Department and we are not going to take this lying down. It was not a question of anything else. So when they got out, the Egyptians had to try to make this pro- gram work somehow and that is where Helmy and the smuggling comes in. PAGENO="0053" 49 Mr. SCHULZE. Earlier you said that much of this is done through licenses which are later falsified in some way. Can you tell me about that? Mr. BRYEN. Well, the Helmy case is an example. Where you take a legitimate piece of paper and you change the destination on it or you change the end-use on your declaration so that it sounds benign. This is the kind of thing. In the case I cite, which is the current one involving Iran which is in my statement, where we have a company applying for a license, they did not tell the Com- merce Department what the end-use was, even though they knew what it was. It was for making material that is used to make rocket fuel or plastic explosives or gun powder or whatever you want. And that is the problem. We need to have some very tough rules about what should be on these documents and about what happens if you alter them. Mr. SCHULZE. Any suggestions that you have along those lines, again, the subcommittee would be very pleased to have them, if you have time to sit down and give us the following suggestions on how to toughen these rules, or how to have uniformity, or how to have joint enforcement. Mr. BRYEN. I would like to do that because I think that is the meat of it and that's where we should be going. Mr. ScHULZE. Thank you. Thank you, Mr. Chairman. Chairman PICKLE. I thank the panel very much for your state- ments and for your testimony. Obviously we need to look into a lot of these aspects much more deeply and all the agencies involved, because a great deal more cooperation must be obtained if we are going to have any sense of control over these export control pro- grams. I thank you, very much, for your testimony. [The following questions and answers were subsequently re- ceived:] PAGENO="0054" 50 Question 1: Which countries pose a major threat to the United States in terms of proliferation? Which countries are currently operating major underground purchasing networks to acquire U.S. technology and goods? Answer: In terms of proliferation, any country with a nuclear, ballistic missile, chemical, or biological warfare (CBW) program should be viewed as a major potential threat to the United States. These weapons have significant psychological as well as military effects, which can make their possession or the pursuit of their possession a destabilizing factor in regions in which the United States has vital interests. Attached is a list of all countries which have technology acquisition networks in the United States, act as conduits for U.S. technology, and/or are on the nuclear/CBW/mjssile watch lists. Chemical Warfare (CW) Programs confirmed Suspect~.~ Biological Warfare (BW) Programs confirmed Suspected Nuclear Weapons.! PAGENO="0055" 51 In contrast, Brazil and Argentina have decided to ii~lement a three-way nuclear safeguard agreement with the International Atomic Energy Agency (IAEA). It is anticipated that this agreement will be activated in the next few months. PAGENO="0056" 52 26 July 1991 1. Listed below, in alphabetical order, is information pertaining to foreign technology acquisition efforts which would be harmful to U.S. national security. Identified are those countries that have major diversion networks to acquire U.S. technology (marked NETWORK), those countries that are currently being used as conduits for acquiring U.S. technology (marked CONDUIT), and those countries currently on the missile technology control regime watch list (marked MTCR). COUNTRY RATIONALE PAGENO="0057" 53 Question 2: To what extent are U.S. companies being used to facilitate the development of nuclear, chemical, and biological weapons programs in countries other than Iraq? What countries are developing such programs and what items are being supplied by U.S. firms? Answer: DIA does not maintain files on U.S. companies. DIA is aware of a number of cases involving technology diversions by U.S. companies to Iraq and the other proliferant nations; however, this data resides at the U.S. Customs Service (Strategic Investigations Division) and/or at the Department of Justice. OCT 0 1991 PAGENO="0058" 54 Question 3: How was Iraq able to acquire chemical and biological weapons capability? Who supplied the technology and materials? How sophisticated was the Iraqi acquisition ~j~etwork? How long did it take Iraq? How close are Iran, ~,`7~pdia, Pakistan, Syria, and Libya4to posing such a threat? Answer: Iraq acquired its dhemical and biological weapon capabilities by purchasing the expertise and equipment it needed from a host of willing suppliers. After the program was initiated, the Iraqis were able to make some minor modifications to their processes and weapons to accommodate changes made necessary by restrictions on exports to Iraq. Determining the "sophistication" of Iraq's acquisition network is only a subjective assessment at best. From the list of companies involved, it can be determined that, in many cases, U.S. and foreign export licensing authorities would not have realized that the ultimate consignee for the technology was Iraq as a large number of the companies listed would have been considered valid end-users. Iraq did have success in locating and motivating suppliers who were able to provide them with the chemicals and munitions parts they needed to continue the production of chemical ammunition during the Iran-Iraq war. These suppliers were able to circumvent international controls on exports, such as the chemical embargo imposed by the Australia Group and others. The time required for development of CBW or missile capabilities will vary greatly among proliferating countries according to the expertise available in the country, the country's access to information and markets, the actions of other nations to control critical technology, security requirements for the program, and the political will to develop a capability. Iraq began its chemical program in the 1970s, but did not begin aggressive pursuit of a military capability to produce chemical weapons until the late 1970s. The Iraqi BW program probably required less time, as the technology and equipment is less specific and, therefore, easier to obtain. In missile development, Iraq received SCUD missiles from the Soviets and then modified them to increase their range and decrease their payloads over a relatively short time. It is unlikely that Iran ~`ill assemble a CBW or rr~i'~'sile program that will be iq~ent to what was present in Iraq prior to the start of the DESERT STORM campaign. countries have different PAGENO="0059" 55 strategic and tactical objectives in starting these programs, and their execution of these programs reflects this. Iran initiated chemical weapon development to attempt to counter th~ overwhelming Iraqi advantage in this area; at present~ The IThqi network involved in acquiring CBW technology consisted of 280 companies spanning 33 nations. PAGENO="0060" 56 Question 4: The Israeli Government claims that the North Korean Government recently sold so-called "improved" SCUD missiles to Syria. Can you confirm this allegation? If so, have any North Korean missiles or launchers been transferred? How many? To what extent does Syria have access to U.S. technology and equipment? To what extent does Syria have access t.a LS. technology? Answer 4 Syria either has access or can gain access to virtually any U.S. technology and equipment, given enough time, funding, and political effort. Because the U.S.S.R. has been its primary supplier of military technology and equipment in the past, assimilation of U.S. or other Western technology could prove difficult, particularly if Damascus tries to incorporate subsystems or components, rather than complete systems, into its weaponry. UCi - 0 ~ PAGENO="0061" 57 Question 5: Now that the war with Iraq is over, has the Defense Department examined the battlefield to determine exactly what weapons and equipment the Iraqis possessed that were acquired from the United States or its allies? If your answer is no, explain why this is not being done. a. What has the Defense Department found so far? b. Is the Defense Department sharing this information with the U.S. export enforcement agencies? Please provide specific examples of when and with what agency this information was shared. c. Does the Department of Defense have any evidence that U.S. commodities reached Iraq after the August 2, 1991, embargo? If yes, please tell the Subcommittee what commodities reached the Iraqis, how the commodities were acquired, and which U.S. companies were involved. Answer: Attached is a list of the weapons Iraq is believed to have imported from foreign sources. 5.a. - Attached are three separate lists of Iraqi weapons and munitions that are being returned to the United States for technical exploitation. For the most part, little or no technical exploitation of Iraqi materiel has taken place, as the majority of these shipments are still in transit. It is anticipated that arrival of the first important shipment will occur within the next few weeks and that exploitation will begin as soon as is feasibly possible. 5.b. - DIA has been sharing information on the captured Iraqi equipment with the Defense Technology Security Administration and the U.S. Customs Service. U.S. Customs agents were in Riyadh, Saudi Arabia, to seal the containers before their transshipment to the United States to ensure a chain of custody for future legal actions. It is planned to have U.S. Customs agents present when the shipments are delivered to their respective warehouses and the containers are reopened for technical exploitation. See attached document at ion. 5.c. - DIA is aware of at least one U.S. company that was still involved in technology trade with Iraq after the imposition of the U.N. embargo. As this case, and most likely others, involve ongoing investigations and/or judicial proceedings, the subcommittee must contact the U.S. Customs Service and/or the Department of Justice for further information. DIA has been providing technical assistance to the U.S. Attorney in these matters. OC1 I 1991 ~ PAGENO="0062" EQUIPMENT DELIVERIES TO IRAQ DONOR EQUIP-TEXT 1986 1987 1988 1989 1990 1986-90 SINCE5L~ BULGARIA BULGARIA BULGARIA BULGARIA END OF REPORT PAGENO="0063" EQUIPMENT DELIVERIES TO IRAQ DONOR EQUIP-TEXT 1986 1987 1988 1989 1990 1986-90 SINCE 54 CZECHOSLOVAKIA - CZECHOSIOVAK IA CZECHOSL~VAKIA END OF REPORT PAGENO="0064" EQUIPMENT DELIVERIES TO IRAQ DONOR EQUIP-TEXT 1986 1987 1988 1989 1990 1986-90 SINCE 54 FRANCE k FRANCE FRANCE FRANCE FRANCE FRANCE FRANCE FRANCE FRANCE FRANCE FRANCE PAGENO="0065" EQUIPMENT DELIVERIES TO IRAQ DONOR EQ!JIPTEXT 1986 1987 1988 1989 1990 1986-90 SINCE 5L& FRANCE FRANCE FRANCE FRANCE FRANCE FRANCE END OF REPORT PAGENO="0066" EQUIPMENT DELIVERIES TO IRAQ DONOR EQUIP-TEXT 1966 1967 1988 1989 1990 1986-90 S1NCE 54 GERMAN DEI~GRATIC REPUBLIC GERMAN ~MOCRATIC REPUBLIC GERMAN DEMOCRATIC REPUBLIC GERMAN DEMOCRATIC REPUBLIC END OF REPORT PAGENO="0067" EQUIPMENT DELIVERIES TO IRAQ DONOR EQUIP-TEXT 1986 1987 1988 1989 1990 1986-90 SINCE 5L4 GERMANY, FEDERAL REPUBLIC OF GERMANY, FE~fRAL REPUBLIC OF CA~ GERMANY, F,EflERAI RrPI'Ra (~ 1W END OF REPORT PAGENO="0068" SECRET (NO CONTRACT/WN NTEL/NOFORN) EQUIPMENT DELIVERIES TO IRAQ DONOR EQU I P-TEXT 1986 1987 1988 1989 1990 1986-90 SINCE 5k ITALY ITALY ITALY ITALY ITALY I TALY I TALY I TALY I TALY END OF REPORT PAGENO="0069" EQUIPMENT DELIVERIES TO IRAQ DONOR EQUIP-TEXT 1986 1987 1988 1989 1990 1986-90 SINCE 54 POLAND j.~ POLAND POLAND POLAND CJ1 POLAND POLAND POLAND POLAND END OF REPORT PAGENO="0070" EQUIPMENT DELIVERIES TO IRAQ EQU P-TEXT 1986 1987 1988 1989 1990 1986-90 SINCE 5L~ DONOR END OF REPORT PAGENO="0071" EQUIPMENT DELIVERIES TO IRAQ DONOR EQUIP TEXT 1986 1987 1988 1989 1990 1986-90 SINCE 54 END OF REPORT PAGENO="0072" EQUIPMENT DELIVERIES TO IRAQ DONOR EQUIP-TEXT 1989 1990 1991 1992 1993 1989-93 SINCE 5Z~ UNION OF SOVIET SOCIALIST REPUBLICS UNION OF SOVIET SOCIALIST REPUBLICS UNION OF SOVIET SOCIALIST REPLIRI I(~S UNION OF SOVIET SOCIAl 1ST REPUBLICR UNION OF 5QVIET SOCIALIST REPUBLICS UNION OF S~VIET SOCIALIST REPUBLICS UNION OF QVIET SOCIALIST REPUBLICS UNION OF SOVIET SOCIALIST REPUBLICS UNION OF SOVIET SOCIALIST REPI~LICS UNION OF SO~IET SOCIALIST REPUBLICS UNION OF SOVIET SOCIALIST REPUBLICS PAGENO="0073" DONOR 1989 1990 1991 1992 UNION OF SOVIET SOCIALIST REPUBLICS ~ UNION OF SOVIET SOCIALIST REPUBLICS UN ION OF S~VIFT SOCIALIST REPUBLICS UNION OF S~QALIET SOCIALIST REPUBLICS UNION OF ~DVIET SOCIALIST REPUBLICS UNION OF SQVIFT SOCIALIST REPUBLICS UNION OF SOVIET SOCIALIST REPUBLICS UNION OF SOVIET SOCIALIST REPUBLICS UNION OF SOVIET SOCIALIST REPUBLICS UNION OF SOVIET SOCIALIST REPUBLICS UNION OF SOVIET SOCIALIST REPUBLICS EQUIPMENT DELIVERIES TO IRAQ EQUI P-TEXT 1993 1989-93 SINCE 54 PAGENO="0074" EQUIPMENT DELIVERIES TO IRAQ DONOR EQUIP-TEXT 1989 1990 1991 1992 1993 1989-93 SINCE 54 UNION OF SOVIFT SOCIALIST REPUBLICS UNION OF SOVIET SOCIALIST REPUBLICS UNION OF SOVIET SOCIALIST REPUBLICS UNION OF SQ~IET SOCIALIST REPUBLICS UNION OF SQ~/IET SOCIALIST REPUBLICS UNION OF SOVIET SOCIALIST REPUBLICS UNION OF SOVIET SOCIALIST REPUBLICS UNION OF SOVIET SOCIALIST REPUBLICS UNION OF SOVIET SOCIALIST REPUBLICS UNION OF SOVIET SOCIALIST REPUBLICS UNION OF SQYIET SOCIALIST REPUBLICS PAGENO="0075" EQUIPMENT DELIVERIES TO IRAQ DONOR EQUIP-TEXT 1989 1990 1991 1992 1993 1989-93 SINCE 54 UNION OF S~IET SOCIALIST REPUBLICS UNION OF SOVIET SOCIALIST REPUBLICS UNION OF SO%~IET SOCIALIST REPUBLICS UNION OF SQVIET SOCIALIST REPUBLICS UNION OFSOVJET SOCIALIST REPUBLICS UNION OF SOVJET SOCIALIST REPUBLICS UNION OF.S~yIET SOCIALIST REPUBLICS UNION OF S~~VIET SOCIALIST REPUBLICS UNION OF SO~IET SOCIALIST REPUBLICS UNION OF SOVIET SOCIALIST REPUBLICS UNION OF SOVIET SOCIALIST REPUBLICS PAGENO="0076" EQUIPMENT DELIVERIES TO IRAQ DONOR EQUIP-TEXT 1989 1990 1991 1992 1993 1989-93 SINCE 54 UNION OF.~Q~JET SOCIALIST REPUBLIC~~ END OF REPORT PAGENO="0077" EQUIPMENT DELIVERIES TO IRAQ DONOR EQUIP-TEXT 1986 1987 1988 1989 1990 1986-90 SINCE 54 YUCOSLAV.14. YUGOSLAVIA END OF REPORT PAGENO="0078" 74 !~PR ~i c~:~ ~ PUZES P.3~ CRINESE, NEW: 3 lbs CHINESE, NEW: 2 lba CHINESE, NEW! 1 lbs CHINESE, NEW: 2 lbs CHINESE, NEW: 1 lbs CHINESE, NEW! 1 lbs CHINESE, NEW: 3. lbs CUINEOEI, NEW: .5 lbs CHINEST, NEW; .5 lbs CHINESE, NEWt .5 lbs CtNESN, NEWt 1 lbs NEW: 2. lbs Y000, NEW: 3. lbs V.100, NEW: 2 lbs Y000, NEW; 1. Lbs V.100, NEW: 1 lbs Y000, NEW: .5 lbs U.S.S.R. NEW; .5 lbs U.S,s.~. NEW! 2 lbs U.S.S.R. NEW: 2 lbs B. APRICAN NEW: 3 lbs BTTh0M~IAN NEW: 1 lbs BRAZILIAN NEW: 2 lbs t~EW: 2 lbs 5. ?tFRXCAI~ NOTE! All fuze~ lietsd b.lcw fail ii~to category; Detonating Fuss, Clue PROM MD12A PROX 2(011 MT MS-i PD 14-5 PD MP-4 PD NP-lB TIME MS-3M I!D PD 2P-6 PD 311-4 PD PD 1468P1 P1(0K 1479 PD AU-29 PD M1-1BPI. PD 1472 PIED OPV-3 NT ATH-1035 IMPACT AVU-ET PROM 148513A1 PD OPZ-2M PD 142001 I'ROX CAL-PR14 PROX N02.20 the following ~torag~ A, 160 7, QO Class 1.10 1SEA 30 TA 60 TA 14 TA 21' TA 15 TA 02 U O~ TA 03 TA 10 TA 21 N~ 30EA .;:. 20EA 06 TA 06 TA 03 LA 04 TA 12 LA 10 TA 19 EM 16 TA 1~ TA 12 TA 30 TA PAGENO="0079" 75 22 `91 01 SS(. !YIBNCfl UflOX 0W-ill RET422IbS WRENCH PROX PP-i 10 NEW: 2 lbs FRENCH PD .. FU1F4 NEW: 2 lbs FRENCH PROX DE-1'3 ri~w;2l~s tJ.JC. PD L2.06A2 NEW: .5 lbs 8.AFRXCAN PD M841A1 NEW: 2 lbs IRENCX PD P0-20-56 NEW: 2 lbs CHILEAN TINE CDV, MODEL CHIC NEW: .5 lbs UNKNOWN PROX CELl1 5.74-JUPITER NEW$ 2 lbs ITAL1*N PD P03-335 NEW: 2 lbs PD PDI-102 NEW: 2 lbs FRENCH PROX PU RALEC P2 NEW: 2 lbs PItOX MD-El NEW: 3 lbs IRAQI PD OTt! M70?1 NEW: a tb~ U.S.S.R. TIldE T-SO NEW: 1 lbs PRENC~ PROX PFPR14 NEW: .5 lbs CHINESE PD l42~-7 NEW: .5 lbs ITALIAN PD NEW; .5 lbs UNKNOWN PD I4ODEL UNK. (N557 TYPE) NEW: .5 lbs U.S.S.R. PD 00-2 NEW: .5 lbs U.S.S.R. PRESSURE HVU-62 NEW: .5 lbs U.S.S.R. IMPACT AV-527 NEW: 1 lbs U.S.S.R. IMPACT AVU-14 NEW: 11bi SPANISH IMPACT Nv-vS NEW: .5 lbs SPANISH IMPACT KAPPA III NEW: 1 lbs EULCARIAN PROX PB-i NEW: 1 lbs `(000 PD AtT-20 HEW: 1 lbs IES ~ 4(1 P~ 4Q ~A 30 LA 30 LA V.1 OA 20 LA 15 LA 10.. LA 08 LA 25 LA 32 LA 15 LA 20 £7. 26 BA 08 LA 02 LA 02 BA 02 HA 01 LA 01 EA 02 LA 04 BA 04 LA 02 Zi~ 05 LA 16 LA 12 LA PAGENO="0080" o o 0 0 0 0 0 0 0 0 ~ 0 ~ ~ °t -" ~ t~J (1 Nil II P1 N N N II I'S 1 PAGENO="0081" 77 rFR `~1 O3~_SS:Jj PROOECTILES C1~iNESE 85-1414 HEAT MODE!. UNKNOWN 04 HA ~iruno for Cannon with Explosive Project&le, Class A, L80 5, Qfl Class i.iz NEW~ 20 lbs -. CHINESE 100-1414 HEAT MODEL UNKNOWN 10 HA Ammo for Cannon with Explosive Projectile, Class A, LSO 5, QDClaee LiE NEW: 80 lbs CHINESE 122-MM ILLUM MODEL TINKNOWN 02 HA Ammo for Cannon with Illuminating Pro~ectji*, Class A, LEO 5, QD Class 1.2C NEW: 25 lbs CHINESE 122-nit NE MODEL UNKNOWN 02 HA Ancno for Cannon with Explosive Projectile, Class A, LSO 5, QO Class 1.1E NEW: 25 lbs CHINESE 130-MM HE MODEL UNKNOWN 01 HA Arinto f or cannon with Explosive Projectile, Class A, LSC 5, QD Class 1.1.E NEW: 25 lbs CHINESE 13O~I4k ZLLT3I4 ERIIE, MODEL UNKNOWN 02 HA Ammo for Can~~~ with Illwninatjng Projectile, Class A, LEO 5, QO Class 1.20 NEW; 50 lbs CHINESE 152-1414 HE ERRS, MODEL UNKNOWN 04 HA Ausno for Cannon with Explosive Projectile, Cliii A. LOG 5, QD Class 1.1E NEW: 120 lbs CHINESE . 152-14k RE MODEL UNKNOWN 02 HA Ammo for Cannon with Explosive Projectile, class A, L5~3 5, QD Class LiE NEW: 60 lbs CHINESE 152-~z*c ILLUM ERHE, MODEL UNKNOWN 02 HA Ammo for Cannon with Illuminating Projectile, Class A, LSQ 5, QD dais 1.20 NEW: 60 lbs V.100 100-MM HEAT 1469 ~0 HA Ammo for Cannon with Z*ploeive Projectile, Class A, !.SO. 5, QD Class 1.3.H NEW: 80 lbs T000 105-1414 XE Ml 02 HA Ammo for Cannon with Explosive Projectile, Class A, LSO 5. QD Class i.1E NEW; 20 lbs YT300 105-MM HEAT 1467 01 HA Asses for Cannon with Explosive Projectile, Class A, LEO 5, QD Class 1.1H NEW: 10 lbs Y000 105-MM MESH 1167 01 HA Ammo for Cannon with Explosive Projectile, Class A, LEO 5, QD Class 1.1E NEW: 13 lbs CZECH 122-1414 HE 462J 02 HA Ammo for Canne~ with Explosive Projectile, Class A, L.SC 5, QO Class liE NEW: 25 lbs 11100 130-MM HE 1479 01 ER Ammo for Cannon with Explosive Projectile, Class A, LEO 3, QD Clang 1.1! NEW: 25 lbs U.S.S.R. 82-1414 HEAT BK-88114 04 HA Ammo for Cannon with E~plo~ive Projectile, Class A, LEO 5, QO Class 1.1E NEW: 10 lbs U.S.S.R. 100-MM APDS-T 514-2 02 HA Ammo for Cannon with Solid Projectile, Class B. LEO 8, QD Class 1,2C NEWt 20 lbs U.S.S.R. 100-14.14 HEAT EK-3 04 V. ~ f,.r ~ ~ ~ ~ ,-i__.. PAGENO="0082" 78 `91 0:c6 SSO F.2'le U.S.S.R. 122-MM HEAT EK*13 05 LA Explosive Projectile, Class A, LEG 6, QO Class 1,10 U~W: 50 lbs U.S.S.R. 122-1*1 HE 01-56 -. 02 LA Ana,o for Cannon ~iith Explosive Projectile, Class-A. L5G 5, QD Class 1.1E NEW: 25 lbs U.Z.S~R. 125-MM x~ 01-19 03. ER Ammo for Cannon with Explosive Projectile, Class A, LEO 5, Qo Class 1.1E NEW: 15 - U.S.S.R. 130-'Z-IM APEE-T BP-4825 01 LA Memo for Cannon with Explosive Projectile, Class A, LEO 5, QO Class 1.15 NEW: 10 lbs U.S.S.R. 3.30-MM ILLTJM 5-2 01 EA Ammo for Ctnnon with Illuminating Projectile, Class A, LEO 5, QD Class 1.30 NEW: 10 lbs U.S.S.R. 152-MM HEAT 8P-540 ` 01 LA Ammo for Cannon with Explosive Projectile, Class A, LEG 5, QO Class 1.1! NEWt 25 lbs 152-MM XL 01-25 01 LA Ammo for Cannon with Explosive Projectile, Class A, LEO 5, QD Class 1.15 NEW: 30 lbs EWEDI$X 40-MM XE PFHE 08 ER Ammo far Cannon with Explosive Projectile, Cleu A, Z~5G 5, QO Class 1.1Z NEW: 20 lbs 30-MM AP-T MODEL UNKNOWN 03. LA Ammo for Cannon with Solid Projectile, Class H, LEO 8, QD Class 1,40 NEWt 2 lbs SWEDISH 54-MM BE NODEI~ UNKNOWN 02 SIt Ar~no for Cannon with Explosive Projectile, Class A, USC 5, QO Clp~ 1.3.E NEW: 10 lbs 3E1.GIAN 90-MM HEAT 14517 04 ER Ammo for Cannon with Explosive Projectile, Class A, LEG 5, QO Class 1.15 NEW: 15 lbs - 3ELGIAN 90-MM HESH NR-503A3 03 LA Ammo for Cenncn with Explosive Projectile, Class A, L50 5, gO Class 1.1E NEW: 25 lbs 3ELGZAB 90-MM HE NR-447A3 01 SIt Ammo for Cannon with Explosive Projectile, Class A, LEG 5, QO Class 1.1E NEW: 10 lbs 3, AFRICAN 155-MM HE ERHS, M1AI. 01 SIt Explosive Projectile, Class A, LEO 6, QO Class 1.10 5EWl 20 lbs 3. AFRICAN 155-MM HE ER-RAP, MODEL UNKNOWN 01 SIt Explosive Projectile, Class A, LEO 6, QO Class 1.10 NEW: 20 lbs ~RENCX 155-MM HE ER, AUFI. 02 ER Explosive Projectile, Class A, LEG 6, QD Class 1.10 NEW: 20 lbs 155-i-u'. HE F3CN 155 50 02 LA Explosive Projectjl~, Cloos A, LEO 6, QO Class 1.10 NEW: 20 lbs 3REEK 155-MM HE ERSO, ERNIE 01 ER Explosive Projeotile, Class ?~, LSG 6, QD Class 1.10 NEW: 20 lbs PAGENO="0083" 79 2E `91 09:03 350 GREEK 155-MM HZ MASS, ERA-ES 01 EA ,Explosive Projectile, Class A, 5.50 6, QD Class 1.10 NEW: 20 lbs 7000 25 PUR HE )4X1 02 MA Ammo for Cannon with Explosive Pro~ectjle, Cl~a~ A, LOG 5, QD Clasz 1.1! NEW: 8 lbs U.S.S.R. 122-NM ILLUM 8-463 02 MA Aimno for Cannon with Illurninatinq Pro~actil.e, Class A, 5.50 5, QD Class 1.20 NEW: 25 lbi U.S.s.R. 125-MM HEAT !K-i.4M 01 MA Ammo for Cannon with Explosive Pro~ectile, Class A, 1,90 5, QD Class L.1E NEW: 15 lbs BRAZILIAN 90-MM AP EC-90 01 MA Ammo for C&nno~ with Solid Projeotile, Class B, L6G 8, QD Class 1.20 NEW: 5 lbs U.K. 30-NM APSE L5A2 03 MA Ammo for Cannon with Solid Projectile, Class 5, 5.50 8, QD Class 1.40 NEW: 3 lbs U.N. 30-NM PRACTICE L12AI 03 MA Ammo for Cannon with Empty Projectile, Class B, L80 8, QD Class 1.4c1 NEW: 1 lbs U.S.S.R. 152-NM HEAT BP-540 02 MA Ammo for Cannon with Explosive Projectile, Class A, LOG 5, QU Class 1.1E NEW: 20 lbs UNKNOWN 40-MM HZ MODZL UNKNOWN 04 U Ammo tot' Cannon with Explosive Projeotile, Clasp A, LSG 5, QD Class 3..1E NEW: 2 lbs U.S.S.R. 100-NM HE QF15 02 MA Anvno for Cannon with Explosive Projectile, Class A, LOG 5, QD Class 1.1E NEW: 20 lbs iRAQI 155-NM HZ MAKE, MODEL TJNKNOWN 02 MA Explosive Proj.otj1s~ Class A, 5.00 6, QD Class 1.3.0 NEW: 40 lbs BULGARIAN 100-MM HEAT MXO 02 MA Ammo for Cannon with Explosive Projectile, Class A, 5.80 5, QO Class i.1E NEW: 25 lbs U.S.S.R. 122-MM HZ OF-56-3. 02 MA Ammo for Cannon with Explosive Projectile, Class A, LOG 5, Q0 Class 1.1E NEW: 25 lbs FRENCH 60-NM A? C-i (CANNISfl,R) 01 MA Ammo for Cannon with Solid Projectile, Class H, 1.50 8, QD Class 1,2c NEW: 1 lbs CHINESE 152-MM HE MODEL UNKNOWN (STEEL CAGE) 01 MA Ammo for Cannon with Explosive Projectile, Class A, LSO 5, QO Class 1.1E NEW: 25. lbs 7000 122-mm PROP MODEL UNKNOWN 01 HA Inert Annie PAGENO="0084" 80 1~PP vi ~: 1D v~c~ MISC. ORDNANCE CHINESE 75-MM RPO BOUNDING TRAO, TYPE 69 06 HA Rocket Ammo with Explosive Projectile, Class A, LEG L, QD Class 1.1! NEW: 15 lbs 73NM PROjECTILE S4b-E 06 ER Rockot Ammo with Explosivo Projectile, Class A, LSG 3, 00 Class 1.1E NEW 25 lbs IRANIAN 85-MM RPG BEAT MADDER 02 HA Rocket Ammo with Explosive Projectile, Class A~ LEO 5, QD Class l.1Z NEW: 5 lbs IRAQI 85-MW RPO HE, MODEL UNK. 02 ER ft~aket Ammo with Explosive Projectile, Glees A, £~eO 5, QD cles~ l.1E NEW 5 lbs CHINESE 122-NM ROCKET NE, MODEL UNK. 02 HA Rocket Ammo with Explosive Projectile, Class A, LSG 5, QD Class 1,1! NEW: 50 lbs U.S.S.R. 57-MM HEAT-flAG, 2-51W 08 LA Rocicet Ammo with Explosive Projectile, Class A, LSS 5, QO Class 1.I.E NEW: 20 lbs EAST GERMAN 116-NM ILLUM, MODEL UNK. 02 HA Rocket Ammo with Iliwnimating Projectile, Class A, LEO 5, QO Class 1.20 NEW: 38 lbs 9RAZIIjIAN 127-NM ROCKET RE, 82143k 01 HA Rocket Ammo with Explosive Projectile, Clue A, LEO 5, QO ClaSs 1.1! NEW: 30 lbs J.S.B.R. MISSILE, AT-S (9M14x) 01. HA Rocket Ammo with Explosive Projectile, Cla~~ A, LEG 5, QD Class 1.1H 12 lbs MISSILE, AT~5 (9113.1.3) - - 03 HA Rocket Ammo with Explosive Projectile, Class A, LEG 5, 00 Class 1.IH NEW: 35 lbs - TRENCH MISSILE, HOT 01 HA Rocket Ammo with E*plosive Projectile, Class A, LEO 5, QO Claee i.1E NEW: 20 lbs GRENADE, HAND flAG, RUG-S 04 HA Explosive Grenade, Class A, LEG 6, QD Class 1.1F NEW: 1 lbs ULGARIAN GRENADE, HAND TRAG, KO0-78 OS HA Explosive Grenade, Class A, LEO 6, QD Class 1.19' NEW: 1 lbs HINESE 1O~-NM ROCKET XE, 1400H5, UIUCNOMN 02 ER Rocket Ammo with Explosive Projectile, Class A, I~SG.5, QO Class 1.1! NEW: 20 lbs 1JL~GARIAN 73-1*1 RPG HE, 00-92 06 HA Rocket Ammo with Explosive Projec~tle, Class.A ZaSG 5, QD Class 1.i.E NEW: 25 lbs - ELOUIM MINE ~p, NR-409 150 HA Explosive Nina, Cl~~a A. L50 ~, on Olsasi L2H NEW: 15 lbs HINESE GRENADE, HAND FRAO, MINI 49 HA Explosive Grenade, Class A, LSG 6, QD Class L1F NEW: 5 lbs -. MINE AP, P40 PAGENO="0085" 81 ~PR `~ ~ sso FRENCH PROP CHARGE FOR 155-JIM 01 z~ Propellant Explosive (Solid), Class B, L8O 9, QO Class 1.30 NEW: 15 lbs UNKNOWN GRENADE, RIFLE, RE, JIODEL UNK. 01 HA Explosive Grertade, C1~ss A, L80 6, QD Class 1.1F NEW: llbs U.S.S.R. GRENADE, HAND PARC, RG-42 03 TA Explosive Grenade, Class A, LSC 6, QD Class 1.1B' NEW: 1 lbs TUGO GRENADE, HAND FRAG, 14-75 04 HA Explosive Grenade, Class A, L80 6, QO Class 1.1!' NEW: 3. lbs cHINES! GRENADE, HAND FRAG, 86P 04 ER Explosive OF.nads, Class A, L80 6, QD Class 1.3.9 NEW: 1 lbs U.S.S.R. MISSILE, BA-16 02 ER Rocket Ammo with Explosive Projectile, Cla~~ A, LdO 5, QO Class 1.1E NEW: iS lbs BELGIUM MINE, NR-33.2 30 ER Explosive Mine, Class A, taSO 6, QD Class 1.2! NEW: 5 lbs AUSTRIAN M:NE, 099-ROUT!, ATJ4-6 02 ER Explosive Mine, Class A, L50 6, QO Class 1.1D NEW: 20 lbs CHINESE MINE, AT, TYPE 72 03 ER Explosive Mine, Glass A, L5O 6, QD Clssc 3..1D NEW: 20 Lbs ITALIAN MINE, AP, PARC, VS-So 51 ER Inert R:wno AUSTRAIN GREW, HAND, DEF, 0478 0'2 EA ERplosive Grenade, Class A, LSG 6, QD Class 1.3.9 NEW: 3. lbs BELGIUM GREW, RIFLE, HE, 01287 05 ER Explosive Grenade, Class A, t~So 6, QD Class 1.10 NEW: 2 lbs BELGIUM GREW, RIFt.!, PRAC, 14272 04 ER Inert Ammo BELGIUM GREW, RIFLE, HE, 1(262 01 ER Explosive Grenade, Class A, LSG 6, QD Class 1.10 NEW: 1 lbs BELGIUM OREN, RIFLE, HE, 14261 05 ER Explosive Grenade, clae~ A, LS0 6, QU Class 1.10 NEW: 1lbs ETLGIUM OWEN, RIFLE, MEAT, 1(260 01 TA Explosive Grenade, Class A, TJSO 6, QU Class 1.10 NEW: 3. lbs U.S.S.R. MISSILE, AT-4, INERT CUT-AWAY 02 ER Inert Arr~no U.S.S.R. MISSILE, AT-!, INERT CUT-AWAY 03 ER Inert Ammo U.S.S.R. MISSILE, CA'-7, INERT CUT-AWAY 01 ER lnert 2~rmo U.S.S.R. MISSILE, AT-4, 91411104 02 ER Rocket Ammo With Explosive Pro3.otile, C1*~~ A, L6O I, QU Class 1.1! PAGENO="0086" 82 P11 -~ -~. .~_#1 r~,1e OER1~AN ROCKET LAUNCHER, ARH3tJRET 08 El ~Røoket Amino with Explos,tv. Projectile, Clase A, LEG 5, QU Class 1.1! NEW: 25 lbs l22~MM ROCKET, 0M28F 02 El Roaket Amino with Expl~ajv, Pro~e~tj1a, Class 1,-LEG 5, QD Class i.~1E NEW: 30 lbs OHILXAN BUEMUNITION, PM-l 30 El Explosive Grenade, C1ECI A, LEO 6, QO Class .1.1F NEW: 15 lbs CANADIAN MINE, A?, C3AA 12 El Explosive Mine, Class A, LEO 6, QU Class 3.2E NEwilibi EZIEMVNTXON, lO-2.5i~T 24 El Explosive Grenade, Cl*ia A, Lsa 6, QD Cl&si l.2E HEW: 20 lbs PAGENO="0087" 83 ~ o~: i~ ~ MORTARS IXINESE 60-MM RE TYPE-60 Ammo for Cannon with Explosive Projectile, Class A, LSG 5, NEW: 3.0 lbs ~XXNHBE 82-MM HE MODEL UNKNOWN Ammo for Cannon with Explosive ProjectIle, Class A, LOG 5, NEW: 6 lbs * IHINESE * 1OO.~l4M HE MODEL UNKNOWN Ammo for Cannon with Explosivi Projectile, Class A. LSG 5, NEW: 15 lbs ~EINESE 100-MM ILLUM MODEL UNKNOWN Ammo for Cannon with Iliwninating Project~l., Class A, LSO NEW: 15 lbs ruoo 82-MM HE M74 Anano for Cannon with Explosiv. Projectile, Class A, NEW: 10 lbs T000 120-14W RE 1477 Ammo for Cannon with Explosive Projectile, Class A, NEW: 30 lbs WOO 120-14K ILLUM 1467 Ammo Sot Cannon with Illuminating Projectile, Class NEW: 8 lbs FRENCH 120-MM x~ PRI4-Mpc Ammo for Ct~o~ with Explosive Projectil., Class A, NEW: 20 lbs ~RZNCH 120-MM ME PRY-Fl Ammo for Cannon with Explosive Projectile, Cla~~ A, NEW: 20 lbs FRENCH 120-MM HE-RAP PRPA Anmto for Cannon with Explosive Projegtile, Class A, NEW: 10 lbs SPANISH 120-MM H! 1475-N Ammo for Cannon with Explosive Projectile, Class A. NEW: 0 lbs BELOZAN 51-MM HE MODEL UNKNOWN Ammo for Cannon with Explosive Projectjl~, Cl*z~ A, NEW: .1. lbs CHINESE 120-MM HE MODEL UNKNOWN Ammo for Cannon with Explosive Projectile, Class A, NEW: 20 lbs ROMANIAN 82-1414 LZJUM MODEL UNKNOWN Ammo for Cann~~ with Illuminating Projectjl~, Class NEW: 20 lbs ROMANIAN 82-MM HE NDL-11 Ammo for Cannon with Explosive Projectile, Class A, NEW: 20 lbs SPANISH 60-1414 ILLU11 MODEL UNKNOWN Ammo S or C*~n~a with Zllumin~ti~g Projec~j~e, Cless NEW: 1 lbs UNKNOWN 120-14)4 HE MODEL UNKNOWN Ammo for Cannon With Explogive Projectile, Class A, NEWt 20 1hz 10 HA QD CLass 1,2! 03 EA 00 Class 1.2E 04 HA QO Clans 1.1! 04 HA 5, QO Clan, 1.20 05 HA LEO 5~ QD Clees 1.2E 03 HA LSO 5, QD Class 1.1! 01 HA A, LEG 5, QD Clz~s 1.20 02 HA LS0 5, QO Clafl 3.1E 02EA LEO 3, QO Class 1.1E 01 HA LSG 5, QD CLass 1.1! 01 HA LEO 5, QD Class 1.1! 01 EA L5O 5, QO Class 1.2E 02 HA LEO 5, QD Class 1.1! 10 HA A, LOG 5, QO Class 1.20 10 Eli LOG 5, 00 Class 1.2! 01 HA A, LCQ 5, QO disc 1,20 03 LA LEG 5, QO Class liE PAGENO="0088" 84 - `91 (~9:~7 SSO BELGIUM 81-MN XE NR-52O 03 EA A~m1o fo~ Cannon with Explosive Projectile, Class A, L5G 5, QD Class 1.23 213W: 5 lbs AUSTRIAN 81-1*1 HE 110-70 06 ZA ammo far Cannon.with Explosive Projectile, Class-A, LSG 5, QD Class 1.23 NEW: 10 lbs U.K. 81-1424 ILLUM )4K-3 06 BA Arrsrio for Cannon with Illi~minating Projectile, Class A, L80 5, QU Class 1.20 NEW: 3 lbs BELGIUM 81-1414 ILTJUM NR-240 03 BA Amino for Cannon with Illwninatinp Projectile, Class A, L80 5, QD Class 1.20 NEW: 6 lbs BELOIUM 81-NM I73LtJ24 NR-253 03 EA Ammo for Cannon with IllwnjnatingPro~ectile, Class A, LSG 5, QD Class 1.20 NEW: 3 lbs AUSTRIAN 81-MM ILLUM 82A1. 01 BA Arena for Cannon with Illuminating ProjectIle, Class A, L8G 5, QD Class 120 NEW: 1 lbs BELQIUI4 60-MM XE NR-431A1 01 ZA Amino for Cannon with Explosive Projectile, Class A, 1,50 5, QO Class 1.2E NEW: 1 lbs IRAQI 60-MM WE M73 01 BA Annna for Cannon with Explosive Projectile, Class A, LS0 5, Q0 Class 1.23 NEW: 1 lbs UNKNOWN 60-NM XE I403EL UNKNOWN 01 BA Amino for Cannon with Explosive Projectile, Class A, LEG 5, QO Class 1.23 NEW: 1 Lbs UNKNOWN 60-1414 NE MODEL, UNKNOWN 01 BA Amino for Cannon with Explosive Projectile, Class A, LS0 5, QO C?ass 1.23 21EW:~lbs U~8.S.R. 82-J~i1( HE 0-932-DU (cLIP) 04 BA Ammo for Cannon wIth Explosive Projectile, Class A, LEG 5, QD Class 1.23 NEW: 8 lbs YUGO 92-NM ILLtJM 1467 05 BA Amino for Cannon with Illuminating Projectile, Class A, LEG 5, QD Class 1.20 NEW: 10 lbs TRENCH 120-NM ILLUX PR 02 El Ammo for Cannon with Illuminating Projectile, Class A, LS8 5, 00 Cliii 1.20 NEW: 6 lbs FRENCH 120-MN PRACTICE MODEL 51 02 ER Ammo for Cannon with Empty Projectile, Class B, !JS0 0, QD Class 1.30 243W: 1 lbs SAIJDIX ARABIAN 81-MM HE MODEL UNKNOWN 01 El Ammo for Cannon with Explosive Projectile, Class A, L20 5, QD Class 2.23 NEW: 2 lbs FINNISH 60-NM ME MODEL UNKNOWN 05 El Ammo for Cannon with Explosive Projectiie, Class A, LSO 5, QD Class 1.23 NEW: 5 lbs AUSTRIAN 60-NM XE HE-SO 02 El Ammo for Cannon with Explosive Projectile, Class A, LSG 5, QD Class 1.23 NEWI 2 lbs CHINESE 120-MN ILLUM MODEL UNKNOWN 01 LA Ammo for C~n~cn with Illuminating Projectile, Class A, tIC 5, 00 ClaSs 1.2 NEW: 3 lbs PAGENO="0089" 85 PAKISTAM 60-MM IL.LUM P3)4i(1 06 EA Ammo for Cannon with Illuminating Pro~ecti1e, C1a~ A, LSG 5, QD Clase 1.20 w~w: 6 Iba CHINESE 82'-NM ILLUM MODEL UNKNOWN 02 EA Ammo for Cannon with !lluminatin~ Projectile1 Class A, LSG 5, QU Class 1.20 NEW: 4 lbs AUSTRIAN 60-MM HE MODEL UNXNOWN 01 EA Ammo for Cannon with Explosive Pro~ectL3.., Class A, L50 5~ QU Class 1.2! NEW: 1 lbs PAGENO="0090" 86 9 April 1991 PMA TEAM Inventory Report ORIGIN OUAMTI~X 2 2 2 2 1* 1 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 6 11 10 10 10 20 11 10 10 1 PAGENO="0091" 87 PMA TEAM Inventory Report (cont.) ORIGIN QUANTITY 10 3 10 18 2 1 1 1 3 5 6 4 10 10 4 10 4 32 3 1 4 10 10 1 10 2 PAGENO="0092" 88 ~1ATERIEL COLt ~TED DURING OPER~T1G.. ~ -. AS OF ~ lAY :1991 MAJOR END ITEMS 1 AIRCRAFT PARTS A MIG-29 (FULCRUM) AIRCRAFT FARTS (1) FORWARD COCKPIT FUSELAGE I (2) 30MM AIRCRAFT GUN 1 (:) 0MM AIRCRAFT GUN ROUND 1 B SU-25 (FROGFOOT) AIRCRAFT FARTS (1)KLEN PS LASER DESIGNATOR 1 (2) DISS-7 DOPPLER NAV SYSTEM (3) SPO-15 RWR ANTENNAS 2 (4) GUN SIGHT, CONTROL PANEL I (5) RSBN CONTROL PANEL 1 (6) RSBN ELECTRONICS BOXES 3 (7) KM-2 RADIO COMPASS 1 (8) WEAPONS CONTROL PANEL (9) RECORDER 1 (10) MACH METER 1 (11) LATITUDE SET PANEL (12) ELECTRONICS BOXES 2 C. SU-17 AIRCRAFT PARTS: (1) KLEN PS LASER DESIGNATOR 1 (2) SRO-2 1FF BOX I (3) ATTITUDE GYRO 1 (4) R-862 UHF/VHF COM RADIO 1 (5) SPS-141 JAMMER POD 2 (6) 50MM FLARE DISPENCER (7) AS-9 ELECTRONICS POD 1 D. HIND HELICOPTER: (1) R-863 UHF/VHF COM RADIO 1 (2) FLARE DISPENSER UNIT 1 E. MIG 23 AIRCRAFT PARTS: (1) R-834M UHF/VHF COM RADIO 1 (2) SPS 141 JAMMER SYSTEM 2 (3) SPS 141 JAMMER PARTS KIT 6 ~ç~L !~L ~ 1 tn C-1R.203/DT-5B PAGENO="0093" 89 F. MISCELLANEOUS PAR..~: LASER RANGE FINDER 1 (2) SURVEYOR TRANSIENT 1 (3) COBRA MISSILE FINS 1SET (4) P-68 LAUNCHER 3 2. AIR TO AIR MISSILES: .A. AA-1O ALAMO 1 .8. AA-8B APHID TRAINING MISSILE 1 .C. AA-8 APHID 6 .D. AA-7D .E. AA-7C 1 .F. AA-2 3 .G. AA-2 SEEKER * 1 3. AIR TO SURFACE MISSILES: A. AS-14 KEDGE 1 B. AS-9 KYLE 1 4. AMMUNITION (LESS MISSILES & BOMBS): A. 7.62MM X 54R BALL 4802 B. 7.62MM X 54R LIGHT BALL 891 C. 7.62MM X 39 BALL 6230 D. 7.62MM X 39 STEEL 1121 E. 7.62MM X 39 TRACER 559 F. 7.62MM X 39 API 261 3. 12.7MM X 108 BALL 124 H. 12.7MM X 108 AP 3 I. 12.7MM X 108 APIT RDS 10 3. 12.7MM X 108 API RDS .~47 K. 14.5MM X 114 APIT RDS 747 L. 14.5MM X 114 TRACER 60 M. 20MM API 27 N. 30MM HE FRAG VOG-17M 87 0. 57MM HEAT 13 P. 60MM RDS MORTAR (CHINA) 13 0. RPG-18, 64MM ROCKET 2 R. 73MM HEAT RDS 17 5. 73MM HE RDS 35 T. ROCKET, 81MM W/PFF WARHEAD 4 U. HE, 82MM MORTOR 2 V. 84MM CTG, HE, C~. GUSTAF 4 W. RPG-7, 85MM HEAT 20 X. RPG-7, HE 13 V. 3RD, ROCKET TYPE 69 (RPG-7) 7 Z. 100MM T-12 AMMO SABOT 4 FO~ UF1~iAL US.~ ~ PAGENO="0094" 90 AA. 1(0MM T-12 ~MM0 AEAT BB. ~o(:)MM T-12 AMMO HE CC. 122MM HEAT (251) DD. ~25MM SABOT BM15 7 EE. 125MM HEAT BM14M 22 FF. 125MM HE 77 GG. 127MM WARHEAD, 6S30 HH. CTG, 155MM HE M1A1 SOUTH AFRICAN II. 127MM WARHEAD ~ ROCKET, SS-30 64 JJ. FROG-7 ROCKET 5 I(K. SCUD WARHEAD 5. EXPLOSIVES A. ELECTRIC BLASTING CAPS W/ PACKAGING 9 B. PLASTIC EXPLOSIVES & ASSOC PACKAGING 159 BLOCKS C. FUZE IGNITER SAFETY FUZE 4 6. GRENADES A. GRD, RIFLE HE M60 (YUGO) 10 B. GRD, RIFLE ILL M62 (VUGO) 2 C. GRD, SMOKE F/T-72 21 D. GRD, FOl 31 E. GRD, RG-42 13 F. GRD, RG-42 VARIENT 3 G. GRD, HAND FRAG M2 2 H. GRD, RDG-5 17 I. GRD, RGM-5 10 .3. TYPE 73 5 K. M-75 2 7. PROPELLANTS A. ROCKET/FIN ASSY PG 7PM B. PROPELLANT CHARGE, 122MM 4 C. PROPELLANT CHARGE, 125MM 116 D. ROCKET MOTOR SS-30 127MM 34 E. PROPELLANT CHARGE, 155MM SOUTH AFRICAN 2 8. BOMBS: A. PBK-500 1 B. CB DISPENSER 2 C. OFAB 250KG 1 D. IRAQI 250KG 1 E. R 50KG 2 F. PTAB-2.5 2 S. CLUSTER BOMB 250KG 1 FOR OFFiCiAL USE ONLY PAGENO="0095" 91 9. MINES/MINE WARFf-~ EQUIPMENT ~GROUND): A. TM-69 MINE W/FUZE B. VALMARA 69 ANTI-PERS 2 C. M72 AT MINE (CHINA) D. FZ MVCH-62 F/TM-62M MINE E. VALSELLA VS-T ILLUM/SIGNAL MINE (ITALY) 2 F. VALSELLA VS-T 1.6 MINE (ITALY) G. PMN AP 1 10. FUZES: A. FUZE, AH-1A 40 B. FUZE, TYPE 904 11 C. FUZE, BOOSTERS 4 D. FUZE, VK-5 ROCKET 112 E. FUZE, M20 Cl ROCKET 100 F. FUZE, PD MP lB F/6OMM 10 S. FUZE, 73MM GRD ILLUM (VUGO) 1. H. FUZE IGNITER SAFETY 4 I. FUZE, GRD F1/RDG-5 9 3. FUZE, M20-C1 50 K. FUZE, GRENADE (BULGARIA) 3 L. FUZE, GRENADE RGM/RGM2 17 M. FUZE, GRENADE FGM 9 N. FUZE, GRENADE UZRG 1 11. CAMOUFLAGE/DECOYS/FLARES A. CAMOUFLAGE NETTING 2 B. INFRARED DECOY FLARES 155 C. FLARE, SIGNAL 26MM (GREEN) 37 D. FLARE, SIGNAL 26MM (WHITE) 34 E. FLARE, SIGNAL 26MM (YELLOW) 21 F. FLARE, SIGNAL 26MM (RED) e G. FLARE, SINGLE COLOR UNKNOWN Z H. FLARE, 50MM 134 I. RADAR/CORNOR REFLECTORS 2 12. ANTI-TANK WEAPONS (INCLUDING MISSILES): A. HOT 2 ATGM 6 B. HOT 1 ATGM 13 C. MILAN ATGM 12 D. AT-S ATGM 2 E. AT-4 ATGM 3 F. AT-2C SWATTER ATGM 1 G. AT-4 LAUNCHER 3 H. MILAN LAUNCHER 4 I. SPS-9 2 4 FOR OFFICIAL USE O1~LV PAGENO="0096" 92 .13. ARMOURED VEHICL ~: A. T-72 MIMi TANK B. T-72 TANK 2 C. T-55 TANK MODIFIED D. BMP-1 3 E. BMD 1 F. TYPE 6~ APC 1 6. BTR 60 PA 2 H. BTR 60 PU12 1 I. MTL? R8l SAD STA 1 3. MTLB CC-G0l 1 K. ACRV 1V13 1 L. ACRV 1V14 1 M. SA-9 TEL 2 N. ROLAND 1 1 0. PANHARD VCR/TH 1 P. BRDM-RKH 2 0. YW750 AMBUL 1 14. ARTILLERY/MULTIPLE ROCKET LAUNCHERS/ROCKETS A. GHN 45 HOW 1 .B. 6-5 HOW 1. C. 2S3 SP HOW 2 D. TYPE 83 HOW 2 E. D-20/TYPE 66 HOW 2 F. TYPE 59-1 HOW 6. 251 SP HOW H. D30 HOW 4 I. M56 105MM HOW 1 3. MT-12 AT GUN 3 K. ASTROS MRL L. ASTROS TRANSLOADER 1 M. BM-21 MRL. 2 N. FROG TEL 0. FROG TRANSLOADER 1 P. GHN 45 HOW FIRING TABLE 1 15. BATTERIES: A. AUTOMOTIVE IGNITION BATTERIES 12 B. MANPACK RADIO BATTERIES 6 C. STORAGE BATTERY MKII-20-12 2 0. AL-11IOB BATTERY 1 16. CHEMICAL & BIOLGICAL WARFARE EOUIPMENT/VHEICLES A. DECON KITS 37 B. FILTER, MASK, CF-4 1 C. PROTECTIVE MASK M-59 (YUGC) 1 D. PROTECTIVE MASK DRAGER IMP 1 E. FROTECTIVE MASK TYPE CHICOM FOR OFFLCI~L USE ~ PAGENO="0097" 93 FILTF:. MASI.. DR. .~ER (GER) ~. 1-74 FROT MAS).. W/CRR (ROM: 5 H. M-59 MASK (YUGO) I. PROTECTIVE MASF:~ (GER) 3. MASK, INDUSTRIAL FILTER K. MASK. PANORAMIC W/ TALKING DEVICE 7 L. PROTECTIVE OVERSHOES 4 SETS M. FROTECTIVES GLOVES 6 SETS N. PROTECTIVES MITTENS 2 SETS 0. PROTECTIVE SUIT 2 SETS P. SMOKE POT 6 0. SMOKE DRUM 1 R. M-1 MASK (YUGO) 6 S. SHLEM MASK 1 T. RADIATION DECTECTION DEVICE 1 U. DOSIMATOR KIT 1 17. OBSERVATION SIGHTS: A. PERISCOPE, ELBOW W/MOUNT B. PERISCOPE, TK H-3 (SOV) 1 C. SIGHT TELESCOPE P60-9 1 D. LOADERS MARK 4 PERISCOPE 1 E. MODEL 165A VISION BLOCK 1 F. OBSERVERS TELESCOPE 1 G. PERISCOPE (BMD-190) (SOV) H. PERISCOPE, DRIVERS I/R 2 I. SOVIET NVD, SMALL ARMS 3. DUTCH NOD 5 K. TPN-1 GUNNERS PERISCOPE 1 L. LASER RANGE FINDERS (GROUND) 5 18. RADARS: A. GUN DISH FIRE CONTROL (ZSU-23-4) 3 B. SPOON REST C/D EARLY WARNING 1 C. RASIT BATFLD SURVELL RADAR 1 D. CYMBLINE, COUNTER MORTAR RADAR E. PLESSY COUNTER MORTAR RADAR 1 19. RADIOS: A. RL 430 1 B. TRANSCEIVER BCC-349 9 C. TRC 382 RADIO 1 D. TYPE 889 5 E. R123 4 F. R105 9 G. R108 4 H. R109 8 I. TRC 340 1 3. RACAL SYNCAL 30 22 I::. SWITCH BOARD TC-10 1 L. P31M 1 M. R33 RADIO 1 FÜR OmwAi. USE ~y 51-840 0 - 92 - 4 PAGENO="0098" 94 SURFACE TO AIR MISSILES: A. ROLAND 1 9 B. SA-6 4 C. SA-7 14 D. SA-8 6 E. SA-9 F. SA-14 2 8. SA-16 18 21. SURFACE TO SURFACE MISSILES A. AL ABBAS SRBM I B. STYX SB N 2 C. SILKWORM HY-2 8 D. SILKWORM HY-29 9 22. ELECTRONIC COUNTER MEASURES (SHIPBORNE): A. DAGAIE CHAFF ROUNDS (FRANCE) 12 B. DAGAIE CHAFF LAUNCHER (FRANCE) I 2~. ELECTRONIC WARFARE EQUIPMENT: A. RACAL DF SYSTEM 2 B. R~78M COPPER CUP HF JAMMER 1 C. TOW 3AMMER D. TANK MOUNTED LASER WARNING DEVICE 1 24. SMALL ARMS A. AK-47 SERIES 100 B. RPK C. DSHK D. RPG-7 1~ E. PK SERIES 21 F. ZFV-1 2 G. 60MM MORTAR 6 H. 82MM MORTAR 2 I. 120MM MORTAR 1 J. SVD 13 K. FPK 7 L. PM/TYPE 74 PISTOL 20 M. TARIQ PISTOL 15 N. AGS-17 7 FOR OFFICiAL USE CNL~ PAGENO="0099" 95 MISC A. ARMOR ADD-ON (T-55) 7 PIECES B. ADD ON ARMOR FOR BMF'-l 2 PIECES C. ZIL 131 TRUCK 1 D. EXPLORER 10 TON WRECKER 1 8 ~ OFFtCtP~L USE O~LV PAGENO="0100" 96 DEFENSE INTELLIGENCE AGENCY WASHINGTON. O.C. 20340. 6148 U-22246/DT-FMO 1 5 JUL 1991 Mr. Nate Simmons Group Vice President Electro-Optical and Data Systems Group GM Hughes Electronics Corporation P. 0. Box 902 El Segundo, California 90245 Dear Mr. Simmons: In reply to your letter to LTG Soyster dated 3 June 1991, we hold no information to substantiate reports that Hughes equipment may have been among that captured at Khafji. If such statements were made, they are not attributable to the technical experts charged with exploiting materiel. None of the Iraqi night vision devices examined to date were found to contain Hughes components. . We will continue to look for U.S. origin components in captured equipment as exploitations are undertaken. Should any Hughes components of the type indicated in your letter be discovered, I will ensure that you are notified of the fact and arrange for follow-on inspection by Hughes technical personnel, if desired. Sincerely, Assistant Deputy Dir3ctor for Scientific e~d Technical lntcli~ence PAGENO="0101" 97 01 172050Z JUL 91 PP UUUU DIA WASHINGTON DC//DT-FMO// HQDA WASHINGTON DC//DAMI-~FIT~ST11 (MC WASHINGTON DC/lINT-Eli INFO USCINCCENT MACDILL AFB FL//CCJ2-CHI/ CDRUSAIA WASHINGTON DC//AlA-FM/I CDRFSTC CHARLOTTESVILLE VA//AIFIMB// DIRMSIC REDSTONE ARS AL//AIMISDA// CDRFFIIB ABERDEEN PROVING GROUND MD MARCORINTCEN QUANTICO VA//IN// MCCDC QUANTICO VA//IN/I U N C 1.. A S S I F I E D EFTO SUBJ: KTO CAPTURED MATERIEL REFS: A. PHONCON~ ~8 JUN 91~ BTW N. LEGER~ DIA~ AND MAJ COOPE HQDA. B. PHONCON~.].2 JUL 91~ BTW R. TISDEL~ DIA~ AND CAPT BRUEMMER1MARCORINTCEN~ -. C. STATE.JEPT LTR DATED 8 JUL 91 (PASEP). ~ AS DISCUSSED.DURING REFS A. AND ~ STATE DEPARTMENT IG HA FORMALLY REQUESTED DOD ASSISTANCE IN LOCATING AND INSPECTING CERTAIN FOREIGN EQUIPMENT RECOVERED FROM THE KTO. DIA/DT_FMO/IG/GcbI_3/DT_2/DT41'DT5 R. TISDEL/3?34693/lS JUL 91 U-~2282/DTFMO/KH M. R. LA B/CHIEF/DTFMO Unclassified PAGENO="0102" 98 LIIICIESSL k~G 02 02 PP UUUU 2. REQUEST YOU TAKE REF C. FOR ACTION AND ARRANGE FOR STATE DEPARTMENT PERSONNEL TO EXAMINE IRAQI EQUIPMENT CONTROLLED BY YOUR SERVICE'S ORGANIZATIONS. AT THIS TIME~ WE DO NOT RECOMMEND ANY OCONUS INSPECTIONS OF KTO MATERIEL FOR THE PURPOSES OUTLINED IN REF C. 3. DIA/DT-FMO POC IS MR. R. TISDEL, (202) 373-4693, AV 243-4693. DECL OADR U nc.1assifie~ PAGENO="0103" 99 United States Department of State Thi !nipcck~r G~ncra1 Wa.clzzngzon. D.C. 20520 July 8, 1991 Mr. 3ohn Berbrich Assistant Deputy Director for Science and Technology (DT) Defense Intelligence Agency Dear Mr. Berbrich: I request the assistance of your Agency in conducting an examination of certain equipment captured by IJ.~. forces during Operation Desert Storm. The examinations are intended to determine if the Iraqi forces possessed U.S. origin or design equipment and, accordingly, should be conducted by personnel with sufficient technical expertise to identify whether component parts are of U.S. origin or are of U.S. design and technology. Initially, I request that captured tanks of Chinese manufacture and other tanks which have undergone upgrades or modifications be examined to determine if command and control systems, range finders, night vision devices, periscopes, and other components are similar or identical to U.S. manufactured items. According to U.S. Army Intelligence Agency officials, a number of captured tanks are located at Ft. Stewart, GA, and can be examined there. I also ask that DIA identify the locatipn of other tanks which have been removed from the Desert Storm'theater of operations so that inspections can be conducted at those locations. As discussed with your staff, the inspection team will consist of personnel from my office accompanied by experts from DIA, Army Intelligence, the Defense Technology Security Administration, and U.S. Customs. If necessary, my staff will arrange for reimbursement to your agency of any incremental costs which may be incurred in conducting the inspections. It may also become necessary to send an inspection teas to the Desert Storm theater-of-operations to examine captured equipment currently located there. This travel would be coordinated with your Agency, the U.S. Army Intelligence Agency, the Defense Technology Security Administration, and U.S. Customs. I will discuss this with you further pending the results of the initial equipment examinations. PAGENO="0104" 100 If you have any questions regarding this request, please contact Mr. Carl Spann of ny staff on (202) 663-1950. Sincerely, Shersian H. Funk cc: Mr. Franklyri S. }Iowatt Inspector General Defense Intelligence Agency PAGENO="0105" 101 L ~ ~ /~ ~ PAGENO="0106" 102 DEFENSE INTELLIGENCE AGENCY WASHINGTON. D.C. 20340. 6163 C-18,203/DT-5B 4 June 1991 Mr. Donald DeFago Senior Special Agent U.S. Customs Service Strategic Investigations Division 1301 Constitution Avenue, N.W. Washington, DC 20229 Dear Mr. DePago, Per your 10 April 1991 request, we have reviewed all the materi~1 captured durinci the Iraq war an~.,.have been unable to locate ~D~ETED)' - ~J Apparently, these aircrart were never deployed to the combat area. The only Iraqi helicopters we had access to were Soviet..HIP and HIND variants. We will continue to attempt to locate thq (D~-~J - ~`ou referenced, however, at this point in ti~ë~ it is unlikely-.that U.S. or coalition forces will encounter these aircraft. Attached please find three lists of captured Iraqi equipment which our military are shipping back to the United States: ______ Enclosure 1: The Joint Captured Materiel Exploitation ~i~ter (J~NEC) list represents the largest variety of weapons systems captured from the Iraqi combatants. This is the equipment Customs agents reviewed in Dhahran, and again, one container at Enclosure 2: This list contains mu.uj.tions.. items ecovered..~or d.iz~ect exploitation by the LI~~~J; ~The captured munitions on `~iis list were produced by a nu~Ebr of foreign manufacturers. Customs may be interested in reviewing these items to determine if U.S. reexport criteria were violated.. -ence it arrives in the- United States, ~ personnel should be able to establish a chain of custody f~nost of the munitions. ) Enclosure 3: The FMA Team Inventory Repozt~provideS a list of foreign manufactured munitions our Due to the difficulty the PAGENO="0107" 103 çere having neutralizing foreign munitions, it was necessary to ship these items to the United States as fast as possible. We are uncertain as to the status of these items, however, a chain of custody should be easy to establish since tjie items were always under the control of an, Of particular interest to Customs would be thd ______ Press reports indicating that our military personnel have absconded with Iraqi weapons of interest are, for the most part, untrue. Though there are sure to be instances were a service person or their individual battalion/company ferreted key items ~or return to the United States, to the best of our knowledqe. ______ To date, we have found nothing unique in these "souvenirs" ~dch has been further confirmed by port of entry searches by u.s. Customs agents and military investigators. We will keep you informed of any new shipments which arrive in the United States and insure that your personnel are on location when the shipments are opened. The DIA point of contact on the attached enclosures and other captured foreign equipment is Mr. Michael Lamb, Chief, Foreign Materiel Office, 202-373- 4701, or his assistant, Ms. Nancy Leger, 202-373-8687. Should you have additional questions concerning Iraqi technology and technology transfer, please feel free to call Peter Raimondi, 202-373-4759. Sincerely, 8 3 Enclosures J~fLDavid B. Newman 1. Materiel Collected during Chief, Research and Oper. Desert Storm, 6 May 91, Technologies Division FOUO, 1 Cy. 2. SSO Picatinny, No. 095/91, 22 Apr 91, UNC, 1 Cy. 3. FMA Team mv. Rpt., 9 Apr 91, S/NF/WN, 1 Cy. cc: DTSA/TSO (M. Maloof) PAGENO="0108" 104 UNtTED STATES GOVERNMENT memorandum eATE: 16 April 1991 C-18,l34/DT-5B DT-5B SUSJ~CT: U.S~ Customs Service Equipment Request (U) re: OSC~-5, DB-5, DAH-l, DC-4 REF: 1. Memo, .C-l8,124/DT-5B, C/NF, 8 April 1991, same subject. 2. Meeting with U.S. Customs Service, DIA/DIAC, 21 March 1991. Per my previous memorandum, attached please find the updated list of equipment the U.S. Customs Service would like retrieved from Iraq. Please insure that our field collection elements are made aware of this updated Customs Service requirement. Note, that due to my previous concerns with U.S. company names being disclosed, I marked the Customs Service equipment list, "FOR OFFICIAL USE ONLY". If you have any questions, please call Peter Raitnondi, 202-373-4759, DISTS 981- 2440. 2 Enclosures DAVID B. NEWMAN 1. Customs Ltr.,ENF-l-E:EO: Chief, Research and INV:ST, 4 Apr 91, Technologies Division UNC, 1 Cy w/attach. 2. Memo, C-l8,l24/DT-5B, 8 Apr 91, C/NF, 1 Cy. cc: GC DT DT-FNO - : {`~`T~IIiIIEEII~I~ PAGENO="0109" 105 DEPARTMENT OF THE TREASURY U.S. CUSTOMS SERVICE WASHINGTON. D C A~ 10 ~ David Newman Division Chief Defense Intelligence Agency D.T. 5 Washington, D.C. 20340-6177 Dear Mr. Newman: In the futherance of our newly est~ablished liaison activities with your agency, we are once again desirous of your assistance. Our Miami, Florida, office has an active investigation involving Hughes helicopters which were exported to Iraq. Sources indicate that the; helicopters initially had no hard points but were subsequently reconfigured to military specifications and armed for combat. This investigation is approaching a completion and a trial date is currently~ scheduled for July 1, 1991. It would be an invaluable prosecutional asset if the prosecution could demonstrate that the helicopters in question were reconfigured. Therefore, we are requesting that your office provide us with any available serial numbers from captured or abandoned military configured Hughes 500 and 300 series helicopters from Iraq and Kuwait. It would be of further assistance if your reply were received as early as possible so as to allow our Miami office ample time to determine its use. Senior Special Agent Donald DeFago and Intelligence Specialist Antonio Hernandez are the designated points of contact at this office. Please direct your response to the attention of either of these representatives. We can also be reached by telephone at (202) 566-5104. Sincerely, J hn C. Kelley, Jr Director Strategic Investigations Division PAGENO="0110" 106 UNITED STATES GOVERNMEfff - memorandum DATE: 8 April 1991 C-1B,l24/D'r-SB DT-5B SUBJECT: U.S. Customs Service Equipment Request (U) TO: OSC-5, DB5, DAH1, DC4 REF: Meeting with U.S. Customs Service, DIA/DIAC, 21 March 1991. 1. ~ During our meeting with personnel from the Customs Service, Strateqic Investigations Division, we were provided with 2. Subsequent to the meeting with the Customs Service, we have learned that a number of items were recovered from Iraq and forwarded to the U.S. through unofficial channels. For example, during an unrelated 4 April technical meeting at the DeSense Technology Security Administration, representatives from thç We are in the process of correlating this retrieved materielirjth Customs Service and DIA requirements. 3. In order to satisfy Customs Service requirements, addressees are requested to consider tasking enclosure 1. to appropriate field elements under their cognizance. Caution should be exercised in forwarding the Customs Service list to the field, and at a minimum, the U.S. manufacturers and/or vendors should be deleted to insure we do not violate Executive Order 12036/12333. Copies of enclosure 1, with the U.S. vendors denoted, should not be disseminated beyond the addressees of this memorandum. 4. We will keep you informed of any new information we obtain concerning recovered Iraqi equipment. The DT-5B point of contact on this effort is Peter Raimondi, 373-4759, DISTS 981- OPTIONALPO~M HO. to .US199O2e2OO1I2DO6~ PAGENO="0111" 107 2440. Alternate DT points of contact are Nancy Leger, DT-FMO, 373-8687, DISTS 981-1404 and Al Girard, DT-3, 373-4639, DISTS 981-2415. 1 Enclos *e a/s DAVID B. NE~AN DIA ~q~fipment List, 21 Mar 91, Chief, Research and 1 Cy. Technologies Division cc: GC DT DT-FMO DT-3 PAGENO="0112" 108 Question 6: For months prior to the outbreak of the ground war, reports by several nameless "high official sources" and by the Director of the Central Intelligence said that the Iraqi military had forward deployed possibly thousands of tons of chemical munitions. On the 28th of February at the daily Pentagon briefing, General Kelly said that the U.S. armed forces had "found no chemical weapons to date in the theater of operations." Previously, it had been reported that only a few chemical land mines had been found. a. What is the Pentagon's final.finding? b. Were any Iraqi chemical weapons deployed in the theater of combat? c. What is the possibility that the chemicals originated in the United States? d. Were chemicals supplied by Alcolac International of Baltimore to Iraq used in weapons found in the theater of combat? Have you found any evidence to link Alcolac chemicals with Iraq's chemical weapons programs? Answer: No chemical weapons were deployed by Iraq into the Kuwait! Theater of Operations (KTO). DIA believes that Iraqi fear of severe retaliation, which they likely believed included the forced removal of Saddam Husayn from power, led to their restraint from using CW or BW. No U.S. exports of finished chemical agents were made to Iraq. The origin of chemical precursors in a particular chemical weapon or weapons cannot be determined, based on the very poor records the Iraqis kept on their production of chemical agents and weapons. To date, no Iraqi chemical weapon has~beem found in the KTO. Even if such weapons had been found OCT 0 199j PAGENO="0113" 109 Question 7: Under the terms of the United Nations Cease Fire agreement, Iraq purportedly disclosed on April 18th the location of all of its chemical stockpiles, nuclear materials and ballistic missiles, which are to be destroyed several months later. a. To what extent have the Iraqis complied with the agreement? b. How will the destruction of these weapons be carried out? `c. Were the huge quantities of the mustard gas precursor "thiodiglycol" that were exported illegally by Alcolac International, or any mustard gas derived from that thiodiglycol, listed as part of Iraq's chemical stockpiles? Answer~ To date, Iraqi noncompliance falls into two categories: substantial underdeclarations of facilities and materials and removal of records to prevent access by inspectors. The Iraqis have made several revisions to their original declaration regarding chemical weapons. The most recent chemical weapon declaration is substantially different from the original. Regardless, the Iraqis have still not declared many facilities that DIA assessed were part of their CW network, and DIA believes that undeclared munitions remain. The following table compares the Iraqi declarations: Original Declaration Most Recent Declaration CWsite 8 12 CW munitions 11,000 filled 46,000 filled (25,000 of which were destroyed or buried; 79,000 unfilled) CW bulk material 1,000 tons 1,000 tons and precursors CW agents 2 4 To be in compliance with the agreement, Iraq must still: - Admit to having ~g~nts not yet declared, but whjch Iraq is assessed to hav~ - Declare, present, `and destroy in the presence ~ representatives: all CW agent and munitions stockpiles, research and development facilities, production equipment, and weaponization equipment. - Declare `and surrender to U.N. representatives all category 2 and 3 precursors. OCT 0 PAGENO="0114" 110 Iraq has failed to comply fully with U.N. Security Council Resolution (UNSCR) 687. Iraq has continued to underdeclare the number and scope of its weapons of mass destruction and ballistic missile capabilities; to deliberately employ concealment and deception measures to prevent U.N. inspection teams from locating weapons and production equipment subject to destruction under UNSCR 687; and to refuse to allow inspectors full and unrestricted access to all declared or suspected facilities associated with the storage, development, or production of weapons of mass destruction and ballistic missiles. Iraq's incremental approach to compliance with UNSCR 687 is designed to lower the international demand for future U.N. inspections, thereby protecting covert Iraqi military capability. Iraq has willfully underdeclared the extent of its nuclear program and begrudgingly and in piecemeal fashion acknowledged the scope and breadth of its program, and then only under extreme pressure from the leadership of the United Nations. Iraq is continuing a pattern of covert "damage control" operations including the removal, hiding, destruction of, and covert recovery of nuclear-related equipment. This activity is clearly intended to foil efforts to determine the true status of its programs and to shield its nuclear capability from destruction. Iraq has obstructed the U.N. inspection efforts and has resorted to force and denial of medical assistance. Iraq continues to insist on the peaceful nature of its nuclear program, despite overwhelming evidence to the contrary. Iraq has underdeclared the number of ballistic missiles, critical missile components, and facilities and has made willful attempts to deceive inspectors during missile inspections by attempting to conceal critical components from discovery by inspectors. The Iraqis are known to have an enormous chemical weapon program, but they have substantially underdeclared their facilities, materiel, and munitions and have removed records to prevent access to proscribed items by U.N. inspection teams. The Iraqis have maintained from the outset that they have no biological weapon program and have noted that they ratified the Biological Weapons Convention on 8 April 1991. Despite these remonstrations, the existence of a substantial Iraqi biological weapon program has been credibly asserted by numerous sources. Evidence, such as the existence of PAGENO="0115" 111 unusually large microbial production systems, anomalous containment capabilities, and antiaircraft installations at sites alleged to be peaceful microbiological research activities, makes the Iraqi assertions very hollow. Chemical Destruction. A satisfactory plan to destroy the CW weapons and agents has not yet been decided on. The Iraqis did submit a plan that essentially involved incineration of the mustard agent at the Samarra CW facility. For nerve age~it disposal, they proposed a chemical hydrolysis using a 10-percent sodium hydroxide solution. This process would yield six to seven times the volume of original agent in the form of waste, which the Iraqis suggested could be buried onsite. Both proposals were viewed by inspectors as being unsafe or environmentally unsound. Currently, a satisfactory dest,ruction plan is still being considered. The U.N. Special Commission (SPECOM) is resp~~ible for destroying, removing, or rendering harmless Iraq's ballistic missiles and CBW capability. The IAEA is responsible for the same functions regarding all nuclear warfare materiel. A long-range monitoring plan was submitted to the U.N. Secretary General by the SPECOM on 1 August, but, as yet, has not been approved. The United States had substantial input to this plan. Nuclear materials and related equipment have been, in piecemeal fashion, declared to the IAEA. The fourth inspection team has finished its tour. Nuclear materiel has been taken into custody, but not yet destroyed. A parallel nuclear long-range plan has been also submitted to the U.N. Secretary General. Ballistic missile destruction is presently in progress. U.N. inspection teams have supervised the cutting, crushing, and exploding of missiles and equipment over the term of three inspections. CBW facilities are still being surveyed. The Iraqis have opposed a suggestion that chemical agents and munitions be destroyed "in situ." Irrespective of Iraqi PAGENO="0116" 112 wishes, hazardous materiel probably will not be removed from Iraq for further disposition. It may be consolidated at one place for destruction onsite. An unresolved issue is the procedure for emptying filled munitions. The approval of the SPECOM's long-range monitoring plan is expected shortly. It will cover 3 to 5 years and beyond. The United Nations has requested substantial U.S. personnel, equipment,, monetary assistance, and surveillance assets to support Iraqi compliance with UNSCR 687. PAGENO="0117" 113 Question 12: SCUD missiles were reportedly used in the battle of Khost, Afghanistan, in the past several weeks. Can you verify this use? How many SCUD missiles have been fired during the Afghan civil war? Is there any evidence that U.S.- origin technology or equipment is being used to enhance the Afghan missiles? Does the Soviet Union continue to transfer SCUD missiles to the Afghan Government? If so, is this in violation of their pledge last February to adhere by the MCTR principles? Answer; I The total number of SCUD missiles fired in the Afghan ci~~'l war since the Soviet withdrawal in February 1989 is approximately 1,540. SCUD missile capabilities exceed the thresholds set by MTCR--~ maximum range of 300 km and maximum payload of 500 kg. * H: * `~1 / 0C7 ~ 199j PAGENO="0118" 114 Question 15: What is the status of the 1,500-mile- range CSS-2 "East Wind" missile which China transferred to Saudi Arabia in early 1988? Are they operational? Has the United States been granted access to those launch sites, as was requested and denied at one time? Are the launch facilities manned by Chinese technicians? Were the missiles ever considered for operational military use during Operation DESERT STORM? Do you think that these missiles deterred Iraqi military ope~a~ions against Saudi Arabia? Answer: / PAGENO="0119" 115 Question 16: What information does the Defense Department have on the Iraqi organization Badr General Establ ishmen~~? Answer uc7~1. U / PAGENO="0120" 116 [The subcommittee did not receive written responses to questions 8, 9, 10, 11, 13, and 14.] Chairman PICKLE. Now, the Chair will call up the first panel which consists of Mr. Steve Davis and Mr. David Burns. I am going to ask those two gentlemen, representing U.S. Customs Service to come forward to make a statement and then we will have a third witness sworn in to be a part of that panel. Mr. Burns, and Mr. Davis, please take your seat at the witness table. The first witness we will have today will be Mr. Steve Davis, senior special agent from the Sacramento, California office. Mr. Davis. STATEMENT OF STEVEN C. DAVIS, SENIOR SPECIAL AGENT, U.S. CUSTOMS SERVICE, SACRAMENTO, CALIF. Mr. DAVIS. Thank you, Mr. Chairman. Today, I would like to outline the investigation that we conduct- ed of Dr. Helmy, that involved the conspiracy to export missile technology and components for the Condor II ballistic missile project. It began on March 19, 1988, when Customs agents in Sacramento were advised by their counterparts in Chicago that a Mr. Fouad Mohamed was en route to Sacramento from Cairo, Egypt, via Chi- cago. The Chicago agents advised that Mohamed was suspected of being involved in the illegal diversion of licensable materials. Upon arrival in Sacramento, Mohamed was placed under surveillance by Customs agents who observed him being met by a family who drove him to a hotel. The vehicle, when the registration was checked was determined to be registered to Dr. Helmy. It was learned that Mr. Mohamed registered at the hotel under the name of F. Algamal. On March 20, Dr. Helmy drove Mohamed to a second hotel where Mohamed registered under the name of Foud Elgmal. On the 22nd of March, Dr. Helmy met with Mohamed at his hotel, where Helmy was observed to sign over approximately 10,000 dollars' worth of traveler's checks to Mohamed. It was later deter- mined that this money was used to facilitate approximately 27,000 pounds of various components of solid rocket fuels. It was also learned later that Helmy had five K-Karb blocks and carbon cloth. Mohamed agreed to smuggle them out of the country on his return to Cairo. Because of their ability to withstand high temperatures, these K-Karb blocks and the carbon cloth are used in the production of nozzles for rocket engines, and missile nose cones. On the morning of March 23, Customs agents who were conduct- ing a surveillance of Helmy's home observed him loading two card- board boxes into one of his cars. At approximately 6 p.m. that evening Dr. Helmy was observed departing his residence in the car containing the two cardboard boxes. He was followed to Mohamed's hotel. Customs agents then fol- lowed Dr. Helmy and Mohamed to the Sacramento airport where the two purchased airline tickets to Washington, D.C. The boxes from Helmy's car were checked as baggage and in the baggage PAGENO="0121" 117 check area, Customs agents were able to examine the exterior of the two cartons which were addressed to 23-8 Tracy Place, Wash- ington, D.C., under the name of Foud Moha. Customs agents from Reston, Va., were able to determine that the address on the cartons was that of the Egyptian Military Attache in Washington, D.C. Upon arrival in Washington, D.C., Dr. Helmy and Mohamed were observed by Customs agents getting into an Egyptian diplomatic vehicle which drove to the Vista International Hotel where Dr. Helmy stayed. Mohamed and the boxes were driven to a house at 1821 T St., Washington, D.C., and it was later learned that this building was owned by the Egyptian Embassy. Mohamed and the boxes went into the house on T Street and the boxes were never seen again. On March 25, Dr. Helmy returned to Sacramento and Mohamed left the United States for Egypt. On March 30, Customs agents in Sacramento interviewed the head of security for Aerojet General and determined that Dr. Helmy was a staff scientist working for the Aerojet Solid Propulsion Co. Dr. Helmy held a secret security clearance and had access to many classified documents and projects. The projects underway in Dr. Helmy's area involved mis- sile propellants and gun projectiles. It was also learned that Dr. Helmy was a naturalized American citizen who had been naturalized in October of 1987. The same day Customs agents retrieved the trash from in front of Dr. Helmy's house and discovered two pages of handwritten notes describing in nonscientific terms how to work with carbon-carbon materials. These handwritten notes were identified by Aerojet as instructions on how an exhaust nozzle for a rocket would be constructed from carbon composite material, including a brief instruction on where to obtain the required materials. It was determined that carbon composite materials and technolo- gy are controlled items and require Department of State export li- censes. It was also verified that neither Dr. Helmy, nor Mohamed had applied for or received any export licenses from the Depart- ment of State. During additional meetings with Aerojet it was learned that Dr. Helmy was a recognized expert in solid rocket propulsion and had an extended background in carbon composite technology. The Cus- toms case agent then began to pick up the trash from in front of Dr. Helmy's residence on a weekly basis. These trash runs resulted in the recovery of an envelope from the Fiberite Corp. which was addressed to Science and Technology Applications, at Dr. Helmy's address and marked to the attention of A. Helmy. The Customs agent also determined that Science and Technology Applications had not received an export license from the Department of State. The case agent contacted the head of security for Fiberite Corp. who stated that the description of the large box, taken into the res- idence owned by the Egyptian Embassy, was similar to the boxes used by Fiberite to ship some of their carbon composite materials. Through trash runs and telephone toll analysis, the case agent began to collect sufficient probable cause to obtain a court order for a wire tap of Dr. Helmy's residence and office telephones. The PAGENO="0122" 118 trash runs revealed a handwritten list of chemical compounds and other materials; it appeared to be a shopping list. Shipping documents were also recovered that indicated some ma- terials had already been shipped to Egypt. Those companies identi- fied through the trash runs which appeared to be legitimate busi- nesses were contacted concerning their business dealings with Dr. Helmy. It was learned that all of the chemical compounds on this shopping list could be used as components for solid rocket fuel. It was also learned that not all of these items required export li- censes from the Departments of State or Commerce for export to Egypt. During late May 1988, Customs received a court order au- thorizing a wiretap of Dr. Helmy's residence and office telephones. One of the first intercepted phone calls was between Dr. Helmy and James Huffman, who in effect, was Helmy's front man for pur- chasing the chemicals and other materials. Huffman would make the purchases in the name of his company, Mesa Associates. During this conversation, Dr. Helmy and Huffman reviewed the status of their efforts to purchase the items on the list recovered during the previous trash run. Huffman also summarized difficulties he was encountering with several of the manufacturers. During early June, a conversation was intercepted between Dr. Helmy and Admiral Elgohary, who was in charge of the Egyptian procurement office in Washington, D.C. During the conversation, Dr. Helmy explained how they were having the manufacturer ship the materials to one location in the United States, and they would then transship the materials to a second location where it would be turned over to the Egyptian pro- curement office for export. The same day a conversation between Dr. Helmy and Ahmed Khairat, also known as Dr. Yossef was intercepted in which Dr. Helmy reiterated the purpose of trans- shiping the materials within the United States, that it was to con- ceal the fact that they would be exported to Egypt. Also during late May, Huffman told Dr. Helmy that he had run into problems attempting to purchase one of the rocket fuel compo- nents, because it was a restricted item. Huffman stated, "I don't want to make anybody nervous and make them suspicious so that they start sending somebody around to investigate * * ~ We have to be very careful about that." During another conversation Huffman told Dr. Helmy that he had directed that seven barrels of rocket fuel components be listed as seven drums fatty acid of animal oil. Huffman's telephone conversations with Dr. Helmy repeatedly referred to conversations with Admiral Elgohary and Sousha. At the beginning of June, Huffman called Dr. Helmy from Admiral Elgohary's office. Huffman explained that Elgohary had a problem with the lack of export licenses for the items that they were deliv- ering to the Egyptian C-130s and he asked Helmy to deal with El- gohary. Dr. Helmy reminded Elgohary that the items he and Huffman were shipping could not legally be exported. Following this call, Dr. Helmy contacted Khairat in Austria and explained the problem he had just encountered with Elgohary. Helmy explained that Admi- ral Elgohary had tried to insist on providing export documents. He also told Khairat, "I told him these items are controlled ~.rid PAGENO="0123" 119 cannot be exported outside the United States. I told him that if they knew I was buying it to export it, I will be thrown in jail." Helmy went on to ask Khairat to call Admiral Elgohary and ask him to behave himself. Dr. Helmy warned that "if Elgohary did not behave, not only will I be in trouble, but also those who are helping me." "They also will be in great, great trouble. I have Americans here who are covering my trails and I do not want the problems to be caused by you." Later that same day Khairat called Dr. Helmy and told him that he had explained to Elgohary the need to give Dr. Helmy as much assistance as possible. As part of the conspiracy the Customs inves- tigation had also determined that Dr. Helmy had special ordered two ceramic nose cones from a company named Greenleaf Technol- ogies. We have one of those nose cones here that is very small and there were two of these types of items. On June 10, 1988, Customs agents acting in an undercover capacity delivered one of these de- vices to Dr. Helmy. In addition, Huffman ordered two antennas that are used on sounding rockets and he had also received a quan- tity of R-45-HT which is a component of solid rocket fuel. These three items and carbon composite material all required Depart- ment of State export licenses. During the same time period, Huffman ordered 400 pounds of carbon composite material from the Fiberite Corp. Customs agents, acting in an undercover capacity, delivered the carbon composite material to Huffman's freight forwarder in Ohio and this was in early June. Because the carbon composite material must be stored at temperatures no greater than 40 degrees, Huffman's freight for- warder made arrangements to have the material stored at a local beer dock. Between June 14 and 22, Helmy and Huffman had several con- versations about how the carbon composite material would be smuggled out of the United States, past Customs and their fears about it being detected. The four boxes of carbon composite material were put into a wooden box and then marked "AF Club, attention Sousha". Huff- man commented to Dr. Helmy, "Well, wish us luck, haven't gone to jail yet." On June 25, the carbon composite material and two drums of R- 45-HT were seized at the Baltimore/Washington Airport, as the carbon composite material was being loaded onto an Egyptian C- 130 aircraft. The manifest did not list these four boxes of carbon composite material. Colonel Sousha was arrested at that time; how- ever, he was released a short time later after his diplomatic immu- nity had been confirmed. An arrest warrant had also been obtained for Admiral Elgohary; however, shortly before it was to be served, it was learned that he had diplomatic immunity and the arrest warrant was not served on him. Dr. Helmy and James Huffman were both arrested and approxi- mately $810,000 that Helmy had received to purchase the materials and technology was seized and forfeited to the Government. Dr. Helmy and Huffman both pled guilty and each was sentenced to approximately 4 years in prison. PAGENO="0124" 120 In addition, Foud Mohamed and Mr. Khairat were indicted and at this time there are -arrest warrants outstanding for them. That concludes my testimony. [The prepaed statement follows:] PAGENO="0125" 121 Prepared Statement Senior Special Agent Steven C. Davis U.S. Customs Service The Investigation of Abdelkader Helmy According to documents obtained in his case, the Ministry of Defense ("MOD") of the Arab Republic of Egypt entered into agreements in 1984 with Iraq and Argentina for the joint development of an intermediate range ballistic missile. Analysis of these documents by the Defense Intelligence Agency shows that the missile, generally referred to as the Condor II or Bader 2000, was intended to be equivalent to the American Pershing missile and to have a range of approximately 1,000 kilometers and a payload of approximately 1,100 pounds. Defendant Helmy has acknowledged the accuracy of this analysis. According to Helmy, the initial plans for the Condor II called for the production of ten missiles. Five of these were to be retained by the MOD and five delivered to Iraq. Iraq agreed to fund the project and Egypt agreed to provide the necessary technical expertise. The initial construction and testing of the ten missiles was to be done in Argentina, although the MOD anticipated that it would later produce additional missiles in Egypt. Two primary companies were set up to handle the Condor II project. IFAT Corp. Ltd., located in Zug, Switzerland, was responsible for the financial aspects and CONSEN S.A.M., located in Monaco, was to handle the conracting. A formal contract between the MOD and IFAT was signed on February 15, 1984. CONSEN recruited engineers for the Condor II project from several European companies. Egyptian Colonel Ahmed Hussam El-din Yossef Khairat was picked to coordinate the development of the Condor II project with IFAT and CONSEN. Me established an office, shared by IFAT and CONSEN, in Salzburg, Austria for this purpose. The Condor II project's chief engineer was Egyptian Colonel Fuad Algamal. Defendants Helmy and Huffman first became friends in 1983 when Helmy was working for Teledyne, McCormick, Selph ("Teledyne") in Hollister, California. At that time, Huffman was a midwest marketing representative for Teledyne and Helmy was Teledyne's chief scientist on a gun project. Huffman was planning a trip to Egypt and asked Helmy for introductions to some of Helmy's friends. Helmy provided Huffman with the names of several contacts in Egypt, one of which was Col. Khairat. While Huffman was in Egypt, he attempted to obtain business with the Egyptian military for both Teledyne and his own company, Mesa Associates. During 1984, Huffman went to Egypt on official business for Teledyne. Helmy met Huffman in Egypt and arranged for him to meet several high ranking Egyptian military officials. During this trip Helmy discussed the Condor II project with Huffman. Khairat requested Huffman to obtain strap-down inertial guidance systems for the Condor II project. In September of 1987, Helmy went to Cairo on vacation and met with General Abdel Elgohary, Col. Khairat, and other Egyptian military officials, all of whom he had known for many years. According to Helmy, these officials explained that they were having problems obtaining some of the items that were critically needed for the Condor II project. While the main problem was finding carbon-carbon for use in the missile nose cones, there were also problems in procuring many of the chemicals needed for the solid propellant first stage motor. Helmy claims that he explained to them that carbon-carbon in particular was subject to American export controls and could not be exported without licenses from the State Department. Helmy also claims that he suggested that alternative non-controlled items would give satisfactory results and volunteered to help obtain these materials. In particular, Helmy supposedly recommended that a non-spherical aluminum would work almost as well as the spherical aluminum that Condor II scientists were requesting and that a two-dimensional type of carbon-carbon called K-Karb could be used in the nose cone instead of the three-dimensional varieties used in American missiles. Helmy says that he was told to coordinate his activities with Khairat and do whatever was necessary to ensure the project's success. PAGENO="0126" 122 2 Khairat agreed to provide Helmy with a list of the materials he needed and later sailed the list to Helmy in California. The list contained a long series of chemicals needed for the solid propellant for the first stage of the Condor II missile and the names of companies from which the materials could be obtained. Khairat obtained Helmy's bank account number and told him that the money to pay for the materials would be wired to Helmys account by IFAT. Khairat also told Helmy that the Egyptian Assistant Military, Naval, and Air Attache in Washington, Colonel Abdel Monem Hamza, would help him with shipping the materials. Helmy's plan for the nose cone envisioned two possible types of nose cone materials. One was a silicon-based ceramic-ceramic composite material and the other the carbon-carbon composite K- Karb. On November 30, 1987, Helmy contacted the Advanced Composite Materials Corporation and obtained a price quotation for two rods of the ceramic-ceramic composite. On December 8, Helmy ordered the rods with the intention of having them tested to see whether they would be a suitable material for the nose cones. The rods were shipped to Helmy's El Dorado Hills home on December 11. At approximately the same time, Helmy also ordered several K-Karb panels from Kaiser Aerotech. Helmy paid $1,800.00 for rods and $1,966.29 for the K-Karb panels. This money came from the initial $30,000 wire transfer of IFAT funds that was made to Helmy on December 15, 1987. In mid-December, 1987, Algamal and another Egyptian Colonel came to California to visit Helmy and take the nose cone materials back to Egypt for testing. Helmy had by this time also prepared a report for condor II scientists entitled "Testing and Evaluation of C-C Material for Atmospheric Reentry Applications.? This report dealt with methods for testing the K-Karb's ability to be used as a nose cone material. Most of the information in this report is copied- or taken verbatim from a document Aerojet scientist has prepared for NASA entitled "Evaluation of Carbon-Carbon Composites for Space Engine Nozzles." A copy of this latter document was seized from Helmy's home in June, 1988. Its cover clearly states: Subj ect to Export Control Law This document contains information for manufacturing or using munitions of war. Export of the information contained herein, or released to foreign nationals within the United States, without first obtaining an export license, is a violation of the International Traffic in Arms Regulations. Such a violation is subject to a penalty of up to 2 years imprisonment and a fine of $100,000 under 22 U.S.C. 2778. Algamal returned to Egypt with the report as well as the ceramic composite rods and the K-Karu Helmy had obtained. Helmy also contacted a friend, Hassan Khatib, owner of the Integrated Research Corp. in Los Angeles, and asked for help in producing some of the chemicals needed for the missile's propellant. Helmy asked Khatib to purchase, among other things, 18,000 pounds of military grade aluminum powder, 255 pounds of an anti-oxidant called Cyanox, and 11,000 pounds of a synthetic * rubber compounds called hydroxyl-terminated polybutadience ("HTPB'). Helmy told Khatib that the HTPB would be used for -making plastic bottles, shoes, and glue. Neither the aluminum nor the Cyanox needed licenses for export to Egypt. Khatib ordered these materials in March of 1988 and had them shipped to Egypt in April. Khatib realized that the HTPB would require an export license, so he prepared license application forms for both the Commerce Department and the State Department and sent them to Helmy with instructions to have thec completed. To preserve the secrecy of the project, however, Helmy never submitted the license applications and instead obtained this material later through Huffman. Tests on the K-Karb and ceramic composite rods showed that while the K-Karb could be made into workable nose cones, the rods could not be machined into the proper shape. Helmy therefore ordered five K-Karb blocks, from Kaiser Aerotech with the intention of shipping them to Egypt for machining. He also contacted a company called Greenleaf Technical Ceramics and arranged to have them cast two nose cones out of the ceramic- PAGENO="0127" 123 ceramic composite to avoid the problems with machining this material. Helmy described the items he wanted merely as "cones, but his own records clearly reflect that they were intended to be nose cones for a missile. Khairat had also informed Helmy that he needed an ablative composite fabric as a heat shield for the Condor II payload covers. Helmy therefore contacted HITCO and ordered a large quantity of a rayon-based carbon fabric suitable for heat shields. In March of 1988, Helmy went to Washington to meet with Egyptian officials about the progress of his work, and to deliver the K-Karb blocks and the HITCO fabric. Helmy also prepared a report entitled "Procedure for Ablative Carbon-Carbon Fabric Application" explaining how to apply the HITCO fabric to the missile. Algamal agreed to come to Sacramento to meet with Helmy and help him transport the K-Karb blocks and the HITCO fabric back to Washington. Algamal flew from Cairo to Sacramento on March 19, 1988 and was met at the airport by Helmy and his family. Helmy took Algamal to a local hotel and helped him register. On the next day, Helmy helped Algamal move to a different hotel and used his own credit card to secure payment of the room. On March 22, Helmy met with Algamal at the hotel. The two discussed the status of the Condor II project and Helmy's export activities. Helmy also signed over $10,000 worth of traveller's checks to Algamal to use in expediting the shipment that Khatib had already made for Helmy. Helmy told Algamal that he had received the K- Karb blocks and the carbon cloth from HITCO and Algasal agreed to smuggle them out of the country with him when he returned to Cairo. On the following day, Algamal and Helmy flew to Washington with Helmy's report, the K-Karb, and the HITCO fabric. There Algamal delivered them to a building owned by the Egyptian Military Attache. They were later smuggled out of the country and sent to Egypt. Helmy says that while he was in Washington, he met with Egyptian military officials and was told that the procurement effort was going too slowly and would have to be speeded up. Helmy suggested using Huffman to help him get the materials out of the country because of the latter's earlier export activities on behalf of the Egyptian government. Helmy and Khairat had in fact already discussed using Huffman's services. In late April of 1988, Helmy learned that Huffman was in Hollister and called to invite him to Sacramento. Helmy told Huffman that he wanted his assistance in obtaining hydraulic components. Although Helmy did not mention it to Huffman on the telephone, documents seized from Helmy indicated that the Egyptians needed these components for an Egyptian project to upgrade American Sparrow air-to-air missiles. Huffman came to Helmy's house the same night as the phone call and Helmy described to him the hydraulic components he wanted. Helmy also told Huffman that he needed to obtain a number of chemicals and showed him a list of the chemicals. Huffman recognized the hydraulics package as similar to those used on the Sparrow and asked if those parts were in fact for the Sparrow. Helmy acknowledged that the Egyptians were working with the Sparrow's power drive, but did not give him any details since the project was considered secret by the Egyptians. Helmy told Huffman that the Ministry of Defense had already given him the money to pay for the materials so there would be no "red tape." Helmy explained to Huffman that the materials would be smuggled out of the country on the Egyptian C-l3O that the Egyptian procurement office used to fly equipment between Washington and Cairo. Huffman was familiar with this plane from his earlier dealings with the Egyptians. Huffman then specifically asked Helmy whether the Egyptian government would get export licenses for the equipment and Helmy told him that they needed to export the materials without export licenses and without shipping documents. Helmy specifically remembers using the word "smuggle" to describe their activities. Helmy told Huffman that he would pay all of the expenses and wold give Huffman 15% of their gross profit on the exports. PAGENO="0128" 124 4 Huffman in turn was to give Helmy a 5% kickback. The net result was that Helmy would cover all of the expenses and Huffman would receive 10% of the gross profit. Huffman agreed to Helmy's terms and Helmy promised to send Huffman a complete list of the parts and materials he needed and their specifications. Huffman agreed to get price quotes for the materials and send them on to Helmy. Huffman was to be responsible for ordering the materials and arranging for their transportation to Washington. Huffman later proposed a method for concealing their operations. Huffman suggested that he purchase the needed materials in the name of his business, Mesa Associates, and ship them to the D&N Packing warehouse in Shelby, Ohio, far from his home and office in Lexington. There, some of the items would be repackaged and the identifying markings would be removed from the rest. Huffman would then have the materials shipped to the D.F. Young Shipping company in Harmon, Haryland, a freight consolidator used by the Egyptian Procurement Office (EPO") in Washington for shipping equipment to Egypt. By using this shipping method, none of the suppliers or shippers would know that the materials were intended for export. Helmy told Huffman to coordinate his activities with colonel Hamza. Shortly after Huffman and Helmy began their work, however, Hamza became sick and could no longer help them. Khairat then told Helmy that he should begin working with Admiral Abd Elrahin Elgohary of the EPO and colonel Mohamed Abdallah Hohamed. Hohamed, usually referred to as Shousha, was the military Attache's representative at D.F. Young and was responsible for coordinating the bi-weekly C-l3O shipments. When Helmy told Huffman of this change, Huffman indicated that he knew both Elgohary and Shousha well from earlier dealings with the EPO. The shipping method Helmy and Huffman decided to use was specifically designed to circumvent United States customs laws. Helmy later described this method in a telephone conversation on June 1, 1988 with Admiral Elgohary: "Sir, we really do not want to bring him (the shipping agent) into this because we are carrying on this transaction in three steps, you know, we bring it (we get it) from the company in a certain way on the basis that it will be used here, and then we transport it into another place and thirdly it gets to you sir so nobody will know where it is going." On the same day, Helmy reiterated the purpose of the shipping methods in a telephone conversation with Khairat: "We are able to acquire [these items) through our own personal ways which require us to store it in two separate warehouses en route, so that no one could tell where it is going." Huffman returned to Ohio and immediately began carrying out the plans on which he and Helmy had agreed. Helmy sent Huffman a list of the chemicals that he would need. By Hay 1, 1988, Huffman had contacted many of the suppliers they would use, obtained price quotations, formulated a purchasing plan and had faxed it to Helmy. Specifically included in the plan were an ablative carbon phenolic fabric manufactured by Fiberite and the synthetic rubber HTPB, both of which require State Department export licenses. Helmy had told Huffman earlier that one of his needs was for the bladders and hydraulic packages for the Sparrow project. They later had several telephone conversations about Huffman's efforts to obtain these parts. Helmy also sent Huffoan two checks, one for $25,000 and another for $31,000 to cover Huffman's initial expenses. One of the rocket program's pressing needs was for large quantities of the artificial rubber HTPB that Helmy had been trying to purchase through Khatib. Helmy wanted to export at least 11,000 pounds of this material and had made inquiries in February of 1988 with the Chemical Systems Division of United Technologies ("C.S.D.") about whether the water content of their HTPB was low enough for his needs. C.S.D. had their quality PAGENO="0129" 125 5 control department perform an analysis of the material and sent the results to Helmy in mid-March, 1988. Huffman contacted C.S.D. on Helmy's behalf in early May. C.S.D. was concerned about the use to which Huffman was going to put the material, but Huffman assured C.S.D. that he intended to use the product locally and agreed to confirm this in writing. In a May 6, 1988 letter to c.s.o., Huffman stated that the R45M would "be used in a commercial application in our area." C.S.D. shipped the HTPB to Shelby, Ohio on May 12, 1988. Helmy also asked Huffman to buy microwave telemetry antennas for the Condor II. On May 3, 1988, Huffman contacted Vega Precision Laboratories and requested product information and price quotations on two parabolic telemetry antennas. These antennas are specifically designed for rocket telemetry. On May 17, 1988, Huffman placed an order with Vega for two antennas. Vega personnel asked Huffman what the intended use of the antenna was. Huffman said they were for commercial use for local programs. On May 4, 1988, Huffman ordered a 500 pound drum of EPON from the Miller-Stephenson Company and had it shipped to D & N Packing. Epon is used for gluing composite fabrics to surfaces in the aerospace industry and Helmy intended to use it for this purpose on the Condor II. Helmy had already obtained and shipped 225 pounds of the antioxidant Cyanox but needed more. On May 9, Huffman ordered an additional 200 pounds of Cyanox from American Cyanimide in North Carolina. This chemical was shipped to Mesa Associates in care of D & N Packing on May 12. Huffman also contacted representa- tives of the Henkel Corporation in La Grange, Illinois and ordered a 55 gallon drum of Versamide 125 and another drum of Versamide 140. These two chemicals are epoxy hardeners that are used in conjunction with EPON. Henkel shipped these two drums to Mesa, in care of D & N Packing on May 27. Sometime in early May, Huffman also contacted the Arsynco Company in Flushing, New York and inquired about purchasing a rocket propellant component call MAPO (tris-2-methyl aziridinyl phophine oxide). The Arsynco representative told Huffman that since he was a first time buyer of MAPO, he would have to give Arsynco a letter stating the use to which the chemical would be put. On May 10, 1988, Huffman sent a letter to Arsynco responding to their concerns. Almost everything in the letter was a fabrication. Huffman first implied that MESA Associates was a manufacturer of wire and cable harnesses that did both commercial and military production for IBM, the United States Navy, the United States Army, and Teledyne. Although Huffman knew that the MAPO would be exported, he further claimed that he wanted the MAPO for use "as a curing agent for a research project in the United States." Relying on Huffman's representations, Arsynco shipped 40 pounds of MAPO to D & N Packing on May 26, 1988. On May 20, 1988, Huffman called Mobay Chemical and spoke to one of their sales representatives about purchasing hexamethylene diisocyanate or MMDI, another of the chemicals on Helmy's list. HNDI's primary use is as a curing agent for HTPB in solid rocket fuels. Huffman told the sales representative, however, that he wanted to use the chemical to paint the floor of a local gymnasium as a community project. As Huffman's own notes show, the sales representative told him that hexamethylene diisocyanate is used primarily in rocket fuels. The sales representative told Huffman that, while this chemical could be chemically altered to work as a paint additive, this would not be easy to do and there were other chemicals that would do a better job. Although Huffman still wanted to purchase the hexamethylene diisocyanate the sales representative was suspicious and refused to fill his order. On May 25, 1988, Huffman called Nelmy and described his problems in getting the hexamethylene diisocyanate. Huffman told Helmy that he had tried to get the chemical from Mobay but had been refused because Mobay knew ~iat it was a rocket fuel component and was restricted. Huffman told Nelmy that he would wait a few days before contacting any other chemical companies because, "I don't want to make anybody nervous and make them 51-840 0 - 92 - 5 PAGENO="0130" 126 6 suspicious so they start sending somebody around to investigate. We have to be very careful about that." Also in May, Helmy asked Huffman to help him purchase large quantities of maraging steel for the Condor II project. Maraging steel is a modern type of steel that is both ductile and hard and is ideal for use in rocketry. The particular grade of maraging steel Helmy and Huffman were purchasing is "the particular grade commonly used in rocket motor casings production." Helmy wanted to purchase both large pieces of sheet steel and smaller forged steel rings for the Condor II project. The sheets were to be used for the motor casing of the first stage of the Condor II rocket, while the forged pieces were intended for making the connections between the casing segments and the head and nozzle of the rocket. The total price of the steel was estimated by Huffman and Helmy to be about $299,000.00. The engineering specifications for these pieces had been given to Helmy by Algazial in March. Early in May, Huffman had contacted Leo DeLong, the president and owner of the 0 & N Packing company and told him he wanted him to receive, store, and reship several items for him. DeLong had no previous contacts with Huffman and did not know what Huffman intended to do with the materials sent to D.F. young in Baltimore for "A.F" Club Attn Shousha", an ultimate consignee was never indicated. Muffman told people at D & N that he wanted several items consolidated into unmarked boxes and wanted drums of chemicals painted black to conceal their identifying markings. He also wanted the shipping containers relabelled AG1, AG2, etc. Several of DeLong's workers did work on the boxes for Huffman. The receipt and storage of the materials was done by the 0 & N foreman, Shannon Freibel, and workers Trent DeLong and James Swanger. When the D & N workers refused to paint over the hazardous waste labels on the drums, Huffman's son, Adam, repainted several of the drums. By late May, Huffman had accumulated at D & N Packing many of the chemicals that Helmy required. Huffman then made arrangements with Elgohary and Shousha to smuggle nine drums of these chemicals out of the country on June 10, 1988 aboard the Egyptian military transport that was scheduled to leave Washington on that day. On May 22, 1988, Muffman sent a letter to Leo DeLong at D & N Packing with instructions on how to prepare the drums for shipping. Huffman told DeLong to mark the nine containers AG1 through 9. DeLong was to "eliminate as much marking as possible before applying on the A-G." In another memo to DeLong, Huffman instructed DeLong to "clear marking off containers and ship." Huffinan also told DeLong to mismark the shipping documents to disguise the contents of the drums. The original invoices for the items had clearly stated what they were. Huffman had DeLong and his workers change the designations on the documents that would accompany the containers to Maryland. The seven drums of plasticizer that had been labeled AG-i through AG-7, for example, were to be listed as "7 drums fatty acid of animal oil." On May 27, Helmy called Huffman to find out what progress had been made. Huffman reported that he had just spoken to Elgohary and would meet with him on June 1 to discuss the details of the shipment. Huffman also assured Helmy that all of the markings had been removed from AG1-9, and the contents had been falsified on the airways bills. According to Huffman, "it's very, very, you know, very clean as far as the way that is going." In coordinating the shipment of these materials, Huffman worked closely with his contacts in the EPO and the Military Attache's Office. Huffman's telephone conversations with Helriy repeatedly refer to conversations with Elgohary and "Shousha." On May 25, 1988, for example, during the first intercepted telephone call between Helmy and Huffman, Huffman told Helmy that he had just shipped out AG1 through 9 and would arrange the next shipment "as soon as Shousha has room for it in his warehouse." Huffman went on to say that he had talked to Shousha the day before to tell him what was coming. Two days later, on May 27, Huffman sent a followup letter to Admiral Abd Elrahin Elgohary, the head of the EPO, confirming the shipment of AG1 through AG9 PAGENO="0131" 127 7 to D.F. Young. On June 1, Huffman went to Elgohary's office to discuss the upcoming shipments. During the course of this meeting, Elgohary pointed out the problems he would have in concealing from the shippers the contents of such large quantities of material and the lack of export licenses. Huffman then called Helmy, explained that Elgohary was having a problem with the lack of export licenses, and asked Helmy to deal with Elgohary. Helmy then spoke to Elgohary in Arabic and reminded him that the items he and Huffman were shipping could not legally be exported. Elgohary agreed that the problem was that he would have to give invoices to the shipper, D.F. Young, to cover the materials. Helmy agreed to provide fraudulent invoices to cover the materials. After this call, Helmy contacted Khairat and explained the problem he had just encountered with Elgohary. Helmy explained that Elgohary had tried to insist on export licenses. I told him these items are controlled and cannot be exported outside the USA. I told him if they knew that I am buying it to export it, I'll be thrown in jail." Helmy also explained to Khairat the care he and Huffman had taken to conceal their exports. "We were able to acquire [these items] through our own personal ways which require us to store it in two separate warehouses en route so that no one could tell where it is going." Helmy asked Rhairat to call Elgohary and "ask him to behave himself." Helmy warned: "that if Elgohary did not behave, not only I will be in trouble, but also those who are helping me, too. They also will be in great, great trouble . . . . I have Americans here who are covering my trails and I do not want the problems to be caused by you." Later the same day, Khairat called Helmy and told him that he had explained to Elgohary the need to give Helmy as much assistance as possible. Helmy informed Khairat that the microwave antenna that Huffman had ordered would soon be ready. Helmy also explained that as soon as the antenna was ready, he would ship it to Egypt. "If somebody from your end comes our way, he can carry it in his suitcase." On the following day, June 2, Huffman and Helmy spoke again by phone. Huffman explained that things were getting complicated because people had been asking him questions about whether the items were dangerous and what they were being used for. Huffman told Helmy that "it's difficult, ah, I haven't told these people anything. . . and I said, No, no, no, these are just, ah, simple plastic materials. [y]ou don't need to know. . . what's in the barrels." Huffman said Elgohary wanted him to disguise the shipments by placing the drums in boxes and labeling the boxes "personal items for the Air Force Club" so they could get the boxes through. Huffman told Helmy that he would have his warehouse people build the boxes as requested. Huffman also told Helmy that Elgohary wanted deliveries to the warehouse to be as late as possible. "What he's most concerned about . is the problem with, ah, export licenses and Customs and so forth. . He wants to be able to get it 1 or 2 days before the plane leaves, put it right on the plane and have it out of here." AG1 through 9 had been shipped to D.F. Young on May 27. On June 10, Customs agents acting under the guise of doing a routine inspection of the materials to be put on the Egyptian military plane surreptitiously took samples from the various drums and inspected the plane's cargo manifest. None of the items AG1 through AG9 were on the manifest. The items were nevertheless PAGENO="0132" 128 loaded onto the plane and flown to Egypt. One of the most critical needs for the Condor II project was a large quantity of a carbon phenolic fabric manufactured by the Fiberite Corporation called MX-4926. The great virtue of this fabric is its light weight and its ability to ablate or char evenly when exposed to great heat. Although other types of carbon composite materials are used in a wide variety of contexts, the only practical use of MX-4926 is in the manufacture of rocket nozzles. Helmy in fact intended to obtain the Fiberite material for use in manufacturing the flexible rocket nozzles that the Condor II missile required for maneuverability. The initial contacts with Fiberite were made by Helmy himself. In early April, Helmy called Fiberite and asked the company to send information on ablative components to his company `Sciences and Technologies Applications" in El Dorado Hills. The information was sent to Helmy by Fiberite on April 6, 1988. After Huffman's April meeting with Helmy, however, Huffman assumed responsibility for obtaining the phenolic fabric. On Hay 4, 1988, Huffman ordered 436 pounds of MX-4926 from Fiberite. On May 27, Huffman sent a check for $20,949.80 to Fiberite to cover the cost of the fabric. Fiberite shipped the fabric to D & N Packing on June 9, 1988. The bill of lading that accompanied the fabric and the four cardboard containers in which the fabric had been placed were all stamped with notices stating that the contents were subject of export controls. Documents recovered from Huffman's office clearly show that as early as June 9, 1988, he had explicit notice from Fiberite that its material was subject to export controls shipping invoice bearing that date clearly states: These commodities are authorized by the U.S. Government for export only to (country of ultimate destination). They may not be resold, diverted, transferred, transshipped, or otherwise be disposed of in any other country, either in their original form or after being incorporated through an intermediate process into other end-items, without the prior written approval of the U.S. Department of State. Between June 14 and June 22, Helmy and Huffman had several conversations about how the carbon fabric in particular was to be smuggled past Customs and their fears about its being detected. On June 15, for example, Huffman had called Helmy and told him that he had talked to Shousha and been told that the next plane out could take nine more containers. Huffman had decided to put all four of the carbon phenolic packages into one wood crate and mark it "Air Force Club." Shousha had told Huffman that with that marking "he can get that through Customs easily." Huffman commented further, "Well, wish us luck. Haven't gone to jail yet." Later in the same conversation, Helmy broached the possibility of future clandestine shipments. Huffman reminded Helmy of his problems with Mobay when he had been told that HMDI was a restricted chemical. Huffman told Helmy that he did not want the Egyptians to think that he and Helmy had "failed them," but was worried that if he had pressed the Mobay "issue and had an investigation, then we'd all be in trouble." In a later conversation on June 22, Helmy suggested that he and Huffoan should get their own warehouse for future shipments. Huffman said that he could get one "for maybe even, oh, 50 or 60,000 dollars." Huffman said he knew a "place out here in the country, it would be kind of remote and it would suit our purposes just fine." Customs agents made the actual delivery of the NX-4976 to D & N Packing on June 14, 1988. MX-4926 must be kept refrigerated until it is ready to be used and 0 & N Packing did not have cold storage facilities. Huffman therefore asked Leo DeLong to locate a refrigerated storage facility in Shelby. The D & N Packing foreman arranged with a refrigerated beer dock in Shelby to store the boxes temporarily. After the five boxes of MX-4926 arrived, D & N employees James Swanger and Mark Gumbert took the boxes to PAGENO="0133" 129 9 the beer dock. Huffman also needed a refrigerated truck to ship the MX-4926 to Maryland. He originally made arrangements to have a trucker pick the boxes up on June 21, 1988. Recorded conversations between Helmy and Huffman show the need to ship the MX-4926 as close to the scheduled June 24, 1988 departure date of the C-l30 so that the presence of this material in the shipment would not be noticed by Custoss. On June 21, Swanger and Scott Lynbarger, a D & N warehouseman, went to the beer dock and brought the five boxes back to D & N to wait for the shipper's scheduled 10:00 a.m. pickup. When the truck did not arrive, Lynbarger and Gumbert took the boxes back to the beer dock. Huffman spent most of the 21st arranging for alternate transportation. Huffman finally got another refrigerated truck from a different company and made arrangements for June 22 pickup. On the 22nd, Freibel and Robert Burroughs, a friend of Freibel's, brought the five Fiberite boxes back to D & N from the beer dock, loaded them into the larger wooden box they had made, and placed the box in the new refrigerator truck along with two drums of HTPB, two boxes of Versamide, and some Cyanox. The two drums of HTPB had been placed in boxes to conceal their contents from Customs agents. The carbon phenolic fabric arrived in Maryland on June 23, 1988 and was immediately placed in the D.F. Young warehouse. On June 25, D.F. Young employees took the boxes containing the MX-4926 and other materials that had been sent out by Huffman earlier to a waiting Egyptian C-l30 aircraft for loading. Customs agents seized the materials and arrested Melmy and Huffman. Shousha was also arrested, but was released when it was discovered that he had diplomatic immunity. Investigators had learned shortly before the arrests began that Elgohary had diplomatic immunity, so he was not arrested. PAGENO="0134" 130 Chairman PICKLE. I thank you, Mr. Davis, and I am going to ask Mr. Burns now if he could proceed to make his statement. STATEMENT OF DAVID E. BURNS, FORMER SPECIAL AGENT, U.S. CUSTOMS SERVICE, SACRAMENTO, CALIF. Mr. BURNS. Thank you, Mr. Chairman. In the interest of time you have my written statement in front of you and rather than read the entire thing, I will summarize it. Mr. Davis essentially outlined the investigation. The one thing that I would like to bring to your attention, kind of cut to the chase of this whole thing, I think the reason you guys are sitting here, some of the problems I encountered in this investi- gation revealed that even though he was procuring some 20 items, only 4 or 5 of them were actually controlled at the time. I think that is the thing this committee is looking at. Thank you. [The prepared statement follows:] PAGENO="0135" 131 STATEMENT OF DAVID E. BURNS FORMER SPECIAL AGENT U.S. CUSTOMS SERVICE My name is David Eugene Burns. I have 11 years of law enforcement experience including employment as a Deputy sheriff with Douglas County, Nevada, Sheriff's Office and El Dorado County, California, Sheriff's Office, assignment to the Drug Enforcement Administration's South Lake Tahoe Narcotics Task Force, and employment by US Customs Service as a Special Agent/Criminal Investigator. I have recently been hired by the Bureau of Land Management as a Special Agent, and will begin employment with that agency in May 1991. Additionally, I have 11 years of military service including three and one half years on active duty with the US Army where I served in the 2nd Battalion (RANGER), 75th Infantry, and eight years in the Reserves and National Guard including assignments to the 12th Special Forces Group, the 4th Force reconnaissance Company, 4th Marine Division (Reserve), and various units in the California National Guard. I am currently on active duty with the California National Guard, assigned as a Operations Non-commissioned Officer in the CounternarcOtics Branch. Prior to going on active duty with the National Guard, I was employed by US Customs as a Special Agent. In March 1988, I was employed in this capacity, and assigned to the Sacramento Resident Office. On March 19, 1988, I was the agent designated to receive all duty agent calls. I received a call from the Chicago office of US Customs about a suspicious person, identified as Fouad Mohamed, travelling to Sacramento from Cairo, Egypt. Pursuant to this call, myself and other agents from the Sacramento Office conducted a surveillance of the individual when he arrived. My investigation identified the passenger travelling under the name Fouad Mohamed, as Fuad Algamal. I identified the person that met him at the Sacramento Metropolitan Airport as Dr. Abdelkader Helmy. the ensuing investigation into Dr. Helmy's activities included searching his trash every week, monitoring his movements, obtaining the toll records of his telephone calls from both his home and office, and, eventually, a court ordered monitoring of his telephone calls. This investigation reveled that Dr. Helmy, James Huffman of Lexington, Ohio, and several Egyptian nationals were involved in a conspiracy to illegally export the components and ingredients necessary to manufacture components of a Medium Range Ballistic Missile which would have had a range of some 1800 kilometers and be capable of carrying a payload of 500 kilograms. The construction of this missile system was being financed by Iraq, and was being engineered by scientist from West Germany and Italy working in conjunction with Egyptian and Argentinean military organizations. During my investigation, I learned that Dr. Nelmy was attempting to purchase the chemical ingredients, metal appliances, and insulating materials to construct solid rocket motors, ablative carbon material for the nose cones and rocket exhaust nozzles, and radio telemetry antennas. Additionally, I learned that Dr. Helmy had been involved in attempts by the Egyptian military to purchase Fuel Air Explosion bombs and technology, guidance systems for the Stinger missile system, and missile test range facilities. I learned that Dr. Helmy had obtained the patent information on the most critical components of the Fuel air Explosion bombs including the dispenser and the ignition mechanisms. He later admitted to obtaining those patents under the direction of Colonel Ahmed Al-Din Khairat, also known as colonel Hussam Yossef, who was also directing the operation to obtain the missile components. Documents recovered from Dr. Melmy's trash, and later from his home, office, and computer revealed that Dr, Helmy was purchasing or directing the purchase of all of the ingredients for manufacturing rocket engines. Interestingly, very few of the raw ingredients, even when purchased with the intent to combine them with other ingredients to manufacture rocket engines, are controlled by the US Government. It became evident during my investigation that Dr. Helmy intended to circumvent what export PAGENO="0136" 132 STATEMENT OF DAVID EUGENE BURNS Page 2 controls were in place on the few controlled items by smuggling all of the materials out of the United States. My investigation revealed that helmy and Huffman intended to smuggle the items out of the United States by having the items shipped to a warehouse, called 0 & N Packing in Shelby, Ohio, that specialized in transshipment of materials . Once at the warehouse, the items were either placed in shipping containers built by huffman, or had all their original markings painted out, and were then shipped to D.F. Young, the official freight forwarder for the Egyptian Procurement Office, located in Baltimore, Maryland. to facilitate the shipping, false manifest of lading were prepared that concealed the true contents of the crates and drums. On May 27, 1988, nine items containing materials destine for the missile project were shipped to D.F. Young this way, customs agents in Baltimore observed that these items were placed on a pallet and loaded on an Egyptian military c-13o cargo transport airplane and shipped out of the country. When they examined the manifest and export documents for the flight, they found no mention of the nine items. I learned during my investigation that the missile project was called CONDOR II by the Argentinean government, and the Badr-2000 by the Egyptian government. The program utilized engineers from West Germany and Italy who were familiar with the Pershing II missile, Egyptian engineers, and Argentinean engineers and missile test ranges to build this missile system. There was evidence recovered during this investigation that Colonel Rhairat had asked Dr. Helmy about rendering fissionable some Uranium 238 the Egyptian government had purchased. Dr. Helmy later told me that the warheads for this missile system would have been nuclear, chemical, or conventional high explosive depending on the ability of Egypt and her partners to manufacture the various types of warheads. From my military experience, and from the knowledge I gained during this investigation, I realized that if this type of missile was introduced into the Middle East, or South America, it would be extremely destablizing, and potentially would have to be confronted by soldiers from the United Nations, undoubtedly including Americans. I also realized during this investigation that the various laws enacted to control the export of this type of technology and material had serious flaws and loopholes. I urge this committee to examine the strengthening of the various laws to include: requiring companies to notify the US Government when materials that have innocent applications as well as military applications are purchased, much like the procedures required for the purchase of precursor chemicals for illegal drug manufacturing; enacting legislation that would punish the attempt of, or actual illegal exporting of, the component parts or raw ingredients of military hardware where there is clear intent to circumvent export laws, or to assemble the parts or ingredients once outside US jurisdiction; and to strengthen the Nissile Technology Control Regime. While this investigation may represent an example of how the varicus federal agencies investigate the illegal export of munitions, I believe it more importantly identifies some of the weaknesses in our laws. Thank you for the opportunity to address this committee, and I hope some of the lessons I learned may be used to further the control of illegal exportation of military hardware and munitions. PAGENO="0137" 133 Chairman PICKLE. Does that complete your general statement? Mr. BURNS. Yes, sir. Chairman PICKLE. All right. Now, the Chair would ask Mr. Rangel to proceed. Before we proceed, let me ask the next witness to come and we will have him before us. The Chair will now call Mr. Abdelkader Helmy to the witness stand. I am going to have to ask you though to be sworn in. Would you raise your right hand? Do you swear to tell the truth, the whole truth and nothing but the truth? Mr. HELMY. Yes, sir. Chairman PICKLE. The record will show that the gentleman has answered in the affirmative. Will you have a seat, sir? Mr. HELMY. Yes, thank you. Chairman PICKLE. Mr. Rangel. Mr. RANGEL. Thank you, Mr. Chairman. First, let me thank Agents Burns and Davis for such good law enforcement work. You are to be commended and you are a credit to the Customs, as well as to the Nation. As a result of your success in this case which led to a conviction, have you been able to find out what, if anything, the Egyptian Gov- ernment did in connection with the diplomats that were involved in this conspiracy? Mr. DAVIS. No, sir. Mr. RANGEL. As a result of the plea of Dr. Helmy, were other Americans involved that were not arrested or convicted that you know of? Did Dr. Helmy indicate how he was able to get the sub- stances licensed and unlicensed? Mr. DAVIS. Everybody that was involved in the conspiracy was indicted. The method that they used to obtain these items was to tell the manufacturers that they had a use other than for rocket fuel, here in the United States. They said it was for research projects or other things like that. Mr. RANGEL. Well, one of the Ohio firms repackaged a lot of these things. Mr. DAVIS. Yes, sir. Mr. RANGEL. And relabeled them. Mr. DAVIS. Yes, sir. Mr.. RANGEL. Did you or your colleagues have an opportunity to interrogate these people and find out whether or not they knew ex- actly what they were doing? Mr. DAVIS. They were interviewed and as far as my recollection goes what they stated is that they knew the materials were going on to Baltimore, Md., and they had no idea that it was going out of the country. Mr. RANGEL. And did you believe them? Mr. DAVIS. We had no other evidence to disprove that. Mr. RANGEL. Well, in your interrogation of Dr. Helmy, did he share with you any other American citizens that were working with him or as he put it in your testimony, covering his trail? Mr. DAVIS. From the evidence that we had, from the wiretap and the other documents we were able to recover, it is our belief that PAGENO="0138" 134 everybody that was in the United States and subject to our law was indicted and that we had identified all of them. Mr. RANGEL. Did there come a time that your investigation was being hampered by the State Department or any other U.S. agency or department? Mr. DAvIs. No, sir. Mr. RANGEL. And any statement that the State Department tried to derail your investigation to your knowledge, would not be a true statement? Mr. DAvIS. To my knowledge, it would not be. STAT1~MENT OF ABDELKADER HELMY, LOMPOC, CALIF. Mr. RANGEL. Dr. Helmy, let me thank you for the inconvenience that this committee has caused you in bringing you to this commit- tee and thank you for your cooperation. You are an American citizen. Mr. HELMY. Thank you. Mr. RANGEL. You are an American, right? Mr. HELMY. Yes, sir, I am. Mr. RANGEL. And your wife is an American? Mr. HELMY. Yes. Mr. RANGEL. And your children were born here, in the United States? Mr. HELMY. Yes, sir. Mr. RANGEL. Do you feel any sense of obligation or support for the United States and its national security? Mr. HELMY. Yes, sir, as a matter of fact, if you look to my record, I am a person who contributed to the research and development of the space shuttle. I did a lot of work on the cruise missiles, the har- poon program. I did a lot of work on the development of the 120mm gun. And I did a lot of contribution to the defense and the aerospace industry in this country before I get involved with any of this problem. Mr. RANGEL. And you are quite proud of the contribution that you made to our national defense and security? Mr. HELMY. Absolutely, sir. Mr. RANGEL. But when some people encouraged you to share your talents and information with foreign governments, who were they that approached you? Mr. HELMY. It was, as a matter of fact, it started out very slow, which I did not realize. If I had realized that it would have ended up to this, I would not have just get involved with this. But it was the two friends which was my friends back in Egypt which is the Defense Minister of Egypt which was my friend when he was a younger person and another person which is-he was the manager or the director of the special programs for the Egyptian Govern- ment. Mr. RANGEL. And, of course, you didn't think that it would get this involved or that you would end up in jail and bring disgrace to your family? Mr. HELMY. Yes, sir. Mr. RANGEL. But what was it that encouraged you to accept their offer to get involved in the first place? What was the motivation? PAGENO="0139" 135 Mr. HELMY. As a matter of fact, sir, what happened exactly the blocks which they call them the K-Karb blocks, when the Egyptian people asked me about any carbon-carbon material because those persons when I was a younger person, they send me to France to learn a lot about the carbon-carbon and the manufacture and so forth. So when they approached me about the carbon-carbon I re- ferred them to the company in France which manufactured this and I told them to go there. I even give them the name of a person in the French company. Mr. RANGEL. OK. Doctor, you and I will be talking about mis- siles, your expertise, your devotion, your dedication to the United States, the fact that you knew a lot about missiles, that you helped build up our defense system and now someone comes and asks you to share it with them. And, of course, you did not think that you would get involved, but did they offer you money to do it; was it a spirit of helping Egypt's national defense, what motivated you do to this? Were you disappointed as a new American? Is it something that we did wrong? Mr. HELMY. No, really, sir, just help to an old friend. Mr. RANGEL. Millions of dollars were involved in these transac- tions, were they not, Doctor? Mr. HELMY. Yes, there was money but I don't believe that it was the main objective, because I can be content with a small amount of money. Like I was telling you, sir, it started that I was helping them with noncontrolled material which was the K-carbon and then it took step by step and I found myself finally involved. Mr. RANGEL. Yes, but you knew from the beginning that this was against the United States laws, even though you may not have thought it would hurt us. There must have been-you could not have done all of this as a new citizen and alone. How were you able to work with other Americans so well? Did you pay them well in order to cooperate with you? Mr. HELMY. As a matter of fact, sir, they offered me money to work with them and I refused it. They offered me to work with them with $100,000 a year and I refused it because I like my job and I like my country. I swear to this and this was not really the case, the money at all. Mr. RANGEL. But in order for you to help your friends out, you had to get a lot of American friends to help you out. Isn't that cor- rect? I mean, you couldn't have done this by yourself, the purchase of it, the repackaging, the shipment, different countries. It really looked as though- Mr. HELMY. As a matter of fact, sir, I had this company in which the-my own company in which I filed the form in 1982 and 1983, as I remember, which is called the Science and Technology. And I was planning in the future to have my own company and to quit working for another company. And I have my own company in this country, and I thought this might be-this is a start of a business which I can do. And as a matter of fact, if you look at the whole list, the whole list is most of the material really like, for example, antimony oxide, corundum, asbestos, ethylene oxide- Mr. RANGEL. No, no, Doctor. You knew when you were getting these substances and shipping them to Egypt that you were assist- ing them in building a missile. You knew that. I don't care what it PAGENO="0140" 136 was, if it was oil and water and all of these good substances. You knew as a scientist that these things were being used to build a missile. Mr. HELMY. Not all of them, sir. Yes, they may be, for this par- ticular program, maybe two or three materials. Mr. RANGEL. Whatever the materials were and whatever you were indicted for, you understanding that it was violating United States laws and that you were assisting them in doing something that is against the law for you to have done. You know, you already pled guilty, so you don't have to answer that. My question is, as an American citizen and as one who loves his country, and certainly love your family who are American citi- zens, are you willing to help us so that other people are not able to do this against our great Nation? Are you willing to help us today? Mr. HELMY. You mean help the United States? Mr. RANGEL. Help the United States of America. Mr. HELMY. I would like to help the United States of America to my maximum extent, of course. There is no doubt about my inten- tion to help this country. Mr. RANGEL. Well, OK. Then as an American citizen and some- one who wants to help us, tell us, what would you recommend to your Nation, to this Congress, that we do to prevent you from doing the things that you have already done and been convicted of? What is it that we should have done to make it more difficult for you to have done this to help your friends? Mr. HELMY. I think, Your Honor, one thing which is very impor- tant is to make-for example, for me, I didn't know that there is two different lists, a State Department material list or a Com- merce. I learned all these things after I get involved with this and after I get my problem. It should be clear for every public person to know that there is a State Department material which should be distinguished from Commerce Department, number one. Number two, which is very important also, the materials which have been put on the State Department list, they are not clear. For example, the material which I pleaded guilty for, it is not men- tioned clearly in the list that this carbon phenolic material is pro- hibited from being exported. Even it says there-phenolic silica is clearly there, but it doesn't mention the material by the name. It just lists it by- Mr. RANGEL. But, Doctor, Doctor- Mr. HELMY. It should be clear also. Mr. RANGEL. Doctor, I agree with you. But I don't care how harmless the material is. A bright, intelligent person like you, you are a scientist. It is not so much the material that is the basis of your conviction. You have violated the trust that America places in its citizens by turning over things that you know that could build weapons to a foreign country. Egypt is no longer the country that you are a citizen of. You assumed the responsibility as an Ameri- can citizen. And so it is true that we made it easy for you to help your Egyptian friends. We made it easy for you. But let's not get involved in the intent. You knew it was against the law, and I am asking you: How could we have made it difficult for you to have yioldod to the temptation, whatever it was-old friends, money, PAGENO="0141" 137 building your own corporation? What is it that we could have done that you would have told your friends "I want to help you, but I don't want to go to jail, and I cannot help you because I can't get it repackaged without going to jail"? When you went to these American firms, they knew you were violating the law, didn't they? Mr. HELMY. Yes. Mr. RANGEL. They knew. They knew that you were sending this stuff to Egypt, and they knew it wasn't harmless material. They knew it was used to build armaments, didn't they? Mr. HELMY. Yes, sir. I think I would suggest this. I would suggest the law enforcement agency to get involved in such cases before it goes far, like if they knew certain things happened like this, they start to investigate it and to confront the person at the beginning. In other words, if the law enforcement agency came to me from the beginning when I started to send the K-Karb and when I started to sell the K-Karb and they came and investigate me and they tried to stop me at the early age, this would be better. Mr. RANGEL. No, I-once they catch you, you bet your life that it would be better if they stop you. But they really want to find out, you know, who you were working with. They didn't just want you. You are just a small person involved in this conspiracy. They used your good friendship. They used your talent. And you are in jail, and they are out. And it is these other people that we are con- cerned about. Who asked you to buy those nose cones? Who is the person? Was that your Egyptian friend? Mr. HELMY. Yes, sir. Mr. RANGEL. And he knew and you knew it was against the law to do that, didn't you? Mr. HELMY. The K-Karb sale is not a controlled material. This is what I was sending- Mr. RANGEL. But you knew those nose cones weren't being used for ice cream. You knew that it was going to be used to manufac- ture something that you would have violated your new country's laws in doing it. You knew that. Mr. HELMY. Not this particular material, sir. Not the nose cone material. Mr. RANGEL. But if you take all of these materials and put them together, you knew that final product would be against the law, right? Mr. HELMY. Right. Mr. RANGEL. How many people were on your payroll that were involved in your assisting your friends? How many Americans did you pay? Mr. HELMY. Just me and Mr. Huffman. Mr. RANGEL. That is all? Mr. HELMY. Yes. Mr. RANGEL. These people in Ohio, how long have you known those, the ones that repackaged? Mr. HELMY. I don't know them. This was made by Mr. Huffman. Mr. RANGEL. Well, what was the total amount of money that you were able to get from your Egyptian friends for this effort? Mr. HELMY. It was for me $1,050,000 altogether. PAGENO="0142" 138 Mr. RANGEL. And how much did the Government recover, the United States Government recover of that amount? Mr. HELMY. Everything. Mr. RANGEL. How can you help the United States to prevent other American citizens from doing what you did? What would you recommend that we do besides stop it early before they get in- volved? What can we do as it relates to the laws? You were afraid of violating the law-of getting caught, rather. You were a:fraid of going to jail. At least our agents say that. What could we have done? What better laws could we have had so that you would have said "I can't do that, it is too dangerous," or "it is the wrong thing to do"? Don't you want to help us? Mr. HELMY. Yes, I want to, of course. I believe that these laws should be-.-this is what I am trying to explain to you, sir; that those laws should be very clear to people because, for me, it was like a gray area. The black and white wasn't that sharp for every- thing, so it should be clear for everyone who starts his own compa- ny, for example, to get these materials about-not the material but get the law and read it, and it will be clear for everyone so he wouldn't---- Mr. RANGEL. But it was clear to you that you could go to jail if you got caught, so you knew it was against the law. I mean, didn't you act as though you were avoiding the law? You didn't just do all this stuff openly, did you? You knew you were breaking the law. Dr. Helmy, I am trying to help you as one American to another, but you are trying to tell me that you just made a mistake, that you didn't know what you were doing. And that would mean that you didn't have any criminal intent, that you were just trying to help a friend. And if that is what you are saying under oath after you have sworn to tell us the truth, then you can't help. We had laws on the book. You knew you were breaking the law. You were afraid of going to jail. You were paid an outstanding amount of money to break the law. And whatever your intentions were, to help a friend or to make some money or to start a new firm, that is not important. What is important is that you are an American citizen, and you did tell me that you wanted to cooperate and help your country so that other people, Egyptians or whatever, do not get caught in what you have done. And I just want to ask you as to-you know, besides Huffman, who else was involved in this in the United States? Just you and Huffman and the Egyptian friends? Mr. HELMY. Your Honor, one of the other things also, the scien- tists in this country are very low paid compared by other worlds if you are a scientist. And if you are one of the very distinguished scientists all over the country, all over the world, and they just give you like $60,000 or $50,000, $40,000 a year. And your needs, you are looking forward for a better life or so. So if it is possible also to make the scientists get more money so they can also- wouldn't be attracted by such- Mr. RANGEL. Doctor, I am not persuaded. But, you know, we gave you American citizenship. We gave you an opportunity for a better way of life for your wife and for your family. And if you are saying that for a couple extra dollars you would turn all that in and say PAGENO="0143" 139 that it wasn't worth it just to become a part of our great Nation, there is very little I can say. Of course, I don't want to lecture you because you have already learned your lesson. I had just hoped that we could take advantage of this opportunity for you to help-and, of course, for us to try to help you as a result of it. But if you are saying that you weren't paid enough money and that you didn't think you were doing any- thing wrong, then, of course, Doctor, you are under oath and you know better than I do. I can't contradict you. Mr. HELMY. Your Honor, also one of the other things too, I got with the Custom people after my case, and I told them about mate- rials that should be also restricted from exporting outside which was not on the list; for example, material which is in the early de- velopment and the outside world is looking at it. It should also he restricted because many of these countries, they are just hungry for building these components and these weapons, and they are looking for this material. Once the material gets started in develop- ment, it should be immediately put on the list so nobody would try to export it at the early stages of development. This one other thing, too. Mr. RANGEL. Thank you, Doctor. Mr. HELMY. Thank you. Mr. SCHULZE. I thank the gentleman from New York. I would like first to ask Agent Davis a few questions. Mr. Davis, in your opinion, had this Condor II scheme not been checked, what damage to our national security could have come about? Mr. DAvIs. I am not qualified to answer that, sir. I know what we did in the investigation. I know how to enforce the laws. But that is way out of my area of expertise. Mr. SCHULZE. Well, you know, just as a citizen, don't you think it would have been probably highly unstabilizing and destabilizing in the Middle East with what happened later on? Mr. Burns, do you have an opinion on that? Mr. BURNS. Yes, I do, sir. The events that have transpired in the gulf recently, the war with Iraq, I think that if this program would have gone forward, the stages it was in, the soldiers of the United Nations would have been confronted with a potentially much more accurate missile than the SCUDS that they were confronted with. I think it goes without saying, as a citizen, any one of us can under- stand that the people that were confronting that aggression over there would be confronted with a much more serious threat. Mr. SCHULZE. Thank you. Agent Davis, the crux of Huffman's operation in Ohio was to have the freight forwarder mislabel and change or repaint these shipments. Would it be helpful if Customs had some way to better screen outbound manifests or a computerized manifest? In what manner could you have been better able to detect through customs procedures? Mr. DAVIS. Sir, I believe that is a matter of policy that I think could be dealt with better when the Commissioner testifies before your committee. Mr. SCHULZE. OK. But you don't think that if there were some uniformity to outbound manifests that you would have an opportu- nity to compare shipments and that kind of thing as an agent? PAGENO="0144" 140 Would that not be a valuable tool, or you don't think about those things? Mr. DAVIS. We do have the opportunity in our export searches to look at the documentation that is submitted with the manifest, the invoices, the special export declarations. In the special export- Mr. SCHULZE. But don't you physically have to get the papers and sit down and go through them? There is no way that you can compare everything that is going out to a destination from a ship- ping point in a computerized way? It is my understanding that you do not have that capability, that it all has to be done by paper? Mr. DAVIS. On exports it is hard copy, and we have to look at the documents at the port of export. Mr. SCHULZE. It would not be normal procedure for an agent to say give me all the shipments from Ohio to Baltimore from D&N Co. or something? I mean, that is not normal investigative proce- dure, is it? Mr. DAVIS. Not exactly that way, sir. We do have teams that review the documentation. They target certain commodities or cer- tain ports that it is being exported to and then select items or ship- ments for examination. Mr. SCHULZE. So you can't think of any tools that we could give to you that would facilitate such investigations or have an opportu- nity to get them earlier? Mr. DAVIS. Again, sir, that is a policy issue that I think the Com- missioner will address. Mr. SCHULZE. See, I don't think it is a policy issue. I am not asking you to dictate to the Customs Service what they are doing. I am asking you as an agent that I presume has some experience how we can facilitate your job. And if you don't want to respond to that, or if they have told you not to respond to that, that irritates the hell out of me. But you just do what you want to do. Agent Burns, when you interviewed Mr. Helmy about Condor II, did he tell you about the financing of the program by Iraq, Saudi Arabia, and the roles of Egypt and Argentina and Iraq and West Germany and Italy? Mr. BURNS. Yes, he did, sir. Mr. SCHULZE. He did. Did he tell you about the organization of the program in Europe, in Egypt, in Argentina and Iraq and the names of the foreign companies from Egypt and Argentina and West Germany and Italy involved with the program? Mr. BURNS. Yes, he did, sir. Mr. SCHULZE. Did he give you the names of the Egyptians and Argentineans and West Germans and Italian companies involved with the Condor program and the names of the individuals in each company and the leadership roles and the functions and expertise and the achievements of each company in the program develop- ment? Mr. BURNS. Yes, he did, sir. Mr. SCHULZE. Did he tell you about the Egyptian effort to devel- op a nuclear warhead, including the Cobalt 60 effort and the pur- chase of uranium from France? Mr. BURNS. Yes, he did, sir. PAGENO="0145" 141 Mr. SCHULZE. Did he discuss with you the outline of the SCUD missile joint development program between Egypt and North Korea? Mr. BURNS. Yes, he did, sir. Mr. SCHULZE. Did he give you the details of an Iraqi chemical warhead and its planned utilization? Mr. BURNS. Yes, he did. Mr. SCHULZE. Did he give you the details of guidance and control equipment purchases by Egypt in West Germany? Mr. BURNS. Yes, he did. Mr. SCHULZE. Did he give you the names of Italian personnel in- volved, as well as their activities and functions in the program? Mr. BURNS. Yes, he did. Mr. SCHULZE. Did he discuss with you or tell you about his rela- tionship with Defense Minister Abu Gazalla and President Muba- rak and discuss the whole situation at that high level? Mr. BURNS. Yes, he did, sir. Mr. SCHULZE. That this went to the highest levels of government in Egypt? Mr. BURNS. That is correct, sir. Mr. SCHULZE. And he discussed with you also the knowledge of President Mubarak of the Condor program and the fact that he ap- proved it in 1984? Mr. BURNS. That is correct. Mr. SCHULZE. And also the modification of the SCUD and the SS1O missiles as well? Mr. BURNS. That is correct. Mr. SCHULZE. Agent Burns, do you want to give me your candid opinion on this situation and the answer to the question that my colleague from New York is trying to get to? How do we better set up structures which will deter such operations in the future? Mr. BURNS. Yes, I do, sir. I would like to point out that I am not a Customs employee any longer, and I am not representing Cus- toms. Mr. SCHULZE. Former Agent Burns. Mr. BURNS. Right. So any statements I say shouldn't be con- strued to be any Customs policy. Mr. SCHULZE. Right. Mr. BURNS. I think rather than try and change Customs proce- dures or attack it when it is leaving the country, sir, I think the real place to attack it is at the source. Drawing on my experience in the area of drug investigation, one of the things that we could do here, I think, that would give law enforcement better tools to better enforce this type of activity, would be an understanding that some of the materials do have multiple uses. Besides being used in rocket fuels, they can be used to make rubber shoes and bottlecaps. And it wouldn't be right to hurt American commerce by disallow- ing that stuff to be exported and be used for peaceful means. On the other hand, I think that if we set up some sort of a watch list system much like they use for drug precursors, where a compa- ny wishing to buy one of the materials that might be used in rocket material would have to be listed on a list, properly identi- fied, and then that list turned over to the law enforcement agency PAGENO="0146" 142 responsible for enforcing it. It would give us as agents the tool to start identifying some of the people. Obviously, if Goodyear Tire is buying a bunch of the HTPB, the rubber material that Mr. Helmy was trying to export, it wouldn't be of a concern to us. On the other hand, where we have a compa- ny like Mesa Associates or Science and Technologies buying thou- sands and thousands of pounds of this, it would give us as investi- gators a tool to begin to look into their activities. I think attacking it at its source like that would be a much better investigative tool than trying to add levels of bureaucracy into our already- Mr. SCHULZE. How would you disseminate that list? If we re- quired that list, would you computerize it and have it available to other law enforcement agencies? How would you disseminate that information? Mr. BURNS. Just thinking off the top of my head, sir, I guess my recommendation would be to do it the way that the Drug Enforce- ment Administration does a precursor list. The companies are re- sponsible for maintaining it and for rendering it to the Drug En- forcement Administration when they need it. Mr. SCHULZE. Upon request. Mr. BURNS. And it would be a violation of law not to do that, so we would have a means, then, of attacking these companies that provide the material if they are not maintaining that list. Mr. SCHULZE. So that on a regular basis, an agent could just stop in and say let me look at the list and let me just see if it is up to date? Mr. BURNS. Or make it a monthly requirement, weekly require- ment that they furnish that to the Customs agents or the Com- merce agents in the area that they conduct their business in. Mr. SCHULZE. Mr. Burns, in your opinion, would anyone have caught on to this operation, Mr. Helmy's operation, if there had not been some kind of a tip or an informer? Mr. BURNS. Not for a very long time, sir. Mr. SCHULZE. You think it could have gone on for quite some time? Mr. BURNS. That is correct. Mr. SCHULZE. I appreciate your testimony very much. Mr. Helmy, I share some of the gentleman from New York's feel- ings that you are one of the top rocket scientists in your field and are known as that. Isn't that true? Mr. HELMY. Yes, sir. Mr. SCHULZE. Would you just take a minute and tell us about your educational background? Mr. HELMY. Yes. I have a bachelor degree in engineering, and I have a master of science in rocket propellant, and I have a Ph.D. also. Mr. SCHULZE. Where are those degrees from, what university? Mr. HELMY. University of Cairo, sir. Mr. SCHULZE. University of Cairo. When did you come to the United States? Mr. HELMY. 1979. Mr. SCHULZE. 1979. And when did you become a citizen? Mr. HELMY. 1987. PAGENO="0147" 143 Mr. SCHULZE. 1987. And how old were you when you came to this country? Mr. HELMY. I came to this country as an exchange scientist, and I worked for-I came as an exchange scientist working for one of the NASA program at the Jet Propulsion Laboratory. It was called- Mr. SCHULZE. Did you work for Teledyne? Who was your first employer? Mr. HELMY. I came into a program, which is a NASA program, which is I am employed by JPL, Jet Propulsion Laboratory in Pasa- dena. This is a National Science Foundation-or called National Research Council program as an exchange scientist. Mr. SCHULZE. What other companies in the United States did you work for? Mr. HELMY. After I worked with the Jet Propulsion Laboratory and National Research Council, I worked with Teledyne Co. and then I worked with Aerojet. Mr. SCHULZE. And Red Stone Arsenal? Mr. HELMY. No, sir. I didn't work with Red Stone, but there was a combined program between Teledyne and Red Stone Arsenal, and I was a Teledyne representative in the program. Mr. SCHULZE. I see. OK. Would you explain to the committee your relationship to officials in Egypt? You said that some of them were your friends. Can you tell me who they are and what your relationship is? Mr. HELMY. It was a family friendship before I come into this country, when I was back in Egypt. Mr. SCHULZE. With whom? Mr. HELMY. With the Defense Minister of Egypt then who was Mr. Khairat, and with also the chief of the special programs of the Egyptian Government. Mr. SCHULZE. And he was the Defense Minister at that time? Mr. HELMY. The Defense Minister at that time was Mr. Abu Ga- zalla. Mr. SCHULZE. Mr. Gazalla. Mr. HELMY. Yes. Mr. SCHULZE. And he is an old family friend of yours, or you knew him when you were .children? Mr. HELMY. Yes, sir. Mr. SCHULZE. How about President Mubarak? What is your rela- tionship with him? Mr. HELMY. I don't have with him a family, but I know him per- sonally. Mr. SCHULZE. You know him? How do you know him? Mr. HELMY. When I was a young engineer, I used to work in the Egyptian rocket and research-Egyptian Rocket and Electronic Re- search Center in Egypt, and I used to develop for them a lot of things. The Defense Minister and the President of Egypt used to work as heads of the air force and the artillery, and so I used to communicate with them. Mr. SCHULZE. You knew them in that capacity. Did you ever dis- cuss the Condor II project with either the Defense Minister or with Mr. Mubarak? Mr. HELMY. Yes, with the Defense Minister, yes. PAGENO="0148" 144 Mr. SCHULZE. The Defense Minister but not with Mr. Mubarak? Mr. HELMY. Not personally with Mr. Mubarak. Mr. SCHULZE. Not with Mr. Mubarak. Well, how did you get in- volved with Condor II? Mr. HELMY. Since the program started in 1984, they used to just take my opinion about the course of work, which they should and which they shouldn't, and they seek my advice about decisions which they should do in order to do the program. So I used to ana- lyze the program from this. Mr. ScITuLzE. So you thought you were doing it as a service for old friends. Mr. HELMY. Right. Mr. SCHULZE. You were trying to help old friends. Did you hold secret security clearance in the United States? Mr. HELMY. Yes, sir. Mr. SCHULZE. As these negotiations were going underway, did you feel some pangs of conscience? You know, there are not many citizens of the United States who are given secret clearance. Did it go through your mind that you might be violating that trust? Mr. HELMY. As a matter of fact, sir, when I was-when they were consulting with me about this, I saw this as a completely dif- ferent issue from my work. So I knew that this is a very unsophis- ticated technology from what I am doing. Mr. SCHULZE. You thought it was something outside of that which you were involved in at a lower level, and as a consequence did not feel that it was a violation of that trust? Mr. HELMY. Right. Mr. SCHULZE. In response to Mr. Rangel's question about what you would do, you said you would have people be more aware of the law. But I think you had to be aware of the law; otherwise, why wouM you use the circuitous route of shipping things to Ohio and then having them repackaged and shipped to Baltimore? That was obvious that it was either some kind of smuggling or coverup or there was something wrong, and that is why that had to be done. Is that correct? Mr. HELMY. Mr. Huffman was in Ohio, so things had to be in Ohio in his storage room before it has to be shipped. Mr. SCHULZE. So you thought Huffman was handling that, and that you really were not aware of repackaging and so forth? Mr. HELMY. I was aware. Mr. SCHULZE. You were aware of it. Do you know why the goods were not manifested on the C-130 flight? in other words, they were not listed on the manifest. Did you know that they would not be listed on the manifest? Mr. HELMY. I didn't know the procedure of shipping, as a matter of fact, what the shipper should do and shouldn't do. It is out of my experience and I don't know the details of it. Mr. SCHULZE. I, again, heard your answer to Mr. Rangel's ques- tion about remuneration. But when you paid $1,272 for the nose cones but you charged the Egyptian Government $23,724, that is an enormous markup. Can you tell me why you charged them that much? PAGENO="0149" 145 Mr. HELMY. This list, sir, is just done by the instruction of the Egyptian officials. Because I was an old friend of them, they told me to put this price. Mr. SCHULZE. They told you how much to charge? Mr. HELMY. Yes. They told me to put these prices in, and they wanted me to make a profit on it. Mr. SCHULZE. You paid $1,820 for the microwave antenna, but you charged them $32,057. Did they tell you to do that? Mr. HELMY. Well, what happened, they didn't tell me how. They sent me the money and they told me how much I should put for the antenna. Mr. SCHULZE. How about the R-45-M. You paid $18,000, and $206,490 charged the government. That is an enormous markup, enormous profit. Mr. HELMY. Yes. This number I took from the Egyptian officials. Mr. SCHULZE. They gave them to you, told you how much. As you are aware, Customs, as they were going through your trash, found a note-we have a copy of it, and I am sure you are very much aware of it-which refers to the SCUD B-100. Can you tell us what you know about that system? Mr. HELMY. I think this information was from a book which called-which I bought it from just a general bookshop in Sacra- mento. It is called "The Russian Military." And, as a matter of fact, this is a very public book, available for everyone, and I believe that the Customs just took it from my home when they arrested me. Mr. SCHULZE. So that nobody discussed with you or you were not involved or talked about a SCUD upgrade at all, or guidance sys- tems? Mr. HELMY. I am speaking about this information in the paper. Mr. SCHULZE. Yes. Mr. HELMY. But the SCUD B, I knew everything, which they were doing it from the Egyptian official. Whenever the other rela- tionship with the Koreans, I knew it. Mr. SCHULZE. You knew about their upgrade project and it was going on. Did you participate in any way in that project? Mr. HELMY. No. Mr. SCHULZE. Mr. Helmy, I am going to give you another oppor- tunity. You have heard all of this, some of the recommendations on how we can keep this from happening in the future. We want sci- entists to be able to work, and we want commerce to be able to flow. But we also cannot afford to have-in fact, I think it is very destabilizing for the world order-to have these types of situations going on where smaller countries are building their own missile systems and other things. With those systems goes a degree of responsibility-with the edu- cation and background and involvement in these projects. On reflection, do you have any suggestions for us on how we can keep people from being motivated, whatever the motivation, to transfer this type of technology to other nations? Mr. HELMY. Also, I remember one more thing. That those compa- nies which have and manufacture those components, I would sug- gest that they should not sell them to anyone unless they show to them the license before they sell it. PAGENO="0150" 146 Mr. SCHULZE. The companies should do more investigation of their clients and customers or whoever they are doing business with? Mr. HELMY. Right. In other words, many companies, anyone who goes to buy from it, they should not just sell him on the basis that he has no solid foundation that he should buy. So it should first be either the responsibility also of obtaining the license should be defined, either the manufacturer or the exporter or the importer. It should be defined exactly who should obtain it before the material get out of the company. Mr. SCHULZE. Thank you, Mr. Chairman. Thank you, Mr. Helmy. Mr. RANGEL [presiding]. You know, Doctor, we are trying desper- ately hard to be of some assistance to you as one American to an- other, and your testimony would indicate that you just made a mis- take trying to help a friend. Now, you heard our Customs agent and former agents indicate that you had conversations, one with Admiral Elgohary. You know Admiral Elgohary? Mr. HELMY. Yes, sir. I don't know him personally, but I know him through the phone. He introduced himself to me on the phone, but I don't know him personally. Mr. RANGEL. You never met him? Mr. HELMY. No, I never met him. Mr. RANGEL. But you told him you were afraid of going to jail because of what you and your buddy was doing. Right? Mr. HELMY. Right, sir. Mr. RANGEL. And you knew that you were violating the law in shipping goods outside of the country. I mean, you knew that. Mr. HELMY. Yes, sir. Mr. RANGEL. And you helped your buddy, Huffman, to repackage these things to get it by Customs, I mean, so that you could- Mr. HELMY. I didn't help with the packaging. But the packaging was arranged between Mr. Huffman and between Admiral Elgo- hary. The packaging and the packaging policy together. Mr. RANGEL. But you knew that the things that the things that you were shipping to Egypt or wherever was against the law, and you and Huffman wanted to get this out of the country and not be detected and not get caught. Right? Mr. HELMY. Yes, sir. Mr. RANGEL. So it really doesn't make any difference what the law is, you have made up your mind that you were going to break the law, take the money, and work with Huffman. And I just figure that if you made a mistake and you did get caught and you were thrown in jail, you know, why are you so unwilling to help us to see that this doesn't happen again? You said in one of those conversations that you had a lot of other Americans that were helping you to do this. Mr. HELMY. Believe me, sir, I just said everything to-it must have been everything I know. I told them everything, absolutely. I won't hold from them any information positive. Mr. RANGEL. Well, has the Egyptian Government been in touch with you since you have been in jail? Mr. HELMY. When I was in jail, I was in touch with the Egyptian Government about this procedure, and I knew from them certain PAGENO="0151" 147 things but not relevant to the material anymore. But I knew from them they were approached by the American Government to stop the program, and they stopped the program, according to the American administration. And also I knew from them that they had an extradition request from the American Government with Interpol for Mr. Khairat. I knew from them that the American Government dropped this re- quest also. Mr. RANGEL. They dropped the request for the people that you were helping in Egypt. Our Government, we got you but we didn't want the Egyptians. We didn't ask for them. Mr. HELMY. After the American Government put the request with Interpol for Mr. Khairat, then the American Government dropped it. But I knew also this from the Egyptians. Mr. RANGEL. Agent Burns or Davis, are you familiar with this? That our Government dropped the request for extradition? Mr. DAVIS. No, sir. To the best of my knowledge, we still have outstanding arrest warrants for Mr. Khairat and for- Mr. RANGEL. OK. But he is saying he has been in touch with the Egyptian Government and that we have dropped-well, you know State Department can do these things, which Customs may not know. Go ahead, Doctor. Mr. HELMY. And I knew from them also that this program is not going to be done anymore because they didn't want to have any misunderstanding between the two Governments. Mr. RANGEL. But you are telling me that none of your Egyptian friends got in any trouble in Egypt- Mr. HELMY. Right. Mr. RANGEL [continuing]. And the United States is not anxious to get any of those Egyptian friends of yours. It is all over now and you are the only one in jail. Mr. HELMY. Right, sir. Mr. RANGEL. Well, have your friends in Egypt, your bigshot friends, offered to help you and your family at all? Mr. HELMY. Never, sir. Until this minute, I hired my lawyer on my own with my own money, and until this minute I support my family from just my-from donations from different people and from loans which I get. I have a brother who is working also and helping me. But the Government of Egypt never helped me at all. This is for definite. At the beginning they promised. When I got in touch with them, they promised that they will help, but they never helped after this. What happened, I knew from my family this. That after this inci- dent happened, then the Egyptian Government had sent a person here who spoke with the American administration and they re- solved the matter together. And before they sent this ambassador here, or this particular person here, they promised my family back in Egypt that I am going to be OK and everything will be taken care of. And then after this particular person came here and resolved the problem with the American Government, then they threatened my family and they rejected us, and they never allowed us even to speak to them. PAGENO="0152" 148 Mr. RANGEL. Speak with whom? Mr. HELMY. With the Government of Egypt. Mr. RANGEL. So when last have you heard from anyone repre- senting the government of Egypt? How long has it been? Mr. HELMY. I didn't hear from them directly, but I hear from them through my family back in Egypt. This was in 1988. Mr. RANGEL. So you were the fall guy. You tried to help your Egyptian friends and they cut a deal with the United States, and so they are OK, Egypt is OK, the United States is OK, and you are in jail. Mr. HELMY. Right, sir. Mr. RANGEL. And the Department of Defense Minister in Egypt, what is he doing? Has he gotten promoted? Mr. HELMY. No. He was, according-he was removed and re- placed by another Defense Minister. Mr. RANGEL. But he never went to jail? Mr. HELMY. No. Mr. RANGEL. You didn't receive a letter from the President of Egy~ th~nking you for help or anything at all? Mr. HELMY. I have no idea. Mr. RANGEL. Nothing? Mr. HELMY. I don't know. Mr. RANGEL. Well, Mr. Chairman, thank you. Chairman PICKLE. Mr. Sundquist, I believe, has some questions. Mr. Sundquist. Mr. SUNDQUIST. Thank you, Mr. Chairman. Dr. Helmy, I appreciate your cooperation. Is it fair to say that when you got into this thing, I think you said in 1984 that it was started, the first contact, that you got into it gradually and you didn't realize it was illegal? Mr. HELMY. I didn't get into it personally in 1984, but I knew that the prc~ject started in 1984. Mr. SUNDQUIST. OK. Mr. HELMY. Because when President Mubarak approved it in 1984, they talked to me about it. Mr. SUNDQUIST. Oh, the project got started in 1984. The point I was making, though, is that these things tend to, at the beginning they tend to look harmless and then gradually you get pulled into it, and then at some point you feel like maybe I have got some problems. Mr. HELMY. Yes, sir. Mr. SuNrQuIsT. When did you first get involved in it? When were you first contacted, or when did any of this occur? Mr. HELMY. For the list of the material or for the whole pro- gram, sir? Mr. SUNDQUIST. Anything. Any contact with anybody about it. Mr. HELMY. I knew about the program since it started. As a matter of fact, I knew about the program even before I come into this country. Mr. SUNDQUIST. Right. Mr. HELMY. Before I come into this country this was a program which Egypt wanted to do a long time ago, and they have what you call the basics of the program. PAGENO="0153" 149 Mr. SUNDQUIST. So that was before 1979 you knew about the pro- gram? Mr. HELMY. Right. They have this program all after 1974, 1973, in their mind, but they didn't have a chance. Mr. SUNDQUIST. What was it called then? Mr. HELMY. It used to be called Badr 2000. But they never start- ed it until 1984 when the President approved it and they started to put some money in it. Mr. SUNDQUIST. And then when were you first contacted? Mr. HELMY. At the time, I was in Egypt at that particular time, and when the President approved it they came and told me and ev- erybody was happy that they are going to do this program. So I know about it immediately after-as of the day when the President approved it. Mr. SUNDQUIST. OK. When were you first contacted about trying to obtain the materials? Mr. HELMY. As I remember, sir, it was in 1987. As I remember. Mr. SUNDQUIST. OK. Approximately when in 1987? Mr. HELMY. Maybe in September or August or so. Mr. SUNDQUIST. OK. Mr. HELMY. But this is not for definite. Mr. SUNDQUIST. And when did you first take action to acquire any of the controlled materials? Mr. HELMY. I believe also in 19-either 1987 or 1988 after I re- ferred them to go to France and to buy it, and they couldn't get in touch with the person which is supposed to sell it to them. So I be- lieve either 1988 or 1987. Late 1988 or early 1987. Mr. SUNDQUIST. James Huffman was a friend of yours? Mr. HELMY. Yes, sir. Mr. SUNDQUIST. A long time? Mr. HELMY. Yes, sir. Mr. SUNDQUIST. And you got him involved. Mr. HELMY. Yes. He also knew about it, I think, in 19-maybe 1984, as I remember, or 1985. Maybe 1984, as I recall. Mr. SUNDQUIST. So you started taking action in 1987 to obtain materials? Mr. HELMY. No. They didn't tell me about the material until 1987. Because at 1984, 1985, 1986, they were working with the German companies and the Italian companies, and they have ev- erything. They didn't ask me for nothing, except they just tell me about what they are doing and they tell me what do you think about what is right or wrong. Mr. SUNDQUIST. So, in 1987, really, you started doing something for them, and at that point did you realize then the nature of what you were doing? Mr. HELMY. At the beginning, no. Mr. SUNDQUIST. Not at the beginning. When Mr. Schulze asked you the question about the amount of money you were paid, and Egyptian officials told you what to charge, did you share that with other people? Mr. HELMY. Not really. As a matter of fact, the people were my friends and they wanted me to make money. Mr. SUNDQUIST. But the Egyptian official didn't say, "Hey, share this with other people who are your friends"? PAGENO="0154" 150 Mr. HELMY. No. It was for me. Mr. SUNDQUIST. Mr. Huffman didn't get any of that money? Mr. HELMY. I give him a profit for what he is doing. But they did not tell me to share with Huffman or with anyone. Mr. SUNDQUIST. But you did share with Mr. Huffman? Mr. HELMY. I give him a profit- Mr. SUNDQUIST. Did you share with anybody else? Mr. HELMY. No, sir. Mr. SUNDQUIST. Just Mr. Huffman? Mr. HELMY. Yes. Mr. SUNDQUIST. At the point that they gave you this and said, "Dr. Helmy, you are our friend and we want you to make some money off of this, and here is what you should charge us." At that point did you realize that you were involved in something with a foreign government? Mr. HELMY. At the beginning they sent the money gradually. Be- cause at the beginning they sent 30,000, then after that they sent 100, I believe. Mr. SUNDQUIST. A hundred dollars? Mr. HELMY. $30,000 at the beginning. Mr. SUNDQUIST. When was that? Mr. tIELMY. I believe this was in late 1987, if I remember correct- ly. Mr. SUNDQUIST. Late what? Mr. HELMY. 1987. Mr. SUNDQUIST. Late 1987, that is when they started sending money. Mr. HELMY. I hope I am recalling correct. Mr. SUNDQUIST. Right. Mr. HELMY. And then after that they sent a little bit more and more and more, so the money accumulated with time. Mr. SUNDQUIST. Did they tell you at that point how much they were going to send you in total? Mr. HELMY. No. It was, as a matter of fact, at one time they sent half a million and it was not need, and I told them, I don't need it now because I have enough money. They said, no. Just keep it. Mr. SUNDQUIST. Did they send you money in advance of you bill- ing? Mr. HELMY. Yes. Mr. SUNDQUIST. Didn't that tell you something was wrong? Mr. HELMY. I think that you are not aware of their type of-of how the business is done in the Middle East. In the Middle East- here you have everything you need and concrete, and you do things, billing and so forth. But, in the Middle East they do the business this way. Mr. SUNDQUIST. All right. Did you have any idea how much they were going to end up paying you for this, that they wanted you as a friend to be taken care of? Mr. HELMY. Would you, please- Mr. SUNDQUIST. I mean, did you know how much in total you were going to be paid for this? Mr. HELMY. At the beginning, no. But at a certain point when they are asking me about an invoice and they told me how to make PAGENO="0155" 151 the invoice, they told me to put this much, this much, this much, so I-yes. Mr. SUNDQUIST. You knew that was coming from the Egyptian Government at that point, did you not? Mr. HELMY. Yes, sir. Mr. SUNDQUIST. And knowing that in the early 1970s they wanted this program, and knowing that you are one of the experts in rocket science, did it occur to you that it was wrong and you were involved doing the work for what was then a foreign govern- ment? Mr. HELMY. Like I told before, that I thought at the beginning that this is different from what I am doing. My work is more so- phisticated and more advanced than these kind of things, and I thought that this would be a good chance for me to start my own company. Mr. SUNDQUIST. What would be your guidelines as to what is dif- ferent? If it was a bomb, would that be different and something you weren't working with? I mean, I am trying to figure out how you can delineate something different and something that would still be legal. Mr. HELMY. If they asked me probably at the beginning directly to give them just direct information from here or things at the be- ginning, I immediately would realize this. But it came gradually. Mr. SUNDQUIST. It came gradually. That is the point I was making earlier. That it seems to me that at some point it was gradually, you didn't intend to, and then at some point there it was. What point was that? Mr. HELMY. Maybe close to the end. Mr. SUNDQUIST. Close to the end? You said this is the way busi- ness is done in the Middle East. Is this being done with any other Egyptian colleagues in this country? Mr. HELMY. I am not aware of any other things. But this is usu- ally the way they come. If somebody wants me to buy for him, say a radio from here or so, or say a TV or so, he just sends me money and he tells me, OK, when you are coming bring with you a TV or so, and he never asks about an invoice or so. Mr. SUNDQUIST. Right. Dr. Helmy, what I am really trying to find out, though, is are you aware of any other activity where the Egyptian Government is trying to help friends in this country? Mr. HELMY. No, I am not. Mr. SUNDQUIST. Why would they select you and nobody else? Mr. HELMY. Because I was their friend. Mr. SUNDQUIST. Well, they obviously must have other friends? Mr. HELMY. Yes, of course. But I am not aware of. Mr. SUNDQUIST. You are not aware of any other friends they had in this country doing this kind of thing, innocently or not? Mr. HELMY. No, I am not. For definite, I am not. Mr. SUNDQUIST. Do you have dual citizenship? Mr. HELMY. Yes, sir. Mr. SUNDQUIST. You still maintain your Egyptian citizenship? Mr. HELMY. Yes, sir. But I don't know after this incident if they are going to let me go there or not. Mr. SUNDQUIST. You don't know what? PAGENO="0156" 152 Mr. HELMY. After this incident if they will let me enter there or not. Mr. SUNDQUIST. Why would they not let you enter if you were helping them? Mr. HELMY. Because of my cooperation with the American Gov- ernment. Mr. SUNDQUIST. Because of your cooperation with the American Government. I see. And you feel like you have fully cooperated with the American Government? Mr. HELMY. Yes, sir. Mr. SUNDQUIST. But you are saying on the record, and knowing that you have endangered apparently, by your words, endangered your dual citizenship with the Egyptian Government, that you know of no other Egyptians- Mr. HELMY. Yes, sir. For sure. Mr. SUNDQUIST. Do you have any other knowledge of the Egyp- tian Government ever working with former citizens of Egypt in this country? Mr. HELMY. No, I have no idea. Except I know that they have a military procurement office in D.C. Other than that I don't know anything. Mr. SUNDQUIST. Were you ever in contact with them? Mr. HELMY. No. Just only during this program, I would just get in touch with them in order to arrange for the shipment. Mr. SUNDQUIST. Did the Egyptian Government help you with your defense, your attorneys or anything? Mr. HELMY. No, sir. Mr. SUNDQUIST. Mr. Burns, do you have knowledge of the Egyp- tian Government helping Dr. Helmy with his defense in terms of helping? Mr. BURNS. I don't have any direct knowledge, sir. During the early portions of the trial it was mentioned to me that there was some belief on the part of the U.S. attorney's office that the Egyp- tian Government might be paying part of his legal expenses. Mr. SUNDQUIST. Dr. Helmy, you are saying they paid no part of your legal expenses? Mr. HELMY. Absolutely. Absolutely. We paid all of it just from our savings in this country and some part that came from my brother back in Egypt, which is a very small part. Mr. SUNDQUIST. And the Egyptian Government, in their contacts with your family, have they talked about assisting you financially, or your family, as an old friend financially? Mr. HELMY. At the beginning, yes. But after, as I told before, after the envoy or the official came here at the beginning and they settled this issue between each other, they went back, as a matter of fact, and they won't have any contacts, they refused any con- tacts with my family. Mr. SUNDQUIST. Getting back to what my colleague, Mr. Rangel, said, aren't you disappointed that here you are- Mr. HELMY. Yes, I am. Mr. SUNDQUIST [continuing]. And you are not getting any help from them? Mr. HELMY. Yes~ I am~ PAGENO="0157" 153 Mr. SUNDQUIST. Aren't you frustrated by the fact that you are the fall guy for a lot of people? Mr. HELMY. Yes, I am. Mr. SUNDQUIST. One last chance. Are there any other people in- volved that you ought to mention here that would help us prevent this sort of thing that you haven't mentioned previously? Mr. HELMY. No. I said everything. Mr. SUNDQUIST. Thank you, Mr. Chairman. Mr. HELMY. Thank you. Chairman PICKLE. Mr. Rangel. Mr. RANGEL. Mr. Chairman, it is my understanding that these hearings are public and that the exhibits, including transcripts of the wiretaps used as a part of these hearings, are to be made a part of the hearing record, and will be made available to the public here in the hearing room today. It is also my understanding that the subcommittee has sought and received a legal opinion from the House counsel regarding use and disclosure of the wiretap transcripts, and that legal opinion will be made a part of the record. Chairman PICKLE. Yes, that legal opinion will be made a part of the record. [The opinion referred to follows:] PAGENO="0158" 154 flonnrtb ~. ~nber~lon ~ttbrii ~. ~c~! Clerk ~trerel Cxid ~1Iitt of fljt ~terk ~ ~ou~c of ~eprt~tntatth~ ~a~b~n~ton, ~ 20515-6601 April 17, 1991 MEMORANDUM To: The Honorable J. J. Pickle Chairman Subcommittee on Oversight Committee on Ways and Means From: Steven R. Ross General Counsel to the Clerk Charles Tiefer C..1~ Deputy General Counsel to the Clerk Re: Subcommittee Authority for Obtaining and Using Wiretap Evidence at Hearing You have asked about the Subcommittee's legal authority to obtain and use, as evidence at a hearing, transcripts and recordings of court-ordered wiretaps. For the reasons stated below, the wiretap statute sets forth clear authority for the Subcommittee to obtain and to use wiretap material at its hearings. Specifically, on April 18, 1991, the Subcommittee on Oversight will hold a hearing on the administration and enforcement of the United States export laws. One of the instances to be examined at the hearing concerns Abdelkader Helmy, a research scientist at the Aerojet Solid Propulsion Company, who provided missile-related information and materials to foreign countries. On April 9, the Subcommittee voted to summon Helmy, who is incarcerated for his violations of the export control laws, to testify at the hearing. On April 10, this office applied for, and received, a writ of habeas corpus ad testificandum from the United States District PAGENO="0159" 155 April 17, 1991 Page 2 Court for the District of Columbia to bring Helmy to testify at the hearing. When the Customs Service was investigating the Helmy matter, it conducted, in 1988, court-ordered wiretaps of Helmy's telephone conversations. The Subcommittee requested the Customs Service, by letter, to provide the tapes and transcripts of the intercepted conversations, and the Customs Service has provided them. As noted in the Subcommittee's letter, which is attached to this memorandum: Discussions between [the Customs Service's] General Counsel's office, and the office of the General Counsel to the Clerk of the House, Steven R. Ross, have addressed the legal issues presented by such use [of the wiretap material at hearings]. As the discussions have clarified, the conduct of this hearing should be entirely consistent with the pertinent provision of Title III, 18 U.S.C. Section 2517. As specified in the language of that provision, a Congressional hearing is a "proceeding held under the authority of the United States," at which the testimony pertaining to these materials will be taken under oath. Additionally, a Customs Service official testifying at the hearing, by assisting legislative oversight, uses these materials in a manner "appropriate to the proper performance of his official duties." In more detail, Title III of the Omnibus Crime Control Act of 1968, 18 U.S.C. § 2510 et seq., sets forth the law regarding court- ordered electronic surveillance. It is prohibited in 18 U.S.C. § 2511 to disclose surveillance materials, except as otherwise provided. However, in 18 U.S.C. § 2517, the various bases for disclosing surveillance materials are set forth. Section 2517 (3) applies by its express terms to Congressional hearings: Any person who has received, by any means authorized by this chapter, any information concerning a wire, oral, or electronic communication, or evidence derived therefrom intercepted in accordance with the provisions of this chapter may disclose the contents of that communication or such derivative evidence while giving testimony under oath or affirmation in any proceeding held under the authority of the United States or any State or political subdivision thereof. PAGENO="0160" 156 April 17, 1991 Page 3 A Congressional hearing is, of course, a proceeding held under the authority of the United States in which testimony is given under oath. In fact, officers of the United States Customs Service will themselves testify in the hearings. In addition, another subsection of the same section, section 2517(2), also applies. This provides that: Any investigative or law enforcement officer w'no, by any means authorized by this chapter, has obtained knowledge of the contents of any wire, oral, or electronic cor~-nunication or evidence derived therefrom may use such contents to the extent such use is appropriate to the proper performance of his * official duties. Providing evidence in an oversight hearings is eminently "appropriate to the proper performance of (an officer's) official duties." See, e.o., Watkins v. United States, 354 U.S. 158 (1957); Barenblatt v. United States, 360 U.S. 109 (1959). Congressional committees have often obtained and used electronic surveillance materials, based on these statutory provisions. See, e.o., In re Grand Jury Proceedings (Hastincs), 841 F.2d 1048, 1052-1054 (11th Cir. 1988); in re Aoolication of the Unitad States, etc,, CR Nos. 83-l5l-RFP, et seq. (N.D. Cal. April 21, 1988); United States v, Allen N. Dorfman, et al., No. 81 CR 269 (N.D. Ill. July 1, 1981) (reprinted in House Comm. on the Judiciary, 97th Cong., 2d Sess., Court Proceedinos and Actions of Vital Interest to the Conaress 407 (Comm. Print 1981)). Accordingly, the Subcommittee is clearly authorized to obtain and to use at these hearings the tapes and transcripts relating to Abdelkader Helmy. The Subcommittee may wish to enter these materials as exhibits at the hearings. PAGENO="0161" 157 Mr. RANGEL. And there is no objection to these materials being entered into the record. Mr. HELMY. I have a request, sir. Chairman PICKLE. Your inquiry is whether the exhibits will be made a part of the record, and the answer would be yes. Mr. RANGEL. And I will turn them over to the staff. I think Dr. Helmy is trying to get your attention, Mr. Chairman. Chairman PICKLE. Dr. Helmy? Mr. HELMY. Yes. I have a request, sir. It seems that when we were through this case my lawyer had given to the judge sealed material, and this sealed material was given a copy to the Govern- ment and a copy-the sealed material, given a copy to the Govern- ment and a copy to the judge. And I would appreciate if you make this sealed material not a part of the public record of this, because this would endanger me and my family. Mr. RANGEL. I understand what Dr. Helmy has said, and staff has assured me that any materials that your lawyer shared with the judge will not be made public and will be held confidential. Mr. HELMY. Thank you, sir. Chairman PICKLE. Now, Mr. Davis or Mr. Burns, do either of you want to make any additional statement or make comments? I know Mr. Burns gave a very abbreviated statement, if at all, and before we go to the next panel I want to ask if you want to say anything additional in view of the testimony that has been given. Mr. Burns. Mr. BURNS. Yes, Mr. Chairman, I do. And again I would just like to put on the record that I am not an employee of Customs and anything I say is not a statement from Customs itself. Mr. Rangel had asked Dr. Helmy and had asked Mr. Davis if the State Department had had any influence on this case or attempted to exert any influence on this case. Early in the process when I was writing my affidavit we mentioned the names of the various Egyp- tian Government officials that had figured in this case; specifically, the Minister of Defense, Field Marshal Abou Gazallah, and the Ad- miral Elgohary here in Washington. When the affidavit was reviewed by main Justice and by the State Department, the State Department requested us to remove the names of any Egyptians that we didn't intend to indict. It caused some consternation on my part as a case agent. Obviously, taking out Elgohary and any mentions of the conversations with him would have weakened the probable cause for our wiretap. However, we did remove the names of any of the Egyptian Gov- ernment officials that we didn't intend to indict. Chairman PICKLE. Before you continue, it was your feeling you should include those names but you were instructed not to include their names? Mr. BURNS. That is correct, Mr. Chairman. Chairman PICKLE. You were instructed by whom? Mr. BURNS. It was relayed to m.e by the U.S. attorney that I was working with in Sacramento on the case and he told me that infor- mation had come to him via main Justice from the State Depart- ment. Chairman PICKLE. From the State Department. All right. Go ahead. 51-840 0 - 92 - 6 PAGENO="0162" 158 Mr. BURNS. During Dr. Helmy's testimony, he mentioned that the materials that he was in the process of procuring were not all for the rocket program. On the contrary, the evidence that I re- viewed during my investigation revealed that, in fact, they all were for the rocket program, either for actually constructing the rocket or for manufacturing or modifying the parts for the Condor II pro- gram. He also indicated that he wasn't aware that the various activities he was involved in were crimes at the time. Yet, when we effected our search warrant on his residence, we found that he had a copy of the "International Traffic and Arms Regulations," commonly re- ferred to as the "ITAR" in his possession. Mr. Rangel and some of the other members of the committee have made much about Dr. Helmy not revealing the names of any other Americans. My investigation revealed that he probably did not have the knowledge of any other Americans. If you look at this conspiracy, if you will, he was the bottleneck here in America. He knew the people in Egypt and, through Mr. Huffman, he was deal- ing with the American corporations. Mr. Huffman, I might point out, never cooperated with the Gov- ernment. He went in, pled guilty and took his sentence, and never did cooperate with us. So, the knowledge that he had of any other American conspirators in this was never brought to the Govern- ment's attention. Chairman PICKLE. Was Mr. Huffman, just for my own informa- tion, convicted or did he serve a sentence? Mr. BURNS. He currently is in custody, Mr. Chairman. Chairman PICKLE. He is serving now? Mr. BURNS. Yes, sir. Chairman PICKLE. And where is he now? Mr. BURNS. Somewhere in the Federal Bureau of Prisons system, sir. I have no idea. Chairman PICKLE. All right. Thank you. Mr. RANGEL. Mr. Chairman? Chairman PICKLE. Mr. Rangel. Mr. RANGEL. On that point, Mr. Burns, what you are saying then is that those Americans that were involved as vendors and repack- agers, relabeling and did business with Mr. Helmy and those cocon- spirators, to your knowledge, did not have criminal intent? Mr. BURNS. That's correct, Mr. Rangel. The corporate members that I spoke with during my investigation, quite frankly, cooperat- ed fully with our investigation. One of the problems in controlling this type of exportation is that many of these items don't require any licensing whatsoever to be handled and be possessed here in America. Mr. RANGEL. I had a chance to look at some of the materials that these corporations, these companies that Dr. Helmy was dealing with, and, hell, they put in their literature that they sell rocket material. Now, who in the heck do they think the material is going to? They tell you how effective it is and come and ask questions, and we'll help you to build a missile, you know, just call the number. PAGENO="0163" 159 Now, I cannot see how they believe that this is not going to for- eign governments, especially when they're asked to disguise the packaging. Mr. BURNS. I think, the point, Mr. Rangel, is right now if me and you had the money, we could go out and buy just about any of this material ourselves as long as we assured the company that we weren't taking it out of the country, and that was all they asked for in this investigation. Mr. Huffman provided several false letters of the intended use of it and that's really all that's required by the law. So, as I said, me and you could go out and buy tons of this if we assured them we were not going to take it out of the country. Mr. RANGEL. I see. Well, Mr. Chairman, that's very interesting because it seems like all you have to do is get it to a point of debar- kation and they are obeying the law, and if you have a foreign dip- lomatic ship there waiting then you've got it made. Mr. BURNS. That's a correct observation, Mr. Rangel. The other thing, as far as the repackaging, when we debriefed the people at D&N Packing, they told us that it wasn't all that unusual that fre- quently when you would have entrepreneurs that were receiving materials from one source and selling them to somebody else legal- ly that they would conceal the original source of that so they wouldn't get cut out of the middle of the deal. However, I would like to point out to the committee's attention that when the employees of D&N Packing were asked to paint over the drums that had "EPA Hazardous Waste Material" markings on it, they refused to do that and at that point Mr. Huffman and his sons took over the task of building the boxes and painting over the labeling. It was for that reason that the people from D&N were not ever prosecuted in this case. Chairman PICKLE. That means to me that the shipper can make any label change they wish and they are not subject to any kind of controlled regulation or even much supervision, if any, at all; is that basically correct? Mr. BURNS. I am not an expert on that area, Mr. Chairman. But I would imagine there is probably some international commerce commission, some internal regulations within America about trans- porting materials that are not properly labeled if they are hazard- ous. Again, this is just an assumption on my part, but I would assume that if it is a material, same some of the plasticizer that was actually exported that's not a hazardous material, there isn't much of a regulation as long as it is not a hazard about having it properly labeled. Again, that is an assumption on my part and I am certainly no expert in that area. Chairman PICKLE. Thank you. Mr. BURNS. We never did develop any knowledge during the in- vestigation that the shipping companies here internally in America were ever aware that once the labeling had been changed that they were, in fact, transporting something that was mislabeled. It was a straight commerce deal between the people at D&N Packing and the freight company that was moving the freight around the coun- try. I would like to point out that besides this Condor program when I interviewed Mr. Helmy, he indicated some of the other programs that he had been involved in much earlier than this one. In the PAGENO="0164" 160 written statement I provided the committee early in, I believe, 1985 when he was working, when Dr. Helmy was working with Tele- dyne, McCormick, Self and Hollister, he had been contacted by the same principals in this case from the Egyptian side, primarily Colo- nel Khairat, about obtaining some fuel-air explosive bombs. As I am sure you gentlemen are aware of in the current conflict over in the Middle East that became an issue. It turns out that during the time that Mr. Helmy was working for Teledyne, McCor- mick, Self, the Egyptian Government, through a person on the east coast, attempted to purchase some of these and they were informal- ly denied a license by the State Department for the purchase of them. They, then, turned to Dr. Helmy in his capacity at Teledyne and asked him to obtain the patents on the more critical portions of that system, specifically the dispenser and the ignition units. He admitted during my debriefings with him that he, in fact, turned those over to the Egyptian officials. I also developed information in interviewing some of the other corporations that he had been in contact with during this investi- gation that he had approached the Coleman Research Corp., locat- ed down in Huntsville, about obtaining Stinger guidance systems. The Stinger missile being one of our primary surface-to-air mis- siles. He had, also, early in our wiretap investigation, we overheard him being asked to check on the remotely piloted vehicle, known as the SCARUB that was being built by Teledyne Rhein, which is es- sentially, for lack of a better word, the poor man's cruise missile. Teledyne Rhein is in the process of building this up particularly as this RPV for the Egyptian Government. They had asked Dr. Helmy to check on its status through his back channels. But, I think, clearly in this case there was some evidence and not that there were other Egyptians involved, but there was more than one pro- gram that the Egyptian Government was interested in Dr. Helmy following up on. As Mr. Sundquist had asked during his questioning about the moneys involved in this, there was some evidence at the end of our wiretap that Dr. Helmy and Mr. Huffman were intent on establish- ing this as a full-time smuggling venture, if you will. They talked about buying their own warehouse. They talked about using the money that-Dr. Helmy made the comment to Mr. Huffman that "In the future rather than buying one or two of these various types of items, we're going to be buying large quantities of one chemical, then large quantities of another, and shipping them in the same way." So, this wasn't a one-time effort on the part of the Egyptian Government or on Mr. Helmy to try and smuggle something for one particular time. Chairman PICKLE. If you will suspend just a minute, Mr. Burns, Mr. Sundquist, I believe, wants to ask a question on that point. Mr. SUNDQUIST. Mr. Burns, thank you for that comment. I would like to go to Dr. Helmy. Is this the new business that you were talking about? Mr. HELMY. No, I would like to clear this because a lot of this is not accurate, sir. First, with respect to the Coleman Industry, this is not a Stinger. This was the Pershing. What happens, the Egyp- tian Government sent a representative here to Coleman Industry PAGENO="0165" 161 and Coleman Industry is the company which manufacture software for the Pershing missile. They came through officially and asked him to prepare a proposal. They prepared the proposal. He was, also, looking to obtain a license. It is not any illegal things, number one. Number two, with respect to the RPV, this was already a pro- gram between the United States of America and the Egyptian Gov- ernment. It was paid through even the Government, not through me and it was manufactured by Teledyne Brown for the Egyptian Government. There was a big Egyptian delegation from the Egyp- tian Air Force working with Teledyne, not Teledyne Brown, I am sorry, it is Teledyne Aerospace in San Diego. There was a big Egyptian delegation which was working with the Teledyne Aerospace in San Diego in this program and at one time they have a flight test which failed. So, I was contacted by the Egyptian Government to know why this was failed and what I think. But nothing was illegal about this because this was the pro- gram. With respect to the Egyptian- Mr. SUNDQUIST. What year were you contacted by the Govern- ment to ask what you thought? Mr. HELMY. What happened- Mr. SUNDQUIST. What year? Mr. HELMY. I don't recall. I think it was 1987, I believe, 1987. Mr. SUNDQUIST. Did they call you often to find out what you thought about defense systems? Mr. HELMY. No, they called me-OK. The program which we have with Teledyne Brown, we have a flight test and the flight test was failed. What do you think? Do you think we should cut this program with Teledyne Brown? Mr. SUNDQUIST. Dr. Helmy, my question, I want to get back and let Mr. Burns respond to what you said, but my question was this. Earlier I had asked you about moneys and who got moneys, and what it was going to be used for, and maybe I didn't ask the ques- tion exactly right. But apparently there has been some evidence on wiretap that the money was going to be used for other kinds of things like this in the future with Mr. Huffman. You didn't say that on the wiretap? Mr. HELMY. For sure, this was only list which I have and this is it. Mr. SUNDQUIST. You are saying that the wiretap did not occur and you didn't say that? Mr. HELMY. For more program and future program more than the list which I have, as I recall, this was the only program which- Mr. SUNDQUIST. You weren't going to use this money to buy a warehouse? What did you say to Mr. Huffman about what you are going to use the money for? Do you recall? Mr. HELMY. The money which I had received? Mr. SUNDQUIST. Yes. Mr. HELMY. Huffman didn't know how much money I received. Mr. SUNDQUIST. No. But did you talk to Mr. Huffman about doing more of this kind of thing? Mr. HELMY. No. PAGENO="0166" 162 Mr. SUNDQUIST. Did you talk to Mr. Huffman about what you were going to do with the money? Mr. HELMY. The only thing which I ask Ruffman to do is just to procure me the material which is on the list and if I don't give him the whole material at once, maybe I give him something at the be- ginning, then- Mr. SUNDQUIST. Could you hold up just a second and then we can get Mr. Burns to respond? Is that possible? Mr. BURNS. Yes, sir. I am referring here to the Government Sen- tencing Memorandum that I believe is a part of the record of this filed in the Eastern District of California, United States of America, Plaintiff v. Abdul Khadar, et al., Defendants. Page 26, lines, basi- cally, 4 through 7 when Mr. Flynn, the assistant U.S. attorney that prepared this, is quoting some of our wiretaps. I will read, it says, starting at line 4, Later conversation on June 22nd, Helmy suggested that he and Huffman should get their own warehouse for future shipments. Attachment 57, page 7, which was the original attachment to this document. Huffman said that he could get one for maybe even, oh, 50 or $60,000. Huffman said he knew a place out here in the coun- try that would be kind of remote and would suit our purposes just fine. Now, that is a direct quote off of the transcripts of that wiretap, sir. Mr. SUNDQUIST. Mr. Helmy, does that refresh your memory? Mr. HELMY. Yes. But I know for definite, for sure, 100 percent, that there is no more than the list which I received from the Egyp- tian Government. Mr. SUNDQUIST. Are you denying under oath to us that you said that? Mr. HELMY. Maybe I said that, but I know for sure that there was more than the-there was nothing more than the list which I have, that could be more shipment from the same list because I haven't given him the list at once. I give it him- Mr. SUNDQUIST. Well, let me go back. You are saying that you may have said that or you did say that? Mr. HELMY. I say I might have said that on the wiretap, but the intention is that with no more than the list itself. Mr. SUNDQUIST. Well, I mean, this is a fairly major thing for you to remember. I mean, what you are going to do with the money and where the money was going to go and would you invest with Mr. Huffman. You don't remember that discussion with Mr. Huff- man at all? Mr. HELMY. I don't remember it at all. But the thing which I re- member clear for my mind is that there was nothing except this list. If there is, I would tell it to them because I told them some- thing which is more important than this. So, if it was more activi- ty, I would tell it to them. I have no reason to hide it from them. Mr. SUNDQUIST. Well, Dr. Helmy, I am disappointed. I have not been so far because I thought you came in here as an American citizen, as Mr. Rangel said, with some remorse over what happened and some concern about your country, your new country, and that you were going to be cooperative. But something this major when you said, no, you didn't say it and we read it and you say I may have said it. I mean, that really disappoints me. Can we believe the other things that you are saying to ug? PAGENO="0167" 163 Mr. HELMY. Yes. I tell you something, sir. You know, this is now like 3 years before this happened. But the thing which I remember because the wiretaps first when they were translated, they weren't translated correct. There was even-my lawyer contested that there was a lot of not accurate translation. But for the reality, one thing for real, I am telling you everything the truth. This is no problem with all of this. The second thing which I am very clear about is that there was nothing more than this list. This is the list. It might, I was giving it to Huffman piece by piece and not telling him everything at* once. It could be this is the way, but not for more shipment or no more activity than this. Mr. SUNDQUIST. And you don't remember discussing with Mr. Huffman $60,000, if that was the number, for a warehouse that might be suitable? You don't recall that? For the record, you are saying this? Mr. HELMY. What happens for the warehouse, he used it to handle the warehouse problem. Whenever he has a problem he comes to me. Mr. SUNDQUIST. You are saying you don't remember saying that or you are denying saying that? Mr. HELMY. I say I am not remembering. Mr. SUNDQUIST. Thank you. Mr. Burns. Mr. BURNS. Yes, sir. I would just like to address one other point that Dr. Helmy just said. I am referring in this matter to Customs report of investigation number 17 for the Abdul Khadar Helmy case that I believe, also, is a part of the record. This particular report documented my traveling to Huntsville, Ala., and interview- ing officials at the Coleman Research Corp. Just to read, the paragraph that I am reading is off of page 3 of that particular report. It says: Transtechno, which was one of the companies that was affiliated with Consen, one of the engineering companies over in Europe, was inquiring about two distinct sys- tems. One, the infrared seeker system for the Stinger missile and one relating to tactical ballistic missiles. The current president of CRC, Mr. James Morrison, who was vice-president and general manager of Huntsville office of CRC, handled the project for the Huntsville office. The report goes on to say that besides looking at those two items that I just mentioned there, they also had been approached by Consen and Dr. Khairat about providing missile test range facili- ties and software for optimizing trajectory of warheads. The compa- ny, which is a legitimate up front company, provided the proposal to Transtechno and to Consen and in that proposal they told them that in order to export this we are going to need license. Then, at that point, the Egyptian Government lost their interest in it. Short- ly, thereafter, they began the whole process of acquiring it by the illegal means. Mr. SUNDQUIST. Thank you for allowing me to interrupt, Mr. Chairman. Chairman PICKLE. Mr. Davis, do you want to add anything else at all? Mr. DAvIs. No, thank you, sir. PAGENO="0168" 164 Chairman PICKLE. The Chair wishes to move on to the next panel. We have many questions that we wish to submit to the pan- elists for further answers. It is not the Chair's position today to at- tempt to draw conclusions about much of the testimony that has been presented. I appreciate the fact that Mr. Davis has given a very factual, chronological development of this particular case. Mr. Davis, Mr. Burns has not only confirmed that, but also has related some of the background to it. We are glad to have the testimony that Dr. Helmy has presented here as an addition to all this. It is hard, I would think, for the average person to believe that Dr. Helmy was not an agent for the nation of Egypt, an outright agent developing materials for the use of that nation aided and abetted by, one, finances from Iraq, the engineering from West Germany, and the cooperation of Argentina. It would seem to me that this case is an obvious example that it was relatively easy to buy almost any kind of goods, put them together and ship them out of the country contrary to our laws, particularly if you had the co- operation of one of the nations involved. That is the conclusion that one may or may not come to. The committee now will attempt to sort out all this testimony. Our concern is in what way can we, the United States, establish better control of our exports, both purchase and shipments, in order to ensure the safety of our country. I don't know that we know the answer. But we know it is relatively easy to do it, at least from the testimony that has been introduced this morning. I think that it should be a clear bell ringing to our Commerce Department and the State Department that we are woefully weak in this regard. But we will try to address those specific Customs questions at a later point. I do want to thank each of the panelists for their participation today. Thank you very much. Now, our next panel will be Dennis Bass, who is a Senior Special Agent from Baltimore, and Leslie Hinkleman, former export man- ager of Alcolac International in Baltimore. I am going to ask both Mr. Bass, if he would take his seat at the table, I am also going to ask Leslie Hinkleman if she will take her seat. We will give the oath to her at one time and we will proceed as a panel then. Then I will yield to Mr. Jenkins and to Mr. Bunning for any comments or questions. We have asked some of our special wit- nesses to take the oath for the testimony being presented. Ms. Hinkleman, will you raise your right hand? [Witness sworn.] Chairman PICKLE. The record will show that Ms. Hinkleman has answered in the affirmative. All right. The Chair recognizes Dennis Bass who is Senior Spe- cial Agent of Customs Service in Baltimore. Mr. Bass. And then the Chair will yield to Mr. Jennings and Mr. Bunning. STATEMENT OF DENNIS J. BASS, SENIOR SPECIAL AGENT, U.S. CUSTOMS SERVICE, BALTIMORE, MD. Mr. BASS. Thank you, Mr. Chairman. This investigation began in 1988 when information was developed which indicated that Alcolac International, a chemical manufacturer in Baltimore, was arrang- PAGENO="0169" 165 ing for shipment of a larger quantity of a chemical called thiodigly- col to Iran. Thiodiglycol is a precursor chemical in the manufactur- ing of mustard gas. The Office of the Special Agent in Charge in Baltimore had pre- viously investigated allegations that Alcolac had shipped thiodigly- col to Iran. Mr. JENKINS. Mr. Chairman, there may be some question; I assume that the reason that Mr. Bass is not being identified is that he is involved in ongoing investigations, other investigations, and is being shielded from the TV camera. Is that the reason for that? Chairman PICKLE. Yes, sir. Mr. JENKINS. That is correct. All right. I just wanted to make that comment. Mr. BASS. The Office of the Special Agent in Charge in Balti- more, had previously investigated allegations that Alcolac had shipped thiodiglycol to Iran. However, the allegations were never substantiated. Special agents from the Baltimore office, Strategic Investigations Group, began surveillance of the Alcolac plant and developed fur- ther information relating to a shipment of seven containers of thio- diglycol going from Alcolac to Singapore. The shipment was con- signed to Hallet Enterprises in Singapore. The U.S. Customs atta- che, Bangkok, quickly ascertained that Hallet Enterprises was merely an office in Singapore and not a likely recipient of a ship- ment of chemicals. Baltimore Customs inspectors were informed of this information and began a search for the shipment. The inspectors located the shipment and determined that it was being loaded on a barge in Baltimore and would shortly depart for Norfolk, Va., to be laden on a freighter enroute to Singapore. The documentation indicated that the shipment was incorrectly being exported as "G-Dest, that is, general destination goods not re- quiring an export license, instead of with the required Commerce Department license. Since a validated Commerce license was needed to export thiodiglycol to Singapore the shipment was sub- ject to seizure. A fast decision had to be made either to seize the shipment in Norfolk and overtly continue the investigation or to allow the chemicals to depart Baltimore without alerting the sus- pects so that we could try to ascertain the final destination of the shipment. Compounding the problem was the fact that the shipment would be in Norfolk little more than 24 hours making any substitution almost impossible. We decided to confer with our Virginia Beach office which coordinated with the Customs District Director in Nor- folk. The Regional Commissioner's staff in the Northeast Region, which covers Baltimore, also conferred with the staff of the South- east Regional Commissioner, who covers Norfolk. Concurrently, the Strategic Investigations Division at headquarters obtained approval from the Department of Commerce allowing a substitute shipment to leave the country. While all this coordination was occurring, Customs inspectors in Norfolk unearthed 430 drums identical to those used to ship the thiodiglycol. Working through the night they removed the original drums from the shipping containers and with the help of a local PAGENO="0170" 166 fire department filled the new drums with water and then reloaded them into the original containers. The inspectors went so far as to remove the labels from the original drums and put them on the drums in the rear of the container so that if someone opened the doors they would see genuine Alcolac labels. Arrangements had been made to track the movement of the goods once it reached Singapore. However, there was concern that the vessel might divert from its scheduled itinerary and unload the containers at another port. The Strategic Investigations Division at headquarters had lessened that concern by arranging to have the vessel tracked by satellite. Using a high tech series of electronic de- tective devices, the ship was located within hours. As the shipment proceeded to its destination, Baltimore special agents pursued various leads. Several suspicious details were un- covered. For example, the paperwork indicated that a company in West Germany should be notified upon the arrival of the shipment in Singapore. The U.S. Customs Attache, Bonn, Germany, ascer- tained that the German company was a pharmaceutical company. Also, 5 days after arriving in Singapore, the shipment was loaded on a vessel destined for Karachi, Pakistan. This alarmed us for two reasons. First, the shipment could be trucked from Karachi to Iran, making tracking difficult, if not impossible. Second, there was no U.S. representation in Pakistan. Through the efforts of the U.S. Customs representative in Hong Kong, arrangements were made with the Drug Enforcement Ad- ministration representative in Karachi to assist in tracking the shipment. Twenty-four days after the shipment arrived in Karachi, I received a telex advising that the shipment was, in fact, enroute to Iran having been loaded aboard the Iranian ship, Iran-Ekram. Search warrants were then immediately executed at Alcolac's three locations in Maryland. Incriminating documents were discov- ered that indicated that officials of Alcolac should have been aware the chemicals were not really destined for Singapore. Also, it was learned that Leslie Hinkleman, the export manager at Alcolac, fal- sified documents to establish the company's innocence. The docu- ments and further evidence revealed the German citizen, Peter Walaschek, was deeply involved in the illegal shipment, as well as three previous shipments that were also diverted to Iran. Attached to my statement is a shipping document where Alcolac indicated transshipping is allowed and a doctored telex, which was done by Leslie Hirikleman. Officials at Alcolac began cooperating with Customs after the in- vestigation substantiated the corporation's involvement in the ille- gal shipment. I requested officials of Alcolac to send Walaschek a telex inviting him to Baltimore for a meeting. Walaschek was stunned when he was greeted by Customs special agents instead of Alcolac officials and arrested upon his arrival at Baltimore-Wash- ington International Airport. Walaschek pled guilty to violating the Export Administration Act and admitted to arranging three previous shipments to Iran, all totaling 210 tons of thiodiglycol valued at more than $350,000. Before Walaschek could be sentenced, he fled the country, and is currently a fugitive. PAGENO="0171" 167 The investigation also uncovered four shipments of thiodiglycol previously made by Alcolac on behalf of Nukraft Mercantile Corp. located in Brooklyn, N.Y. Search warrants executed by Customs special agents at Nukraft revealed that Nukraft officials Harold Greenberg and Nicolas De Fino, as well as a Dutch national, Franz Van Anraat, and Japanese national, Charles Tanaka, were respon- sible for making the purchases and exports of thiodiglycol on behalf of the Iraqi Government. Documents seized by the Swiss Government on behalf of the U.S. Government at the residence and business location of Van Anraat further substantiated the violations. Both Harold Greenberg and Nicholas De Fino pled guilty to violations of the Export Adminis- tration Act. With the assistance of Greenberg, Charles Tanaka was invited to the United States where he was arrested in Baltimore, Md. Tanaka subsequently pled guilty in U.S. district court to one count of money laundering and is currently incarcerated in the United States. Franz Van Anraat was arrested in Milan, Italy, at the request of the U.S. Government, in January 1989, pending extradition to the United States. However, after 7 months of incarceration, a Milan court refused to extradite Van Anraat and he was set free. An Ital- ian appeals court overruled the lower court and ordered Van Anraat extradited; however, by that time he had fled Italy. He is believed to be residing in the Netherlands at this time and is cur- rently a fugitive. Van Anraat successfully caused 538 tons of thiodiglycol to be ex- ported by Alcolac International and illegally diverted to Iraq. The Alcolac Corp. pleaded guilty to one count of violating the Export Administration Act and was fined $437,594. Leslie Hinkle- man, the export manager at Alcolac, pleaded guilty to one count of making a false statement, and Peter Walaschek also pled guilty, but, as I have stated, later fled to West Germany and is currently a fugitive. Harold Greenberg and Nicholas De Fino both pleaded guilty to violating the Export Administration Act. Greenberg was sentenced to two years' probation and a $27,000 fine. De Fino received a 2- year sentence, with all but 6 months' home detention suspended, and a $15,000 fine. All Sobani, an Iranian Government official, and Franz Van Anraat both remain fugitives. Attached to my statement are two schematic drawings detailing the four Iranian and four Iraqi shipments. That is my statement. [The prepared statement and attachments follow:] PAGENO="0172" 168 WRITTEN STATEMENT SENIOR SPECIAL AGENT DENNIS 1. BASS U.S. CUSTOMS SERVICE THE INVESTIGATION OF ALCOLAC INTERNATIONAL ALTHOUGH THE UNITED STATES HAS STRONG EXPORT LAWS CONTROLLING CERTAIN CHEMICAL PRECURSORS, THE U.S. CHEMICAL INDUSTRY IS STILL TARGETED BECAUSE OF ITS QUALITY PRODUCTION AND COMPETITIVE PRICING. ONE SUCH U.S. FIRM WAS ALCOLAC INTERNATIONAL, LOCATED IN BALTIMORE, MARYLAND. DURING 1987 AND 1988, ALCOLAC BECAME INVOLVED IN A SERIES OF TRANSACTIONS INVOLVING THE SALE OF THIODIGLYCOL, A PRECURSOR FOR MUSTARD GAS, TO TWO DIFFERENT PURCHASERS FOR EXPORT. THE FIRST SERIES OF TRANSACTIONS INVOLVED SALES TO A GERMAN NATIONAL DOING BUSINESS AS COLIMEX GMBH AND COMPANY KG. THE SECOND SERIES INVOLVED SALES TO NU~AFT MERCANTILE CORPORATION, A BROOKLYN, NEW YORK, COMPANY WHICH WAS ACTING ON THE BEHALF OF A DUTCH NATIONAL. THE INVESTIGATION, WHICH WAS CONDUCTED BY THE SPECIAL AGENT IN CHARGE, BALTIMORE (SAC, BALTIMORE), REVEALED THAT THE GERMAN NATIONAL WAS ACTUALLY A BROKER FoR AN IRANIAN DIPLOMAT FROM THE IRANIAN EMBASSY IN WEST GERMANY AND THAT THE DUTCH NATIONAL WAS A PROCURING AGENT FOR THE IRAQI GOVERNMENT. BOTH WERE RESPONSIBLE FOR SHIPMENTS BEING ILLEGALLY' DIVERTED TO THE PERSIAN GULF. PAGENO="0173" 169 -2- THE COLIMEX TRANSACTIONS BEGAN IN JANUARY, 1987, WHEN ALCOLAC WAS CONTACTED BY THE GERMAN NATIONAL. HE INQUIRED CONCERNING THE PURCHASE OF 15 TONS OF THIODIGLYCOL FOR DELIVERY TO CY SAVAS OIKONOMIDIS E . E., A GREEK COMPANY. THE QUANTITY OF THE ORDER WAS LATER INCREASED TO 30 TONS. DURING FEBRUARY AND MARCH, 1987, ALCOLAC SHIPPED A TOTAL OF 66,000 POUNDS TO THE GREEK COMPANY, FOR WHICH IT RECEIVED $54,000. WITHOUT ALCOLAC'S KNOWLEDGE, THE GREEK COMPANY, WORKING TOGETHER WITH THE GERMAN NATIONAL AND AN IRANIAN DIPLOMAT IN GERMANY, TRANSSHIPPED THE THIODIGLYCOL FROM GREECE TO IRAN. IN LATE JUNE, 1987, THE GERMAN NATIONAL CONTACTED ALCOLAC AND ORDERED AN ADDITIONAL 60 TONS OF THIODIGLYCOL, THIS TIME FOR SHIPMENT TO A SINGAPORE COMPANY NAMED MALLET ENTERPRISES. AFTER SEVERAL MONTHS OF NEGOTIATIONS, THE TRANSACTIONS WERE CONSUMMATED; AND, ON SEPTEMBER 4, 1987, 128,700 POUNDS OF THIODIGLYCOL WAS SHIPPED TO MALLET IN SINGAPORE. ALCOLAC WAS PAID $105,960 FOR THIS SHIPMENT. ALTHOUGH THE COMMERCE DEPARTMENT REGULATIONS, REVISED A MONTH EARLIER, REQUIRED THAT A VALIDATED LICENSE BE OBTAINED FOR SHIPMENT, ALCOLAC WAS UNAWARE OF THE NEW REGULATIONS AND DID NOT APPLY FOR A LICENSE. THE SHIPMENT WAS TRANSSHIPPED FROM SINGAPORE THROUGH HONG KONG TO PAKISTAN AND, FINALLY, TO IRAN. AGAIN, ALCOLAC HAD NO KNOWLEDGE OF THE TRANSSHIPMENT. PAGENO="0174" 170 -3... ON FEBRUARY 8, 1988, THE GERMAN NATIONAL TELEPHONED ALCOLAC'S EXPORT MANAGER AND INQUIRED ABOUT AN ADDITIONAL 60 TONS OF THIODIGLYCOL FOR DELIVERY TO SINGAPORE AND PAKISTAN. ON THE SAME DATE, THE EXPORT MANAGER RESPONDED BY TELEX THAT AN EXPORT LICENSE WAS REQUIRED FOR BOTH SINGAPORE AND PAKISTAN, AND THAT ALCOLAC WOULD APPLY FOR AN EXPORT LICENSE. IN RESPONSE TO THIS TELEX, THE EXPORT MANAGER WAS ADVISED THAT THE ENTIRE SHIPMENT WOULD BE SENT TO SINGAPORE. (SEVERAL MONTHS LATER, AFTER A SEARCH WARRANT WAS EXECUTED AT ALCOLAC'S OFFICES, THE EXPORT MANAGER DESTROYED THE FEBRUARY 8, TELEX REFERRING TO PAKISTAN AND FURNISHED CVSTOMS AGENTS WITH AN ALTERED TELEX THAT REFERRED ONLY TO SINGAPORE.) ON FEBRUARY 9, 1988, ALCOLAC SUBMITTED TO THE DEPARTMENT OF COMMERCE AN APPLICATION FOR AN EXPORT LICENSE FOR THE SHIPMENT TO SINGAPORE. THE APPLICATION DESCRIBED THE CHEMICAL AS "THIODIETHYLEN GLYCOL" [SIC) AND HAD ATTACHED LITERATURE DESCRIBING THE CHEMICAL (BUT ERRONEOUSLY LISTED THE CONHODITY CONTROL LIST NUMBER AS 5799C RATHER THAN 4798B). THE APPLICATION WAS SIGNED BY THE DIRECTOR OF INTERNATIONAL MARKETING AND THE EXPORT MANAGER. BECAUSE OF THE ERRONEOUS COMMODITY CONTROL LIST NUMBER IDENTIFIED A CHEMICAL WHICH WAS PERMITTED TO BE SHIPPED TO SINGAPORE WITHOUT AN EXPORT LICENSE, THE DEPARTMENT OF COMMERCE RESPONDED TO ALCOLAC, ON FEBRUARY 22, 1988, THAT A VALIDATED PAGENO="0175" 171 -4- LICENSE WAS NOT REQUIRED FOR THE SINGAPORE SHIPMENT. ALCOLAC ADVISED THE GERMAN NATIONAL ACCORDINGLY. IN LATE FEBRUARY AND EARLY MARCH, 1988, THE GERMAN NATIONAL INCREASED THE ORDER TO 120 TONS, AN EXTREMELY LARGE ORDER FOR THE CHEMICAL. IN ADDITION, HE ASKED THE EXPORT MANAGER TO ARRANGE TO PURCHASE SEVEN 20-FOOT CONTAINERS IN WHICH ALCOLAC WOULD PLACE THE DRUMS OF THIODIGLYCOL TO BE SHIPPED TO SINGAPORE. THE EXPORT MANAGER AGREED, AND SUBSEQUENTLY MADE ARRANGEMENTS TO PURCHASE SHIPPING CONTAINERS AND PASS ON THE COST TO COLIMEX. THE SHIPPING ARRANGEMENTS REQUESTED BY THE GERMAN NATIONAL, AND AGREED TO BY ALCOLAC, ALLOWED THE SHIPMENT TO REMAIN INSIDE THE ORIGINAL CONTAINERS UNTIL THE PRODUCT WAS DELIVERED TO THE FINAL DESTINATION. THESE SHIPPING ARRANGEMENTS TEDS FACILITATED THE SURREPTITIOUS TRANSSHIPMENT OF THE CHEMICAL BY ALLOWING IT TO BE TRANSSHIPPED WITHOUT BEING UNPACKED IN SINGAPORE. ON APPROXIMATELY MARCH 28, 1988, THE GERMAN NATIONAL SPOKE TO THE EXPORT MANAGER AND REQUESTED THAT ALCOLAC MODIFY THE SHIPPING DOCUMENTS USED IN THE PRIOR SHIPMENTS. HE ASKED THAT THE LANGUAGE "TRANSHIPPING IS ALLOWED" BE ADDED TO THE BILL OF LADING AND COMMERCIAL INVOICE. THE EXPORT ADMINISTRATION REGULATIONS REQUIRE A "DIVERSION CLAUSE" TO BE FEATURED ON ALL BILLS OF LADING AND COMMERCIAL INVOICES THAT STATES: PAGENO="0176" 172 -5- THESE COMMODITIES LICENSED BY UNITED STATES FOR ULTIMATE DESTINATION [NAME OF COUNTRY]. DIVERSION CONTRARY TO UNITED STATES LAW PROHIBITED. THE ULTIMATE DESTINATION IS REQUIRED TO BE IDENTIFIED BY COUNTRY NAME. IN THE PRIOR SINGAPORE SHIPMENT, SINGAPORE HAD BEEN LISTED AS THE ULTIMATE DESTINATION. THE GERMAN NATIONAL ASKED THAT THE DESTINATION FOR THIS SHIPMENT BE LISTED AS FAR EAST RATHER THAN SINGAPORE. THE EXPORT MANAGER AGREED TO COMPLY WITH THESE REQUESTS. THE GERMAN NATIONAL CONFIRMED THE REQUEST WITH A TELEX ON THE SAME DAY WHICH STATED: ACCORDING TO OUR PHONE CONVERSATION FROM TODAY, PLEASE DO SOME NECESSARY THINGS FOR THE CUSTOMER AS DISCUSSED: 1) ON THE SHIPPING DOCUMENTS INSERT "TRANSSHIPPING IS ALLOWED" 2) PLEASE DO NOT WRITE ON THE BILL OF LADING "THESE COMMODITIES LICENSED BY UNITED STATES FOR ULTIMATE DESTINATION SINGAPORE. DIVERSION CONTRARY TO UNITED STATES LAW PROHIBITED." PLEASE YOU MAY WRITE INSTEAD OF SINGAPORE, "FAR EAST." PAGENO="0177" 173 -6- THE EXPORT MANAGER RESPONDED IN A TELEX DATED MARCH 21, 1988: "HAVE NOTED DETAILS AND WILL COMPLY ON THE B/L AND INVOICES." THE GERMAN NATIONAL'S REQUEST THAT THE SHIPPING DOCUMENTS PERMIT TRANSSHIPMENT AND LIST THE FAR EAST RATHER THAN SINGAPORE AS THE ULTIMATE DESTINATION, COMBINED WITH THE EARLIER REQUEST BY HIM TO SHIP THE THIODIGLYCOL TO SINGAPORE AND PAKISTAN, MADE IT CLEAR THAT THE SHIPMENT WAS GOING TO BE TRANSSHIPPED OUT OF SINGAPORE (POSSIBLY TO PAKISTAN, WHICH IS CONTIGUOUS TO IRAN). THE EXPORT MANAGER'S LATER CREATION OF AN ALTERED TELEX ESTABLISHED ALCOLAC'S RECOGNITION THAT THE CHEMICAL WOULD BE TRANSHIPPED. ON APRIL 19, 1988, ALCOLAC SENT ITS FREIGHT FORWARDING AGENT, PATRON SERVICES, INC., (PATRON) A "SHIPPER'S LETTER OF INSTRUCTIONS" INSTRUCTING PATRON TO PREPARE THE BILL OF LADING FOR THE SHIPMENT TO SINGAPORE. AS THE GERMAN NATIONAL HAD REQUESTED, ALCOLAC INSTRUCTED PATRON TO INSERT ON THE BILL OF LADING "TRANSHIPPING IS ALLOWED," AND TO LIST THE DESTINATION AS THE FAR EAST RATHER THAN SINGAPORE. AN EMPLOYEE OF PATRON, AFTER REVIEWING ALCOLAC'S REQUEST, CALLED THE EXPORT MANAGER THAT STATED THAT THE EXPORT ADMINISTRATION REGULATIONS DID NOT PERMIT THE BILL OF LADING TO STATE THAT TRANSSHIPPING WAS ALLOWED AND REQUIRED THAT THE NAME OF THE COUNTRY BE INCLUDED IN THE DIVERSION CLAUSE, AND THAT PATRON THEREFORE COULD NOT COMPLY WITH THE REQUEST. PAGENO="0178" 174 -7- ON APRIL 28, 1988, THE PATRON EMPLOYEE SENT THE EXPORT MANAGER A COPY OF THE APPLICABLE REGULATIONS. PATRON PREPARED THE BILL OF LADING INDICATING THAT THE ULTIMATE DESTINATION WAS SINGAPORE AND MADE NO REFERENCE TO TRANSSHIPPING BEING PERMITTED. THE BILL OF LADING, PREPARED BY PATRON, WAS FURNISHED TO ORIENT OVERSEAS CONTAINER LINE, THE SHIPPING LINE FOR THE THIODIGLYCOL, AND WAS FILED WITH THE CUSTOMS SERVICE. PATRON ALSO PREPARED AND FILED, PURSUANT TO THE INSTRUCTIONS OF ALCOLAC, A SHIPPER'S EXPORT DECLARATION DATED APRIL 18, 1988. IN ACCORDANCE WITH THE EXPORT MANAGER'S INSTRUCTIONS, THE COUNTRY OF ULTIMATE DESTINATION FOR THE SHIPMENT WAS INDICATED AS SINGAPORE. ALCOLAC ASKED THAT PATRON PROVIDE IT WITH DUPLICATE ORIGINALS OF THE BILL OF LADING TO BE FORWARDED TO COLIMEX. AN ALCOLAC EMPLOYEE ALTERED THE BILL OF LADING RECEIVED FROM PATRON BY TYPING "TRANSSHIPPING IS ALLOWED" ON THE DOCUMENT, NOTWITHSTANDING THE INSTRUCTIONS RECEIVED FROM PATRON THAT IT WAS UNLAWFUL TO INDICATE ON THE BILL OF LADING THAT "TRANSSHIPPING IS ALLOWED." PAGENO="0179" 175 -8- IN ADDITION, ALCOLAC PREPARED AN INVOICE DATED APRIL 18, 1988, TO COLIMEX. ALTHOUGH THE REGULATIONS PROVIDED BY THE FREIGHT FORWARDER CLEARLY REQUIRED THAT THE INVOICE, LIKE THE BILL OF LADING, INCLUDE A DIVERSION CLAUSE SPECIFYING THE NAME OF THE COUNTRY OF ULTIMATE DESTINATION, ALCOLAC PREPARED THE INVOICE TO INDICATE THAT THE ULTIMATE DESTINATION WAS THE FAR EAST AND THAT TRANSSHIPMENT WAS ALLOWED. THE INVOICE, IN THE AMOUNT OF $198,660 PLUS $9,100 FOR THE SHIPPING CONTAINERS, WAS SENT TO COLIMEX TOGETHER WITH THE ALTERED BILL OF LADING. ON APPROXIMATELY APRIL 20, 1988, 430 55-GALLON DRUMS (CONTAINING A TOTAL OF 236,500 POUNDS OF THIODIGLYCOL STORED IN THE SEVEN CONTAINERS PURCHASED BY ALCOLAC FOR COLIMEX) WERE SHIPPED BY BARGE FROM THE PORT OF BALTIMORE TO THE PORT OF NORFOLK, VIRGINIA. ON APRIL 21, 1988, UNITED STATES CUSTOMS INSPECTORS AND SPECIAL AGENTS FROM NORFOLK, WORKING IN COOPERATION WITH SPECIAL AGENTS OF THE SAC/BALTIMORE OFFICE, SUBSTITUTED WATER FOR THE THIODIGLYCOL, WITHOUT ALCOLAC'S KNOWLEDGE. FOUR HUNDRED AND THIRTY DRUMS OF WATER WERE RELOADED ONTO THE VESSEL ORIENTAL FRIENDSHIP, WHICH DEPARTED THE PORT OF NORFOLK FOR SINGAPORE ON APRIL 22, 1988. PAGENO="0180" 176 -9- IN MAY, 1988, HALLET ENTERPRISES, THE SINGAPORE CONSIGNEE FOR THE THIODIGLYCOL, NOTIFIED THE SHIPPING COMPANY IN SINGAPORE HANDLING THE ARRIVAL OF THE ORIENTAL FRIENDSHIP THAT THE SHIPMENT WOULD BE TRANSSHIPPED TO KARACHI, PAKISTAN, ABOARD THE VESSEL OCEAN SINCERITY. WHEN THE SHIPMENT ARRIVED IN SINGAPORE, IN ORDER TO EFFECT THE TRANSSHIPMENT, MALLET FILED WITH SINGAPORE AUTHORITIES A COPY OF THE ALTERED BILL OF LADING FURNISHED BY ALCOLAC TO COLIMEX AND BY COLIMEX TO MALLET. THE STATEMENT ON THE BILL OF LADING THAT TRANSSHIPPING WAS ALLOWED ASSISTED MALLET IN AVOIDING DIFFICULTIES THAT HAD OCCURRED WITH THE PRIOR SHIPMENT TO SINGAPORE. THE OCEAN SINCERITY LEFT SINGAPORE ON APPROXIMATELY MAY 24, 1988, CARRYING THE DRUMS OF WATER. IT ARRIVED IN KARACHI ON JUNE 4, 1988. THE SHIPMENT WAS PLACED ON THE VESSEL IRAN EKRAM, WHICH LEFT KARACHI ON JUNE 4, 1988, AND TRAVELED TO BANDAR ABBAS, IRAN. SHIPPING DOCUMENTS INDICATED THAT THE SHIPMENT WAS DELIVERED TO A TEHRAN COMPANY NAMED M/S RAY TEXTILE INDUSTRIES. ALCOLAC WAS LATER PAID THE FULL AMOUNT OF ITS INVOICE TO COLIMEX. PAGENO="0181" 177 - 10 - AT THE SANE TIME THE COLIMEX TRANSACTIONS WERE TAKING PLACE, ALCOLAC BEGAN SELLING EXTREMELY LARGE QUANTITIES OF THIODIGLYCOL FOR EXPORT TO A GROUP DOING BUSINESS AS NUKRAFT MERCANTILE CORPORATION, BROOKLYN, NEW YORK. IN OCTOBER, 1987, NURRAFT CONTACTED THE EXPORT MANAGER AND EXPRESSED AN INTEREST IN ESTABLISHING A LONG-TERN SUPPLY RELATIONSHIP FOR THIODIGLYCOL WITH ALCOLAC, STATING THAT THE THIODIGLYCOL WAS BEING PURCHASED FOR USE IN THE TEXTILE INDUSTRY BY NUKRAFT'S EUROPEAN CUSTOMER, A DUTCH NATIONAL IN SWITZERLAND. NUKRAFT WAS INTERESTED IN AN INITIAL SHIPMENT OF 130 METRIC TONS OF THIODIGLYCOL. ALCOLAC INVOICED NUKRAFT FOR THE SHIPMENTS. THE INVOICE, DATED OCTOBER 21, 1987, AND SIGNED BY THE EXPORT MANAGER, INDICATED THAT ALCOLAC SOLD NUKRAFT 277,200 POUNDS OF THIODIGLYCOL AT 57 CENTS PER POUND AND CONSIGNED THE ORDER TO COMPANIES, INC., IN SWITZERLAND. THE TOTAL PRICE WAS $158, 004, PLUS $9,800 OCEAN FREIGHT. THE SPACE FOR THE COUNTRY OF DESTINATION IN THE DIVERSION CLAUSE WAS LEFT BLANK, IN VIOLATION OF 15 C.F.R. SECTION 386.6. PAGENO="0182" 178 - -11- PATRON SERVICES, AT ALCOLAC'S REQUEST, PREPARED THE BILL OF LADING FOR THE SHIPMENT. THE BILL OF LADING INDICATED THAT THE "TEXTILE ADDITIVES," NOWHERE IDENTIFIED BY NAME, WERE SHIPPED VIA THE VESSEL EUROPEAN SENATOR ON OCTOBER 22, 1987. THE PORT OF DISCHARGE WAS LISTED AS ANTWERP, BELGIUM. THE DIVERSION CLAUSE ON THE BILL OF LADING STATED THAT THE ULTIMATE DESTINATION WAS SWITZERLAND. A COPY OF A TELEX DATED OCTOBER 29, 1987, FROM INDUSTRIAL PROJECT FORWARDING, LTD., THE FORWARDING AGENTS FOR THE DUTCH NATIONAL, TO NUERAFT, WAS FOUND IN ALCOLAC'S FILES. THE TELEX STATED: ACCORDING TO THE INFORMATION WE HAVE RECEIVED ALL TRANSSHIPMENT COSTS IN ANTWERP HAVE TO BE SENATOR ACCOUNT. ON THE FOLLOWING DAY, NTJKRAFT INSTRUCTED ALCOLAC TO REVISE THE BILL OF LADING TO INDICATE "GOODS IN TRANSIT." ALCOLAC COMPLIED WITH THESE INSTRUCTIONS. aT ALCOLAC'S REQUEST, PATRON PREPARED A SECOND BILL OF LADING INDICATING IN THE ROUTING AND INSTRUCTION SECTION: GOODS IN TRANSIT. SENATOR LINIE [SIC] RESPONSIBILITY TERNINATES AT ANTWERP. PAGENO="0183" 179 - 12 - THE SHIPMENT OF THIODIGLYCOL NEVER REACHED SWITZERLAND. AFTER ITS ARRIVAL IN BELGIUM, IN NOVEMBER, 1987, THE THIODIGLYCOL WAS TRANSSHIPPED BY VESSEL TO THE PORT OF AQABA, JORDAN, WITH ITS FINAL DESTINATION BEING IRAQ. AFTER THE COMPLETION OF THE FIRST SHIPMENT, NUKRAFT'S PRINCIPALS ARRANGED FOR A MEETING AT ALCOLAC'S OFFICES ON NOVEMBER 19, 1987, IN ORDER TO DISCUSS NUKRAFT'S FUTURE NEEDS. THE VICE PRESIDENT, THE DUTCH NATIONAL AND A JAPANESE NATIONAL ATTENDED ON BEHALF OF NUKRAFT. ALCOLAC SENIOR EXECUTIVES ATTENDED THE MEETING, AS WELL AS THE DIRECTOR FOR INTERNATIONAL MARKETING AND THE EXPORT MANAGER. AT THE MEETING, THE VICE PRESIDENT EXPLAINED THAT NUKRAFT WAS AN AFFILIATE OF A BROOKLYN, NEW YORK, COMPANY NAMED UNITED STEEL AND STRIP CORPORATION, AND WAS OWNED BY THE PRESIDENT OF UNITED STEEL AND STRIP. THE DUTCH NATIONAL WAS INTRODUCED AS THE EUROPEAN AGENT AND CUSTOMER NUKRAFT. HE STATED THAT HE SOLD THIODIGLYCOL TO WESTERN EUROPEAN DISTRIBUTORS, WHO THEN DILUTED AND REPACKAGED THE CHEMICAL FOR SALE TO END-USERS IN THE TEXTILE INDUSTRY, PRIMARILY IN ITALY. THE GROUP DISCUSSED THE SUPPLY BY ALCOLAC TO NTJKRAFT OF ITS TOTAL REQUIREMENTS FOR THIODIGLYCOL, WHICH NUKRAFT ESTIMATED TO BE 3,000,000 TO 6,000,000 POUNDS PER YEAR. THAT QUANTITY WAS GREATER THAN ALCOLAC'S TOTAL DOMESTIC AND INTERNATIONAL SALES OF THE CHEMICAL IN 1987, APPROXIMATELY 1.8 MILLION POUNDS. PAGENO="0184" 180 - -13- ALCOLAC HAD NO INFORMATION TO SUGGEST THAT THERE WAS SUFFICIENT DEMAND FOR THIODIGLYCOL FOR LEGITIMATE USES TO ACCOUNT FOR THE VOLUME NUKRAFT INTENDED TO BUY, AND HAD NEVER BEFORE HEARD OF NUKRAFT OR ANY OF ITS PRINCIPALS OR AFFILIATES. MOREOVER, ALCOLAC WAS TOLD THAT NIJI~AFT WAS A SHELL COMPANY FORMED FOR THE PURPOSE OF THESE TRANSACTIONS, WITH NO MEANINGFUL ASSETS. COMPANY EXECUTIVES ASKED WHETHER NUKRAFT WAS AWARE THAT THE CHEMICAL COULD BE USED TO PRODUCE MUSTARD GAS. THE VICE PRESIDENT AND THE DUTCH NATIONAL RESPONDED THAT THEY WERE AWARE OF THIS RESTRICTED USE, AND THAT THE CHEMICAL WOULD BE USED FOR TEX~1~ APPLICATIONS RATHER THAN MUSTARD GAS PRODUCTION. ALCOLAC ACCEPTED THESE ASSURANCES AND AGREED TO SUPPLY NUKRAFT' S TOTAL REQUIREMENTS AT A PRICE OF 56 CENTS PER POUND. BASED ON AN ESTIMATED COST TO PRODUCE THIODIGLYCOL AT 35 CENTS PER POUND, ALCOLAC EXPECTED TO EARN $630,000 TO $1,260,000 IN PROFITS PER YEAR FROM THE NUKRAFT RELATIONSHIP. AFTER THE NOVEMBER MEETING, ALCOLAC CONTINUED TO SUPPLY THIODIGLYCOL TO NUKRAFT. THE NEXT SHIPMENT OCCURRED IN JANUARY, 1988. PRIOR TO THAT SHIPMENT, THE VICE PRESIDENT ASKED THE EXPORT MANAGER TO LIST THE CONSIGNEE ON THE SHIPPING DOCUMENTS AS U.O. COMPANIES IN MONROVIA, LIBERIA, AND TO INDICATE THE PURCHASER AS INDUSTRIAL PROCUREMENT CORPORATION AT THE SANE BROOKLYN ADDRESS AS NUKRAFT. A VALIDATED LICENSE IS REQUIRED FOR EXPORT OF THIODIGLYCOL TO AFRICA. PAGENO="0185" 181 - 14 - ALCOLAC INITIALLY PREPARED A DRAFT INVOICE REFLECTING THE INFORMATION SUPPLIED BY NIJKRAFT; HOWEVER, BY TELEFAX DATED JANUARY 8, 1988, THE EXPORT MANAGER ADVISED THE VICE PRESIDENT: " PLEASE NOTE THAT WE CANNOT SHIP PRODUCT TO OR SHOW MONROVIA ON ANY OF OUR DOCUMENTS. MATERIAL WILL BE CONSIGNED TO INDUSTRIAL PROCUREMENT I ANTWERP, BELGIUM." ALTHOUGH IT WAS EVEN MORE CLEAR THAN IN THE FIRST TRANSACTION THAT BELGIUM WAS NOT THE DESTINATION, ALCOLAC AGREED TO PROCEED WITH THE SHIPMENT AND INDICATE ON THE SHIPPING DOCUMENTS THAT THE CONSIGNEE WAS A CORPORATION LOCATED IN BELGIUM, THE EXISTENCE OF WHICH HAD NEVER BEEN CONFIRMED. IN ADDITION, THE DUTCH NATIONAL REQUESTED THAT A "LONG DIVERSION CLAUSE" BE USED ON THE INVOICE AND THE BILL OF LADING. tHE LONG DIVERSION CLAUSE STATED: THESE COMMODITIES LICENSED BY THE UNITED STATES FOR ULTIMATE DESTINATION WESTERN EUROPE FOR DISTRIBUTION OR RESALE IN ANY DESTINATION EXCEPT SOVIET BLOC, LAOS, LIBYA, NORTH KOREA, VIETNAM, CAMBODIA, OR CUBA UNLESS OTHERWISE AUTHORIZED BY THE UNITES STATES. THAT DIVERSION CLAUSE, ALTHOUGH SIMILAR TO ONE PERMITTED BY 15 C.F.R. SECTION 386.6 FOR CERTAIN SHIPMENTS, WAS MISLEADING WHEN USED IN CONNECTION WITH THE THIODIGLYCOL SHIPMENT. IT PAGENO="0186" 182 - 15 - SUGGESTED THAT RESALE IN ANY COUNTRY NOT LISTED WAS PERMITTED BY UNITED STATES LAW, WHEN IN FACT THAT RESALE TO IRAN, IRAQ AND SYRIA WERE CLEARLY NOT PERMITTED. MOREOVER, THE DESIGNATION OF WESTERN EUROPE RATHER THAN A SPECIFIC COUNTRY VIOLATED 15 C.F.R. SECTION 386.6. THE EXPORT MANAGER CONFIRMED THAT ALCOLAC WOULD COMPLY WITH THE REQUEST IN A TELEFAX DATED JANUARY 13, 1988, ADDRESSED TO THE DUTCH NATIONAL, WITH A COPY TO NUKRAFT'S VICE PRESIDENT. ALCOLAC PASSED THE REQUEST TO ANCHOR INTERNATIONAL, THE FREIGHT FORWARDING AGENT WHO WAS PREPARING THE BILL OF LADING FOR THE SHIPMENT. THE FREIGHT FORWARDER ADVISED THE EXPORT MANGER THAT THE USE OF THE MISLEADING DIVERSION CLAUSE WAS NOT PERMITTED. ALCOLAC RESPONDED THAT THEIR CUSTOMER HAD ASKED THAT THIS DIVERSION CLAUSE BE USED, AND THEY THEREFORE INSISTED ON ITS USE. ANCHOR INTERNATIONAL PREPARED THE BILL OF LADING WITH THE INCORRECT DIVERSION CLAUSE. AS IN THE FIRST SHIPMENT, NUKRAFT ASKED THAT ALCOLAC ARRANGE FOR THE BILL OF LADING TO STATE THE SHIPMENT WAS IN TRANSIT, AND ALCOLAC COMPLIED. IN ADDITION, NUKEAFT ASKED ALCOLAC TO PURCHASE THE CONTA[NERS IN WHICH THE THIODIGLYCOL WAS TO BE SHIPPED. ALCOLAC MADE THE NECESSARY ARRANGEMENTS AND PURCHASED THE CONTAINERS. THE BILL OF LADING AGAIN DESCRIBED THE CONTENTS OF THE SHIPMENT ONLY AS "TEXTILE ADDITIVE." PAGENO="0187" 183 - 16 - AT NUKRAFT'S REQUEST, ALCOLAC ISSUED ITS INVOICE TO INDUSTRIAL PROCUREMENT CORPORATION, 1000 ESSEX STREET, BROOKLYN, NEW YORK. THE INVOICE WAS DATED JANUARY 7, 1988, AND THE DIVERSION CLAUSE INDICATED That THE DESTINATION WAS WESTERN EUROPE. THE INVOICE SPECIFIED THE QUANTITY AS 277,200 POUNDS AND THE TOTAL PRICE AS $158,004 PLUS $9,800 OCEAN FREIGHT AND $5,950 FOR THE CONTAINERS. THE SECOND SHIPMENT WAS SHIPPED ON THE VESSEL DART ATLANTIC ON JANUARY 12, 1988. ALTHOUGH THE BILL OF LADING LISTED THE PORT OF DISCHARGE AS ANTWERP, DOCUMENTS OBTAINED IN ROTTERDAM, THE NETHERLANDS, INDICATED THAT THE SHIPMENT WAS DISCHARGED THERE AND NEVER ACTUALLY REACHED ANTWERP. ALCOLAC'S PREPARATION OF THE SHIPPING DOCUMENTS WITHOUT REFERENCE TO MONROVIA, LIBERIA, ITS USE OF THE IMPROPER DIVERSION CLAUSE, ITS DESIGNATION OF WESTERN EUROPE AS THE DESTINATION, ITS AGREEMENT TO INDICATE ON THE BILL OF LADING THAT THE SHIPMENT WAS IN TRANSIT, AND ITS ASSISTANCE IN PURCHASING THE SHIPPING CONTAINERS RATHER THAN USING THE SHIPPING LINE CONTAINERS ALL ASSISTED NUKRAFT IN TRANSSHIPPING THE SHIPMENT TO IRAQ. PAGENO="0188" 184 - 17 - A THIRD SHIPMENT WAS SENT IN EARLY FEBRUARY. THE SHIPPING DOCUMENTS WERE SIMILAR TO THOSE FOR THE SECOND SHIPMENT. THE COMMERCIAL INVOICE, DATED JANUARY 29, 1988, FROM ALCOLAC INDICATED THAT THE PURCHASER WAS INDUSTRIAL PROCUREMENT CORP., AND THE CONSIGNEE WAS COMPANIES, INC., THE DUTCH NATIONAL. THE TOTAL QUANTITY OF THIODIGLYCOL WAS 263,450 POUNDS, AND THE TOTAL COST WAS $150,166.50 PLUS $9,800 OCEAN FREIGHT AND A $6,650 CONTAINER CHARGE. THE DESTINATION LISTED IN THE INVOICE'S DIVERSION CLAUSE WAS WESTERN EUROPE. THE INVOICE STATE, "GOODS IN TRANSIT." THE BILL OF LADING, PREPARED BY ANCHOR INTERNATIONAL ACCORDING TO ALCOLAC'S INSTRUCTIONS, USED THE SANE MISLEADING LONG DIVERSION CLAUSE AS IN THE SECOND SHIPMENT, AND INDICATED THAT THE ULTIMATE DESTINATION WAS WESTERN EUROPE. THE BILL OF LANDING DESCRIBED THE SHIPMENT AS "TEXTILE ADDITIVE" WHICH WAS" IN TRANSIT." ON FEBRUARY 5, 1988, A SHIPPER'S EXPORT DECLARATION FOR THE SHIPMENT WAS FILED BY ANCHOR INTERNATIONAL WITH THE U.S. CUSTOMS SERVICE AT ALCOLAC'S INSTRUCTION. IN COMPLIANCE WITH THE REQUESTS RECEIVED BY ALCOLAC FROM NtJKRAFT, THE COUNTRY OF ULTIMATE DESTINATION WAS LISTED AS WESTERN EUROPE RATHER THAN A SPECIFIC COUNTRY. THE SHIPMENT ARRIVED IN BELGIUM AND WAS TRANSSHIPPED TO THE PORT OF AQABA, JORDAN, IN MARCH, 1988, ITS FINAL DESTINATION BEING IRAQ. PAGENO="0189" 185 - 18 - ALCOLAC SHIPPED A FOURTH AND FINAL NUKRAFT SHIPMENT LATER THAT MONTH. AGAIN, ALCOLAC COMPLIED WITH ALL OF NUKRAFT'S REQUESTS. THE INVOICE INDICATED THAT THE PURCHASER WAS INDUSTRIAL PROCUREMENT CORP., AND ThE CONSIGNEE WAS COMPANIES, INC., BELONGING TO THE DUTCH NATIONAL, IN SWITZERLAND. THE DIVERSION CLAUSE LISTED "WESTERN EUROPE" RATHER THAN A SPECIFIC COUNTRY AS THE DESTINATION. THE INVOICE STATED, "GOODS IN TRANSIT." THE QUANTITY LISTED ON THE INVOICE WAS 261,800 POUNDS, AND THE PRICE WAS $149,226, PLUS $9,934.05 OCEAN FREIGHT AND A $7000 CONTAINER CHARGE. THE BILL OF LADING AGAIN USED THE MISLEADING LONG DIVERSION CLAUSE, WHICH INDICATED THAT WESTERN EUROPE WAS THE DESTINATION, AND DESCRIBED THE SHIPMENT ONLY AS "TEXTILE ADDITIVES." ALCOLAC AGAIN ASSISTED NUKRAFT IN PURCHASING SHIPPING CONTAINERS. ON FEBRUARY 22, 1988, A SHIPPER'S EXPORT DECLARATION WAS PREPARED BY ANCHOR INTERNATIONAL ON BEHALF OF ALCOLAC. THE SHIPPER'S EXPORT DECLARATION INDICATED THAT THE COUNTRY OF ULTIMATE DESTINATION WAS "WEST EUROPE." THIS FINAL SHIPMENT WAS SHIPPED ABOARD THE STUTGART EXPRESS WHICH SAILED ON FEBRUARY 21, 1988. IN MARCH, 1988, THE SHIPMENT ARRIVED IN ANTWERP, BELGIUM. THE SAME MONTH IT WAS TRANSSHIPPED TO THE PORT OF AQABA, JORDAN. ITS FINAL DESTINATION AGAIN WAS IRAQ. PAGENO="0190" 186 - -19- ALCOLAC'S WILLING COMPLIANCE WITH ALL OF NUXPAFT'S REQUESTS, IN ALL FOUR OF THE SHIPMENTS, BY PREPARING DOCUMENTS INCONSISTENT WITH FEDERAL REGULATIONS, FACILITATED THE ILLEGAL RE-EXPORT OF EACH SHIPMENT BY NUKRAFT TO IRAQ. IN LATE MARCH, 1988, ALCOLAC'S VICE PRESIDENT FOR FINANCE, SAW A TELEVISION NEWS REPORT CONCERNING THE USE OF CHEMICAL WEAPONS BY IRAQ INDICATING THAT THE CHEMICALS USED TO MAKE THE CHEMICALS WEAPONS WERE BELIEVED TO BE REACHING IRAQ THROUGH WEST GERMANY, BELGIUM OR TURKEY. ALCOLAC SENIOR EXECUTIVES DECIDED TO DISCONTINUE SHIPMENTS TO NTJKRAFT UNTIL SUFFICIENT ASSURANCES WERE OBTAINED THAT THE THIODIGLYCOL WAS, IN FACT, BEING USED IN THE TEXTILE INDUSTRY. THE DECISION WAS COMMUNICATED TO THE EXPORT MANAGER AND THE PENDING SHIPMENT TO NUKRAFT WAS SUSPENDED. NO STEPS WERE TAKEN, HOWEVER BY ALCOLAC EXECUTIVES TO MONITOR THE MANNER IN WHICH THE EXPORT MANAGER OBTAINED INFORMATION CONCERNING THE DESTINATION OF THE THIODIGLYCOL OR ITS USE. IN ADDITION, NO ATTEMPT WAS MAKE TO NOTIFY ANY GOVERNMENT AGENCY OF THE NUKRAFT TRANSACTIONS. DURING THE NEXT SEVERAL MONTHS, THE EXPORT MANAGER REQUESTED THAT NUKPAFT AND THE DUTCH NATIONAL PROVIDE DOCUMENTATION VERIFYING THE DESTINATION OF THE THIODIGLYCOL. ON APRIL 20, 1988, NUKRAFT TELEFAXED DOCUMENTS TO THE EXPORT MANAGER SAID TO PAGENO="0191" 187 - 20 - HAVE BEEN OBTAINED FROM THE DUTCH NATIONAL. THE DOCUMENTS WERE INVOICES FROM COMPANIES, INC., IN SWITZERLAND TO UNITED OVERSEAS COMPANY, INC., MONROVIA, LIBERIA, CORRESPONDING TO THE FOUR PRIOR SHIPMENTS OF THIODIGLYCOL. A HANDWRITTEN NOTE ON ONE OF THE INVOICES INDICATED THAT UNITED OVERSEAS COMPANY WAS THE END-USER. EVEN AFTER RECEIVING THESE INVOICES, ALCOLAC DID NOT SEVER ITS TIES WITH NUKRAFT. IT REPEATEDLY REQUESTED THAT NURRAFT SUPPLY IT WITH COMPLETED UNITED STATES DEPARTMENT OF COMMERCE END-USER FORMS IDENTIFYING THE END-USER OF THE THIODIGLYCOL. FINALLY ON MAY 11, 1988, THE EXPORT MANAGER RECEIVED A TELEFAX FROM NUKRAFT WITH A FORM THAT NUKRAFT SAID WAS COMPLETED BY THE DUTCH NATIONAL. THE FORM INDICATED THAT UNITED OVERSEAS COMPANY, INC., IN MONROVIA, LIBERIA, WAS THE ULTIMATE CONSIGNEE. ON MAY 24, 1988, THE EXPORT MANAGER STATED IN A TELEFAXED MESSAGE TO NUKRAFT THAT ADDITIONAL SHIPMENTS WOULD BE MADE ONLY AFTER PROPERLY COMPLETED FORMS WERE RECEIVED. NUKRAFT NEVER PROVIDED SUCH FORMS, AND NO FURTHER SHIPMENTS WERE MADE. THE THIODIGLYCOL SALES TO NUKRAFT AND COLIMEX WERE EXTREMELY PROFITABLE FOR ALCOLAC. ITS FULL MANUFACTURING COST FOR THE THIODIGLYCOL SHIPPED TO NUKRAFT RANGED FROM 34 TO 35 CENTS PER POUND, AND THE SELLING PRICE WAS 57 CENTS PER POUND. THE PAGENO="0192" 188 -21- MANUFACTURING COST FOR THE THIODIGLYCOL SOLD TO COLINEX IN THE FINAL SHIPMENT WAS 37 CENTS PER POUND, AND THE SELLING PRICE WAS 84 CENTS. ACCORDINGLY, ALCOLAC'S GROSS PROFIT MARGIN FROM THE FOUR SHIPMENTS TO NUKRAFT AND THE LAST SHIPMENT TO COLIMEX TOTALED APPROXIMATELY $352,000. CONCLUSION THIS CASE RESULTED IN THE ARREST OF THREE FOREIGN NATIONALS, THREE U.S. CITIZENS, THE IMPOSITION OF A FINE OF JUST UNDER ONE MILLION DOLLARS ON ALCOLAC, AND THE ISSUANCE OF A U.S. ARREST WARRANT FOR THE IRANIAN DIPLOMAT. AS IN THE MAJORITY OF THESE TYPES OF INVESTIGATIONS THE COOPERATIVE EFFORT BETWEEN CUSTOMS' ENTITIES PLAYED AN INTRICATE PART IN FORMULATING THE CASE. FROM INSPECTION AND CONTROL, TO THE CUSTOMS ATTACHE OFFICES, TO INTELLIGENCE, TO THE HEADQUARTERS DESK OFFICER THE CUSTOMS SPECIAL GENT HAS A VARIETY OF SPECIALIZED EXPERTISE AT HIS DISPOSAL TO DRAW UPON WHICH WILL ENHANCE HIS INVESTIGATIVE ABILITIES AND PROVIDE ACCESS TO SPECIFIC SUPPORT RESOURCES. PAGENO="0193" RLL OF LADING IN~t N~ooEAbTD Ijifioss C~s~g~d To O~do~) 189 O1~ENTOVEggAS ewgiazse,t i~NE I - I I I I I I ALCOLAC INTERNATIONAL, INC. - 3440 FAIRFIELD ROAD - - BA 021930 - BALTIMORE, MARYLAND 21226 USA P$-7355 (2969) - -~ - - -~ I J I F BALLET ENTERPRISES PIE LTD 25-01 SHENTON HOUSE SINGAPORE PATRON SERVICES INC1 I 1 81 I -L1 31 S CALVERT STREET BALTIMORE, MD 212(12 USA ~ SAMEAND-ALSO: COLIMEX CMB&- - I - MOZARISTRASSE 7 - - - 5000 KOELN 1 W. GERMANY . - - - -- - - - - - - ON BOARD APR221988 ~` -~ OCL'(USA)Lnc. - °° ORIENTAL FRIENDSHIP -V7 BALTIMORE LOT 503 D.M.T. - - - - SIN(~AP0RE - - - - - - - I - - -- - (C000i ~EMWM* P HAZARDOUS MATERIAL) PARTICULARSPURN) D BY SHIPPER ONTO. .S~WdJ~L.))~S. ~ H - -_-DESCUIPRON OF PACKAGES AGO GOODS- - GROSS WEIGHT MEASUREMENT BALLET ENT - FREIGHT PREPAID ON BOARD SINGAPORE - SI-UPPER LOAD STOW AND COUNT - - - - -- -- KRO2{FAX -- 7 - 20' SHIPPER-OWNED.CONTAINERS SAID -TO - -25413O# -- 4730 CFP. MADE IN EISA CONTAIN TOTAL 430 x 55-GALLON STEEL NC) 1 IJP/430 DRUMS TEXTILE ADDITIVE-SURFACTANTS (115273 KGS) -(133 941 Mi KITMIR (NON-HAZARDOUS MATERIALS NOT RESTRICT - - - SEAL - NO LABELS REQUIRED) .:~ ~-~-~` - - C0NTA~LEL,~OS ** TRANSSHIPPING IS ALLOWED~ ~ ~ - -THESE COMMODITIES LICENSED FOR-ULTIMA1~ -: - TNYttr -~OC~"Z~% 1 8~ 1 DESTINRFION -SINGAPORE. DIVERSION CONTRL Y - - ~ / - TO U.S. -LAW PROHIBITED. - - I - - I - ~ I) - -CONTAINERS SEALED BY - - . - - 128917 ~. SHIPPER ~--. TI. %`SM%~: TLUT80562k--128992--~-- -~ TUJ 7803650 02821 - t.COLAC - 28988 - - - -- - - d~~sd C.,VOVAGM$ - . If M*,oh~,ot ,~t,p, *o~IUS CDO-Ei.?sIIIRitStjOD of lisbility sh,itootspi ~odtb,AdR.~..RP*ARNEUIbSEhAPgOd TUUTIUUEI UTEEOOGIS;T*AUO~DT - JSSOEER ~od A~loood A WOO p~od.d - TU.UUDESKIIATUAT.U.OA,.Udd.IDTOW500UIO GE TARIFF lEG ~ FREIGTTEU AS = -- - - RATE - US S PREPAIO - -- ---~~ - US N COU.ECT . LOCAl. CUOREOCT - - - 5USd DOd N RU CUS~~ .soAEAS. GAO - UoIO,s.o5,O,U&..l......OoNU&b4lGOII~dd9hNO -~ 51-840 0 - 92 - 7 PAGENO="0194" 190 ,~ 4 -i~ *~~- /BATCH - - - `NTF - - - - IWLJW ~.~88B5366:LB+ - - S - - - 8 FEB. 1988 - - - - - ATN -MR. .P~ WALASCHEK - - -. - - - - - - -: RE-PHt~JE CALL. TODAY - ~-- - - - PLEASE- NOTE THAi- WE HAVE CHECF~ED -~ND :EINb THAT -SINGAPORE DOES NEED ~ EXPORT LICENSE FOR SHIPMENT ~ -KRONFA~ FOR CLOTHING AND TEXTILE - 4PPL~tATIONS.~- WE WILL APPLY: FOR -EXPORT LICENSE TODAY. ~RICE-WILL BE USBLO.85/LB. CIF sn~GAF-ORE: IATERIAL-WIL-LNEED A 2WEEK LEAD TIME -ARRIVAL TIME ~O DAYS AFTEF~ ECEIPT OF OFDEF - N ORDER TO GET EXPORT LICENSE, WE NEED ~ro KNOt-I THE ULTIMATE- ~UBTOMER NAME -AND ADDRESS.. - - - - -- - *E CAN SHIP KROMFAX- ONLV INTO THE FOLLOWING COUNTRIES WITHOUT - ICENSE - - - - - - -- - - S - USTRALIA, BELGIUM. CANADA. BENMA~K~ FED.REP.W.GERMAN~, FRArIC REECE. -IF~ELAND. IThLY, JAPAN, LUXEMB~URG. THE NETHERLAND5~ NEW LAND, NORWAY, -PORTUGAL, SPAIN. SWI TZERLAND- AND THE UNI TE0 INGDOM. - - - - - -EASE AD~2ISE IF WE CAN_BE OF ANY F'JF:THEF: ASSr~-TAHcE~: tIE WILL - ~PLY FOR EYPOF~ LICENSE ~ -ft' `-~EEP YOU ADVISED. - HE HOPE TO PE LE T0 FILL YOL - ~:DER - - .Ji~THAN~: YOU FOR ~OUF: COOF-ERAT IC-N. - - :S AND BST F:GDS - - - - PAGENO="0195" 191 EXPECTED A/i: NOT 5~ECIFIEO SPECIAL FLA3S: N~F ACT DEP~P-Tf'ENT: ~ - - - - ~.)DRE~E FL.AC~: ~ - - -- INPUT ADDEESS: I"JTF - i~u~ -~41~t~:L~ * - - - - - CALL PLACED: - FEERL~RY 9, iEEE AT 19:03:O1.91 -. -r -- - - - ANSw&~EKC<: FEEP-UARY 9, i9~E AT 1 9:03 :31 .91 GOT- "&885366 CDL 9" - TEXT STARTE~: FEDRUERYE, 199-9 AT iS:O3:31.~1 rEXT FINIIHED: FEDAU~Y E- i~S~E. AT 19:04:06.35- - -~ - CALL END.D ft 13 L `V i9~ AT 1D o 1 76 COT 8&.8~~66 -CDL D OuTPUT LJNC TI4X (3) USING ~XA-tL6 XIT ii - ~***.** *******,~**** ******~ **** *****-k****~* M 5~ ~ `~ 1 O~7_~ FR~W C~ `~V A_C LAC ***** STAAT OF ADORESS *************~************* /NTF /AUw_E4i6~3~6L:~ - ~ END CF_AD)PESS- ~ -~ - - -- - -- - ATN ~R. P. LECWEK - - R~ PV~ONE CALL TODAY -- = - PLEASE_NOTE THAT WE HAVE CHEG~ED C~IND THAT SNGAPORE EN) - PAKIST~N BOTH -NEED fiN EX'O°T LICENSE FOY SHIPMENT CR- KRCMFAX ~R -. - CLOTHING ANC TE~TIL9. .~LiCATIC~S. bcE ~ILL ~LY -FOil -EX'ORT LIEENSE - - - -- -- ~_ - - - C Lt. J ~L IL-' C F K~EEC I I E~RE MTEPIAL_WILL NEYD-A 0 ~F KLEAI T1"E- A ~VAE TIME 40 D-1YS AFTER - - ~EC&EI~~ OF CALEP. - - - - IN a~DEF~ TO GET EY'cFT LICENSE EY -NEED TC Y-NC,, T-85 ULTIMATE - C~STCMER NAVE ~ND~DD~.ESS. -- - -- - - - - ~E. ~AN SHIP KR3Mf~X ONLY INTO THE FCLLOINE COUNTRIES IwITMOUT - - - LICENE- - - - -- - AUSTPALIA,EELS1~M, CANADA, DENMERK, F5DREP.W.GER~ANY, FRAN~E' GYEECEf IRELAND' ITAlY, JA~AN,__LUXE~URG~ THE NETHERLANDS-, ~NEW - ZEALAND~ NORWAY, P3~TU3AL, I~AIN~ S~IT2ERLPND AND- THE UNITEV KIN~D3P. - - - PLEASE ADVISE IF wE CA.N ES CF ANY FLETHER ASSISTANCE. WE WILL - APPLY PC' E)PQPT LICENS A-NE WILL KEEP YOU ADVISED. - WE HO'E TO ES AILE TO FILL YOUR OEDEP AND ThANK YOU FOR YOUR - COOPERATION. - - - TKS AND I ST FOES - - LESLE -~ - LLLL - ~**** _END CF YESSAGE ~ tYESSA~E N~EER: - 1 59~0273E FRCM EIESr35296 ALCOLAC" - - HEADER DkTAI 23 BYTES,-2 LINES, 1 ADD'ESSES AND NC SECONDS. - TEXT DATA: - c42 EYTES' 25 LINES i0 oO.74 SECCN~DS. - -_ - CALL RECEIVED: FE5P~ARY ~, 19359T 17:595U.02 - - - - - START Cf HEAlER: - FEERJARY ~, ISE AT 17:59 53.62 - - - END CF TEXT: FEEP.UA'Y ~, lESS AT 15:0C:50.76 - CALL CC~PLET.ED: FEYRUARY 9,1988 PT 19:01:49.01 INPUT LINE INFO: ODD 1 ii,200) USING SXW12.AEDIC5 - - - PAGENO="0196" 1st Shipment 2nd ShIpment 3rd Shipment Belgium Liberia Possible phony end-user of Thiodiglycol (ultimately nixed) CASE Al THIODIGLYCOL 10/21/87; 604 66-gallon drums To Belgium I/~~; :xts t~'in~ (66 (Jal. dnirn~) ~fH~n~irtIad In flott~rdarn 2/4/88; to Rotterdam, `Western Europe' cited as end-user 2/20/88; 476 drums, `Western Europe' cited as end-user U'S' 10/87 3/88 Correspondence from Nu Kraft Mercantile to Alcolac requesting Thiodiglycol shipments destination of Jordan Actual destination of all 4 shipments - 4th ShIpment PAGENO="0197" CASE A2 - THIODIGLYCOL U.S. Alcolac 30 tons Thiodiglycol 1st ShIpment OK (2/87) 30T;$3 2nd ShIpment (8/87) SOT;$105K ~ 3rd ShIpment (4/88) 120T (intercept. Provision of Funds M/S Ray Textile Industries (Teheran) PAGENO="0198" 194 Chairman PICKLE. Ms. Hinkleman, any statement at this time? STATEMENT OF LESLIE HINKLEMAN, FORMER EXPORT MANAGER, ALCOLAC INTERNATIONAL, INC., BALTIMORE, MD. Ms. HINKLEMAN. No, but I will be happy to answer any questions that you have. Chairman PICKLE. All right. Mr. Jenkins. Mr. JENKINS. Thank you, Mr. Chairman. First of all, let me ask Mr. Bass a few questions. Then I will have a few questions for Ms. Hinkleman. Mr. Bass, the only employee or officer of the domestic company that was indicted was simply an employee, is that correct? None of the principals of the company were indicted? Mr. BASS, Yes, sir, that is correct. Mr. JENKINS. You did not make a case against any of the major owners or the people who really control the company other than Ms. Hinkleman? Mr. BASS. We attempted to, but we were unable to obtain any evidence that would show that they were directly involved. Mr. JENKINS. The other cases that you made were against people not directly connected with the company, but were associated with the purchasers of the material, is that right? Mr. BASS. That is correct. Mr. JENKINS. I will come back to that in a moment. But, if this material was sold it could be used for purposes other than mustard gas, of course. Mr. BASS. Yes. Mr. JENKINS. And there is a legitimate market for it and it is sold everyday, I assume, in this country as well as to foreign coun- tries, is it not? Mr. BASS. Yes, sir, it is. Mr. JENKINS. For legitimate purposes. Does your agency make any concerted effort to locate recipients of this particular material? Mr. BASS. To locate the recipients? Mr. JENKINS. How do you determine when an investigation is called for? Mr. BASS. Generally, what we try and do is go to the source of these type commodities through Project Gemini which the Customs Service has in place where we go out to manufacturers and export- ers of commodities that are either dual use or solely licensable and make them aware of the laws and at the same time educate them to what countries and people might be looking for these commod- ities, and advise them to notify us of any suspicious inquiries, out of the ordinary inquiries, and that type thing. On the other side of the coin, when we are not notified but we do determine a shipment has gone out of a nature that we feel is sus- picious that may be used for a purpose other than the law allows for we then, if it is already overseas, get up with our attaches that cover that area and they attempt to verify the end use of the com- modity. Mr. JENKINS. Well, for over 2 years this company, Alcolac, shipped literally hundreds of tons of this particular chemical to PAGENO="0199" 195 overseas customers. Why didn't the Customs Service detect these huge shipments earlier than they did? Mr. BASS. Basically, the examinations are a hands-on type exami- nation, and with the allocation of manpower, there are certain shipments that are checked, certain types of shipments that are checked, and certain types that there just aren't enough people to get around to. The paperwork for the shipments was misleading in the sense that even if an inspector had, or an agent had viewed the paper- work, he might not be clear what the commodity actually was. Al- colac in these eight shipments almost always used either the words "textile additives" or "Kromfax," which was their brandname as opposed to the chemical name. So anyone that looked at the docu- ments still very well might not know what was in the 55-gallon drums. Mr. JENKINS. All right. I understand the difficulties in getting in- dictments, but it does concern me a bit that the only defendant happens to be an employee at a lower level than the owners of this company. She didn't make a decision to mislead on the invoice of her own volition, did she? Mr. BASS. I believe she did. Yes, sir. Mr. JENKINS. She did? Mr. BASS. Yes, sir. Mr. JENKINS. So you were convinced that she was the major person involved from the standpoint of the domestic company? Mr. BASS. I was convinced that she was the only person involved enough that I had evidence to charge. Mr. JENKINS. Did you question her superiors and take statements from them? Mr. BASS. Yes, sir. Mr. JENKINS. And you were convinced then that they didn't know, have any knowledge that this was going on? Mr. BASS. I can't say that I was convinced, but I had no evidence to the contrary to prove otherwise. Mr. JENKINS. Did Ms. Hinkleman receive any financial rewards for this endeavor? Other than her normal salary as an employee? Mr. BASS. She may have received a bonus. I am not clear on that. Mr. JENKINS. From whom? Mr. BASS. From her company. Mr. JENKINS. Someone gave her a bonus for participating in this thing. Mr. BASS. Well, I believe, and I am not totally familiar with Alco- lac's salary and benefits program, but I believe that certain em- ployees received bonuses if sales were up and that type thing. Obvi- ously, by the number of shipments, the quantities, a fair amount of money was made, and I believe she may have received some type of bonus for that. Mr. JENKINS. Well, I am going to question her in a few moments. But I guess what I am really trying to ascertain is how difficult it is to make cases, whether or not you have the necessary tools to go after the principals involved, and what could be done to enable the Customs Service to detect such shipments earlier than we did in this case. PAGENO="0200" 196 Mr. BASS. Well, I think the major tool that I personally could think of would be some type of automated computer system for ex- ports. We have something similar for that for imports, and we are now faced with a large enforcement effort for illegal exports and I think a computer system which would compile manifests and that type thing would make us instantly able to check in and see if there have been many shipments like this before, is this one un- usually large, the dates, things like that. I think it would be a very helpful tool. Mr. JENKINS. Ms. Hinkleman, I want to ask you a few questions. I know you do not have an attorney present but I have been ad- vised by counsel for the committee that you have the same rights as you would before a court in that you cannot be sued, there is no lawsuit or anything that could be filed against you for any state- ment that you make so long as you tell the truth. So I wanted to assure you of that. And I want to ask you a few questions. How long had you been employed by Alcolac? Ms. HINKLEMAN. Fifteen years. Mr. JENKINS. Fifteen years? And you were employed first in what capacity? Ms. HINKLEMAN. Clerk-typist. Mr. JENKINS. As a clerk-typist? Ms. HINKLEMAN. Yes. Mr. JENKINS. And you worked as a clerk-typist for several years, did you? Ms. HINKLEMAN. Right. I don't remember how many years. Two or three years, I believe. Mr. JENKINS. Ultimately, you were assigned to what division at Alcolac? Ms. HINKLEMAN. Well, I originally was hired to work in the export department as a clerk-typist. Mr. JENKINS. As a clerk-typist in the export department? Ms. HINKLEMAN. Right. Mr. JENKINS. So you worked your way up in the department? Ms. HINKLEMAN. Right. Mr. JENKINS. Over a number of years? Ms. HINKLEMAN. Right. Mr. JENKINS. And how long did you serve as the manager of that department? Ms. HINKLEMAN. About 6 years. Mr. JENKINS. Six years? Ms. HINKLEMAN. Or 5-maybe 5 years. Mr. JENKINS. Prior to serving as an export manager had you also been involved, in addition to being the clerk-typist, in other capac- ities? Ms. HINKLEMAN. In the export department, yes. It was a very small department. Basically, extremely small. Mr. JENKINS. How many people were there? Ms. HINKLEMAN. Just one. Mr. JENKINS. Just you? Ms. HINKLEMAN. There was myself, the lady that I worked for and myself. And then when she retired I was given, just basically was told to do what she did. And then I guess after a period of 3 or 4 years, then they got an assistant secretary for me to help me out. PAGENO="0201" 197 Mr. JENKINS. All right. Did you receive any training by the com- pany as such for the position of export manager? Ms. HINKLEMAN. On hands training and that type of thing. I did go to some seminars, and that was about it. Mr. JENKINS. Where did you learn about the requirements for export licensing? Ms. HINKLEMAN. I really had no education on that subject. Mr. JENKINS. No training in that regard whatsoever. How large a company is Alcolac? Ms. HINKLEMAN. At the time that I was working with them I think they had about 200 employees. Mr. JENKINS. And was it a privately owned company? Ms. HINKLEMAN. It was at one time. It had been bought out two or three times by larger companies. So for the past, I guess 5 years, they were owned by Rio Tinto Zinc out of the United Kingdom, and I think they have been recently bought out again by somebody else. Mr. JENKINS. And you were not an officer of the company at any time, is that right? Ms. HINKLEMAN. No, I was never an officer. Mr. JENKINS. Who did you report to at Alcolac? Ms. HINKLEMAN. I reported to-well, they changed the reporting plan. I reported to Lee Terhune, who was the-I guess he was the sales manager for export, and then I also reported to Paul Jones, who was vice president of sales. Mr. JENKINS. So you had a lot of people, managers and so forth, ahead of you in the company; is that correct? Ms. HINKLEMAN. I would think so; yes. Mr. JENKINS. Now, if you will briefly describe your duties as export manager? Ms. HINKLEMAN. We-let me see. I was to take orders from the faxes or the telex or by phone or by mail, however the orders would come in, and then we would process them through the com- pany. Sometimes we had to check for credit. Sometimes we would have to have letters of credits opened. Then we would just process it through the regular system. We had to book freight. You know, for it to go overseas. And do the banking and do the documentation. Mr. JENKINS. All right. Who would you contact as to what to do with the documentation? Ms. HINKLEMAN. Normally over the years we did-we had freight forwarders who did most of the documentation. We did the actual documentation to the piers, invoicing to the customers, packing lists, things like that. Mr. JENKINS. Were you very-what is the chemical name? Ms. HINKLEMAN. Thiodiglycol. Mr. JENKINS. And what is that? Ms. HINKLEMAN. Chemically, I don't know. .1 am not a chemist. Mr. JENKINS. What is it used for? Ms. HINKLEMAN. To me, it was used for textile additives and to make ink flow in pens. That is what I was told. Mr. JENKINS. That is what you were told by company executives and people ahead of you in- Ms. HINKLEMAN. There was technical literature drawn up on it. We did have technical literature and it did say it was used as a PAGENO="0202" 198 textile additive. It was used by the ball-for ballpoint inks to make the ink flow. But there is nothing in the technical literature that ever said it was used by mustard gas. So- Mr. JENKINS. You did not know that? Ms. HINKLEMAN. No, I-well, I, eventually, of course, I did know it. But I was never sat down and said, "Oh, this product is definite- ly used for mustard gas". Mr. JENKINS. When did you learn that? Ms. HINKLEMAN. The year, I mean, I really don't remember. Mr. JENKINS. Under what circumstances did you learn that it could be used for mustard gas? Ms. HINKLEMAN. Actually, the first time I learned it was from someone in the shipping department who made a joke about it, and it was probably back in 1985 or 1986, I guess. He said something about, "You know that could be used for mustard gas?" And I said, "No." I said, "Does anybody else know it?" Because I honestly thought lie was kidding. Then I come to find out it was. They said it could be. But it was never put on any brochures. Never. Mr. JENKINS. Sure. During your employment was this chemical commonly exported? Ms. HINKLEMAN. It wasn't one of our largest exported products, no. But it was exported from several different companies. Mr. JENKINS. What was the-normally, what was the average size of an export sale of this chemical? Ms. HINKLEMAN. Probably an average size would be about 5 to 10 drums. Mr. JENKINS. About how many? Ms. HINKLEMAN. About 5 to 10 drums. Mr. JENKINS. Were the orders involved in this particular case, ranging from 30 to several tons, unusually large? Ms. HINKLEMAN. Now when I look back on it, of course, they were unusually large. At the time it was considered a great sale, you know. Mr. JENKINS. Who was making the sale? Ms. HINKLEMAN. Well, I think they would like to think I made the sale. I mean, I don't know-nobody physically made the sale. They contacted us and we processed the orders. People knew about the sale from the president down to the shipping clerk. Everyone knew they had the orders in-house. Mr. JENKINS. So everyone superior to you were well aware of the fact that this was a great series of orders? Ms. HINKLEMAN. Yes, they were very much aware of it. Mr. JENKINS. And making the company a great deal of money? Ms. HINKLEMAN. I think so. Mr. JENKINS. Isn't that correct? Ms. HINKLEMAN. Yes, sir, I think so. Mr. JENKINS. Did you participate in the profits from any of this in any way? Ms. HINKLEMAN. Nothing other than my paycheck. I did not even get a raise. Mr. JENKINS. You received no bonuses or anything for making these sales? PAGENO="0203" 199 Ms. HINKLEMAN. No. They were going to put me on the bonus program in 1989, and I got fired in January 1989. So, I really re- ceived no bonus for that at all. Mr. JENKINS. OK. Were you not suspicious of the huge volumes of this chemical being sold? Ms. HINKLEMAN. At the beginning I was not suspicious of the products. I just thought it was a great sale, and it was supposed to go to the textile industry in Singapore, the one for-the German shipment. And, you raise the question is it strange, and they said no, there is a huge textile industry in Singapore. It is not unusual to ship this product there. And I was told to make sure that I had the necessary documents. Mr. JENKINS. You were told that by whom? Ms. HINKLEMAN. By Paul Jones. Mr. JENKINS. He was? Ms. HINKLEMAN. He was the vice president. Mr. JENKINS. The vice president. Ms. HINKLEMAN. So we did file. We did file with the Department of Commerce for an export license. Mr. JENKINS. And Mr. Jones or any other superior did not ever caution you about not selling this to any foreign country or give you any indication that there might be a problem with these sales? Ms. HINKLEMAN. They told me to make sure that I had the neces- sary documents to ship it. That was basically it. They didn't say-I think towards the end when they felt that the Government was suspicious of it they were more cautious of it and they were more- you know, bring you in and talk to you more about it. But in the beginning they were not. Mr. JENKINS. Well, no senior officials of the company were ever prosecuted, except you as an employee, is that right? Ms. HINKLEMAN. Yes, sir. And that was for making a false state- ment. Mr. JENKINS. For making a false statement? Ms. HINKLEMAN. For making a false statement. Mr. JENKINS. To the Customs agents? Ms. HINKLEMAN. Yes. Mr. JENKINS. In what way? Explain that. Ms. HINKLEMAN. There was a telex that we had received in from Mr. Walaschek and I-we had received the telex early, a few months before, and it had, "Please quote prices CIF Singapore CIF Pakistan for Kromfax." I can't remember the tonnage right now, but it was for a certain amount of tonnage, and I quoted him prices on both Pakistan and Singapore. And when Customs came in and they were going through the documents and all, I did not find this telex. This was buried some- where in the file. So when they left I was going through the file trying to find all the documents I could find on this to give to them and I found this, and I was afraid because Customs said, "You knew it was going to Pakistan" or "Did you think it was going to Pakistan," and I said, "No, I did not." And so then I saw this telex that I had sent saying you quoted Pakistan, so, obviously, it looks like I knew that it was going to Pakistan. So I got rid of the telex. So then when they asked if I did, because when they received the documents back from Germany they had a copy of it, so they knew PAGENO="0204" 200 that I had done that. And, you know, they asked me if I had done that and I said no. So, actually I made a false statement. Mr. JENKINS. Made a false statement to the agent? Ms. HINKLEMAN. Right. Mr. JENKINS. Were you trying to protect your job? Is that basical- ly what you were doing? Ms. HINKLEMAN. Yes, I was. Mr. JENKINS. I know this doesn't have a great deal to do, maybe, with what we are attempting. The committee is attempting to as- certain how we can prevent shipments such as this from being made. But it concerns me that you are the only person-are you convinced that you are the only one that knew anything about what was going on? Ms. HINKLEMAN. No, I am not convinced. Mr. JENKINS. You are not convinced of that? Ms. HINKLEMAN. No, I am not. Mr. JENKINS. As a matter of fact, everybody above you knew, were well aware of it, were they not? Ms. HINKLEMAN. Excuse me? Mr. JENKINS. Everyone, all of your superiors were well aware that these sales were being made. Ms. HINKLEMAN. They all were in the meetings with the same people I were in the meetings with. Mr. JENKINS. Did they ever tell you to or make any statement at any time that "We need to be cautious about making these sales" or "Should we be cautious about revealing anything about who is buying this material"? Ms. HINKLEMAN. Yes. I think they were cautious. In fact, we tried to find out who the actual end user was, and we kept asking, you know, the customer, Who is the end user? What are they using it for? And they would never come back and tell us. I would think that they should know that before you ship a prod- uct. Especially if they knew that that product could be used wrongly, they should have checked out who was actually going to use it and what they were going to do with it. I mean anybody can tell you anything. You can say, "I'm going to use this to clean my floor with," but that doesn't mean that is what you are going to use it for. And I would think they would know, or somebody in a company should know what the product is actually being used for. I mean, that is-I don't get to travel. I didn't visit the customers. I don't know what they did with it. I never got to see their plants. Mr. JENKINS. Did you have any suspicion at all during this time that this particular chemical was going to end up in Iran? Did you have any indication of that from anyone? Ms. HINKLEMAN. No, I really did not. Mr. JENKINS. You didn't have any suspicions about that? Ms. HINKLEMAN. No. Mr. JENKINS. Anyone in your company, any superior ever indi- cate that it might end up in the Middle East? Ms. HINKLEMAN. I think they were a little suspicious of it, but of course nobody would admit that to me. I mean I wasn't privy to their meetings or whatever. PAGENO="0205" 201 It is hard for me to say what they knew or what they thought. I really don't know. Mr. JENKINS. You don't feel, I would imagine, too good about being a fall guy for the company? Ms. HINKLEMAN. No, I don't feel good about it at all actually. Mr. JENKINS. Do you feel that you were? Ms. HINKLEMAN. Excuse me? Mr. JENKINS. Do you feel that you were somewhat the recipient of- Ms. HINKLEMAN. Yes, I do. Mr. JENKINS. Did they later keep you in the employ of the com- pany? Ms. HINKLEMAN. Well, no, they actually-in December, they promised that they would not fire me, that I was doing a great job and everything was going very well. January is when they fired me. So, I mean, I really-other than the fact that my lawyer told me I was probably going to be fired, I didn't really even think up until the end that I would be fired. Mr. JENKINS. The company fired you? The company fired you in January? Ms. HINKLEMAN. Yes. Mr. JENKINS. Because of this incident? Ms. HINKLEMAN. Yes. I asked why I was being fired actually and they said, "You know why you are being fired." And I said, "No, I don't. Why don't you tell me why I am being fired?" They would never come out and tell me why I was being fired. They wrote me a little letter and just said I was terminated and that was it. Mr. JENKINS. Did you destroy any other documents other than this telex? Ms. HINKLEMAN. Not that I can remember. No, I don't think so. Mr. JENKINS. Had this ever-this situation ever come up before where you had been checked by Customs as to the sale or shipment of this chemical or any other chemical? Ms. HINKLEMAN. I personally was not; no. I think the Depart- ment of Commerce contacted Alcolac in 1985 or something. I mean, that is what I remember. I don't know. They didn't contact me, but I do remember somebody coming to the office and talking to Paul Jones. Mr. JENKINS. I would imagine when Customs ultimately interro- gated you, you were scared. Ms. HINKLEMAN. Yes, I was. Mr. JENKINS. Were you cooperative or did you go to the company officials and talk with them? Ms. HINKLEMAN. I think I was honest with Customs. I was as honest as I could be and I was honest with the company. I told the company what I told Customs. I didn't hide anything from any- body. Mr. JENKINS. I am going to let Mr. Bunning, he has some ques- tions. Chairman PICKLE. Mr. Bunning. Mr. BUNNING. Thank you, Mr. Chairman. I want to go back to Agent Bass. Your agency was sent to Alcolac in 1984, I believe. Mr. BASS. That is correct. We received information in 1984. PAGENO="0206" 202 Mr. BUNNING. You didn't continue to monitor the company even though at that time you found nothing wrong? Mr. BASS. There was some monitoring done, but just routine be- cause the allegations were unsubstantiated. Mr. BUNNING. Was it a tip from a fellow or can you relate to this committee where the tip came from that you ought to check on them? Mr. BASS. In 1984? Mr. BUNNING. Yes. Mr. BAgs. The Dutch Embassy. Mr. BUNNING. The Dutch Embassy. Mr. BASS. Yes, sir. Mr. BUNNING. If it hadn't been for the tip in 1988, do you think this scheme would have come to the attention of Customs? Mr. BASS. Well, it may have come to our attention, but I believe it may have been some time later after the fact. Mr. BUNNING. Can you reveal to the committee where the tip came from in 1988? Mr. BASS. No, I can't. Mr. BUNNING. Why wasn't this kind of a scheme caught in the normal process, that is what this committee is trying to find out, of screening what was shipped and what wasn't shipped? Why wasn't it caught? Mr. BASS. My best answer would be that paperwork is often in- correctly filled out. Sometimes illegible in spots and that an inspec- tor or a Customs officer on a pier or on the docks has to go by what is in front of him. Re obviously can't timewise search through 430 55-gallon drums. But even to look at one of them without being a chemist, it is difficult. The ~other side of the coin is that the way this paperwork was, it appeared to be correct. It said it was going to Singapore, for exam- ple, the last shipment. To find out whether or not it needed a vali- dated Commerce license takes time. It is not something that, again, an inspector on the pier can often find out immediately. So, these are problems that we run into. The other problem was just the way that the manifest was to say "Kromfax." I mean, the average Customs employee, the average person would have no idea what is in those 55-gallon drums. Mr. BUNNING. Shouldn't they? Mr. BAss. I believe they absolutely should. Mr. BUNNING. Well, why don't they then? Mr. BASS. I don't know the answer to that. Mr. BUNNING. In other words, if there are two names or three names or four names for a given chemical, why shouldn't the Cus- toms official know that? Mr. BASS. Well, the names that were on this paperwork were not a chemical name, it was a brandname. Mr. BUNNING. OK. Mr. BAss. Which made it even more difficult. Mr. BUNNING. You are not answering my question. The question is if there is a given name for this, you called it Kromfax or this is called in the chemical sense a different name, why shouldn't those that are approving the shipment know exactly what is in the bottle or in the drum. PAGENO="0207" 203 Mr. BASS. That is done on a random basis to actually verify that what is on the paperwork is inside the drum or inside the contain- er. Mr. BUNNING. In other words, if somebody would ship water in those drums, on the manifest it says water, they wouldn't do any- thing about it? Mr. BASS. Possibly not. Possibly by looking at the paperwork who the shipper was, who the consignee was, what country it was going to, the fact that a lot of money was being spent to just ship water might pique an inspector's interest and he would make an effort to go out there and examine the drums. Mr. BUNNING. You mentioned the fact that an automated export manifest system might help? Mr. BASS. I think so; yes. Mr. BUNNING. All right. Even though Ms. Hinkleman put some misleading information on her Commerce license application to Singapore, should Commerce have caught the mistake and revoked the export license? Mr. BASS. With all due respect, you would have to ask Commerce that. I don't know what their procedures are. I really don't feel like I am qualified to answer that. Mr. BUNNING. All right. Describe the cooperation you received in your investigation by the DEA and from the authorities in Paki- stan. Mr. BASS. It was excellent. Our senior Customs representative in Hong Kong requested DEA to get with the Pakistani authorities in Karachi, told them about the shipment and told them it was our desire to know if there was any movement or activity on it whatso- ever. The minute that there was word that it was going to be shipped out, they provided us with the shipping documents and all the pertinent information right away. Mr. BUNNING. What about the Italian, Swiss, and German au- thorities in tracking down the gentleman who fled, Van Anraat? Mr. BASS. Well, in tracking him down, we really haven't gotten any assistance. However, from those three Governments we got a great deal of assistance throughout the investigation. The Germans executed three search warrants at our request. The Swiss executed two search warrants at our request. The Italians executed an arrest warrant and a search warrant of Franz Van Anraat, and then detained him pending extradition. Mr. BUNNING. Why haven't you had the cooperation after the fact? Mr. BASS. As far as tracking them down? Well, we know where these people are. Peter Walaschek is in Germany. The Germans don't extradite Germans, so there is nothing that we can do or that the Germans can do. Mr. BUNNING. Well, then, why was Van Anraat released to Ital- ian authorities pending extradition? Mr. BASS. Why was he released? The judicial system there decid- ed, a lower court decided, that it wasn't an extraditable offense and by the time we got word of that and it was appealed, it was too late. Even though the appeal was in our favor, Mr. Van Anraat was long gone. PAGENO="0208" 204 Mr. BUNNING. Tell us about Walaschek's escape from the United States. Mr. BASS. Walaschek was placed in a halfway house in Washing- ton, D.C., and remained there for, I believe, approximately 2, 2½ months, and subsequently fled and got back to Germany. Mr. BUNNING. How did he get a passport to get out? Mr. BASS. I don't know. I don't know that he had a passport to get out. But if he got one, I don't know how- Mr. BUNNING. Why won't the Germans extradite him? Mr. BASS. Because they won't extradite German citizens. Mr. BUNNING. We don't have any kind of an agreement with Germany on that? Mr. BASS. That is my understanding from- Mr. BUNNING. Or is the violation not sufficient? Mr. BASS. From what the Office of International Affairs at main Justice told me that the-I don't think it is the violation, it is the fact that Germans will not extradite German citizens. Mr. BUNNING. I understand that Mr. Tanaka purchased virtually all the thiodiglycol in Japan before coming to the United States to purchase it from Alcolac? Mr. BASS. That's correct. Mr. BUNNING. Who did he purchase from in Japan? Do you have any idea? Mr. BASS. The names of the companies you mean? Mr. BUNNING. Yes, sir. Mr. BASS. I don't know them offhand. But, I mean, I had some records that named Japanese chemical companies. Mr. BUNNING. Could you furnish those to the committee? Mr. BASS. I could, sure. Mr. BUNNING. OK. I would like for you to. Mr. BASS. I don't know that I have them with me. Mr. BUNNING. No. I mean- Mr. BASS. Oh, OK. Sure. Mr. BUNNING [continuing]. Make sure that they are furnished. In your report, you indicated that the Alcolac executives knew or certainly should have known what was going on? Mr. BASS. Yes. Mr. BUNNING. But you said you didn't have enough evidence to prosecute them? Mr. BASS. That's correct. Mr. BUNNING. Isn't it highly unusual to purchase up to 3,000 tons of thiodiglycol for use in the textile industry? Mr. BASS. If you're asking me, I would say, yes, it is. Mr. BUNNING. In other words, Customs doesn't care how much is being shipped if they don't know what is in the bottle or in the drum? Mr. BASS. No. I don't think that is a fair statement. We do care. However, there are hundreds of chemical companies everywhere and it is difficult to monitor all of them. Mr. BUNNING. How many can be made into mustard gas? Mr. BASS. How many chemicals? Mr. BUNNING. Yes, how many are able to be made into mustard gas? This arid hydrochloric acid and you have mustard gas? Mr. BASS. That is correct. PAGENO="0209" 205 Mr. BUNNING. How many other chemicals can you do that with? Mr. BASS. I don't know. There are other chemicals that through different processes can be converted into mustard gas. Mr. BUNNING. How many as easily as thiodiglycol? Mr. BASS. I am not a chemist, but my guess is thiodiglycol is probably one of the easiest. Mr. BUNNING. OK. Did Alcolac's executives meet with Van Anraat and Tanaka, and express their concern about mustard gas? Mr. BASS. Yes. Mr. BUNNING. It is amazing to me that you weren't able to find enough evidence. Did Alcolac stand to make $1.3 million in profits on the deal with the German alone? Mr. BASS. I believe that is right. Actually based on the figures that we developed through the potential sales to Nukraft, this would have been to Franz Van Anraat, Alcolac expected to earn between $630,000 and $1,260,000. Mr. BUNNING. In profits? Mr. BASS. Yes. Mr. BUNNING. That includes all expenses being paid and every- thing? Mr. BASS. Yes. Mr. BUNNING. OK. Do you think the penalties and sentences in this case were sufficient for the crime? Mr. BASS. No. Mr. BUNNING. Do you think this committee should recommend additional and much more restrictive and stiffer penalties? Mr. BASS. I don't think that is a recommendation I should make. I might say I wouldn't mind seeing that happen, but I don't think I should be the one to recommend that. Maybe the policy- Mr. BUNNING. You just said they weren't sufficient. Now, either they were sufficient or they weren't. Do you think they should be tougher or do you think they are sufficient? What is the answer? Mr. BASS. I think they should be tougher. But I am not prepared to recommend to the committee. Mr. BUNNING. What they should be. Mr. BASS. Yes. Mr. BUNNING. We don't want you to recommend that. Mr. BASS. OK. Mr. BUNNING. We will try to determine that ourselves. Mr. BASS. OK. Mr. BUNNING. Should the chemical company in Baltimore have been put out of business because of this violation? Mr. BASS. Well, the law doesn't provide that a company be put out of business. They can be debarred and prohibited from making exports and things like that. But they voluntarily agreed to no longer export thiodiglycol. Mr. BUNNING. That is the only agreement that they made in the judgment? Mr. BASS. Well, they also paid a fine. Mr. BUNNING. Did, in fact, the executives of Alcolac know that the corporation that they were doing business with was a shell company? Mr. BASS. Yes. Mr. BUNNING. They did know that? PAGENO="0210" 206 Mr. BASS. Yes, they did. Mr. BUNNING. OK. Thank you. I am going to switch over. I would like to ask Ms. Hinkleman a few questions. I understand that you weren't particularly happy about testifying today and I can under- stand that. We are not here to do you any harm, believe me. We would just like to know how companies are beating the system and that is why we are here, to try to find that out. You have told Mr. Jenkins your work experience with Alcolac. Can you give me a little background on your education before you went to work for the chemical company? Ms. HINKLEMAN. I just have a high school education. Mr. BUNNING. Were there any job descriptions at Alcolac when you took your job or moved up to the job of export manager? Ms. HINKLEMAN. No. Mr. BUNNING. There were not any job descriptions in the compa- ny itself? Ms. HINKLEMAN. At that time there were no job descriptions. I think they have job descriptions now, but they did not. Mr. BUNNING. When they made you export manager, did you get a raise? Ms. HINKLEMAN. Yes, I did. Mr. BUNNING. A good one? Ms. HINKLEMAN. It was about $5,000. Mr. BUNNING. OK. Ms. HINKLEMAN. No, it wasn't. It was about $3,000. Mr. BUNNING. What part of Alcolac's business were exports? Ms. HINKLEMAN. I think it was about 10 percent. It might have been 7 to 10 percent. It was a very small percentage. Mr. BUNNING. 10 percent? Ms. HINKLEMAN. Yes. Mr. BUNNING. Then when they started to do all this exporting, would you say that it became a much larger percentage of their business? Ms. HINKLEMAN. I don't know if it became a much larger per- centage or not. Mr. BUNNING. Did you have any idea of the amount of business that the company was doing? Ms. HINKLEMAN. Domestically? Mr. BUNNING. Yes. Ms. HINKLEMAN. I remember going to a meeting in 1988. They wanted to do $88 million in 1988. That sticks in my head, but I don't know. They wanted 10 percent of that to be international. So they would expect $8 million that year from international. Mr. BUNNING. You told Mr. Jenkins about your altering the one document? Ms. HINKLEMAN. Right. Mr. BUNNING. What were the circumstances? Did somebody tell you to alter it? Ms. HINKLEMAN. No, no one told me. Mr. BUNNING. You did that on your own? Ms. HINKLEMAN. Yes, I did that on my own. Mr. BUNNING. OK. Why did you put thiodiethylene glycol instead of thiodiglycol on it? PAGENO="0211" 207 Ms. HINKLEMAN. Because we had technical brochures and some said thiodiethylene glycol and some said thiodiglycol. I mean, to me, they were both the same product. I don't think it was any-I mean, it wasn't done on purpose to confuse anybody. Mr. BUNNING. Wasn't there a perception that thiodiethylene glycol was legitimate and the other one wasn't? Ms. HINKLEMAN. No. Mr. BUNNING. OK. Why did you put Kromfax on the application? Ms. HINKLEMAN. That was a trade name. It was a trade name of the-you mean on the application to the- Mr. BUNNING. Yes, the application for shipment. The Commerce application. Ms. HINKLEMAN. It was just a trade name. We put all our trade names on the documents and invoices so the customers would know that is the product they got. Mr. BUNNING. How did you get the wrong commodity control number? Ms. HINKLEMAN. That was all-I don't know exactly what hap- pened with that. I asked the library for the number. She gave me the number. We got the number. Apparently that's the number that we used, but they had changed the number the month before and we used the old number. Now, when I did submit the forms, I did attach copies of the technical literature to it. So they had the full chemical description. Mr. BUNNING. In other words, Commerce had all of this? Ms. HINKLEMAN. Yes, they did. Mr. BUNNING. OK. Would you tell me about the role of the li- brarian, Mary Reed Blut? Ms. HINKLEMAN. Her role? I think her role in this was just to- she was just the librarian and we-if we needed numbers, any kind of particular, like schedule B numbers or commodity codes, or chemical descriptions or chemical compositions, I would get them from her because I was not a chemist. Mr. BUNNING. Did she ever catch on? Did she catch on with what was happening? Ms. HINKLEMAN. I think she had-I think she grew a little suspi- cious of it. Yes. I think she did. Mr. BUNNING. Why did you change shipping documents to read "Trans-shipping allowed" and then change the destination to "Far East or Western Europe" when you knew where they were really going? Ms. HINKLEMAN. No. Because the customer asked me to do that and he said, "Could you change the documents to show now instead of going here, it's going there? Could you change it?" I said, "Yes." Mr. BUNNING. Did you become suspicious when they did that? Ms. HINKLEMAN. No, not-at the very beginning, I did not, not until more people got involved in it. Then, of course, I became more suspicious of it. I honestly felt they were customers. Mr. BUNNING. If this was OK, why did your freight forwarder refuse to make these changes for you? Ms. HINKLEMAN. I don't know why he refused because I assume it was not right. I didn't know and don't know. Mr. BUNNING. Didn't that redflag or didn't that alert you, also? Ms. HINKLEMAN. Yes, it did. I am sure it did. Yes. PAGENO="0212" 208 Mr. BUNNING. What other employees knew what was going on? Ms. HINKLEMAN. I mean, I don't know what-who knew what. You know, it is hard to say they knew because I don't know that they knew, I would suspect that the meeting that we had with the people from New York, there were several people from that meet- ing and they were all product managers. They knew the product. They knew what it could be used for. To me, if they wanted to sell the product, then they should have made sure of where it was going to and what it was going to be used for. Mr. BUNNING. Did your vice president of sales, Mr. Jones, know? Was he in charge of all sales completely? Ms. HINKLEMAN. I would think so. Yes. Mr. BUNNING. Did the vice presidents and officers of the corpora- tion receive bonuses for the business that they did? Ms. HINKLEMAN. Yes, they did. Mr. BUNNING. On sales? Ms. HINKLEMAN. Yes. On net profits. Mr. BUNNING. In other words, those people like Mr. Jones, those people in that level all received bonuses for the amount of sales? Ms. HINKLEMAN. Yes. Mr. BUNNING. Did you tell them about the Walaschek sales through Pakistan? Ms. HINKLEMAN. I am sure-I don't really remember. I think that I told Paul Jones about it and I know I told Lee Terhune about it. Mr. BUNNING. Where do they work now? Ms. HINKLEMAN. Excuse me? Mr. BUNNING. Where do some of those people work now? Ms. HINKLEMAN. I honestly don't know. Mr. BUNNING. You don't? Ms. HINKLEMAN. I know that they don't work for Alcolac. I think Paul Jones, I had heard, went to work for a company called CPS. It is a chemical company. I don't know where they are located. Mr. BUNNING. Why did you alter the telex from Walaschek that Customs used against you? Ms. HINKLEMAN. I honestly don't know. I was frightened and I was afraid it was going to show that I knew more than probably what I really knew. Mr. BUNNING. Mr. Chairman, I would like to enter into the record three exhibits at this time. These are the documents that have been changed or altered and they are public record, so I would like to offer them. Chairman PICKLE. Without objection, they will be made a part of the record. Mr. BUNNING. Thank you very much. [See appendix "Additional Background Material," item 3, Alcolac case.] Chairman PICKLE. Mr. Jenkins. Mr. JENKINS. I will try to be as fast as I can. Mr. Bass, in re- sponse to a question by Mr. Bunning about what could be done with the company that was not done, did the Customs Service refer Alcolac to Commerce Department for civil sanctions? Mr. BASS. Commerce Department was familiar with the case. I believe, I am not 100 percent certain that part of the plea agree- PAGENO="0213" 209 ment was that there would be no civil sanctions other than what- ever fines the court found against them. Mr. JENKINS. You mean Customs acquiesced in the agreement to accept a plea from an employee and you accepted the company's agreement to pay a fine, but you agreed not to pursue a civil action against the company or refer the case to the Commerce Depart- ment for that purpose? Mr. BASS. Sir, plea agreements are drawn up between the De- partment of Justice and a defendant. That was their decisions, however they were made. Mr. JENKINS. Well, I know the assistant U.S. attorney and the defendant's attorney entered into a plea agreement, but they asked Customs about your recommendations and whether or not you would agree with the recommendations; did they not? Mr. BASS. They may have, and I am not sure that I agreed with that in particular. There were a couple of things that we didn't agree on. Mr. JENKINS. Well, you know, if we want to prevent a company that has engaged in this activity in the past, it would appear to me that we would want to at least tell Commerce that you ought to seek some civil sanctions against this company. You would agree to that, wouldn't you? Mr. BASS. I would think if there is some- Mr. JENKINS. Were you overruled by someone? Mr. BASS. Pardon me? Mr. JENKINS. Were you overruled in your recommendation by someone? Mr. BASS. If that is the way it went down, obviously so. Again, I am not 100 percent, I don't have 100 percent recollection of that plea agreement, but I know that that matter was brought up. Mr. JENKINS. Was it brought up with you by the assistant U.S. attorney or was it brought up by your superior? Mr. BASS. No, not by my superior. I believe it was brought up by one of the attorneys for Alcolac. Mr. JENKINS. I know they would want to avoid any civil sanc- tions. But the question I am really trying to pursue is why it was not referred to the Commerce Department for civil sanctions? Mr. BASS. At this time I couldn't give you a definite answer on that. I could check, though, and get back to you. Mr. JENKINS. Well, I wish you would respond. I simply do not know why we didn't curtail future shipments or why we did not take some civil action from the standpoint of Commerce after this was revealed. I simply do not know and I wish you would look into that, Mr. Bass. Mr. BASS. Yes, sir, I will. Mr. JENKINS. Ms. Hinkleman, let me ask you a couple of ques- tions. I am obviously somewhat concerned that you were the only defendant and that no action was taken against the company. At some point you must have-I recognize that when you were imme- diately questioned, I guess the natural reaction would have been to sort of stonewall because you were working for a company and you didn't want to jeopardize your job, and that sort of thing. I guess that was your first reaction, was it not? Ms. HINKLEMAN. Yes, it was. PAGENO="0214" 210 Mr. JENKINS. And you didn't want to get any superior in trouble, I assume? Ms. HINKLEMAN. No. And I honestly didn't know. When you don't know, you don't accuse or make statements that aren't really-you don't know. I don't-I really honestly did not want to get fired, no, because I had been with the company for a very long time and thought I was going to be there forever to be quite honest with you. Mr. JENKINS. Well, at some point didn't you talk with Mr. Jones or some superior and say, look at all of these things Tanaka and all these people are trying to purchase? Ms. HINKLEMAN. Yes. Mr. JENKINS. Did you? Ms. HINKLEMAN. Yes, I did. Mr. JENKINS. And those list of chemicals were on the danger list, were they not? Ms. HINKLEMAN. Yes, they were. Mr. JENKINS. What did Mr. Jones say to you? Ms. HINKLEMAN. That he never saw it and that I- Mr. JENKINS. That what? Ms. HINKLEMAN. That he never saw it and that I should get rid of it. I did. I think I took it back and just threw it in the trash can. I don't know what the chemicals were. I know that he didn't like the sound of them or the look of them. But I don't know what they were. Mr. JENKINS. So what he was saying to you is I didn't see that list; is that right? Ms. HINKLEMAN. Right. Mr. JENKINS. Don't tell me what is on that list or what this com- pany wants to buy because I don't want to know anything about it? Ms. HINKLEMAN. Right. Mr. JENKINS. Is that what he was saying to you? Ms. HINKLEMAN. Basically, yes. That's how I took it. Mr. JENKINS. Did you ever tell Mr. Bass or Customs about that? Ms. HINKLEMAN. No, I did not. I was very careful honestly in what I said and I tried not to incriminate people from Alcolac be- cause I did not know what they knew and so I wasn't going to say, yeah, they knew, yeah, they should have known, yeah, they knew everything, and I did not do that. So, I basically said what I knew and how I dealt with it, but I really didn't drag other people into it. Mr. JENKINS. Ms. Hinkleman, if you had had any idea that this chemical was going to be used for mustard gas somewhere in Iran, would you have participated in the sale of such a commodity? Ms. HINKLEMAN. No, I most certainly would not have. If they had told-the company didn't even tell all the employees. So, I mean, every employee in the company did not know what this product could be used for. I think that if companies know that it can be misused or can be used for mustard gas, they should tell ev- erybody. Why not tell the whole company? Tell everybody in ship- ping, everybody in receiving, everybody in purchasing. I mean, that way those people will know if they see an order come through for this for 3,000 tons or something they're going to suspect it. They might say, well, this looks pretty strange, you know. But when the company doesnt bother to tell the employees PAGENO="0215" 211 what is going on, then how are the employees supposed to know or how are they supposed to flag it? Mr. JENKINS. So the company gave no information to its employ- ees? Ms. HINKLEMAN. No, they did not. Of course, toward the end when they were having so many problems they, of course, did. But there are a lot of people that work for a chemical company who are not chemists and they don't know. I am sure that the chemists knew. I am sure that the people in the chemical department knew. Mr. JENKINS. But they didn't say anything to the people down on the- Ms. HINKLEMAN. They didn't tell the secretaries. Mr. JENKINS [continuing]. Export? They didn't tell the export manager? Ms. HINKLEMAN. Not until it was a little bit too late, I think. Mr. JENKINS. Not until after the fact? Ms. HINKLEMAN. Well, I did-they did tell me before because in 1985, I think, when they were first contacted by the Department of Commerce, then they did bring it to our attention. They did men- tion it. I mean, there was never any big memo go out, but they did say the product can be used in mustard gas and we should be care- ful. Mr. JENKINS. What basically did they say, look, this could be used for mustard gas and might be-we may have customers from the Middle East trying to buy this from us, be careful and don't sell this to potential customers from the Middle East? Ms. HINKLEMAN. Basically. Yes, basically, they did say something like that. Mr. JENKINS. After they said that, did you sell any? Did any of these transactions occur after that? Ms. HINKLEMAN. Yes. Of course, they did. I mean, I don't know if all of them were legitimate or not legitimate. I don't know. Mr. JENKINS. After all, you were making all these sales and the company made a million dollars or so from these sales apparently from what I heard. Did anyone tell you that you were doing a great job? Ms. HINKLEMAN. Yes. Mr. JENKINS. Did they? Ms. HINKLEMAN. Yes, they did. Mr. JENKINS. Who was telling you that? Ms. HINKLEMAN. Paul Jones. Mr. JENKINS. Mr. Jones. Ms. HINKLEMAN. And David Phillips. He was the president. I mean, I was told I did a very good job. They were very pleased. Mr. JENKINS. You didn't go out and solicit any orders, you just received them; is that right? Ms. HINKLEMAN. Right. No, I did not solicit. Mr. JENKINS. Did anyone have any supervisory duties to look over the orders that you were receiving? Ms. HINKLEMAN. Yes, I think that the director of finance looked over every order that I put through. Mr. JENKINS. Who was that? Ms. HINKLEMAN. Roger Nielson. Mr. JENKINS. Roger Nielson. PAGENO="0216" 212 Ms. HINKLEMAN. Yes. Mr. JENKINS. Did he ever raise any question about any of this? Ms. HINKLEMAN. Only once that I can remember. It was one of the shipments going to Germany. It was net 60 days or some kind of thing where he thought he wasn't going to get his money and he was quite upset that I had done it that way. He wanted a letter of credit for all future orders after that. Mr. JENKINS. It appears to me, and my conclusion may be wrong, that you feel that all of your superiors had more knowledge of this than you did. Ms. HINKLEMAN. I believe so. Mr. JENKINS. You believe so. Ms. HINKLEMAN. I can honestly say they did not know about the telex that I had destroyed, but they did basically know just about everything else, I would think. Mr. JENKINS. if your superiors are telling you, "Don't show me that, I don't want to look at it," does that raise a red flag to you? Ms. HINKLEMAN. Yes, kind of. Mr. JENKINS. So, basically, your statement is that companies are dealing in this type of commodities, if we want to know what is going on, then they ought to be required to at least inform their employees that this can be used for mustard gas or whatever? Ms. HINKLEMAN. I should think so, yes, and I think that on the forms going to the Department of Commerce, they should also put that on there, and I think it should be in the literature that they send out to the customers. I mean it does not make sense, if it can be used for that, why do they not put it on there. Mr. JENKINS. Mr. Bunning wanted to- Mr. BUNNING. I just have got a couple of other questions. Does Customs continue monitoring companies that violate this law that you prosecuted under? In other words, are you presently or have you in the past continued to monitor those companies? Mr. BASS. Yes, sir. In fact, chemicals are very big priority. Mr. BUNNING. I am talking specifics now. I am talking about those who have violated the law. Mr. BASS. Yes. Mr. BUNNING. Do you have any knowledge or does anyone at your desk there have any knowledge about the IRS being involved in checking on the amount of profit and those profits that this cor- poration made in direct relationship to these illegal shipments? Mr. BASS. I do not know of any IRS knowledge or investigation into this, no. Mr. BUNNING. I asked you about the list of all the chemicals that can be made into mustard gas, and I have it before me. I would like to ask Ms. Hinkleman, did the corporation that you worked for ever publish a list like this-there may be 20 names on it-or put it on your bulletin board or notify you that these are the chemicals that could be used for illegal gases or whatever they might be? Ms. HINKLEMAN. No, not that I recall. Mr. BUNNING. They did not? Ms. HINKLEMAN. No. Mr. BUNNING. That is all the questions I have, Mr. Chairman. Chairman PICKLE. The Chair would like to proceed now to the next panel, but the Chair makes the observation that the Custôni~ PAGENO="0217" 213 laws are not being carried out or they are being circumvented, when an employee of the company can change the labeling on the product, in this particular case thiodiglycol, and just automatically call it Kromfax, that is questionable, if not a violation of the law, when an employee can just simply order special kinds of contain- ers, that ought to be questionable, particularly when a shipment of this kind of a good is used for mustard gas. When an employee of the company can actually put on that chemical the label on it, they leave blank the country of ultimate destination, not even show it, that should raise a flag, and that is a weakness of our law. And certainly if an employee of a company can actually put on the outside of the document that transship- ment is allowed, no ultimate company, but just send it on, thus it would not be inspected at any one port. If those kinds of things can be carried out and is being carried out and was carried out in this case, then it is obvious to me that our Customs laws and export laws are embarrassingly loose, and in this particular case dangerous. On the other hand, if a company can be set up to make these purchases and transshipment of a product that is obviously danger- ous to the world, and there is no control by that company as to where the goods go or they are not being sent, then it seems to me obvious that the company officials knew what was going on. The company officials have not been indicted in this case in any regard, simply because Customs says they cannot make a case. This committee does not want to prejudge it, but this committee is going to ask the House Counsel to see if suit can still be brought against company officials, by name and by individuals. And when they appear before our committee, that is, the Commerce and State Department later, we will ask that question, why that cannot be done, and perhaps they will either deny or confirm that a suit can still be brought. There are obvious weaknesses in the carrying out of our Customs laws. Changes must be made, particularly when these kinds of products are so dangerous to the world and came that close to caus- ing great damage to our people. And when we now find that we are going to fine the company, but we want to also get a guilty plea from one employee, who may or may not have known a lot more than she has indicated, we have to say that justice has not been carried out. So, therefore, I am asking the House Counsel to confer with our Justice Department and we will see if suit can still be brought. It seems to me like there is a weakness there. Now, the Chair will have other questions, but we must go on to the other panels. I appreciate your testimony very much. Do any other members have any other questions at this point? Mr. Moody, do you have any questions about this suit? Mr. MOODY. No, Mr. Chairman. Chairman PICKLE. All right. Thank you. The next panel will be Frank Deliberti, National Director for the Office of Export Enforcement, Bureau of Export Administration, accompanied by Leonard Patak, Special Agent in Charge, Office of Export Enforcement, out of Dallas. PAGENO="0218" 214 Mr. Deliberti, are you in Washington? Mr. DELIBERTI. Now I am, sir. Chairman PICKLE. Where were you? Mr. DELIBERTI. Prior to that, from 1985 to about February of this year, I was the Special Agent in Charge of the San Jose field office, which covered the nine Northwestern States of the country. Chairman PICKLE. Now, do you have a statement, or does Mr. Patak have a statement, also? Mr. DELIBERTI. I have a statement and Mr. Patak will answer some of the questions that you may have with me. Chairman PICKLE. Will you proceed, sir. STATEMENT OF FRANK W. DELIBERTI, DIRECTOR, OFFICE OF EXPORT ENFORCEMENT, BUREAU OF EXPORT ADMINISTRA- TION, U.S. DEPARTMENT OF COMMERCE, ACCOMPANIED BY LEONARD S. PATAK, SPECIAL AGENT IN CHARGE, OFFICE OF EXPORT ENFORCEMENT, DALLAS, TEX. Mr. DELIBERTI. Mr. Chairman and members of the subcommittee, I am pleased to appear before your subcommittee today to discuss export enforcement. I will summarize and ask that my entire writ- ten statement be submitted for the record. Chairman PICKLE. Without objection, it is so ordered. Mr. DEL]:BERTI. As you have requested, I will now discuss the Global Helicopter case. Let me begin by saying that there are limi- tations on the testimony I can give. Consequently, I will be able to discuss only our initial investigation and Commerce's action on re- voking a general license. I understand from your staff that this is acceptable to the subcommittee. On July 24, 1990, we learned that, in early 1988, Global Helicop- ter Technology, Inc., of Hurst, Texas, was contacted by Cardoen In- dustries of Santiago, Chile. According to the information, Cardoen had modified a Bell Long Ranger Helicopter, changing the two- person crew station to a single-crew station. Cardoen returned the helicopter to the United States, telling Global that it wanted to market it in the United States, and that Global should obtain the necessary FAA certification. We also learned that the helicopter might be a prototype for the manufacture of attack helicopters by Cardoen fo:r resale to Iraq. We immediately checked our licensing data base, which revealed no export identification number for Global, but listed Cardoen. We determined, that Cardoen was a large company in Chile that manu- factured a variety of goods, ranging from agricultural products to armaments. According to our information, Cardoen was the largest arms manufacturer in Chile, and the majority of its armament sales were to Iraq. Our special agents immediately contacted the FAA in Fort Worth, Texas, in order to obtain the serial number of the heli- copter. The FAA gave us the serial number and referred us to an article in the London Sunday Times about a Cardoen modified helicopter. The British journalist asserted that the Cardoen helicopter was being marketed as an attack aircraft, and that Iraq had placed an order with Cardoen for 50 of them. PAGENO="0219" 215 We also obtained a copy of a Cardoen brochure used to market the modified aircraft as an attack helicopter. In this brochure, Car- doen claimed the single-crew station was designed to minimize the exposure of the front part of the helicopter to enemy gunfire. Immediately thereafter, we contacted Bell Helicopter to trace the registered ownership of the aircraft. Using the serial number ob- tained from the FAA, we found that Swissco Management Group, of Miami Lakes, Fla., owned the helicopter. Bell officials also indi- cated that Bell had undertaken a feasibility study in 1986 for Car- doen regarding the modification of the Long Ranger as an attack helicopter. Bell withdrew from the proposed project with Cardoen, because of concerns that Iraq was one of the proposed end-users for the helicopter. On the same date, we determined that Swissco owned 51 percent of Global. On July 30, 1990, we received a response to our request for a li- censing determination from the Bureau of Export Administration's Office of Technology and Policy Analysis. This determination indi- cated that, under Commerce dual-use controls, the Long Ranger helicopters could be exported to Chile or Iraq under a general li- cense. This meant no application and no individual validated li- cense was required. The licensing determination further stated that the aircraft may be subject to licensing by the Department of State as a munitions item, if it had been modified as an attack heli- copter. On August 2, 1990, the President issued an Executive order im- posing an embargo on Iraq. On August 6, 1990, we interviewed Clem Bailey, president of Global. Bailey disclaimed any knowledge that the helicopter was a prototype for an attack helicopter. Bailey claimed that the helicopter was to be used in the United States for agricultural spraying. Also, on August 6, 1990, we subpoenaed the documents from Global. Among the documents obtained under that subpoena was a contract between Global and Cardoen, in which Global agreed to obtain FAA certification for the modified helicopter. That same day, based on information obtained during the investigation, we de- tained the helicopter, pending a license determination by the De- partment of State. Later in August, following a request from Commerce Enforce- ment, BXA's Office of Export Licensing sent letters to Global and Swissco, revoking their authority to export this helicopter to Car- doen under a general license. In addition, the letter advised them that a license may be required from the Department of State, if it is determined that the modified helicopter falls under State's juris- diction. In conclusion, Mr. Chairman, the export enforcement system is working. This case demonstrates that the Bureau of Export Admin- istration's Office of Export Enforcement works hand-in-hand with its licensing counterparts. It also shows the effectiveness of our ef- forts to prevent illegal exports. Moreover, Commerce is working closely with other agencies to insure that we bring the full complement of available resources toward the effective enforcement of export controls. We think that the Global Helicopter case illustrates that Commerce is fulfilling its mandate to enforce the Export Administration Act. PAGENO="0220" 216 Mr. Chairman, I am prepared to respond to any questions that you may have. [The prepared statement follows:] PAGENO="0221" 217 Statement of Frank W. Deliberti Director, Office of Export Enforcement Bureau of Export Administration U.S. Department of Commerce Before the Subcommittee on Oversight House Committee on Ways and Means April 18, 1991 I am pleased to appear before the House Ways and Means Subcommittee on Oversight to discuss export enforcement. I am Frank Deliberti, Director of the Office of Export Enforcement (OEE) in the Department of Commerce. Prior to coming to the Commerce Department I served six years with the U.S. Customs Service. Since 1976 I have been an employee of Commerce's export enforcement program. During this time I have served as a special agent, a team leader, the Special Agent in Charge of the San Jose Field Office, and was recently selected as the Director of OEE. The Bureau of Export Administration (BXA) is the regulatory agency within the Federal Government that is responsible for licensing the export of `dual use" commodities for national security, foreign policy and short supply reasons. Within BXA, Export Enforcement has two major responsibilities. The first is the prevention of illegal exports. This includes (a) reviewing pending licenses and recommending their denial or return without action if there is an enforcement concern; (b) requiring, where necessary, that pre-license checks be conducted to ensure that the end users are bona fide and appropriate; (c) directing that post-shipment verifications be conducted to ensure that the commodities were received by the designated end user; and (d) outreach to the business community to inform them about the Export Administration Act (EAA) and the Export Administration Regulations (EAR) and to enlist their support for compliance with U.S. export laws. The second responsibility is the investigation of possible violations of the EAA and EAR and assisting in the prosecution of those cases where violations have occurred. Commerce Export Enforcement accomplishes this latter responsibility through both criminal and administrative processes. I might add that, in addition to criminal prosecutions, one of the most powerful tools we have is the ability to deny export privileges, both as a sanction for EAA and EAR violations and, for limited periods, as a preventative measure. This authority, which stems from our statutory mandate to license dual use exports, has been especially useful in cases where the violator is a foreign national who is unlikely to submit to U.S. jurisdiction for purposes of criminal prosecution. As you have requested, I will now discuss the Global Helicopter case. THE ENFORCEMENT - LICENSING CONNECTION ThE GLOBAL HELICOPTER CASE Mr. Chairman, let me start my discussion of this case by saying there are limitations on the testimony I can give concerning this case. I will be able to discuss only our initial investigation and Commerce's action on revoking a general license. I understand from your staff that this is acceptable to the Subcommittee. PAGENO="0222" 218 -2- On July 24, 1990, we received information indicating that, in early 1988, Global Helicopter Technology Inc., of Hurst, Texas, was contacted by Cardoen Industries (Cardoen) of Santiago, Chile. According to the information, Cardoen had modified a Bell 206L-III Long Ranger Helicopter, changing the two-person crew station to a single-crew station. Cardoen returned the modified helicopter to the U.S., telling that Global that it wanted to market the modified helicopter in the United States, and asking Global to obtain the necessary FAA certification. We also learned that the helicopter might be a prototype for the manufacture of attack helicopters by Cardoen for resale to Iraq. ~HRONOLOGY OF THE INVESTIGATION: As soon as we received the information, we checked BXA's Export Control Automated Support System (ECASS). That check revealed no exporter identification number for Global. Cardoen was listed as a consignee in ECASS. A check of our files indicated that Cardoen was a large company in Chile that manufactured a variety of goods ranging from agricultural products to armaments. According to our information, Cardoen was the largest arms manufacturer in Chile, and the majority of its armaments sales were to Iraq. Our special agents immediately contacted the FAA in Fort Worth, Texas, in order to obtain the serial number of the helicopter. In responding to our inquiry, the FAA gave us the serial number and also advised us that on June 1, 1990, a reporter for the London Sunday Times 1 had contacted the FAA to inquire about the FAA's role in the matter of the Cardoen-modified helicopter. The journalist asserted that the Cardoen helicopter was being marketed as an attack helicopter and that Iraq had placed an order with Cardoen for 50 of the aircraft. Additionally, the FAA advised us that, on July 20, 1990, NBC News had contacted them to inquire about the matter and subsequently faxed a copy of a brochure from Cardoen used to market the modified aircraft as an attack helicopter. In this brochure, Cardoen indicated that the single-crew station was designed to reduce the silhouette of the aircraft to minimize the exposure of the front part to enemy gunfire. Immediately thereafter, we contacted Bell Helicopter to trace registered ownership of the helicopter through the serial number obtained from the FAA. It was determined that the owner of the helicopter was Swissco Management Group (SMG) of Miami Lakes, Florida. Bell Helicopter officials also indicated that Bell had undertaken a feasibility study in 1986 for Cardoen regarding the modification of the 206L-ffl Long Ranger as an attack helicopter. Bell withdrew from the proposed project with Cardoen because of concerns that Iraq was one of the proposed end users for the helicopters. On the same day, we were able to determine that SMG owned 51% of Global Helicopter Technology, Inc. On July 30, 1990, we received a response to our request for a licensing determination from BXA's Office of Technology and Policy Analysis. The determination stated that that, under Commerce Department controls, Bell Long Ranger helicopters could be exported to Chile or Iraq under a `general license," meaning that no application and no individual validated license was required. The licensing determination further stated that that type of aircraft may be subject to licensing by the Department of State if it had been modified as an attack helicopter. The text of an article that appeared in the London Sunday Times related to the helicopter is attached to this statement as an appendix. PAGENO="0223" 219 On August 6, 1990, we interviewed Clem Bailey, President of Global. Bailey disclaimed any knowledge that the helicopter was a prototype for an attack helicopter. Bailey claimed that the helicopter was to be used in the United States for agricultural spraying. DETENTION OF THE HELICOPTER AND REVOCATION OF THE GENERAL DESTINATION LICENSE Also on August 6, 1990, we subpoenaed documents from Global. Among the documents obtained under that subpoena was a contract between Global and Cardoen in which Global agreed to obtain FAA certification for the modified helicopter. With the imposition of the embargo on Iraq by Presidential Executive Order of August 2, 1990, and based on information obtained during the investigation, Commerce agents, on August 6, 1990, detained the helicopter at Global pending a licensing determination by the Department of State. Later in August, following a request from OEE, BXA's Office of Export Licensing revoked the authority of Global and SMG to export this helicopter to Cardoen under a "general license." In addition, the letter advised them that a license may be required from the Department of State if it is determined that the modified helicopter falls under State's jurisdiction. CONCLUSION: The export enforcement system is working. This case demonstrates that BXA's Office of Export Enforcement works hand-in-hand with its licensing counterparts. It also shows the effectiveness of our efforts to prevent illegal exports. Moreover, Commerce is working closely with other agencies to ensure that we bring the full complement of available resources to the effective enforcement of export controls. We think that the Global Helicopter case illustrates that Commerce is fulfilling its mandate to enforce the Export Administration Act. Mr. Chairman, I am prepared to respond to any questions you may have. PAGENO="0224" 220 PAGE 41 1ST STORY of Level I orinted in FULL format. Copyright (c) 1990 Times Newspapars Limited The Sunday Times June 3, 1990, Sunday SECTION: Home news LENGTH: 695 words LTIADLINE: Chile judges say British journalist was murdered BYLINE: Lv Riohard Casehy SODY: JUDGES investigating the mysterious death of a British defence journalist found hanged in his hotel room in Chile are convinced that he was murdered. Tests will be carried out on the sedatives found in the body of Jonathan :`lovle, the editor of Defence Helicopter World, to determine whether he was drugged by his killers before being suspended with one of his shirts in a wardrobe. Staff at the Hotel Carrera in Santiago will be interviewed by the elite investigation unit S0-7. The unit was called in after a preliminary police inquiry, which concluded that Moyle had committed suicide, was discredited. A senior official in the Chilean justice department said yesterday: ` It is impossible to commit suicide in much a small closet. The tests next week are crucial.'' The Chiieanm have also dismissed claims circulated by British embassy and Chilean officials in Santiago that Moyle amphyxiated himself while trying to obtain sexual pleasure. Movie, 28, was found naked and hanging by the neck from a clothes rail in a cramped wardrobe Bin shorter than his body. The door was shut from the outside. His head was covered by a pillow case, his hips were bound with plastic and padding and his legs showed signs of having been bound. There was blood at the foot of the bed and two files and a briefcase were missing. The death has left his parents, Tony and Diana Moyle, convinced that he was murdered to suppress a scoop. The smear campaign has intensified their sense of loss. ` `This calculated attempt to soil my son's name is hateful. I want the name of the man who started this,'' Tony Moyle said. He had spnken to his son by telephone less than half an hour before his estimated time of death. ` `We have always said Jonathan was murdered. He was fearless to the point of recklessness, but suicide was not in his character.'' Moyle, a former RAF helicopter pilot, arrived in Santiago on March 24, a week before.hi6 death, to cover an international aerospace fair. He~was-investigating reports that Cardoen, Chile's largest arms manufacturer, had agreed to supply 50 attack helicopters to Iraq. The helicopter, a conversion of the Bell 2060-111, is undergoing certification tests in Texas, and is expected to be armed with Chinese missiles. Cardoen denies that the design is for military use. PAGENO="0225" 221 PAGE 42 Ic) 1990 Tises Newspapers Limited June 3, 1990 However, Western intelligence sources are increasingly worried about reports of a more threatening trade. Cardoen, which supplied Iraq with thousands of cluster bombs, is suspected of trans-shipping sophisticated oscilloscopes from Europe to Iraq for testing nuclear detonators. Cardoen denies it has any part in such shipments. What `lovie discovered say never he known. He is said to have interviewed Canoe Cardoen, 47, head it the arms company, and on the night before his death met Raol `lontesin':', the Cardoen press officer, in the hotel bar. Both Cardoen men deny the meetings took place. Tn le.'se yb'' knew his, lyle was a brill tant and i'nini''na ted defsncs specialist . He turned down a place at Oyf':'rd to read interns ti''nal politics and strategic studies at Abervetwvth Iniversity on an RAE bursary. While still a student he was recruited by Special Branch and is reported to have helped break a university drugs ring. Last week the Ministry of Defence denied that Moyle was an intelligence agent. A spokesman said: ``He left the RAE and became a private citizen. That is the end of it A Foreign Office spokesman refused to comment on the smear against Moyle. Movle gained a first-class degree and wrote an 9IA thesis on Air Attack on Britain, which is now a classified document. His tutor, Professor John Garnett, said: ``He was an escellent scholar and delivered the goods. He was confident to the point of being slightly brash. Any notion that he `:ommitted suicide is ludicrous. Moyle graduated from the RAE Cranwell and trained on Jet Provosts and Gazelle helicopters. However, he left in 1988 to become a journalist. Moyle had planned to marry Dr Annette Kissenheck, a German paediatrician, on June 16, and they had booked a castle near Bonn for a wedding ball. She said: ``Jonathan was at the happiest point in his life. We both were. TERMS: Jonathan MovIe 51-840 0 - 92 - 8 PAGENO="0226" 222 Mr. ANTHONY [presiding]. Thank you, Mr. Deliberti. I think part of the problem the committee would like to look at is the fact that you have dual use. I have some questions kind of leading into some final conclusions, so if you would bear with me on the preliminaries. Was there anything illegal about Carlos Cardoen purchasing the used Bell helicopter in 1988? Mr. DELIBERTI. That particular question really relates to the li- censing of the helicopter rather than an enforcement issue. Mr. ANTHONY. Well, it was licensed. They got a license for export. Is there a presumption, then, that it was a legal transaction? Mr. DELIBERTI. Right, at the time when the helicopter was known to be a civilian helicopter, a general license of G-Dest would have been appropriate for that helicopter. Mr. ANTHONY. And that is what he got, did he not? Mr. DEL:[BERTI. That was before the attempted modification. Mr. ANTHONY. The question was in 1988. Mr. DELIBERTI. In 1988, the general license- Mr. ANTHONY. I clearly do not see anything difficult about the question. I think all you have to do is say no, it was not illegal. We can stand here for an hour and hammer it all out, but I think I know the answer to the question I just asked. Mr. DELItBERTI. You are correct, sir, a general license applied. Mr. ANTHONY. Unless you can tell me that it was illegal. If you are going to tell me it was illegal, then you have just shot holes in the licensing procedure and you have just shot a hole in your whole testimony. Mr. DELItBERTI. In 1988, it was not illegal. Mr. ANTHONY. Thank you. Would it be illegal for him to do that today, under the same set of circumstances, general use for avia- tion, a used helicopter, getting a general license? Has anything changed since 1988 that would make that illegal today? Mr. PATAK. Obviously, with the embargo on Iraq, if the helicop- ter was in the same commercial configuration as it was in 1988- Mr. ANTHONY. Going to Chile. Mr. PATAK [continuing]. It could go to Chile under a general li- cense. That is my understanding. Mr. ANTHONY. Just a good, straightforward, simple question. The answer is it would not be illegal? Mr. PATAK. That is correct, sir. Mr. ANTHONY. I am not trying to throw any trick questions at you here. They come later. Mr. DEL1EBERTI. You are absolutely right. A lot of this depends on whether the end-use/end-user are appropriate, and we have to con- sider that, that is why I say it is partly a licensing determination issue. Mr. ANTHONY. So, it was not illegal to purchase it, it was not ille- gal to export it to Chile, as long as under general license for export it was used for civilian purpose? Mr. DELIEBERTI. Exactly. Mr. ANTHONY. And that would not be illegal to do that today, either, would it? PAGENO="0227" 223 Mr. DELIBERTI. Again, it depends on the end-use and end-user. Today, I think there is enough public information about Mr. Car- doen that we may not have a question now as to whether or not he can receive these helicopters. Mr. ANTHONY. All right. Question 3, was there anything illegal about Global Helicopter contracting with Carlos Cardoen to assist in the FAA certification of the modified Bell helicopter? Mr. PATAK. No, sir, there was not. Mr. ANTHONY. All right. Setting aside for the moment the issue of the value of the helicopter when it was reimported to Fort Worth, was there anything illegal about that reimportation? Mr. PATAK. I am sorry, sir, that is a pending matter and I cannot comment on that importation. Mr. ANTHONY. And what is the reason that you cannot comment on the reimportation? Mr. PATAK. That is a pending matter before Customs issue, sir. Mr. ANTHONY. If it is determined that the modified helicopter is still a civil aircraft, would it be illegal for Cardoen to reexport it to Chile? Mr. DELIBERTI. Again, it goes back to the end-use and end-user, and it would depend on that. Mr. ANTHONY. And I assume that what made you think that the modified helicopter in this case was not for civil use was the fact that the company that was going to do the modification was asked to actually put gun turrets on it and also to put some steel up un- derneath where the pilot was going to be, and that-here is a little photograph of it. You know, down home, we have some boll weevils in cotton, maybe he was going to go down there and shoot those little weevils out of the cotton, since it was for agricultural spraying, spraying with bullets, rather than herbicides. Is that what made you change your mind? It was really the company itself that notified you, and then your investigation after that? Mr. DELIBERTI. Right. Mr. ANTHONY. If the modified helicopter is a military aircraft, then it would require State Department license, am I correct in that? Mr. DELIBERTI. If it were determined to be a munitions item, that is correct. We are waiting for the State Department to make that determination as to whether or not they control the export of that helicopter. Mr. ANTHONY. You just jumped to my next question, and that was whether or not they had made a determination. You are saying you are waiting on them to make a determination? Mr. DELIBERTI. That is correct. They are still looking into it. Mr. ANTHONY. How long have they been looking at it? Mr. PATAK. As far as we know, the U.S. Customs Service has not received a determination from the Department of State. We de- tained the helicopter on August 6, pending their determination, and I am not sure what the timeframe is now. I do not know if Cus- toms has received that determination. Mr. ANTHONY. Well, this is the middle of April. You seized it in the first part of August- Mr. PATAK. We actually detained it- PAGENO="0228" 224 Mr. ANTHONY. Sir? Mr. PATAK. We actually detained the helicopter, not seized it. Mr. ANTHONY. You did what? Mr. PATAK. We detained it. In other words, we prevented it from going anywhere. Mr. ANTHONY. If it had been mine, I would have said you seized it. You still have hold of it, right? Well, you have got it stored some place in protective custody? Mr. PATAK. At that time, yes, sir. Mr. ANTHONY. Well, we can quibble over words. The bottom line of what I am trying to get to is that the State Department still has not rendered a determination as of this date, and I am trying to find out why. Have you asked them? Have you prodded them? Do you think we are going to know tomorrow? Are we going to know next August? Mr. PATAK. In August we requested a determination. We have conferred with the U.S. Customs Service, who now has the helicop- ter, and to our knowledge they have not received a determination yet. I do not know why. Mr. ANTHONY. Well, we will ask them and maybe we can find out from them. If you have the authority to answer this question: If Cardoen were successful in developing the Cardoen 206L-3 Light Attack Helicopter, in your opinion, who do you think would be interested in purchasing them? Mr. PATAK. Based on the information that we obtained in the in- vestigation, I think he would like to have marketed the helicopter obviously to Iraq, and perhaps to other countries-Jordan, Egypt, Ecuador, and Brazil in South America. Mr. ANTHONY. But still he would have to wait on the State De- partment to give him that specific license to be able to do that? Mr. DELIBERTI. If the State Department controls it. Mr. ANTHONY. The State Department controls it, after we now determine that there is something suspicious, then the dual-use now has gone from civilian to military. What if this were a legiti- mate business case, where they were going to sell to our friends and our allies to protect their countries? What takes so long for the State Department to make a determination on dual use? Mr. DELIBERTI. I do not know. Mr. ANTHONY. You do not know. We will have to ask the State Department that. I understand that your inquiries into the ownership of this heli- copter generated another investigation involving other Cardoen companies in Miami. Is that assumption correct? Mr. DELIBERTI. I cannot comment on that. Mr. ANTHONY. You cannot comment on whether or not that was a correct assumption? Mr. DELIBERTI. I cannot at this time. Mr. ANTHONY. You cannot even state as to whether or not there is an investigation going on? Mr. DELIBERTI. I cannot. Mr. ANTHONY. Can you not comment because the Department of Justice has told you not to discuss this case with the subcommittee, PAGENO="0229" 225 either publicly or privately, or is it because of your own personal policy, internal policy? Mr. DELIBERTI. No, it is- Mr. ANTHONY. Let me strike the words "Department of Justice." Has any other agency instructed you not to discuss it? Mr. DELIBERTI. That would be correct. Mr. ANTHONY. I am going to yield to Mr. Shaw. Mr. DELIBERTI. Excuse me, Mr. Anthony, one moment, please. Mr. ANTHONY. Do you have an elaboration, or a final comment? Mr. DELIBERTI. Just one moment, please. [Pause.] Mr. ANTHONY. In game shows, they give you a time limit. Do you need additional time for consultation, or do you have a statement that you would like to correct or modify for the record? Mr. DELIBERTI. No, Mr. Anthony, we are just trying to satisfy you as best we can, and we are probably better off doing it at a later time. Mr. ANTHONY. Well, you will satisfy me a lot better by giving me a much fuller disclosure in openness of my question. If we can do that at a later time, that is how you will satisfy me. Mr. DELIBERTI. Fine. Mr. ANTHONY. The only reason I am getting into this line of questioning is the difficulty that you have with dual-use, and when you do have some modifications and there are other agencies that get involved in it. Your testimony was fairly braggadocios about how good the system works, but the next panel is going to be able to be as braggadocios because some of the equipment in that case is actually missing and it looks like it got to the end-user for military purposes. So, there are no trick questions here, I am just trying to get a feel for what is going on and how easy it is or how difficult it is to take a civilian piece of equipment and convert it, and bypass any of the safeguards that we have. So, if you find anything in the record that you need to modify or correct, feel free to do it by additional written comment. [The following was subsequently received:] PAGENO="0230" 226 EXECUTIVE OFFICE OF ThE PRESIDENT OFFiCE OF MANAGEMENT AND BUDGET WASHINGTON. D.C. 20503 June 26, 1991 Ms. Beth Vance Staff Director Subcommittee on Oversight Ways and Heans Committee 1135 LHOB Washington, D. C. 20515 Dear Ms. Vance: In response to your communication with Janet Hale, I am pleased to enclose an 0MB staff response to Congressman Anthony's questions on Global Helicopters. As noted in the response, please do not hesitate to contact Legislative Affairs or Ms. Hale's office directly, if you need information in the future. ~ David F. Taylor Special Assistant to the Director Enclosure QUESTIONS FROM THE WAYS AND MEANS COMMITTEE SUBCOMMITTEE ON OVERSIGHT MS. BETH VANCE, STAFF DIRECTOR EXPORT CONTROLS Question #1: What is the status of the Global helicopter case, and why has the government not been able to make a definitive decision on the matter? Response: The Global helicopter is currently secured by Customs in Dallas, Texas, after being seized on March 27, 1991, as part of an investigation into import/export violations. The case is under a sealed affidavit. As explained by Customs in testimony before the House Ways and Means Committee, details of ongoing investigations cannot be discussed. (Customs gave the Committee a letter from the Justice Department outlining this requirement.) Prior to the seizure of the helicopter by Customs, the Commerce Department had notified Global that the helicopter should not be moved until a licensing decision had been made. Since the helicopte:was potentially a munitions item, the review is being performed by the State Department. It is likely that the helicopter will be considered a munitions controlled item and therefore will require a State Department license for export. We regret that we are unable to supply you with additional information at this time. If you are interested, we would willingly supply you with ~n~crit~t~.cn ~ ~.t cQ~n~ ~ PAGENO="0231" 227 Mr. DELIBERTI. Thank you. Mr. ANTHONY. Mr. Shaw. Mr. SHAW. Let me review where we are for the moment here. As I understand it, in 1988, Cardoen began a project to develop a low- cost attack project for a lucrative Third World arms market. He contacted Bell to design an armed version of the Long Ranger com- mercial helicopter. Now, I understand Bell did this, and this is the design study which was developed either in-well, it said in 1988, however, there are some dates in this design study which would in- dicate that this study was in existence as early as May of 1977. Is this design itself a violation of any laws, if its technology is then given outside of this country or to people from outside of this country? In other words, has Bell violated any laws by having made this design study available? This is the design study for the modification of a commercial to a military-type of vehicle, and I think that Mr. Anthony has re- viewed some of the design and some of the pictures with the gun placements and everything else, to indicate that this is no longer a commercial type or civilian type of helicopter. Mr. DELIBERTI. Actually, I think we have a licensing question here, as to whether or not there are controls and what the controls are. We have submitted the study to our licensing people and re- quested a licensing determination. We should have the results shortly and will provide that information to you. Mr. SHAW. Let me then ask another question that I would like, and I assume you are going to supply that for the record, the answer to that question. I understand that Bell did ask the State Department to license it to Spain and Panama. Another question, was a request ever made to license it to Chile? Mr. DELIBERTI. Regarding the Commerce Department or the State Department? Mr. SHAW. This would be the licensing agency, which would be the State Department. Mr. DELIBERTI. Mr. Shaw, we are not in a position to answer for State. Mr. SHAW. Now, when Bell declined to sell Cardoen any of the choppers directly, he had Swissco purchase one on the used market and ship it legally to Chile in 1988 for modifications. In March 1988, Cardoen contacted with Global to obtain a desirable FAA safety certification. Global later assured the State Department that the modified helicopter was only for civil commercial use. In 1990, Swissco shipped the chopper back to Global to begin this certifica- tion. Now, the modifications that have been talked about, narrowing the cockpit down to one man, putting all the armaments on it, put- ting all of the gun attachments on it, these have all been made and then it came back. In June of 1990, a British reporter was mur- dered, after reporting Cardoen's plans to sell 50 of the attack heli- copters to Iraq. When the press contacted the FAA about its in- volvement with Cardoen's project, they immediately informed Com- merce. Commerce determined that the helicopter could be legally exported to Chile or Iraq, without any Commerce validated license, but might be controlled by the State Department as a defense item, and they were informed, but to this date no final determination PAGENO="0232" 228 has been made. I believe that pretty much coincides with the testi- mony that you gave. Now how did the fact that this helicopter might very well be ille- gal, how did this come to the attention of FAA? Was it not NBC News? Mr. DELIBERTI. Yes, through NBC News and the Sunday London Times. Mr. SHAW. Have any of you seen this brochure put out by Car- doen on this particular helicopter? I can tell you where I got it. I got it from our staff that got it from NBC who got it at the Bagh- dad air show. This sets forth all of the information, and clearly, "Attack Helicopter" written on the front. I would also ask you about a publication called Flight Interna- tional dated 13 February 1988 in which it refers to the helicopter built in Chile with components coming from Bell's Canada factory and Cardoen's new factory in Spain. It goes on to say that the heli- copter is a new venture for Cardoen Industries, which is better known for its Chilean-developed cluster bombs. The aircraft is based on the Bell Jet Ranger and is aimed at Third World coun- tries unable to afford sophisticated attack helicopters. All this information was out there. All of the news reports. And it is, quite frankly, somewhat embarrassing to get some of this in- formation and start accumulating some of this information from news media. I am really totally confused at this point of the ques- tion as to why the FAA had to be tipped off on this thing when it was supposed to be going through a certification process. Do you have any knowledge of any of that as to why in the world all of the red flags did not go up immediately when this thing came in, this armed aircraft came in? Mr. DELIBERTI. No, I do not believe we have an answer for that. I mean, I can tell you why the FAA came to us, but I do not have an answer as to why they went to the FAA. Mr. SHAW. Why don't you tell me why they came to you? Mr. DELIBERTr. One part of the export enforcement mission here at Commerce is the outreach program, which is our campaign to educate not only the business community but also the Government community as to what to look for in everyday transactions regard- ing exports. The FAA had known about export enforcement and when they saw something that appeared to be suspicious in nature, such as this helicopter, they sent that information to our intelli- gence division based in Washington, D.C. From there it was sent to the Dallas field office for investigation. Mr. SHAW. When did you first learn of Cardoen's involvement with these companies that we have been discussing today? That is the Global Helicopter case, involving Swissco in Miami? Mr. PATAK. Basically, sir, in July of 1990 we first received the information. Because the FAA was completing the certification process and we were all under time constraints we were obviously in a quandary. Then, with the imposition of the embargo on August 2, we learned within that week-and-a-half period of time of the involvement of Swissco and Global and their relationship. Mr. SHAW. Mr. Anthony. Mr. ANTHONY. Let me see if I used the proper word. You used the word detain. Is that the proper terminology? PAGENO="0233" 229 Mr. DELIBERTI. That is correct. Mr. ANTHONY. The prototype is being detained by you. Mr. DELIBERTI. It was detained by Commerce. Mr. ANTHONY. By Commerce. Under what legal authority are you detaining it? It is a civilian airplane that has been reimported back into the United States for modification. There has been no de- termination by the Department of State as to whether or not it contains munitions. So therefore, at the moment, it is legally a ci- vilian airplane, I believe. You do not have the authority to make that determination on your own. The law allows State to make that determination. State has not made that determination. So what gives you the legal authority to hold that plane? Will you not give the plane back? It is a prototype. Mr. DELIBERTI. First, the helicopter is no longer under our con- trol, but under the general authority of the act and the regulations, we have the authority to detain, pending licensing review to deter- mine if a license is required. Mr. ANTHONY. All dual-use property? Mr. DELIBERTI. Exactly. Mr. ANTHONY. If you have a suspicion that it can be configured for another use that would be illegal. Mr. DELIBERTI. Right. And the purpose for the detention-to de- termine if it required a license. Mr. ANTHONY. How often do you do that? Mr. DELIBERTI. As often as is required. We detain for purposes at times to determine whether or not a license is required for the export of anything going to any destination. Mr. ANTHONY. How many times have you done it this year? Mr. DELIBERTI. I would have to get back to you with an exact number. Mr. ANTHONY. Would you do that? And also, how many times you have done it over the last couple of years? Mr. DELIBERTI. Detentions? Again, I would have to get back to you with that information. [The following was subsequently received:] PAGENO="0234" 230 Mr. ANTHONY. I want to tell you what bothers me. You said that the law was very clear. It appears to me that there are a lot of am- biguities sitting out there on dual use property. We keep asking you a question, you keep saying, I have got to get back with you. You keep saying, that is in the State Department. It appears to me that maybe we are at least probing enough, and as Mr. Shaw very clearly demonstrated, that this information was out in the public arena all the way from Baghdad to a weekly or a monthly aviation publication. Yet since the presidential declara- tion of the embargo and this seizure of the prototype, State has still failed to make a determination. I guess I am scratching my head, and I may sound like I am more of an attorney representing the defendant in this case than I am a member of this subcommittee, but I must tell you, I was a prosecutor for 10 years. It makes me wonder exactly under what clear-cut authority you are doing some of the things that you are saying that you are doing when State has not come forward with any clear licensing answer. I guess maybe we will have to get them in here and ask those direct questions to them. Mr. SHAW. Would you yield on that line of questioning? Mr. ANTHONY. Be happy to yield. Mr. SHAW. What investigative powers does Commerce have? The reason is, I am somewhat concerned here that with regard to Swissco, they interviewed Swissco's freight forwarder in Hialeah and then they turned the case over, I understand, to Customs. At Detentions vs. Seizures Commerce Export Enforcement [On a Fiscal Year Basis] Detentions Seizures PAGENO="0235" 231 what point does your authority cease and you have to turn it over to another agency? It does sound then-I think that Beryl Anthony is making a very good point-like we have got too many cooks in this whole thing and it just does not make a whole lot of sense at this point. It does not seem to be well organized-we are having trouble finding the lead agency. [The Department of Commerce supplied the following:] Mr. Shaw, in cases where the violation appears to be solely against the Arms Export Control Act, that is clearly in the jurisdiction of the Department of State, and the U.S. Customs Service enforces that act. In cases where there is a violation of the Export Administration Act, Commerce has the licensing authority, the exper- tise, and the criminal and administrative enforcement authority and powers to in- vestigate and prosecute allegations of violations. In some cases we work EAA cases jointly with the Customs Service. That agency has the authority to investigate EAA violations for criminal prosecution only. Mr. DELIBERTI. In enforcing the EAA, Commerce agents have the authority to execute warrants, to make seizures by warrant, to make arrests, to conduct criminal investigations, and to conduct administrative investigations. And during the time since the Export Administration Act expired, on September 30 of last year, there was a question about our enforcement authorities. Because of that we went to the Department of Justice to get deputization as U.S. marshals to retain these law enforcement authorities. Mr. SHAW. You mean you have got the policing responsibility without the policemen. Is that basically what you are saying? Mr. DELIBERTI. Yes, that is what happened for the period of time between the expiration of the Export Administration Act on Sep- tember 30, 1990, and our deputization as U.S. marshals beginning in late January 1991. Mr. SHAW. So that is why you turned the investigation over to another agency? Mr. DELIBERTI. I cannot comment on the case that you men- tioned, but we have the authority to conduct investigations of EAA violations on our own or jointly with customs. Mr. PATAK. Sir, if I might be able to clarify something. As far as the detention, we felt at that time it was a very prudent move to do that. As soon as the detention was made we notified the U.S. Customs Service and we conducted a joint investigation which re- sulted in the seizure of the helicopter by the U.S. Customs Service in March of this year. Mr. SHAW. It sounds like you are in a little bit of a frustrating position waiting for other people to make determinations over things that you are responsible for and left holding onto the bag. I think this is a whole area that we ought to look at and try to place responsibility in some logical chain or responsibility without flip- ping back and forth from one agency to another. It has got to be a tough working situation for you, and it has got to be frustrating. It has got to be very slow and most inefficient and most costly. At least that is the way it looks to us. Perhaps you could give use some guidance as to how we might be able to im- prove the situation so that we can more effectively enforce the law. [The Department of Commerce supplied the following:] PAGENO="0236" 232 To those who are unfamiliar with the export laws and regulations the jurisdic- tions may seem blurred at times. The Export Administration regulations (EAR) have been likened to the IRS regulations and the Tax Code. It takes a long time to thoroughly undertand them and that is why it is important to note that the enforce- ment of this Act is all we do. Our special agents are experts in their field and fre- quently are called upon to testify as such in trials and before grand juries. We need the support of your committee and the Congress to keep in business. We are a small corps of highly trained people, dedicated to a mission we view as essential. Without the continued support of the administration and the Congress this important exper- tise and asset could be lost. Mr. DELIBERTI. There is no doubt that we have an excellent export control program right in Commerce. The marriage of licens- ing and enforcement works. OEE has the responsibility for screen- ing licenses to ensure that Commerce denies or returns license ap- plications which pose a diversion risk. We also work with the busi- ness community and are able to get a tremendous amount of infor- mation from them based on our efforts to raise their level of aware- ness as to suspected illegal transactions. We also get information from the intelligence community. As I mentioned we also have a license application screen available that no one else has and are able to screen licenses to determine whether or not there are bona fide end users involved in these transactions. Just one statistic that comes to mind-in fiscal year 1990 we were able to recommend the rejection or return of applications for exports for almost 1.5 billion dollars' worth of goods that were going to unsuitable consignees. So we do have a very effective export control program: an across-the-board program involving criminal investigations, administrative investigations, and preven- tive enforcement measures which include intelligence gathering, law enforcement cooperation on the domestic, and more important- ly now, on the international front, and the outreach program which is our campaign to educate the business community. Mr. SHAW. That is not quite responsive to what I had said be- cause I asked if there was anything we could do to improve it so that whoever has the responsibility also has the tools at hand to make decisions and to go forward. One of the earlier witnesses we had here today made an observa- tion which certainly caught my attention. He said that he felt-I think it was Mr. Bryen-that he felt that for the agency that had the responsibility of promoting trade, to give it the responsibility for restraining trade he felt was somewhat of a paradox. Mr. Bryen seems to make a lot of sense. And the fact that you are still waiting around for the State De- partment to make a determination as to the export of a helicopter which is clearly a defensive or offensive weapon rather than a com- mercial vehicle I would think would be somewhat discouraging and disheartening to your agents who are trying to enforce the law. To be waiting since 1990 for this determination, particularly with the Iraqi involvement, I think is somewhat absurd. [The Department of Commerce supplied the following:] Let me respond first to Mr. Bryen's comments. There is absolutely no conflict be- tween the export promotion programs of the Department of Commerce and our reg- ulatory and enforcement responsibilities. In 1985, the Congress expressed this con- cern because, at the time, we were housed within the International Trade Adminis- tration (ITA)-the export promotion wing of Commerce. In the 1985 amendments to the EAA, we were split off as an equal agency to ITA, headed by our own under PAGENO="0237" 233 secretary. ITA has no authority over us and indeed we often approach trade issues from a different perspective. Our job as a national security agency within the Com- merce Department is to protect the national security and foreign policy interests of the United States, balancing this against the economic interest of the country. We do not take this mandate lightly. Now, let me address the rest of your question. Mr. DELIBERTI. Any enforcement agency involved in export con- trol would have to wait for that same determination from the De- partment of State. It is not because we are in the Commerce De- partment we have to wait. The same is true for Customs. Mr. SHAW. Why is that in the State Department instead of the Defense Department anyway? Mr. DELIBERTI. Can you repeat that, please? Mr. SHAW. Do you know logic of why the State Department has that rather than the Defense Department? Mr. DELIBERTI. I do not know. Mr. SHAW. I have no further questions. Mr. ANTHONY. We thank you for your testimony. Mr. MOODY. Mr. Chairman. Mr. ANTHONY. I am sorry, Mr. Moody. Let me just finish my comment and then I am going to yield to Mr. Moody. Do not forget that we have requested some additional information. I will assume that somebody with you has jotted it down. We will leave the record open a sufficient amount of time for you to do that. Mr. Moody. Mr. MOODY. Thank you. Let me just ask a few basic procedural questions. Does Commerce routinely inform Customs about any and all licenses that have been requested for export that could conceiv- ably be in the munitions or dual use area? Mr. DELIBERTI. To my knowledge, we do not. [The Department of Commerce supplied the following:] As I mentioned earlier, we do not have munitions information. That is at the De- partment of State. In addition, general licensing information is not very helpful in enforcement. Mr. MOODY. I ask that because I have been talking to some Cus- toms people and they say they rely more on tips from patriotic American businesspeople than information from Commerce about sensitive items. Some of these sensitive items they have been able to stop have not come from tips from the Commerce Department but rather from American businessmen. Mr. DELIBERTI. Mr. Moody, if an item is controlled by the State Department we certainly would give it to the Customs Service to investigate because they have the authority to do that. But on dual use items, the authority to investigate alleged or actual violations of that act lies with the Commerce Department. Mr. MOODY. Right. But why would you not want to let Customs know so that if anything of that nature were leaving the country Customs, which is sort of the cop on the beat so to speak, could make sure that those items were what exporters say they are and are headed for the stated consignee, and so forth? [The Department of Commerce supplied the following:] As I mentioned earlier, general information on approved licenses, for example, is not really useful in the enforcement context. The key information usually comes from tips and then the information in the licensing data base helps us to make the case. This information is readily available to Customs through the liaison person who is located in BXA. They have had a liaison person in our operation since Janu- PAGENO="0238" 234 ary of 1982 and we have regularly and routinely shared information with them since that time. Mr. DELIBERTI. There is a liaison person designated by Customs who- Mr. MOODY. I recognize that, but I am talking about pieces of paper with vital information on it. On an absolute, universal basis why would you not send that to Customs? Mr. DELIBERTI. We do exchange information on a regular basis. Mr. MOODY. But that is not my question. My question is, why do you not send everything of that nature to Customs? I am telling you that the Customs people tell me that they nail more things at airports based on tips from businessmen than help from the Com- merce Department. I know there are periodic exchanges of infor- mation. Why is that not complete information? [The Department of Commerce supplied the following:] In this business, most cases are made on tips, not from the constant review of li- censing data. This is true for us and it is true for Customs. Mr. DELIBERTI. We do pretty much the same thing. We get a tre- mendous amount of information from the business community and we act on it accordingly. Mr. MOODY. I am asking why you do not share that invariably with Customs. That is my only question. Mr. DELIBERTI. When we conduct joint investigations we do just the same. Mr. MOODY. We do not have a Customs person at the table but I have talked to some Customs people who say that some of this is classified, I guess, at Commerce. This is all classified-some of this is classified, is it not? Mr. DELIBERTI. It could be. Mr. MOODY. And if it is classified it does not get over to Customs? Mr. DELIBERTI. If it is classified, for the most part they would have the same access to that information as we do. Mr. MOODY. How would they get that access? Mr. DELIBERTI. There is internal mechanisms where there is a sharing of classified information. Mr. Moory. But you just indicated, I think, a moment ago, that they do not get a universal list of what has been approved for export. Mr. DELIBERTI. Approved for export? Mr. MOODY. Dual use. Mr. DELIBERTI. They do have access to that. That is correct, Mr. Moody, because earlier there was a comment made that they did not have access to that. But they do have access to it. There is a person that is designated to give them that information. There has also been a terminal at Customs headquarters in Washington since May of 1986 to help them get licensing information, and they do have access to it. Mr. MOODY. So every single dual use case that you approve, Cus- toms gets a copy of what you have approved and what is supposed to be in those crates and who it is for? Mr. DELIBERTI. You are talking about licensing cases here, I be- lieve, right? Mr. Moory. Yes. PAGENO="0239" 235 Mr. DELIBERTI. I am sorry, I thought you were talking about in- vestigative cases. I am misunderstanding you here. As best I know there is a terminal available for Customs to have access to the li- censing information. Mr. MOODY. Access, but you do not send it to them. They sort of have to know what to ask for right now, do they not? Mr. DELIBERTI. Can you repeat that, please? Mr. MOODY. You do not send it to them, you say it is available to them. You mean, if they know what they are looking for they can punch it up and get it. I guess that is what you are saying. Mr. DELIBERTI. Right, it is a computerized system and there is an individual dedicated to pulling the information up for them at their request. Mr. MOODY. At their request. But unless they know what to re- quest they do not routinely get it. I do not know how I can make myself any plainer. I am almost about to give up because I do not think I am getting through to you. I am asking you if they get a universal list of what is dual-use technology that is being exported or do they have to wait to ask for it? If they do not know what to ask for, they are not going to get it. [The Department of Commerce supplied the following:] As I said earlier, lists of approved licenses are not really helpful in investigations of violations. Our people in export enforcement don't get this information, nor do we really seek it. What we need is information that relates to specific investigations or cases and that we seek and get from the Office of Export Licensing in BXA. Mr. DELIBERTI. Customs also has to make a request for it and then they would get it. Mr. MOODY. That is my point. That is all I am asking. That is consistent with what Customs has told me, that they often do not know-they find out more by tips from patriotic businessmen than they do from Commerce which has that information. They say, if we know what to ask for, somehow out of the blue, then we can go to Commerce and you can say yes or no or punch it up. But they are sitting there, the policeman on the beat, not knowing what to look for in many cases. That is what I have been told by Customs. That is all I am trying to determine. Mr. PATAK. Mr. Moody, just to clarify a point there. They work basically the same as we do in export enforcement. Now we are talking about enforcement versus licensing. Mr. MOODY. That is not my question. Mr. PATAK. I understand that, sir. Mr. MOODY. I am just trying to make one narrow point. That is, that Customs does not routinely appear, apparently from what you say-is not automatically copied or given info on what you have li- censed in the dual area. Mr. PATAK. Nor are we, sir. Mr. MOODY. No, what you have licensed, what Commerce has li- censed. Mr. PATAK. But also we are not normally given that information. We can get it through the data base just as Customs can, sir. Mr. MOODY. Who makes the determination if something should be licensed? I am just talking dual use now. Mr. PATAK. The Office of Export Licensing. Mr. MOODY. And that is a different office than you are, right? PAGENO="0240" 236 Mr. PATAK. Yes, sir. Mr. MooDy. So you do not get it totally either and neither does Customs. Mr. PATAK. That is correct, and it's not generally that useful in investigations and criminal prosecutions. Mr. MooDy. Would there be an investigatory or an enforcement purpose in your getting that or are you happy the way it is now? Mr. PATAK. Sir, it is basically a proactive program. You would want to check on certain commodity control numbers whether they are for proliferation purposes or other sensitive type technology. Then you would punch in that particular number to indicate what has been exported and to whom. Mr. MOODY. Right, if you knew what you were looking for. But you do not get-you as the investigatory side or the enforcement side-a full blanket coverage of what has been licensed for export. Mr. PATAK. No, sir. Mr. MOODY. All right, that is all I am trying to find out. I am not being critical of you, I am just trying to find out the answer to that question. Do you believe there is possibly any conflict of interest between Commerce's role as a promoter of exports and your role within Commerce in the enforcement area? [Pause.] Mr. MOODY. Take all the time you need. Mr. DELIBERTI. As I mentioned earlier, there is absolutely no con- flict. Mr. MOODY. Is that your considered opinion? [Laughter.] There is absolutely no conflict between Commerce's role as a pro- moter of exports and your role as a stopper of exports in certain cases? Mr. DELIBERTI. Right. Mr. Moody, let me just elaborate a little bit here. I am on the law enforcement side of the house. I have been involved in export control law enforcement for 22 years and I can tell you that this marriage of licensing and enforcement works. [The Department of Commerce supplied the following:] The trade promotion people in ITA don't tell me or my people how to do our job. We enforce the law! Mr. MOODY. I am just thinking about the case of the ovens where we had somebody in the Commerce Department who was pushing, pushing, pushing for these high tech, or high whatever they were, ovens that could be used to make missile nose cones. The Iraqi gov- ernment told Commerce they were for prostheses construction and Commerce--well-documented-was the biggest advocate of letting that stuff go. Finally, because it came in the glare of publicity the White House stopped and the Commerce Department backed off, or someone stopped it. But there was a clear case apparently of the Commerce Depart- ment pushing, pushing, pushing and trying to override the objec- tions from within the other branch of the Government. So I am asking, is this not an inherent conflict? Mr. DELIBERTI. It is not. [The Department of Commerce supplied the following:] I would like to insert here a copy of a chronology on the Consarc case which might help clarify this issue for you. PAGENO="0241" 237 / `l~-.~' \ UNITED STATES DEPARTMENT OF COMMERCE Bureau of Export Administration ~ Washington. D.C. 20230 CONSARC CHRONOLOGY The following chronology sets forth the Commerce involvement in the CONSARC attempt to export furnaces to Iraq. It should be noted that it was not until July 1990 that information was obtained concerning the possibility of this equipment being used in connection with sensitive nuclear activities in Iraq. When such evidence was presented, Commerce moved immediately to ensure that no export of the furnaces would take place. ***** On March 16, 1989, CONSARC wrote to the Department of Commerce requesting an advisory opinion on items it proposed to ship to the Ministry of Industry and Minerals in Iraq to be used for materials research and development and to make "titanium castings to be used for medical prosthesis." CONSARC's proposed sale included general purpose induction furnaces used to melt metals at high temperature. CONSARC did not mention in its letter any possible nuclear application. In conversations with Commerce officials, CONSARC did mention that certain metals that could be used in nuclear applications could be melted in the furnaces, even though the equipment was not large enough to be a production furnace. But CONSARC, stated that there was no indication that the furnaces would be used for nuclear applications, and Commerce had no information indicating such use. On May 6, 1989, Commerce informed CONSARC that two of the furnaces would need individual validated export licenses and that, under existing regulations, the export of the other two furnaces would not require prior government approval. All exports remained subject to regulations prohibiting exports where the exporter has reason to know that the item would be used for sensitive nuclear purposes. On May 10, 1989, CONSARC supplied Commerce with additional technical information on the two furnaces that Commerce had stated would require licenses. This information supported CONSARC's position that no licenses were required. Again, there was no indication that the furnaces would be used in sensitive nuclear applications. PAGENO="0242" 238 -2- On June 19, 1989, based on the additional technical information provided b~' CONSARC, Commerce determined that none of the furnaces was included on the control lists for national security, foreign policy, missile proliferation, or nuclear proliferation reasor;~. Commerce notified CONSARC that this determination was subject to prohibitions against exports where the exporter has reason to know the item will be used for sensitive nuclear purposes. The Commerce Department has not approved and would not approve a license for sensitive nuclear uses in Iraq. On July 14, 1989, CONSARC provided Commerce with documentation from the Iraqi end user and the Iraqi Government stating that the equipment was to be used for work in material science technology. The letter from the Iraqi Ministry of Industry and Minerals states, in part, that the furnaces would not be used for nuclear applications. On June 27, 1990, the Customs Service detained the CO~SARC furnaces before they could be shipped to Iraq. As indicated above, the CONSARC furnaces were not subject to U.S. controls. In addition, the Administration (based upon the assessment of the Department of Defense and Joint Chiefs of Staff) and its COCOM allies eliminated effective as of July 1, 1990 - controls on all industrial furnaces, including furnaces that are * more sophisticated than the CONSARC equipment. On July 13, 1990, a Commerce engineer and special agent visited CONS~RC to examine the equipment. As a result of this visit, it was reconfirmed that the furnaces did not fall within the scope of existing USG export controls. The Commerce engineer mentioned that the only reason for control would be if the items were destined for a sensitive nuclear use. CONSARC again stated that the end use was materials research and the production of medical prostheses. During the week of July 16, 1990, interagency meetings were held to review the proposed sale of the furnaces. The State Department confirmed that the furnaces were not controlled as munitions items. Commerce pointed out that the furnaces were not controlled by Commerce regulations unless they were intended for sensitive nuclear uses. Commerce requested additional information on possible sensitive nuclear uses of the equipment in Iraq. PAGENO="0243" 239 On July-19., 1990, the Administration obtained additional information indicating that the furnaces might be used in sensitive ~uciear activities by Iraq. Commerce immediately directed that the company apply for an individual validated export license and informed the company that it could not ship the furnaces without such a license. Commerce informed Customs of this decision and asked that the furnaces not be released for export. On July 31, 1990, CONSARC representatives met with commerce officials to discuss their intention to submit the necessary license application. At this meeting, CONSARC repeated its contention that the intended end use of the furnaces was not related to sensitive nuclear activities. On August 2, 1990, CONSARC informed Commerce that in light of the President's sanctions against Iraq it would not proceed at that time with the license application. With respect to the broader issue of Commerce's licensing practices toward Iraq, consistent with Administration policy, Commerce refers two-thirds of all applications for review by Defense and State and has not approved any applications to Iraq -contrary to U.S. missile and nuclear non-proliferation controls. * This was recently verified by the General Accounting Office of the Congress following a review of more than four years of licensing data, the GAO noted in its conclusion that it: did not find that any MTCR (Missile Technology Control Regime] restricted items had been approved for the export to Iraq since the effective date of the MTCR. Because of its concern with the proliferation of nuclear capable ballistic missiles and based on its belief that the export - controls in place since 1987 needed updating, the Commerce Department, in the fall of 1989, instituted a technical review by Bureau of Export Administration engineers of the control lists. The State Department is currently discussing the list revisions with our Allies to ensure that its modernization will be carried out in a multilateral fashion. On April 3, 1990, all export licenses to Iraq were made subject to more stringent reviews. On August 2, 1990, all export licenses to Iraq were suspended. Dated: September 7, 1990 - PAGENO="0244" 240 - CONSARC o on Jul~ 19, 1990, the USG successfully stopped the shipment of CONSARC furnaces going to Iraq that night; have been used in sensitive nuclear applications. o Contrary to reports in the press, the handling of the CONSARC furnaces case clearly demonstrates that existing interagency mechanisms and relationships work. o Commerce rules provide that nothing may be exportod if it is to be used in sensitive nuclear activities. Accordingly, when allegations were made in mid-June 1990 about the possible diversion of the CONSARC furnaces to sensitive nuclear uses in Iraq, the Customs Service detained the shipment until a proper investigation could be completed. o The Commerce Department working with State, Defense, the NSC, and other agencies managed to obtain additional information indicating that the furnaces might be used by Iraq in sensitive nuclear activities. o Based on this information, the Commerce Department halted the export on July 19, 1990. o The furnaces were not shipped and remain in the United States. PAGENO="0245" 241 STATISTICS ON U.S. LICENSING FOR IRAQ 1985-1990 Each of these licenses was processed in accordance with the prevailing export policies and interagency procedures described in the BXA Facts - Iraq Export Licensing Fact Sheet. Licensing Action Approved RWA# License Disposition 771° (68%) 39 (3%) 323 (29%) 1133 Total Dollar Value $1.5 B** $27M $442M $1.969B Interagency Review Total Approved*** 8e.jccic.4 Reviewed fense Position 487 (69%) 20 (3%) 198 (28%) 704 lergy Position 177 (60%) 28 ( 9%) 91 (31%) 296 State Position 62 (78%) 5 (6%) 13 (16%) 80 SNEC## Position 24 (36%) 12 (18%) 30 (46%) 66 * This figure includes four licenses that were subsequently suspended. This figure included $1 billion worth of cargo trucks that were nal shipped to Iraq. 000 Included in these approval statistics are those cases in which State asserted that no foreign policy controls applied and returned the license without review; cases in which Defense stated that it had no statutory role in reviewing the license; or in which any agency voiced objections but did not continue to escalate them. S Returned Without Action #5 SNEC is the Sub-Group on Nuclear Export Coordination. This is a State Department-chaired committee with representatives of Defense, Commerce, Energy, the Arms Control and Disarmament Agency and the intelligence community. PAGENO="0246" 242 I would also like to insert a chart in the record at this point to give the Subcom- mittee an idea of the enforcement activities which the Administration has taken to apprehend and sanction EAA violators. These are based on the Export Administra- tion Annual Report for FY 1990 and show that 46 individuals were criminally con- victed in FY 1990 and 70 individuals and firms were administratively sanctioned for violating the EAA or its regulations. In the first six months of FY 1991, Commerce has already surpassed the total number of criminal convictions which it obtained m FY 1990. EXPORT ADMINISTRATiON ACT ENFORCEMENT STATISTICS FOR FY 1990 In FY 90 there were 374 special agents enforcing the EAA,-- 74 from Commerce & 300 from Customs. On aper agent basis both agenmes produced approximately the same number of criminal convictions for a total of 46 convictions. In addition, Commerce adrn!nistra:fvey sanctioned 70 individuals and firms. Acministrative (DCC) 60% Crimina (DCC) 7% C~imirral (icin:~ 3% SOURCE: Crimina (030S) 30% (See Tables 7-1 & 7-2 from the Export Administration Annual Report FY 1990] Mr. MOODY. Thank you, Mr. Chairman. Mr. ANTHONY. All right, Mr. Moody. We are ready to go to panel four and I think, Mr. Deliberti, you are still on that panel. We need Randall Sike, Special Agent in Charge, and Jerry M. Hobbs, Spe- cial Agent, Office of Export Enforcement, San Jose, Calif.; and Portia Moore, former assistant U.S. attorney, San Francisco, Calif. If those witnesses could come forward. Mr. Deliberti, are you ready? We will take your testimony, and then Mr. Sike and then we will take Ms. Moore. You are recog- nized at this time. STATEMENT OF FRANK W. DELIBERTI, DIRECTOR, OFFICE OF EXPORT ENFORCEMENT, BUREAU OF EXPORT ADMINISTRA- TION, U.S. DEPARTMENT OF COMMERCE, ACCOMPANIED BY RANDALL SJ[KE, SPECIAL AGENT IN CHARGE; AND JERIY M. HOBBS, SPECIAL AGENT, OFFICE OF EXPORT ENFORCEMENT, SAN JOSE, CALIF. Mr. DELIBERTI. Mr. Chairman, I will now turn to the C-TEK case. In outlining this case for you I would like to discuss how we received the initial information, our investigation, the partieg to the case, and our sting operation. PAGENO="0247" 243 In February 1989, we learned that a Minnesota company had become suspicious about a purchase order for two micro VAX II computers. The company became suspicious about the sale when a firm in Iowa first indicated the computers were to be exported, but later said they would be sold to C-TEK Computers of Kirkland, Wash. Because Kirkland is in the jurisdiction of the San Jose field office, they handled the investigation. They arranged with a Seat- tle freight forwarder to make a controlled delivery of computers to C-TEK. Posing as a representative of the freight forwarder, our agents delivered the computers to C-TEK, looked over its facilities and later called C-TEK to determine the identity of any other freight forwarders they had been using. We contacted the other C-TEK freight forwarder, examined doc- uments showing the shipping history of C-TEK exports and asked to be notified of any future shipments. Within weeks we were in- formed by the Seattle freight forwarder that C-TEK was making shipments of computer parts to Computer Focus and W.K. Agen- cies-companies located in Singapore. As shown in the photos that Special Agent Hobbs has just put on the easel, our special agents accompanied by Customs examined the shipments and took photographs of the equipment. Because we did not have a reasonable basis to believe an unlawful export was about to occur, we allowed the shipment to go. We immediately sent the information and photographs to the Digital Equipment Corp., the manufacturer of the VAX computers. DEC identified the components as a VAX 8700 superminicomputer and told us that identifying information such as logo and serial numbers had been removed, as Mr. Hobbs is pointing out. We im- mediately contacted U.S. Customs and asked them to work with the Singapore authorities to stop delivery of the shipment and return it to the United States. U.S. Customs made the necessary arrangements. At the same time, we were working with the U.S. Attorneys Office in Seattle to obtain search warrants for C-TEK's office and warehouse. Two additional warrants authorized seizure of bank funds C-TEK intended to use to purchase the computer equipment which we believe would have been illegally exported. We seized ap- proximately $851,000. During our searches we found incriminating evidence which Spe- cial Agent Hobbs has just put on the easel. This included a fax co- versheet and a December 23, 1988, Seattle Times article. Both dem- onstrated that Casperson, C-TEK's president, knew that a Com- merce export license was required to export the VAX 8700. With the assistance of the assistant U.S. attorney we were able to con- vince Casperson to cooperate. Let me take a moment to identify the parties to the diversion network. Mr. Chairman, you may wish to refer to the map at my right as I do this. Shiv Mohan was the architect of the diversion network and di- rected its operations. He gave the instructions to purchase of U.S. origin, high technology equipment and fronted the funds necessary for the transactions. PAGENO="0248" 244 Perfect Technologies located in London and Moscow is a compa- ny run as a partnership between Mohan and an Indian national, Sidhartha Bose. Commerce export license applications indicate that since 1986 Perfect has attempted to obtain U.S. origin equipment for the Soviet Union. John Townsend, a former partner in Capricorn Computing Serv- ices of Sydney, Australia-a company which we do not believe was part of the diversion network-was responsible for establishing contacts in the United States. He was formerly employed as a field representative in Australia for a U.S. computer firm. He was the technical expert for the diversion network using his ability to dis- assemble and reassemble sophisticated computer equipment. Robert Casperson is a U.S. computer broker who was Mohan's U.S. contact. David Whyte, a computer broker employed by Computech in To- ronto, Canada, assisted Casperson in diverting U.S. origin, high technology equipment to Mohan. Whyte suggested the network could move U.S. goods through Canada without detection. W.K. Agencies and Computer Focus in Singapore. These compa- nies were fronts used by Mohan in the diversion of U.S.-origin com- modities. W.K. Agencies address turned out to be a residential apartment unit in Singapore as shown in the photograph at my right. These companies were identified on shipping documents as the intended end users for the DEC VAX 8700 shipments. Virtual Computers of Bombay had previous business dealings with Mohan. Mohan asked Virtual for blank copies of its stationery and then used it to make false end use statements to both the United States and Canadian authorities. A company we worked with during the investigation was Tek- tronix of Beaverton, Oreg. This firm is a manufacturer of highly sought after graphic terminals. The workstations were controlled by the Department of Commerce for national security, nuclear non- proliferation and missile technology reasons. Let me underscore, there is no indication that this firm had any part in the diversion scheme. They cooperated with us in the investigation. As the investigation progressed, we advised an investigative plan to get the violators into the United States and arrest them. The chart at my right illustrates our plan. We knew from Casperson that Mohan was eager to purchase 50 Tektronix graphics worksta- tions for export to India through Canada, using a Canadian export permit obtained under false pretenses. Although U.S.-origin com- modities may normally be exported to Canada for use there with- out obtaining a U.S. export license, it is unlawful to make such an export when the exporter knows the goods are not intended to stay in Canada. The diversion network believed workstations were shipped from Beaverton, Oreg., to a warehouse in Buffalo, N.Y., because we had established the bona fides of the transaction through letters and in- voices on Tektronix letterhead that Tektronix provided. A meeting of the conspirators was arranged in Buffalo to inspect the worksta- tions and to discuss the final arrangements. Casperson, Mohan, Whyte, and Townsend all attended the meeting. During the meet- ing, which was videotaped, they discussed the illegal diversion scheme. At the end of the meeting, they were arrested and subse- PAGENO="0249" 245 quently charged with violating the Export Administration Act, the regulations, and other Federal statutes. In my prepared statement, you will find the transcript of three consensually recorded phone conversations. The first is a conversa- tion between Casperson and Whyte in which Whyte tells Casperson that he has obtained a Canadian license to export the 50 worksta- tions. In the second they discuss having C-TEK appear to be the purchaser of the workstations instead of Computech in Canada so that questions about end users would be avoided. In the last record- ing, they again discuss having a U.S. company appear as the pur- chaser of the workstations and indicate that they might be willing to buy a U.S. company, if necessary. They also discuss telling Tek- tronix that the workstations are being bought for the U.S. military. We have provided the subcommittee with a full set of transcripts and an audio copy of the phone calls contained in my formal state- ment. One of the interesting aspects of the C-TEK case is the seeming- ly unlimited availability of money to purchase U.S.-origin high technology goods. If you look at the chart to my right, you will see the extent of money transfers to fund the diversion network. When a purchase was to be made, funds appeared in C-TEK's bank ac- count. Casperson told us that in many cases he had no advance knowledge of when the funds were being transferred or the amounts involved. Working from C-TEK's bank accounts, we traced the sources of the funds to London, New York, and Dubai. Because the money was intended to be used in the United States to promote an unlawful activity, the transfer of funds to Casperson violated U.S. money-laundering statutes. All told, over $1.6 million was made available to Casperson to purchase computers and other U.S. high technology goods. Whyte, Townsend, Casperson, and Mohan pled guilty to viola- tions of the Export Administration Act and money-laundering stat- utes. Malhotra, who assisted in the transfer of funds from Mohan to Casperson through his New York bank account, pled guilty to a misdemeanor count of violating U.S. tax law. The following sen- tences were imposed: Whyte received a 1-year imprisonment and 2 years' probation and forfeiture of seized controlled commodities. Townsend received 2 years' imprisonment, 2 years' probation. Casperson received 4 months in a work-release program and 2 years' probation. Malhotra receive 1 year probation. Mohan received 2 years 9 months imprisonment and $1.5 million fine. In conclusion, you should know the expert enforcement system works. Export control cases are very complex, multinational, multi- defendant in nature, requiring considerable time to investigate and to prosecute. Once the initial information is uncovered, there is a dedicated core of professional law enforcement people ready to do whatever is necessary to investigate, pursue, and prosecute both criminally and administratively. I want to thank the subcommittee again for the opportunity to make a presentation on export enforcement. We believe that the cases we have discussed today demonstrate that Commerce is ful- PAGENO="0250" 246 filling its statutory mandate to enforce the Export Administration Act. [The prepared statement follows:] PAGENO="0251" 247 Statement of Frank W. Deliberti Director, Office of Export Enforcement Bureau of Export Administration U.S. Department of Commerce Before the Subcommittee on Oversight House Committee on Ways and Means April 18, 1991 I am pleased to make a second appearance today before your subcommittee to discuss export enforcement. I testified earlier today on the Global Helicopter case. I will now turn to the C-TEK case. THE DIVERSION OF U.S. HIGH TECHNOLOGY BY C-TEK COMPUTERS In outlining this case for you I would like to discuss how the we received the initial information, our investigation, the parties to the case, and our sting operation. THE INITIAL INFORMATION: In February 1989, we received information that a Minnesota company had become suspicious about a purchase order for two Micro VAX II computers. We had visited this company as part of our ongoing outreach program to encourage compliance with the' Export Administration Act (EAA). The company became suspicious about the sale when a firm in Iowa first indicated the computers were to be exported, but later said they would be sold to C-TEK Computers of Kirkland, Washington. THE INITIAL INVESTIGATION - VAX 8700: Because Kirkland, Washington, is in the jurisdiction of the San Jose Field Office, that office was asked to investigate. Commerce special agents arranged with a Seattle freight forwarder to make a `controlled delivery' of the computers to C-TEK. Posing as representatives of the freight forwarder, OEE agents delivered the computers to C-TEK and looked over its facilities. In order to determine the identity of the other freight* forwarders C-TEK had been using, one of our special agents, still posing as a representative of the freight forwarder, contacted C-TEK by phone. C-TEK was asked if it was happy with its present freight forwarder and if it would like a sales presentation. During the conversation we were able to determine the name of another freight forwarder used by C-TEK. We contacted the other freight forwarder, examined documents showing the shipping history of C-TEK exports, and asked to be notified of any future shipments. Within weeks, our San Jose field office was contacted by both Seattle freight forwarders, notifying us that C-TEK was making shipments of `computer parts' to Computer Focus I and W.K. Agencies, companies located in Singapore. Accompanied by U.S. Customs, our special agents examined the shipments and took photographs of the equipment. Because we had no reason to believe an unlawful export was taking place, the shipment was allowed to be exported. PAGENO="0252" 248 2 We immediately sent the information and photographs to the Digital Equipment Corporation (DEC), the manufacturer of VAX computers. DEC identified the components as a VAX 8700 minisupercomputer. OEE immediately contacted U.S. Customs and asked that its attache in Singapore work with the Singapore authorities to stop delivery of the shipment and return it to the United States. U.S. Customs responded quickly and made the necessary arragnements. THE INITIAL SEARCHES: At the same time, we were working with the U.S. Attorney's office in Seattle, obtaining search warrants for C-TEK's office and warehouse. Two additional warrants were obtained authorizing seizure of bank funds held by C-TEK. These funds were to be used to purchase other computer equipment that we believe would have been illegally exported. Commerce special agents were successful in seizing $851,283.34. During our searches, we discovered several pieces of incriminating evidence, including a FAX cover sheet and a December 23, 1988, Seattle Times article. Both demonstrated that Robert Casperson, the President of C-TEK Computers, had knowledge that a Commerce export license was required to export the VAX 8700. With the assistance of the Assistant U.S. Attorney (Portia Moore), we were able to convince Casperson to cooperate with us, to describe the entire diversion network, and to obtain the necessary evidence to prosecute all those who were implicated. TA: FOX A: CUTE: s,su,s TATE: A copy of the FAX cover sheet sent to John Townsend in Australia by Robert Casperson of C-TEK stating they will need to be careful, given the U.S. efforts to stop the diversion of U.s-origin high technology as reported in the ~~~gjimus article ohown on page two. CUR FAT A, 205-821-OUT" 1,. or poses: a Tu:c. is:, PAGENO="0253" 249 3 PAR'IlES, RELATIONSHIPS, AND THE DiVERSION NETWORK; Let me take a moment to identify the parties to the diversion network. Shiv Mohan (doing business as Kohinoor Impex Pvt Ltd): Mohan was the architect of the diversion network and directed its operations. He gave the instructions for the purchase of U.S. high technology equipment and provided the funds necessary for the transactions. Perfect Technologies: Perfect Technologies, located in both London and Moscow, is a company run a partnership between Shiv Mohan and an Indian national, Sidhartha Bose. Commerce export license data indicates that, since 1986, the company has been named as a consignee on applications for shipments to the Soviet Union. John Townsend: John Townsend, a former partner in Capricorn Computing Services of Sydney, Australia, a company that we do not believe was part of the diversion network, was an associate of Shiv Mohan and was responsible for establishing contacts in the United States. He was formerly employed as a field representative in Australia for a U.S. computer firm. He was the technical expert for the diversion network. Townsend assisted Mohan in circumventing U.S. export control laws through his ability to disassemble and reassemble sophisticated computer equipment. iwuert ~..aspersun ~ .~ as ~...-Ir~rt computers, Inc.): Robert Casperson of Kirkland, Washington, is a computer broker who was the United States contact for the diversion network. Upon being discovered by Commerce special agents, he agreed to cooperate with the Government in uncovering the diversion network. jo~R Computer-smuggling ring reportedly broken ~ PAGENO="0254" 250 4 d Whyte; David Whyte, a computer broker employed by Computech in Toronto, Canada, assisted Casperson in diverting U.S.-origin high technology equipment to Mohan. Whyte suggested the network could move U.S. goods through Canada without detection. sy,~:. Agcucies and Computer Focus: These Singapore firms were front companies used by Shiv Mohan to facilitate the diversion of U.S.-origin commodities through Singapore. W.K. Agencies turned out to be a residential apartment unit located in the - Eastern Mansion District of Singapore. These companies were identified on shipping documents as the intended end users for the DEC VAX 8700 shipments. Virtual Computers: Virtual Computers of Bombay, India, is a company that had had previous business dealings with Shiv Mohan. This firm was asked by Mohan for blank copies of its stationery and subsequently provided those copies to Mohan. We believe the stationery was eventually used by Mohan to make false end use statements to U.S. and Canadian authorities about the intended consignees, including forged signatures. )PERATING COMPANY: jpjij~ç~ Tektronix of Beaverton, Oregon, is a manufacturer of highly sought-after graphics terminals (workstations). These workstations were controlled by the Department of Commerce for national security, nuclear non-proliferation, and missile technology reasons. There is no indication that this firm had any part in the diversion scheme. It cooperated with us in the investigation. Tifil PLAN - A TEKrRONX~flNGI As the investigation progressed, we devised an investigative plan that would get as many of the violators as possible into U.S. jurisdiction so that we could arrest them. We knew from Robert Casperson that they were eager to purchase 50 Tektronix graphics workstations. The conspirators intended to export the workstations to India through Canada using a Canadian export permit obtained under false pretenses. I would note that although U.S.-origin commodities may normally be exported to Canada for use there without a U.S. export license, it is unlawful to make such an export when the exporter knows the goods are not intended to stay in Canada. VIRTUAL ~ Proposed Shipment Route for Tektronix 4225 Graphics Terminals (Work-Stations) PAGENO="0255" 251 5 The diversion network believed the shipment of workstations was being sent from Beaverton, Oregon, to a warehouse in Buffalo, New York, because we had established the bonafides of the transaction through letters and invoices on Tektronix letterhead that had been provided by Tektronix. A meeting of the conspirators was arranged in Buffalo to inspect the workstations at the warehouse and to discuss the financial arrangements for the purchase. Casperson, Mohan, Whyte, and Townsend all attended the meeting. During the meeting, which was videotaped, they discussed the illegal diversion scheme. At the end of the meeting they were arrested and subsequently charged with violating the EAA, the EAR, and other federal statutes. I'd like to play some consensually recorded phone conversations at this point.' The first conversation illustrates the reaction of Whyte and Casperson to getting an export permit from the Canadian authorities within two weeks. WHYTE: And -- oh, I left the message with your secretary that the approval did come through. CASPERSON: Oh, on the Tektronix. Yeah, I got that. WHYTE: On the Tektronix. I must have been dreaming that I got it. (Laughter). I phoned them up and I sald, I don't know of -- you couldn't have. I just okayed it today. (Laughing). CASPERSON: Oh. (Laughing). WHYTE: (inaudible). CASPERSON: Can we get that fax copied on -- WHYTE: Yeah. He's going to be getting that out to me probably Tuesday so I'll probably have it by Friday and that's great. CASPERSON: Okay. Well, they may just go and take fifty all at once. WHYTE: Yeah. CASPERSON: And now we have that. WHYTE: Okay. Well, as soon as ah -- they should have that paper work over to me by today. CASPERSON: Oh, okay. WHYTE: They're (Tektronix) kind of a nervous company. Well, you got to know where it's going. And I'm saying listen, it's staying in the states, it's not even coming to Canada. CASPERSON: Yeah. WHYTE: I want it FOB Buffalo. CASPERSON: Oh, okay. WHYTE: And they may come along and say well, you got to tell us the user, so we may have to say well, okay it's going to the company C-TEK, who did the sale. CASPERSON: Oh, okay. WHYTE: Or something like that. CASPERSON: Okay. 1 OEE special agents do consensual monitoring of telephone calls under the authority of section 12(a) of the EAA and in accordance with guidelines established by the Attorney General. As the term indicates, in a consensual monitoring one party to the conversation has consented to the recording. PAGENO="0256" They're just covering their ass. Yeah. 252 6 WHYTE: We'll have to get around that. We'll tell them it may come up to Canada because we're doing some modifications. CASPERSON: Okay. WHYTE: And we're putting it - we're a value added reseller. We're adding it to a computer here software and the whole bit. CASPERSON: Okay. WHYTE: They know we're lying but that's fine. CASPERSON: (Laughter). WHYTE: CASPERSON: WHYTE: But apparently the thing in Canada is they try to add 10 percent to the price. CASPERSON: Is that right? WHYTE: Yeah. Just like they do for all the international shipments. The diversion network was concerned that Tektronix might get suspicious about the intended end user for the 50 graphic workstations and so the conspirators discussed ways to fool the manufacturer. The following conversation outlines how Whyte and Casperson planned to make C-TEK the purchaser to get around this concern. WHYTE: Okay. So the worst thing we could do is to say, oh, you're (C- TEK) the customer. CASPERSON: Uh-huh. WHYTE: You know, if-- if we need to produce this. Because they're uptight about us exporting them into Canada. CASPERSON: Oh, are they? WHYTE: Because they want to charge us 10 percent more. CASPERSON: Oh, I see. WHYTE: So we're going to sign a waiver saying they're never going to be used in Canada and the whole bit, you know. CASPERSON: Oh, okay. WHYTE: So we'll say, well, here's our customer and, you know, we're selling him a computer and everything and he's a consultant or whatever. CASPERSON: Uh-huh. WHYTE: And then of course they might even want them shipped over there to prove it and all that, then we'll just get them up here. CASPERSON: Oh, okay. WHYTE: Okay. So there's -- there's no major problems there. CASPERSON: Okay. WHYTE: So, umm, that's just a little bit of paperwork and, you know, they're afraid of their shadow. CASPERSON: (Laughing) so I guess I can understand that. WHYTE: Yeah. Well, I said the worst thing they'll do is not sell to us. CASPERSON: Yeah. PAGENO="0257" 253 7 WHYTE: You know, and (laughing) -- it's the only time we'll ever do a Tektronix deal. CASPERSON: Yeah (laughing). The conspirators also considered buying a U.S. company, naming it as the end user, and claiming that it was doing work for the U.S. military. The following conversation between Whyte and Casperson outlines this alternative plan. WHYTE: But we have to give them a name of a person where they're going. CASPERSON: Uh-huh. WHYTE: So we got -- we worked with this company down in Buffalo and they think they're going down there. CASPERSON: Yeah. That's what I -- well, I asked you. I got to come up with that name too. WHYTE: Yeah. So I-- CASPERSON: With a ship to address, too, for ours. WHYTE: So I'll get you the name, like -- when you need it, I know a lot of people. CASPERSON: Oh, okay. WHYTE: And even if we have to go buy a business down there we'll -- (laughing). CASPERSON: (laughing). WHYTE: -- we'll have one. CASPERSON: I don't know if we want to go that far (laughing). WHYTE: Well, the ones in Buffalo don't sell that high. (laughing). CASPERSON: Oh, (laughing). Real estate prices are still real low there, huh? WHYTE: That's the problem. Now, what we can do -- I'll tell you what you do. You say I've got all these ones in the military. CASPERSON: Uh-huh. WHYTE: Who are installing graphic systems. If we give them like ones in the Navy or something like that -- CASPERSON: Uh-huh. WHYTE: -- they'll never be able to trace it. CASPERSON: Well, that's true. WHYTE: Because they say like it's going here, it's going -- I mean, but see, I don't know enough about these terminals to say what they are going to do with them. CASPERSON: Yeah. (laughing) I know. WHYTE: (laughing). You know, like well, what do they do with this stuff? CASPERSON: They draw pretty pictures (laughing) -- WHYTE: Yeah. CASPERSON: -- on the screen. WHYTE: Yeah. CASPERSON: Three dimensional picture. 51-840 0 - 92 - 9 PAGENO="0258" 254 8 WHYTE: Urn-hum. Oh, well. CASPERSON: Or two dimensional, I'm not sure which they are. (WHYTE: Urn-hum. CASPERSON: Some kind of dimensional picture. W}IYTE: Yeah. Well, I guess ah, they had a reason for it. If they were design - they've got to be designing something. CASPERSON: Yeah. WI-IYTE: Like what would the Navy design battleships - they get someone else to do that, wouldn't they? CASPERSON: Um, the military has been buying lots of the stuff. WFIYTE: Yeah, because I see there was a tender there where they were putting graphic equipment - CASPERSON: Oh, the military uses the stuff for air defense command, too. WFIYTE: Okay. CASPERSON: For putting up all their pictures for - off their radar screens. All their - a lot of their radar now is three dimensional too. WHYTE: Just a moment. This is what we got to do. Right in this little book it tells me everybody who is buying anything in the world. CASPERSON: Uh-huh. FUNDING THE DIVERSION NETWORK: One of the interesting aspects of the C-TEK case is the seemingly unlimited availability of money to purchase U.S. high technology goods. When a purchase was to be made, funds `appeared' in Robert Casperson's C-TEK account. Casperson told us that in many cases he had no advance knowledge of when the funds were being transferred or the amounts involved. Working from C-TEK's bank records, we traced the sources of the funds to London, New York, and Dubai. Because the money was intended to be used in the United States to promote an unlawful activity, the transfer of funds to Casperson violated U.S. money laundering statutes. All told, over $1.6 million was made available to Casperson to purchase computers and other U.S. high technology goods. Transfers of Money to Robert Casperson 12-14-88 to 3-21-89 5489,885 (12-14-88) - 5200000 s~~y 1' I 5300,000 (3-16-89).......... i L 5200000,(3-21-89) SHAM MALHOTRA PAGENO="0259" 255 9 SENT1~N~I?$JMPOSEP Whyte, Townsend, Casperson and Mohan pleaded guilty to violations of the Export Administration Act and money laundering statutes. Malhotra, who assisted in the transfer of funds from Mohan to Casperson through his New York bank account, pleaded guilty to a misdemeanor count of violating U.S. tax law. The following sentences were imposed: David Whyte -- 1 year in jail and 2 years' probation, and forfeiture of seized controlled commodities John Townsend -- 2 years in jail, 2 years' probation Robert Casperson -- 4 months in a work release program, 2 years' probation Sham Lal Malhotra -- 1 year probation Shiv Mohan Mukkar -- 2 years and 9 months in jail, $1.5 million fine cQNcLUSION~ The export enforcement system works. Export control cases are very complicated and require considerable time to investigate and to prosecute. Once the initial information is uncovered, there is a dedicated corps of professional law enforcement people ready to do whatever is necessary to prosecute the case, criminally, administratively, or both. I thank the subcommittee again, for the opportunity to make a presentation on export enforcement. We believe that the cases we have discussed today demonstrate that Commerce is fulfilling its statutory mandate to enforce the EAA. PAGENO="0260" 4~ z = 0 (I) LU LU I- z 256 p PAGENO="0261" Proposed Shipment Route for Tektronix 4225 Graphics Terminals (Work-Stations) BOMBAY ~~CAPRICORN COMPUTING SERVICES SIDNEY Beaverton, OR Buffalo, NY Toronto, Canada Beaverton, OR Buffalo, NY Toronto, Canada Bombay, India Bombay, India DIFFERENCE: S 5,236.36 S 8,798.18 KOHINOOR IMPEX PVT LTD NEW DELHI VIRTUAL COMPUTERS Freight Rates for 25 units at 120 lb ea 3,000 bs to a TEKTRONIX Right~O-Way1 (Freight Forwarder~ S 1,800~00 1,530.00 PAGENO="0262" C)1 Transferlof Money to Robert Casp~rson 12-14.88 to 3-21-89 $489,985 (12-14-88) ~~-~$9985 (12-28-8' $29,985 (2-9-89) $20Q000 (3-13-89) (1-18-89) (3-16-89L~ (3-21-89) CHOWDUR1 BCCI PAGENO="0263" 259 Mr. ANTHONY. Thank YOU very much. Mr. Sike, you do not have a statement, do You, or Mr. Hobbs? Mr. SIKE. No, sir. Mr. ANTHONY. Ms. Moore, you are recognized. STATEMENT OF PORTIA R. MOORE, ATTORNEY, SAN FRANCISCO, CALIF. (FORMER ASSISTANT U.S. ATTORNEY FOR THE WEST- ERN DISTRICT OF WASHINGTON STATE) Ms. M9ORE. Thank you. I am Portia Moore, an attorney in pri- vate practice with the law firm of Morrison & Foerster in San Francisco. Prior to becoming a partner with Morrison & Foerster, I worked for 4 years as a criminal assistant U.S. attorney for the Western District of Washington in Seattle, Wash. I was the pros- ecutor who was assigned the primary responsibility for the C-TEK investigation. I was involved in the investigation from the very early stages, from drafting the first search warrant in the case for- ward. I have listened with great interest today to your questions to the various witnesses here as to what Congress can do to strengthen the export enforcement laws. As someone who is responsible for prosecuting a fairly significant export violation case, I was often frustrated and discouraged by the ease in which people could divert technology from the United States and by the lack of teeth in our export enforcement laws. I have identified five areas where I be- lieve improvements are warranted, and I would like to very basi- cally and briefly share those areas with you now. First and foremost as a prosecutor, I was stunned and perhaps appalled at what I considered inadequate sentencing provisions by the Export Enforcement Act. Although in the Mohan case the charge was, and I believe that we would have successfully proved that the equipment at issue destined for Russia, the EAA afforded a maximum sentence of only 10 years imprisonment for this crime. When compared to sentences for other Federal crimes, 10 years is extremely light, indeed. Bank robbery, passing forged money, making false statements to a banking institution all carry higher penalties than the penalty for violating national security concerns. Significantly, other crimes which impact on national security carry much greater prison terms. For example, 18 U.S.C. section 794(a), which makes it a crime to deliver information related to our national defense to aid a foreign government carries a penalty of death, imprisonment for any term of years, or imprisonment for life. There are a number of practical reasons why I believe Congress should consider increasing the penalties. The first and foremost reason why the penalties should be increased, the criminal penal- ties should be increased, is to convey a strong message to the crimi- nals involved in these crimes, but, more importantly, to the judges who are hearing them, that we consider this very serious and that we consider these crimes very dangerous. In the Mohan case, I was repeatedly confronted with the atti- tude, from both the judicial officer in Buffalo where we had an ini- tial detention hearing and the judges in Seattle, that this was just not a crime of that serious a nature. And I was confronted with PAGENO="0264" 260 that attitude even after I had Department of Defense witnesses tes- tify as to the national security risk that was involved in these crimes. The second reason why you should consider increasing the penal- ty for EAA crimes relates to pretrial detention. In this case, pre- trial detention of these defendants was very hard fought. I attend- ed two different detention hearings that spanned approximately 6 days. The order of pretrial detention was twice appealed by the de- fendants. And the Court of Appeal for the Ninth Circuit ordered the defendants detained in this case on the basis of risk of flight. And one of the major factors they pointed to was the fact that the penalties the defendants were facing in this case were so severe. Now, those penalties were not severe because of the Export En- forcement Act. They were severe because I had charged the defend- ants with money laundering, and as a result of that, I was able to bump the penalties that they were looking toward upon conviction up to 20 years. So that is the first area of concern. The second area of concern involved the difficulty in obtaining forfeiture in this case. As you have heard, prior to conviction the Government seized over $850,000 in this case, and we seized that money not under the forfeiture provisions of the EAA but, rather, under the forfeiture provisions provided by the money-laundering statute. The EAA forfeiture provision, although one does exist, provides for forfeiture only after conviction, where I think any experienced prosecutor will tell you that the funds are almost guaranteed to be gone at that time. The forfeiture provisions under the EAA do not provide for substitution of assets, and they do not provide for a pre- sumption in favor of forfeiture. All of these were present in the money-laundering statute, which is why we used the money-laundering statute. But one thing the money-laundering statute did not allow us to get was money that had been transferred wholly inside the United States. So where you have two crooks involved in a technology diversion scheme and they are transferring money inside the United States, the Govern- ment is going to be hard pressed to seize that money unless they can prove that money represents-that money itself represents pro- ceeds of a crime. And that is very difficult to do. So the second area that I would like to see Congress improve is the forfeiture provisions of the EAA. I would specifically like to see a presumption in favor of the legality of forfeiture as we have in the drug statutes and money-laundering law. I would also like to see a provision for pre-conviction seizure. And I would like to see a provision that allows the Government to get money that has been transferred within the United States. The third problem area that I found was pretrial detention. As Congress knows, under the Bail Reform Act, a prosecutor has two grounds for detaining somebody pretrial. One is danger to the com- munity; the other is risk of flight. In the Mohan case, the Govern- ment moved to detain these defendants prior to trial on both grounds. I could not get any judicial officer to agree with me that these crimes represented a danger to the community. The courts were impressed by the fact that these defendants were businessmen who had no prior record and who appeared to be PAGENO="0265" 261 legitimate. And on that basis, they refused to find that the defend- ants represented a danger to the community. The defendants were ultimately detained under the ground of risk of flight. But as a result of this case, an appeal in this case, the Ninth Circuit came down with a decision that although it upheld the pretrial detention of the defendants in our case, it ruled that a defendant who can show that he has ties to the United States in general, not just the community where the charges are brought, but a defendant who can show that he has ties to the United States may, in fact, be able to show that he is not a risk of flight. In this case, two of the three defendants did not have any ties to the United States, but our most culpable defendant, Mr. Mohan, did. Now, his defense attorneys did not press that, did not press those ties. I fear that had they done so, Mr. Mohan would not have been detained prior to trial and would not be here today. The fourth area that I feel needs improvement is the area of edu- cation of both the public and law enforcement personnel. The crooks involved in the Mohan case made comments to the investi- gators that they had no idea that they could go to jail for such a long period of time for these violations. I think that Congress needs to get the message, much as they have with the drug issue, that we consider these to be serious violations and that they would not be tolerated. I also believe that it would be a good idea to require U.S. manu- facturers of controlled items to provide purchasers of those items with a document explaining export controls. The fifth and final area, and the conclusion of my comments, in- volves the need for national and international cooperation. In this case, we had evidence scattered around the world, and we had a very difficult time getting much of that evidence from many differ- ent governments. We also had some reluctance on the part of the law enforcement agencies involved, not Commerce but particularly Customs, to cooperate with the investigation that was going on. So I would conclude by saying we need to emphasize that, for the good of our country, we must have cooperation both among the agencies working on these cases and from the international governments. Thank you. [The prepared statement follows:] PAGENO="0266" 262 WRITTEN TESTIMONY OF FORMER ASSISTANT UNITED STATES ATTORNEY, PORTIA R. MOORE, BEFORE THE SUBCOMMITTEE ON OVERSIGHT OF THE COMMITTEE ON WAYS AND MEANS OF THE UNITED STATES HOUSE OF REPRESENTATIVES, PERTAINING TO THE ADMINISTRATION AND ENFORCEMENT OF U.S. EXPORT CONTROLS. April 18, 1991 Mr. Chairman and Members of the Subcommittee: I am Portia R. Moore, an attorney in private pract:Lce with the San Francisco law firm of Morrison & Foerster. Prior to becoming a partner with Morrison & Foersl:er I spent four years working as an Assistant United States Attorney' for the Western District of Washington, in SeattLe, Washington. I appear today at the request of the Chairman of this Subcommittee to generally describe my experience as the lead federal prosecutor responsible for the successful prosecution of a large technology smuggling case known as United States of America v. Mohan, etal., CR 89-247WD (W.D. of Washington). I. THE INVESTIGATION AND PROSECUTION. The initial investigation of this case began in February 1989, when special agents with the United States Department of Commerce (hereinafter, "DOC") began looking into the activities of a company known as C-TEE COMPUTERS, located in a suburb of Seattle, Washington, for suspected violations of the federal law that no "commodity or technical data subject to the Export Administration Regulations may be exported to any destination without a validated export license issued by the Office of Export Enforcement" (15 C.F.R. Section 772.1(b)). The investigation was precipitated after Midwest Systems, Inc., a computer sales company located in Minnesota, advised DOC officials of a suspicious order for the purchase of two Digital Equipment Corporation (hereinafter, "DEC") MICROVAX computers. These particular computers were subject to the Export Administration Regulations because they are capable of being used for military applications and, for that reason, could not be exported outside the United States without a validated export license issued by the DOC. DOC agents subsequently determined that C-TEE COMPUTERS, the company purportedly purchasing the Nicrovax computers at issue, was engaged in the business of finding, purchasing, selling and sometimes exporting, computers and computer equipment. DOC agents also determined that an individual named ROBERT CASPERSON owned and operated C-TEE COMPUTERS. During the initial phase of the investigation, DOC Special Agent Jerry Hobbs, acting in an undercover capacity, spoke with one of C-TEE's employees who informed Mr. Hobbs that C-TEE used a number of different freight forwarding companies to ship its merchandise overseas. DOC agents contacted the freight forwarding companies identified by the C-TEE employee and asked those companies for their cooperation. Specifically, the agents asked the various freight forwarding companies to notify them the next time CASPERSON or C-TEK COMPUTERS attempted to export any commodities overseas. Two of the freight forwarding companies used by C-TEE COMPUTERS agreed to cooperate and, in March of 1989, informed DOC agents that they had been hired by C-TEE to pick up and ship eleven different containers of computer parts which were to be exported by C-TEE to different companies located in Singapore. PAGENO="0267" 263 Accordingly, DOC agents, acting in conjunction with special agents with the United States Customs Service, detained, opened, and photographed the contents of a number of the eleven different boxes being shipped by C-TEE COMPUTERS to Singapore. The contents of the various eleven boxes were described by C-TEK COMPUTERS as miscellaneous computer parts, including a computer cabinet. Each of the eleven invoices filled out by C-TEK COMPUTERS identified the total value of the goods being shipped as under $5,000. After the shipments were photographed by government agents, they were released for export. In late March 1989, photographs of the various suspect shipments were developed and submitted to a DEC employee in Washington, D.C. On March 22, 1989, DOC Agent Hobbs was informed that a DEC engineer had evaluated the photographs and determined that the shipment identified as a "computer cabinet" was, in reality, a DEC VAX 8700 computer -- in other words, a mainframe computer, with a value of between $400,000.00 and $652,000.00. Special Agent Hobbs was further informed by DEC employees that the 8700 computer was capable of being used for any number of scientific applications, including military applications. Special Agent Hobbs requested a licensing determination from DOC licensing officers in Washington, D.C. Three different DOC licensing officers determined that all models of the DEC VAX 8700 computer required a license -- specifically, an "individual validated export license" -- for export to all countries, including the country of Singapore. The licensing officers also advised Agent Hobbs that a presumption of denial existed for an export license for the DEC VAX 8700 to the U.S.S.R. or to any Eastern Bloc country. Neither CASPERSON, nor anyone else associated with C-TEE COMPUTERS, had applied for or received a license to export a DEC VAX 8700 computer to any country. On March 24, 1989, Special Agent Hobbs was advised that the United States Customs Attache office in Singapore had determined that the company in Singapore to which the 8700 computer was being shipped was nonexistent. Specifically, the Customs Attache in Singapore had made a physical check of the purported address in Singapore and found a 20-year old apartment building with the exact room number giyen on the shipping invoices belonging to an Asian family. There was no telephone listing in the Singapore phone directory for the company in Singapore to which the 8700 Computer was allegedly being shipped. Based on the foregoing evidence, a search warrant was prepared for the business known as C-TEK COMPUTERS. The search warrant was executed on March 29, 1989. During the course of the search, DOC agents seized a large volume of documents. Those documents revealed that CASPERSON, as president of C-TEE COMPUTERS, had exported, or was in the process of attempting to export, highly sophisticated computers and computer goods to various companies located in India, Singapore, and Australia. None of the shipments had a validated export license as required by statute. After the search of his business was concluded, CASPERSON met with the United States Attorney's Office and agreed to cooperate with the government by allowing consensual 1 A DEC VAX 8700, when assembled, weighs 2,000 lbs. and is three feet deep, six feet tall, and six to eight feet long. It is highly unlikely, therefore, that the computer could be used in an apartment. PAGENO="0268" 264 monitoring of telephone conversations between himself and others involved in a then ongoing scheme to illegally export computer goods from the United States. Between the time of the search warrant (March 29, 1989), and the date that all defendants were arrested in Buffalo, New York (July 21, 1989), CASPERSON participated in approximately 180 tape-recorded telephone conversations. Those tape-recorded conversations, coupled with documents seized from CASPERSON'S place of business during the execution of the March 29, 1989 search warrant, revealed the following: (1) that beginning as early as August 1988, an Indian citizen named SHIV MOHAN, working with a British citizen residing in Australia named JOHN TOWNSEND, actually purchased or attempted to purchase various highly sophisticated computers and computer products which were capable of being used for military purposes, and then exported or attempted to export those goods either to nonexistent companies in Singapore or to companies associated with MOHAN in India; (2) the computers and computer products which WOMAN and TOWNSEND actually purchased or attempted to purchase for export included, among other things, the super mini-computer known as the DEC VAX 8700, various MICROVAX II computers, and a type of computer called a Tecktronics 4225 Workstation -- all of which are capable of, and in fact have been used for, military purposes; (3) MOHAN had close ties with the Soviet tlnion and, in fact, was the managing director of a company located in New Delhi, India, known as KOHINOOR IMPEX PRIVATE LIMITED (hereinafter, referred to as "KIP"), which operated as a trading house exporting goods and equipment to Russia and elsewhere; (4) in February of 1989, KIP entered into a joint venture agreement with a company in London, England, named PERFECT TECHNOLOGIES LIMITED, and an agency in Russia called "GLAVKOSMOS RESEARCH" for the stated purpose of developing and producing computers, computer systems and software for Russia; (5) MOHAN and TOWNSEND paid CASPERSON, and DAVID WHYTE, a Canadian citizen residing in Toronto, to act as brokers; that is, they paid large commissions to CASPERSON and WHYTE to locate and arrange for the purchase and subsequent export from the United States and Canada of highly sophisticated computer equipment which was capable of being used for military purposes; (6) WHYTE, in filling the orders for sophisticated computer equipment placed by MOHAN and TOWNSEND, knowingly violated various Export Administration Regulations of the United States by, among other things, attempting to purchase large numbers of the Tecktronics 4225 Workstations and falsely identifying the end-user of the product as being a United States company located in Buffalo, New York; and by failing to acquire a validated license or authorization from the DOC to re-export the same; and (7) that the funds used to acquire both the DEC VAX 8700 computer and the Tecktronics 4225 Workstations were provided to CASPERSOM and WHYTE by the English company known as PERFECT TECHNOLOGIES LIMITED. Documents seized during the course of various search warrants issued in this case revealed that between December 14, 1988, and March 23, 1989, wire transfers totalling approximately $1.6 million were transferred to CASPERSON's C-TEK COMPUTERS business account. CASPERSON admitted to Special Agent Hobbs that the $1.6 million was transferred to C-TEK on behalf of, or at the direction of MOHAN, and was to be used for the purpose of purchasing and then exporting to India and other places unknovn, various highly sophisticated computers and computer-related parts. Five months after the search warrant was first executed at C-TEK, MOHAN, TOWNSEND, and WHYTE were lured into the United States by CASPERSON. Acting on instructions from DOC special PAGENO="0269" 265 agents, CASPERSON sent a telegram to TOWNSEND requesting a seeting between the parties. CASPERSON told TOWNSEND that the purpose of the meeting was to discuss outstanding orders for cosputer goods that MOHAN had placed with both himself (CASPERSON) and WHYTE, and to specifically discuss the delivery to MOHAN of the Tecktronics 4225 Workstations. Both TOWNSEND and MOHAN agreed to meet with CASPERSON in Buffalo, New York. Presumably, the only reason they agreed to do so was because CASPERSON still held a large portion of the $1.6 million that had been transferred to his account by PERFECT TECHNOLOGIES LIMITED. On July 21, 1989, TOWNSEND, MOHAN, WHYTE, and CASPERSON met at a hotel in Buffalo, New York, to discuss the outstanding orders for computer equipment. Defendants MOHAN, TOWNSEND, and WHYTE, were placed under arrest at that time. After their arrest, defendants MOHAN, an Indian national residing in New Delhi, India; TOWNSEND, a British national residing in Australia; WHYTE, a Canadian citizen; CASPERSON, a United States citizen residing in Kirkland, Washington; and numerous other individual and corporate defendants not present in the United States were charged in a 25-count Second Superseding Indictment filed in the Western District of Washington with various criminal violations relating to the export of highly sophisticated computer equipment from the United States, in violation of the United States export laws. In addition, defendants MOHAN, TOWNSEND, and others, were charged with the crimes of attempting to export highly sophisticated computer equipment from the United States to the Soviet Union. The charges contained in the indictment constituted violations of the Export Administration Act of 1979, (50 U.S.C. Appendix, Sections 2410, et ~ which restricts exports of U.S. origin technology where necessary for, among other things, national security reasons, and prohibits the exportation of any ~tem on the Commodity Control List without a validated license. The indictment also charged the various defendants, including defendants MOHAN and TOWNSEND, with false statements and money laundering, all arising in connection with the alleged export violations. Defendants M0H~N, TOWNSEND and WHYTE were ordered detained pending trial. The case was ultimately resolved when 2 The Commodity Control List ("CCL") is an official, public document which is prepared by the Secretary of Commerce and contained in the Export Administration Act ("EAA") regulations. The CCL identifies, by level of performance, those commodities (in this case, computers) which are controlled for purposes of national security -- that is, which require a validated license prior to export from the United States. The inclusion of an item on the CCL does not mean that it can never be exported. Rather, inclusion on the CCL only triggers individualized consideration by the Departments of Commerce, Defense, and possibly other Government agencies, of the validity and appropriateness of the proposed exportation. 3 Initially, the defendants were ordered, over Government objection, released on bail pending trial. The Government successfully appealed the order of release, which was issued by a magistrate in Buffalo, New York, to a district court judge in the Western District of Washington. After vigorous opposition from the defendants, the Ninth Circuit affirmed the trial court's order of detention. See United States v. Townsend, et al., 897 F.2d 989 (9th Cir. 1990). PAGENO="0270" 266 all four defendants entered pleas of guilty to various charges contained in the indictment. The sentences they received are as follows: 1. Shiv Nohan: Guilty Plea 7/17/90 (Indian Citizen) Sentenced 11/7/90 33 months imprisonment 2 years probation Fined $1,500,000 2. John Townsend: Guilty Plea 6/7/90 (British Citizen Sentenced 8/3/90 Australian Resident) 24 months imprisonment 2 years probation 3. David ~ Guilty Plea 5/29/90 (Canadian Citizen) Sentenced 8/3/90 1 year and 1 day imprisonment 2 years probation 4. Robert Casperson: Guilty Plea 3/5/90 (American Citizen, Sentenced 8/10/90 cooperating defendant) 4 months work release 2 years probation * * * * * * II. CIRCUMVENTION OF U.S. EXPORT CONTROLS. During the approximate 15-month period of May 1988 through August 1989, defendant MOHAN and others, acting through defendant TOWNSEND, purchased and successfully exported or attempted to export three particular types of sophisticated computers and computer-related equipment in violation of the United States export laws: (1) 5 NICROVAX II computers with an approximate value of $350,000.00; (2) a super minicomputer known as the DEC VAX 8700, with an approximate value of $550,000.00; and (3) 50 Tecktronics Workstations with an approximate value of $900,000.00. Defendants ImYTE and CASPERSON, acting as brokers for MOHAN and TOWNSEND, purchased the equipment ordered, and then arranged for the export of that equipment, to MOHAN's associates in Singapore and India. Documents obtained from the various search warrants ismued in this case, as well as from formal discovery requests to various foreign countries, conclusively established that the equipment was not for use in either India or Singapore and was to be ultimately exported to the U.S.S.R. A. The Five MICROVAX II~çg~pg~g~: At MOHAN's request, TOWNSEND acquired five MICROVAX II computers from the United States and had them shipped to Australia. Once the computers arrived in Australia, TOWNSEND attempted to re-export the same to ROMAN in India, via Singapore, without first acquiring a valid U.S. re-export license. Upon learning that the computers had been shipped to Singapore without a valid re-export license, DOC licensing officials ordered the computers returned to the United States. TOWNSEND subsequently sent DOC licensing officials a letter stating that he had unknowingly violated U.S. export laws in sending the computers to Singapore, and assuring DOC officials 5 PAGENO="0271" 267 that the computers would be returned to the United States and would not be re-exported. The computers were then sent to CASPERSON at C-TEE COMPUTERS. Once the computers arrived, CASPERSON sent a letter to DOC licensing officials assuring them that he was purchasing the five MICROVAX II computers from TOWNSEND. In his letter, CASPERSON stated that the computers would not be re-exported to any country. Immediately upon receiving the five MICROVAX II computers, however, CASPERSON sent them to WHYTE in Canada. WHYTE then proceeded to acquire a Canadian export license for the computers and subsequently shipped the computers directly to MOHAN's associates in Singapore. These computers were, in fact, exported and have never been recovered. We do know, however, that MOHAN never applied for or received any import authority for these computers from the Singapore Government. B. The 50 Tecktronics 4225 Workstations: In January 1989, MOHAN and TOWNSEND placed orders via CASPERSON and WHYTE, for the purchase of 50 pieces of sophisticated computer equipment known as Tecktronics 4225 Workstations. The estimated cost of this equipment was in excess of $900,000.00. WHYTE agreed to, and in fact did, apply for and receive export licenses from the Canadian government to export the equipment directly to MOHAN's company, KIP, and/or MOHAN's associates, in India. In order to evade United States export requirements, WHYTE told Tecktronics, Inc. -- the United States manufacturer of the equipment -- that this equipment was destined for end-use in the United States. In keeping with that story, WHYTE instructed CASPERSON to direct Tecktronics to ship the equipment to a company in Buffalo, New York. The plan was that once the 4225s arrived in Buffalo, WHYTE would move the equipment into Canada and then export it directly to MOHAN's company and/or associates in India. WHYTE knew from the inception of the order that the purchaser of these goods was MOHAN and that the purported final destination was India and not the United States. DOC licensing officers have determined that this method of export of the 4225s to India constituted "transshipment" and, as such, was a violation of Export Administration regulations. In recorded conversations between the two, WHYTE admitted to CASPERSON that he knew that the plan to ship the 4225s in this manner constituted a violation of United States export laws. This scheme was aborted when the defendants were arrested in Buffalo, New York. No computers were shipped. We have confirmed that MOHAN never applied for or received any authorization to import these computers to India, as required by Indian law. C. The DEC VAX 8700: In December 1988, CASPERSON and TOWNSEND, at MOHAN's request, purchased a DEC VAX 8700 computer from a company in Chicago and then disassembled the computer in a warehouse in a suburb of Seattle, Washington. The computer, in its disassembled state, was packed for shipment to Singapore in eleven different containers in order to hide the true nature of what was being exported. CASPERSON and TOWNSEND removed all identifying marks from the computer, including the computer's serial number. The eleven containers were sent to two different nonexistent companies in Singapore. The description of the goods being shipped, as described in the eleven shipping invoices, were falsified to reflect miscellaneous computer parts, all with a PAGENO="0272" 268 value under $5,000.00. CASPERSON and TOWNSEND planned to travel to Singapore to reassemble the computer. During the course of his cooperation with the Government, CASPERSON admitted that TOWNSEND told him that it would be useless to apply for a DOC-validated export license because the computer was so sophisticated and because of where it was ultimately going. In connection with his guilty plea, TOWNSEND admitted to Government prosecutors that NOHAN had informed him that the 8700 computer was destined for either Romania or Bulgaria. The computer was, in its disassembled state, shipped to Singapore. The shipment was stopped in Singapore and returned to the United States where it was seized by U.S. Customs officials. * * * * * * III. SUGGESTED IMPROVEMENTS TO THE SYSTEM. As a prosecutor trying to enforce the EAA, I encountered a variety of problems. I believe that the Act can be strengthened in several ways to achieve greater levels of effectiveness and, ultimately, deterrence. A. Inadequate Sentencing Provisions: Perhaps the major deficiency of the EAA, from both the prosecutor's and society's perspective, is the comparative lightness of its sentencing provisions. When considering a just punishment for an export violation, the goal of the EAA must be kept in sharp focus. The Act exists primarily to protect the safety of our country and our people from wanton dissemination of advanced technology with military applications. For example, the computers MOHAN and his cohorts conspired to illegally export had recognized applications to missile guidance systems and aircraft radar. The EAA itself, however, affords a maximum sentence of only ten years' imprisonment. When compared to sentences for other federal crimes, ten years is a light sentence, indeed. For example, passing or altering counterfeit notes carries a maximum penalty of 15 years' imprisonment (see 18 U.S.C. § 471); false statements made to federal banking institutions carry a maximum penalty of 20 years (see 18 U.S.C. §5 1005, 1006, 1007 and 1341); bank robbery of a federally insured institution also carries a maximum 20-year penalty (see 18 U.S.C. 5 2113(a)). Significantly, other crimes which detrimentally affect our national security carry extremely stiff penalties. Thus, gathering or delivering information related to our national defense to aid a foreign government carries a penalty of death, imprisonment for any terms of years, or imprisonment for life. See 18 U.S.C. 5 794(a). B. The Difficulty in Obtaining Forfeiture: Forfeiture laws are among the most potent weapons in the prosecutor's arsenal. Under the civil forfeiture provisions of the Controlled Substances Act, (21 U.S.C. Sections 801, et pg~.), for example, the Government may properly request and obtain a warrant for seizure of all property, including money, connected to illegal drug activity. The importance of this statute is that it authorizes seizure of property before a conviction is obtained, where a subject is suspected of or charged with illegal drug activity. See PAGENO="0273" 269 21 U.S.C. § 853(f). Moreover, under the criminal forfeiture provisions of the controlled substances Act, forfeiture upon conviction for a drug crime is accompanied by the rebuttable presumption that the forfeiture is appropriate, and the court may order substitution of assets. Id. at § 853(d) and 853(p). The EAA does not provide for either of these extraordinarily useful enforcement mechanisms -- specifically, preconviction seizure of property including money, a presumption in favor of forfeiture or substitution of assets. Instead, under the EAA, forfeiture can occur only after conviction for an export violation. 5ee 50 U.S.C. § 2410(g). By the time conviction has occurred, however, forfeiture is likely to be beside the point as the defendant will have squandered or hidden most of his or her assets before then. Furthermore, the EAA provides no procedural guidelines to govern forfeiture, thus, provisions like the presumption in favor of forfeiture and substitution of assets do not exist in the Act. The pre-conviction forfeiture tool is simply too important an enforcement mechanism to be left out of the EAA. congress should, therefore, consider substantially strengthening the EAA by giving prosecutors the authority to obtain seizure of ill-gotten gains prior to conviction and by creating a rebuttable presumption that forfeiture is appropriate in export violation cases. In the Mohan case, we used the money laundering statute (18 U.S.C. § 1956) as a means of seizing, preconviction, the funds transferred by MOHAN and his associates to cAspERsoN's c-TEE account. By its terms § l956(a)(2) makes it a crime for anyone to transport, transmit or transfer monetary instruments or funds from outside to the inside, or from inside to outside of, the United 5tates "with the intent to promote the carrying on of a specified unlawful activity." Export violations are one of the "specified unlawful activities" covered by the [money laundering] statute. Even the forfeiture provisions under the money laundering statute are not perfect when dealing with EAA violations, however. Export law violators typically are business people, managers, and technology specialists who have ready access to large sums of money. In the case I prosecuted, for example, the defendants freely trafficked in computer hardware costing hundreds of thousands, indeed millions, of dollars. Under the money laundering provisions of the criminal code mentioned above (18 U.S.C. § 1956), the transfer of funds into or out of the United States for illegal purposes is a crime. The movement of money within the United 5tates for illegal aims, however, may not be a crime unless the prosecutor can prove that 4 The criminal forfeiture statute, as set forth in 18 U.S.C. § 982, is directly applicable to convictions for violations of the money laundering statute. significantly, the criminal forfeiture statute incorporates by reference the procedural guidelines for seizure of assets set forth in 21 U.S.C. § 853, including the guidelines authorizing preconviction seizure and establishing a rebuttable presumption in favor of forfeiture. In the Mohan case preconviction seizure warrants allowed the government to seize in excess of $850,000.00. This money was to be used by CASPEBSON and WHYTE to buy the computer equipment ordered by MOHAN and TOWNSEND. 8 PAGENO="0274" 270 that pgj~gy itself represents the proceeds of illegal activity -- something which is very difficult to do. Given that export violations will almost always involve the movement of money within the United States (and did in the Mohan case), the EAA forfeiture provisions should be strengthened to clearly prohibit and criminalize such transactions. C. Pre-trial Detention: In the Mohan case it was extremely difficult to acquire an order of pre-trial detention. As the lead prosecutor in the case, I spent six court days and two hearings devoted to this issue alone. The order of pretrial detention was twice appealed by the defendants to the Ninth circuit. A presumption in favor of pre-trial detention in export violations which implicate national security concerns should be considered. There is, of course, authority for such a presumption as demonstrated by the strict detention rules for cases involving violations of our drug laws. Thus, under the Bail Reform Act, a person suspected of illegal drug activity carrying a sentence of ten years or more in prison is rebuttably presumed to pose a danger to the community, and carries the burden of proving why he or she should not be kept in jail pending trial. 18 U.S.C. § 3142(e). Violators of export control laws who endanger our national security should also be treated as threats to our community. We should presume, as we do for the drug dealer, the appropriateness of pre-trial detention for export violators. Such a presumption would be particularly helpful because in the Mohan case, for example, two different court officers -- the magistrate in Buffalo and the judge in Seattle -- both squarely rejected the Government's position that the defendants' serious crimes rendered them a danger to the community. In both instances the Court was impressed by the fact that none of the defendants had any prior criminal records or had any history of drug abuse. In addition, all of the defendants were "successful" and allegedly reputable, businessmen. As a result, the only basis on which the Government was able to secure pretrial detention was that of risk-of-flight. Yet, a defendant charged with serious export violations who has any ties to either the United States in general, or the specific community where the charges are brought (such as family or close friends) will probably be able to establish that he is not a flight risk and so should not be detained on this basis. See United States v. Motamedi, 767 F.2d 1403 (9th Cir. 1985); and United States v. Townsend, et ml., 897 F.2d 989, 995, 996 (9th Cir. 1990). D. Educating the Public and Law Enforcement Personnel: The lightness of the EAA's sentencing provisions and the lack of a pre-trial detention presumption underscore another deficiency in the statute, namely its diluted message to the public and criminal justice personnel. The EAA simply speaks too softly about the dangers of export violations. When I was prosecuting the Mohan case, for example, I encountered the disturbing sentiment that export violations were not substantial crimes. One judge made clear to me that he could not quite see why the attempt to illegally export some computers merited much attention. 9 PAGENO="0275" 271 Congress must take on the role of educating the public and public officials about the very real dangers posed to our society by illegal export of sensitive technology. Congress can achieve this goal in a number of ways. First, by substantially increasing the sentencing levels under the Act, Congress can make clear that it takes export crimes seriously, and that judicial and law enforcement actors should do the same. Second, Congress can insert a policy statement into the EAA that highlights the potential for harm to our society from illegal exports. Finally, Congress can ensure that appropriate resources are devoted to the enforcement of the EAA. My involvement with the Mohan case made it abundantly clear that the prosecution of illegal exporters is difficult, time-consuming, and resource-intensive. The defendants generally have the money to afford skilled and expensive defense attorneys. The evidence trail frequently runs across the country and around the globe, requiring extensive investigations. The EAA itself is a complicated maze of regulations and requirements. Many smaller U.S. Attorney's offices simply do not have the resources or experience to pursue these cases effectively. would suggest therefore, that Congress create a national task force to coordinate the prosecution of export violations. This task force should consist of members from the relevant Government agencies like the Departments of Commerce and Defense, and federal prosecutors. Only with such a centralized and properly funded authority can export violations be effectively pursued. E. The Need for National and International Cooperation: My final remarks on improving the EAA concern the notion of cooperation on both a national and international scale. Internationally, we must work to secure agreements with other countries concerning the production of evidence from abroad and investigations within their borders. Here, at home, we need to emphasize inter-agency cooperation. 10 E95889 . BU9 PAGENO="0276" 272 Mr. ANTHONY. Thank you, Ms. Moore, for your testimony. Could you explain precisely for the record what charges the de- fendants were found guilty of, what counts they were found guilty of? You had multicount indictments. Ms. MOORE. That is correct, and the defendants entered pleas of guilty to the charges of 50 U.S.C. section 2410(a), which is the lesser of the two export enforcement violations that makes it a crime to knowingly export goods in violation of the export enforce- ment laws. The defendants did not enter pleas to the greater crime of exporting a good to a controlled country-in this case, Russia. Mr. ANTHONY. Now, in your earlier testimony, you indicated that you, as the prosecutor, felt you had sufficient evidence, if you went to a jury trial, to convict the defendant of that count. Ms. Moo1~E. That is correct. Mr. ANTHONY. Could you just explain a little bit about how the plea bargain came to take place and why this particular sentenc- ing? The reason I am curious about it is that one of your recom- mendations to this panel is that the sentencing guidelines be stiff- ened and the penalty itself be stiffened. The current law that the judge could have imposed was 10 years, yet he only did 33 months. There is a lot of slippage between 33 months and even the 10 years. I personally looked over your more complete submitted testimo- ny and I looked over each individual count, with the maximum that was obtainable plus the penalties. I think I added up-if the judge were to run them consecutive and not concurrent, it would be in his third or fourth generation before he would be allowed to be out of prison. I am talking maybe a total of 400 or 500 years on all of the counts. So I am a little curious, as a former prosecutor, how the plea bar- gain occurred and why the particular arrangement was made. Ms. MooRE. Mr. Anthony, let me say two things. First of all, I was not present during plea negotiations. I had left the U.S. attor- ney's office at that time. I could not tell you why the prosecutors who took over the case allowed the defendants to plea to the lesser charges. I can tell you that personally I would not have done so, given the evidence that I knew existed. I can also tell you, however, that the reason for the low sentence, at least one of the reasons that I am aware of, is because these par- ticular computers were subsequently decontrolled. So although at the time they were charged it was an offense to export these to Russia, they were not-if you may recall, that was right around the height of the warm relationships between the Soviet Union and the United States. And the computers were subsequently decon- trolled, and the judge stated that that was one of his reasons for giving such a low sentence. Mr. ANTHONY. A change of circumstance in terms of the market- place? Ms. MOORE. That is correct. Mr. ANTHONY. And you stated that you had left the U.S. attor- ney's office, and your case was picked up by someone else? Ms. MOORE. That is correct. Mr. ANTHONY. I have a feeling that the person who picked up your case wa~ a bit 1e~ enthu~ia~tic than you and was just trying to work it off the caseload and move it forward. PAGENO="0277" 273 Ms. MOORE. I think that may be true, Mr. Anthony, and it was also a case that I worked on for a full year and knew the evidence pretty much in and out. I think it was fairly difficult for new pros- ecutors to come on. Mr. ANTHONY. I have two questions. One is about jury appeal, in terms of what would make you feel that that case had jury appeal and were you still there, would you have taken it to trial, versus your predecessor and whether or not they thought it had jury appeal and would be willing to take it to trial. Also this following question would go to both of you, in terms of the manpower, the amount of money spent, the resources that are needed and neces- sary, and the cooperation between Customs, Commerce, and the Justice Department in this case. The other map has been taken down, but you very graphically showed to us and to anybody watching that this is a very sophisticated, very complicated, multi- national, multicorporation, multiindividual type scheme that takes an awful lot of evidence and persistence and, therefore, manpower to bring it to trial. If you could, just give me your thoughts in terms of how much personnel, the amount of money, the cooperation that went on be- tween Customs and Commerce, and if any problems occurred. Then after she finishes, Mr. Deliberti, if you would give us some indica- tion of how much time and how many people were involved and the cost. Ms. Moore? Ms. MOORE. Mr. Anthony, with respect to your first question, that of jury appeal, I can tell that you are an ex-prosecutor because that was the thing that I was most worried about as a prosecutor. And the jury appeal came from the Department of Defense in that I was going to-prior to the time that the computers were decon- trolled, I was going to put on a Department of Defense witness to explain why this represented such a grave threat to our national security. It didn't convince the judges in terms of detaining the de- fendants or finding the defendants a danger. But I did think that for a lay person, for a jury person, that that would be pretty strik- ing. And the Department of Defense was kind enough to lend us their assistance in that matter. With respect to Government resources in dealing with this case, from the prosecutor's standpoint they were substantial. I worked on this case-and the Seattle office at that time was a very small office, 15 criminal prosecutors in the actual trial section. I worked on this case full-time for one year investigating it, up to and after the defendants' arrest. It was more than a full-time job. After the defendants got arrested, they hired very high-powered and expensive defense attorneys who filed mammoth amounts of paper which diverted me as a prosecutor away from preparing the case. At the same time, I was trying to get an indictment out be- cause I only had 30 days. At the same time, I was trying to get a very complicated indictment out, I had to respond to motions, ap- pealing bail, and that was just an example of it, motions for all sorts of information under the Freedom of Information Act. So the manpower was substantial, and after I left, two additional prosecutors took on the case and devoted virtually their full-time to the case. All the- PAGENO="0278" 274 Mr. ANTHONY. Would you yield at that point? Within the Depart- ment of Justice, is there any such thing as a special strike force, where people stay there year after year after year and handle those cases and they become the expert, leave, and then somebody else has to come in? You are aware of no special task force? Ms. MOORE. There is not one, or one did not exist at the time that I was working on the case. Mr. ANTHONY. Could we benefit from some structure like that? Ms. MOORE. It would be an extreme benefit. I don't think you should take it away from the U.S. attorney's offices. It was quite fun and challenging. But it certainly would help to have that level of expertise. And you do have some of that already in place. The Office of International Affairs was very helpful, and there is a core of assistants around the country, maybe three or four, who have worked on the cases. The other thing that you should be aware of is that all the wit- nesses in this case, if this case had gone to trial, there were going to be 50 witnesses, 49 of which were either from outside the State of Washington, where the case was being tried, and in most in- stances were from outside of the United States. So in terms of re- sources from the U.S. attorney's office, that was substantial. Mr. ANTHONY. Tell me if there were any problems within the Commerce Department and the Customs Service. And I am speak- ing specifically of the VAX 8700 computer. Ms. MOORE. I have nothing but highest praise for the Commerce agents that I worked with. They literally moved up to Seattle and worked around the clock for a full year. The Customs agents that I worked with who I personally knew as a prosecutor-well, let me just say that there seemed to be some of the classic tension between investigative agencies. That seemed to surface in this case, where Customs seemed to feel that they should be investigating the case and not Commerce, and so did some things that caused problems for me as a prosecutor. Mr. ANTHONY. Did Customs want to actually seize the computer? Ms. MOORE. Customs did seize the computer, and that turned out to be a problem because they-we had no problem with them seiz- ing it, but their timing of the seizure was such that they had to give notice to the interested parties. And we had to dance around that and do some things to make sure that that did not blow the undercover investigation. Mr. ANTHONY. You were trying to work a sting operation through-- Ms. MOORE. That is correct. Through Commerce. Mr. ANTHONY. Through Commerce. Ms. MOORE. And Customs had seized the computer, in my opin- ion prematurely. Mr. ANTHONY. Back to what Mr. Shaw said earlier about having maybe some better coordination, if his idea were in place, that par- ticular situation at least maybe could be prohibited in the future. Do you think it would be workable if we talked in terms of some- thing like that? Ms. MOORE. I am not sure what you are referring to. Mr. ANTHONY. I guess he was talking about having some level at which all of these decisions would be sent-would have the author- PAGENO="0279" 275 ity to say to Commerce or to Customs this is the way it is going to be done. Ms. MOORE. I think that would be extremely helpful. Mr. ANTHONY. From your standpoint of going into court, if you had a single-source decisionmaker, it would obviously help you. Is that what you are saying? Ms. MOORE. That is true, although I have to say in this case Com- merce came through time and time again. We got a quick licensing determination. They did what I told them they needed to do for the good of the case. I do think it would help for the infighting maybe to have a level removed that is going to make determinative deci- sions, such as you will not seize the computer. When we went over to Singapore to interview witnesses, Customs initially told me that I would not be allowed to interview witnesses, that that was their jurisdiction. Customs knew nothing about the case. So to have one body that could deal with problems like that, I think would be helpful. Mr. ANTHONY. Well, I thank you for your testimony, and I would like to congratulate you. Every piece of evidence that I have read or material I have read indicates that you did a very thorough job and did have good cooperation and good competent people working with you. Here was a case where the system eventually did work. I must tell you that I have been in the situation where either the law was changed or something occurred that took a very strong case and then suddenly made it somewhat weaker. But that doesn't stop the original intent of what you were attempting to do. So to that extent, I congratulate you. What about the costs from Commerce's standpoint? Mr. DELIBERTI. Mr. Anthony, we had the same question about six months ago, and we do have some figures available for you. The two main case agents on this case are senior special agent Jerry Hobbs who is to my right, and the new special agent in charge of the San Jose field office, Mr. Randall Sike. But, quite honestly, de- pending on the investigative activity of the day, we used anywhere from two investigators to as many as 32, in the event we had an arrest going down or if we were executing warrants, or even re- viewing the abundance of documentation that was seized during the course of this investigation. It went as high as 32 agents. The cost is approximately $500,000, of which we estimate about $150,000 to be for travel purposes. Mr. ANTHONY. Was the cost and the complexity of this case taken into consideration in the plea bargain and by the trial judge in meting out the punishment, both jail days and fines, to your knowledge? Mr. DELIBERTI. To my knowledge, I do not know that. Mr. ANTHONY. Do you know whether or not the fine has been col- lected? Mr. DELIBERTI. I don't know that either, but maybe someone else could answer that. Mr. ANTHONY. We are going to have the defendant testify after you. I guess we can ask him if he has paid it. Let me just ask some basic questions starting right at the very beginning of the transaction. Why wasn't Commerce able to pre- vent the C-TEK shipment of the VAX 8700 from the United States PAGENO="0280" 276 after being warned by a Minnesota firm that C-TEK may possibly export the equipment without a license? Mr. DELIBERTI. Why we did not- Mr. ANTHONY. Why were you not able to prevent the shipment to begin with after you were notified? Mr. DELIBERTI. Originally, when Commerce and Customs inspect- ed the shipment we were told we would be looking at a different kind of computer than was involved with C-TEK. And we had re- ceived information that all it was was an expansion cabinet. This was early information. Then when we inspected the piece of equip- ment, it was camouflaged by not having any kind of logos on it, any kind of markings on it, and it fit the description of an expan- sion cabinet. Later on when we went to the equipments' manufacturer, Digital Equipment Corp., we found out that, in fact, it was part of the super minicomputer, and we then contacted Customs and they ar- ranged to get it back. Mr. ANTHONY. I understand you got excellent cooperation out of the employees from Digital also. Is that correct? Mr. SIK~. That is correct. Mr. ANTHONY. You are not saying that you were monitoring C- TEK prior to this tip, are you? Mr. SIKE. No, sir. Mr. ANTHONY. So what you are really saying is that when Mr. Moody said that most of the cases, in his opinion, come because of a tip, you are saying that this particular case came because of a tip. Mr. SlicE. Yes, sir. Mr. ANTHONY. And after the tip, then you began to monitor, but even with early monitoring, you couldn't make a determination that the first shipment contained an item that should have re- quired, what, a license? I guess my basic question on that response is what if you hadn't gotten the tip? What if the Minnesota firm had not been suspi- cious? Would we still be seeing this money chased all around the world and this equipment being traced all around the world, not on your chart in front of a committee? Mr. DELIBERTI. Perhaps. However there are other mechanisms that are in place here. Let's start with the business community in general. We certainly are raising the level of awareness of the busi- ness community, and especially in the Seattle area now. Not only that, we have freight forwarders now that have a higher level of awareness of export controls. And we also have the Customs Serv- ice at the ports and borders. So there are three other mechanisms that may have kicked in. Mr. ANTHONY. Now, you know Mr. Casperson is going to testify that had he had a little bit better knowledge, Ms. Moore, of even the penalties as they apply today, that he might have thought twice about it. So any education that you have done must have been going on after that point. Are there special programs that are ongoing into the business community? Mr. DELIBERTI. There are special prograths going on that are edu- cational in nature, and I could tell you how it is expanding. In the northwestern region that I had managed for the last 6 years, in PAGENO="0281" 277 1985 we had a total of about four or five tips or leads come into the office, and at the close of 1990 it was up to 400. So we certainly see an increase in the level of awareness and reporting of information to the Commerce Department based on this campaign to educate the public. Mr. ANTHONY. Let me go back to this computer, this VAX 8700. There is a possibility that that computer, having been shipped, could have been shipped from Singapore before Commerce discov- ered it was a VAX 8700. Mr. DELIBERTI. That is correct. Mr. ANTHONY. And after you got into your investigation, you found out that Mohan had very close serious ties with the Soviet Union? It is a supercomputer on the export list, and before the cold war began to resolve, they were perceived and the President had made some very serious statements about what an enemy they were. So that could have actually ended up- Mr. DELIBERTI. Could have. Mr. SIKE. We believe so. Mr. ANTHONY. Could any of the equipment that has now present- ly not been accounted for be in Russia? Mr. SIKE. Yes, sir. Mr. ANTHONY. Is it your strong belief that is where it is? Mr. SIKE. It is my belief, sir. Mr. ANTHONY. Based on convincing evidence, documented tran- scriptions of recorded testimony? Mr. SIKE. Based on evidence ~that we have obtained through banking documents. Mr. ANTHONY. That particular piece of equipment that you sus- pect to be in Russia at the moment, which means that the system failed even with a tip, has that been declassified? I am not sure if that is the proper terminology, but has it been reduced to a non- threatening use category? Mr. SIKE. Yes, sir. Mr. ANTHONY. Then I must tell you that that does make me feel a bit better. Mr. SIKE. Us, too. Mr. ANTHONY. At least they are not over there using this sophis- ticated computer planning missile-well, they could be. I mean, just the fact that we have declassified it doesn't mean that it can't be used. That equipment did have military application use, did it not? So it still would have military application use. Mr. SIKE. Yes, sir. Mr. ANTHONY. It is just that the threat has been reduced. Let me tell you what a future witness is going to testify to, and I would like to get your response to this. A future witness has told our staff that looking back, first, Ms. Moore, he wouldn't have done it because now he knows that he could be punished for it. Not that it was morally wrong, but that he could have been sent to jail for it. But when asked if he were to do it, even in the face of the law saying he shouldn't and knowing the severe punishment, he said what he would do is spread the shipments out and route them through Canada to avoid detection. My basic question is based on-and if you have any response to this, Ms. Moore, feel free to jump in. Since we do have this free PAGENO="0282" 278 trade treaty with Canada and we are in the process of determining whether or not to give fast track authority to the administration to determine whether or not we want a free trade treaty with Mexico, how easy is it for enemies of the United States to illegally export U.S.-origin high technology? Ms. MOORE. I think in this case it was extremely easy, and that was one of the most frustrating aspects for me in this case, because that was the diversion route used here; where equipment. U.S.- manufactuTed equipment, was purchased in the United States, transshipped to Canada without a license, and then a license was received to ship the equipment to Mohan's companies in India, and we did not receive substantial cooperation from the Canadian Gov- ernment. And it was difficult to establish or to explain to a jury why that was wrong. Mr. ANTHONY. Thank you. I apologize for turning my head for a moment. Do you have any response to this? Does Commerce have any re- sponse to that new scheme that would come up? In other words, he breaks the parts down. He sends it into Canada with which we have got a free trade border, active-active trade. From reading the material, it appears that if they are willing to issue false declara- tions to the Canadian Government, they almost routinely give a re- export license to the parts and/or the product in total. It appears to me that this is a major, major loophole. I just wonder how in the world Customs or Commerce is stopping it or plans to stop it. Or are you even worried about it? Mr. SIKE. Well, it is my understanding that the licensing require- ments to Canada, there are none because of the government rela- tionships, so that free trade issues and licensing issues are separate issues. Mr. ANTHONY. Explain that to me. Mr. SIKE. Well, the- Mr. ANTHONY. In other words, I am sitting over there in India. I have got a pocketful of money, and I have got an enemy that wants to buy the most sophisticated high technology that Americans make. The American is going to sell it because it is going into Canada, and there is no reason for them to think that there is any- thing wrong with it. But I have obtained a broker in Canada that is going to go do whatever it takes illegally to get it to me in Singa- pore, to that false front office building that is just a fake name. How are we going to stop it? Mr. SIKE. Well, Canada has similar export controls to ours. If we export a commodity to Canada or the exporter exports a commodi- ty to Canada, under our regulations if he knows that the commodi- ty is not for consumption in Canada, then it would require a De- partment of Commerce license if it is a controlled commodity. If the commodity goes to Canada and it is a controlled commodity and the individual sometime afterward then wants to export out of Canada, then he would be required to get-my belief is he would be required to get a Canadian permit. Mr. ANTHONY. Well, I think I agree with what Ms. Moore said. There seems to me to be a glaring loophole, and I must tell you that while we are debating to do something with Mexico, it looks like we are going to open up the south end of our border as well as PAGENO="0283" 279 having the north end of our border opened up. I think this is an area that we really need to give some serious thought to. Inasmuch as the Canadian Government has asked to be brought into it and call it a North American trade agreement discussion, maybe this is the time to open that back up to see if there is any recommenda- tions that we could make. So if I am off on the wrong foot and running up a blind alley, I hope you will help me with it. But if you think I am at least moving in the right direction, I wish you could give me some addi- tional guidelines from Commerce in that regard. Mr. Sundquist, do you have some questions, or Mr. Schulze? Mr. SCHULZE. I would yield to the gentleman from Tennessee. Mr. ANTHONY. The gentleman from Tennessee, Mr. Sundquist. Mr. SUNDQUIST. Thank you, Mr. Chairman. Ms. Moore, I want to compliment you also for your excellent work. Ms. MOORE. Thank you. Mr. SUNDQUIST. While I am happy that you are in the private sector doing well, I am sorry you are not still with the Govern- ment. Mr. ANTHONY. Mr. Sundquist, would you yield a minute? Mr. SUNDQUIST. I would. Mr. ANTHONY. I think what I am going to do at this point is ask our other two witnesses to come forward. I would like to swear them in and put them under oath. I think maybe we can have some questions batted back and forth inasmuch as I keep mention- ing them. So, Mr. Casperson, and I understand that Mr. Sastra is an attor- ney representing Mr. Mohan, if you all could take your places at the table. Mr. Mukkar and Mr. Casperson, if you would just raise your right hands, I am going to read an oath. Raise your right hands. [Witnesses sworn.] Mr. ANTHONY. I want the record to reflect that there were af- firmative responses from both witnesses. I yield to Mr. Sundquist. Mr. SUNDQUIST. Thank you, Mr. Chairman. Ms. Moore, I want to get back to the question. I think Deliberti said it cost about a half million dollars. What do you think it cost the Justice Department for this case? Any guess? Ms. MOORE. I really can't venture any guess. I believe that it was more than that, given the travel involved, but I can't give you a dollar number. Mr. SUNDQUIST. How much was Mr. Mohan fined for his viola- tions? Ms. MOORE. $1.5 million. Mr. SUNDQUIST. Ms. Moore, did you have a feeling or do you have a feeling that we were able to get to the bottom of this whole oper- ation? Ms. MOORE. Absolutely not. Mr. SUNDQUIST. Do you think we just barely touched it? Ms. MOORE. Yes, I do. Very strongly. Mr. SUNDQUIST. And on the basis that we didn't really get to the bottom of it but we got a portion of it, how easy was it or is it for PAGENO="0284" 280 the remaining people that we didn't touch to just continue with their operation? Ms. MOORE. It was my opinion and the opinion of the agents- and I don't think that the ~committee members are going to like to hear this-but that it was very easy. And particularly the Canadi- an route is a very big problem, and I am convinced that Mr. Mohan has not told us even a sliver of what he knows. I am con- vinced that there is a network of people out there, Mr. Mohan's former cohorts, who are continuing to do the same thing. Mr. SUNDQUIST. Again, maybe this question has been asked in a little different way, but obviously you had to have given some thought to how we could improve the law, given the Canadian situ- ation. Other than stiffer penalties and maybe more information that is out to other businesses to encourage tips, maximum penal- ties, perhaps more minimum penalties, those kinds of things, what other suggestions based on your long and dedicated involvement in this case would you make to this committee? Ms. MOORE. I think that internationally something does need to be done, and one of the things that I was worried about as a pros- ecutor is that, on the one hand, I was going to be telling the jury that these were very serious crimes, but on the other hand it seemed to me that it was fairly easy to commit the crimes. I was disappointed that other governments did not seem to be in- terested in our problem even though it involved their countries. And I am particularly talking about Canada, although they subse- quently changed, and Singapore. And so I don't know what you can do, and I understand that it is sticky. But it seems to me that something needs to be done to guarantee cooperation with coun- tries who say that they are friendly to us. Mr. SUNDQUIST. What did Canada do to change to be more coop- erative? What brought that on? Ms. MOORE. After numerous meetings where the agents met with Canadian authorities and were finally able to convince the Canadi- an authorities that they were, one, not withholding information from them gratuitously, Canada took in what my opinion was an offensive attack and said if you would just let us know about your investigation early on, we could have stopped all this. That was wrong because Canada had already granted export licenses for large amounts of equipment that I, as a newcomer to these crimes, understood had to have raised flags. When somebody is trying to get an export license for 50 Tektronix 4225's to go to the same end user, that has to raise a flag. Canada was upset that we hadn't shared with them, that we were doing this investigation, and initially took the position that because we hadn't informed them of that, we were essentially re- sponsible for them granting export licenses. After we pointed out to them that the export licenses had already been granted at the time we got involved-but it took a lot of meetings to get them con- vinced of that-then Canada seemed to back down a little bit. Al- though they never did any of the search warrants that we request- ed, and we had a hard time getting documents from them. Mr. SuNDQuI5T. Did you have any problems with our State De- partment? Did they help or hinder or just nothing? PAGENO="0285" 281 Ms. MOORE. I really didn't have any contact with the State De- partment except to go overseas to do an investigation. Mr. SUNDQUIST. Who did you deal with? At what level did you deal with officials in Canada? Ms. MOORE. I forget now. Maybe the agents can speak to that. Mr. SUNDQUIST. What government officials, what level? Would it be the equivalent of our Justice Department? Ms. MOORE. No, no. We met with the equivalent of their Com- merce. Mr. SUNDQUIST. Their Commerce. I see. Ms. MOORE. Yes. External Affairs. Mr. SUNDQUIST. Thank you, Ms. Moore. I want to also compliment Commerce on their good work and the dedication of the two agents. You really gave a lot of yourselves in this thing in time and energy. I know you have to be frustrated as well when you spend all this time and you get the goods on people, and then they get off with relatively light sentences. What is the impact? You all are aware of the dangers and the impact on our security if we don't stop this kind of thing. That has to be one of your major concerns, isn't it? Mr. HOBBS. It is personally a concern, and we continue and do our job as thoroughly as we can. Beyond that, we can't really ad- dress that. Mr. SUNDQUIST. Do you think that we got all the people involved in this? Mr. HOBBS. My personal thought is that we did not. Mr. SUNDQUIST. If we had stronger sentencing, stronger punish- ment, do you think that might help in having the cooperation of witnesses and maybe we would be able to get more? Mr. HOBBS. I believe that it would assist us, yes. Mr. SUNDQUIST. Could you just briefly review the undercover op- eration that you developed initially to track C-TEK's shipments? Mr. HOBBS. The undercover operation was more an undercover type operation where we enlisted the assistance of Mr. Casperson to consensually monitor telephone conversations and observe what transpired between Mr. Casperson and any of the other codefen- dants. Mr. SUNDQUIST. Was it fairly easy for Mr. Casperson to use the false descriptions and the freight forwarders and the multiple des- tinations as you observed it? Mr. HOBBS. It was my observation that it was quite simple for him to do that. He simply had to misrepresent it. Mr. SUNDQUIST. And have you given any thought as to what we can do in terms of changing our laws to prevent that? Mr. DELIBERTI. Let me address that here. You should know that we are working with COCOM to establish standardized enforce- ment procedures where we are all going to be enforcing export con- trol laws in the same way. And we are working with the Australia Group to also harmonize these enforcement- Mr. SUNDQUIST. How about Canada? Mr. DELIBERTI. Canada is included in that. While we bring Canada up, I think it is important to at least bring something to the floor here. That is, to receive these special privileges, such as that sort of license-free zone to Canada, countries have got to adopt PAGENO="0286" 282 some sort of an effective export control program. And the arrange- ment that is currently there with Canada, includes this type of pro- gram, and Canada is a COCOM member. So no proposal for license- free exporting can go forward without adequate safeguards. Mr. SUNDQUIST. Is there a list published on which countries are embargoed-so that on the form it was stated that people will sign under penalty of law that this particular shipment or these goods do not have the ultimate destination of Country X-Libya, Iraq, Iran, Soviet Union, whatever? Mr. DELIBERTI. Not to that extent. I believe they have to sign a shipper's export declaration, which is a census form, stating that they understand what they are doing and they have to comply with the regulations. And I believe incorporated in the regulations there is a list of countries that don't get favorable treatment as com- pared to those that do. Mr. SUNDQUIST. Is that accessible? Regulations are one thing. But to the people who are doing the shipping, there is something else. Mr. DELIBERTI. Well, freight forwarders do shipping, and they get paid substantial fees for providing a service, and they are supposed to know. And people that are in the exporting business for the most part are supposed to know. Mr. SUNDQUIST. There is a difference between supposed to know and warned. Don't you think that a warning there is needed-we heard some testimony earlier today from a young lady who is sup- posed to know, but her bosses really were supposed to know, and they got off and she was left holding the bag. Ms. Moore, do you have any comment on that? Ms. MOORE. I think that would be a good idea, and it would help from a prosecution standpoint to show the guilty knowledge. Mr. SUNDQUIST. It would show the knowledge of guilt. Now, we have controlled goods, right? I mean, that is part of what we are talking about. So why not controlled countries receiv- ing controlled goods and make it visible? Mr. DEUBERTI. That is really a policy- Mr. SUNDQUIST. I know it is a policy decision, but we are trying to figure out what we can do to help to make your job easier. Let me go and talk about the link between Mr. Mohan and the Soviet Union. Could you comment on the contract that was trans- lated? It was a Soviet Union contract. Could you comment on that, describe it and how it fits in? Mr. SlicE. Yes, sir. We sent letters rogatory through to the U.K. for banking documents from bank accounts that were identified during the investigation as belonging to Perfect Technologies and Sidhartha Bose and Shiv Mohan. When we received those docu- ments back, amongst them was a document, a contract basically, for extension of a line of credit. What the document consisted of was a Russian contract for a computer. The document which was used to extend a letter of credit de- scribed specifically what the letter of credit was going to be used for. And I will just read you the first paragraph because that pretty well describes what it is. It is a document from Perfect Tech- nologies, Ltd. to BCCI in London. It says, Perfect Technologies, Ltd. have requested us to sffect a t~1egraphic trnn~fer of $490,000 favoring C-TEK Computers, Inc. being advanced payment for equipment PAGENO="0287" 283 being purchased under their contract with Russia for U.S. $562,000 obtained during a recent exhibition. It just so happens that that $490,000 was exactly the payment that was made for the DEC VAX 8700 by C-TEK Computers. Mr. SUNDQUIST. That is an amazing document. Mr. SIKE. Yes, it is. Mr. SUNDQUIST. How did you happen to get that? Mr. SIKE. Well, through the legal process, through the U.S. attor- ney's office going through letters rogatory and through the United Kingdom judicial system, we were able to get the actual bank that handled the transfer to provide the documents for us as soon as we got the legal situations cleared up. So, yes, we were lucky. Mr. SUNDQUIST. Ms. Moore, that would have been very valuable in a jury trial, wouldn't it? Ms. MOORE. I liked that piece of evidence, yes. Mr. SUNDQUIST. I will bet you did. Ms. MOORE. That was going to be blown up. Mr. SUNDQUIST. I meant to ask earlier, is it easier for somebody to ship from Canada to India than it was from Canada to some other countries? Is there some special arrangement because it is part of Great Britain? Mr. SIKE. I don't know the answer to that, sir. Mr. SUNDQUIST. I wish everybody here could see and hear the tape recordings that you all made. One part that you have included in the transcript here, obviously you can't hear the smirking or the laughing between Mr. Townsend and Mr. Whyte. But would you describe that particular conversation and what they were laughing about and why they were? It involved how easy it was to smuggle computers. [Pause.] Mr. SIKE. Would you like me to characterize it? Mr. SUNDQUIST. Yes, characterize it, just to give us the ease that they talked about this happening. Mr. SIKE. Well, Mr. Casperson had talked to Mr. Whyte. There was a telephone conversation, and they were talking about trying to get the license to export the Tektronix equipment from Canada. Whyte was very, very happy and basically said he must be dream- ing that he got it, and he laughed. Then he faxed a copy. They were talking about faxing a copy to Mr. Casperson. The conversa- tion basically ended up that they would-excuse me a second. They were talking about how easy it was to get a Canadian export license, a Canadian license. At least, David Whyte was talk- ing about how easy it was. Mr. SUNDQUIST. Mr. Casperson, it looked pretty easy at the time, I guess. STATEMENT OF ROBERT J. CASPERSON, PRESIDENT, C-TEK COMPUTERS, INC., KIRKLAND, WASH. Mr. CASPERSON. It looked a lot easier after I had learned more about the export laws. Today I see it as a lot easier than it was then. Then I didn't know. We stumbled into it at that time. Mr. SUNDQUIST. You think it is easier than what you thought it was even? PAGENO="0288" 284 Mr. CASPERSON. Yes, much easier. Mr. SUNDQUIST. How did you get involved in this with Townsend in 1988? Mr. CASPERSON. I had been dealing with Capricorn Computers for about 1½ to 2 years prior to that, selling Datapoint equipment to Australia, to a travel agency in Australia. At some point in time, John Townsend became a partner or an associate of Capricorn, and Capricorn Computer would ask me about some DEC equipment, some disk drives, various other components. And at that point I was introduced to John Townsend who was handling the DEC equipment. Mr. SUNDQUIST. What was your motivation to get involved in this? Money? Mr. CASPERSON. It was just a broker business at that time. We were just brokering equipment. Mr. SUNDQUIST. What about step two or step three or four as you proceeded? Mr. CASPERSON. Step two was probably we were becoming more involved in larger pieces of DEC equipment. They were still just asking for quotes, and the ability to get licenses. Step two I think was when we first fell into a way of going through Canada. That was pure accident. I happened to get in contact with a broker in Canada, and I started dealing with him because he had the best price. That was the only reason, and it was by accident that he offered to get a Ca- nadian export license and export to Singapore directly, instead of us doing it. Mr. SUNDQUIST. When did you find out that the computers were really going to the Soviets? At what point? Mr. CASPERSON. It was long after the investigation, the undercov- er investigation. Mr. SUNDQUIST. You didn't know that before? Mr. CASPERSON. No, I did not know. Mr. SUNDQUIST. You didn't know that- Mr. CASPERSON. I had an idea. Mr. SUNDQUIST. When they raided you, you didn't know it was going to the Soviets at that point? Mr. CASPERSON. No, I did not. I had an idea that they were going some place other than Singapore-well, I knew they were going some place other than Singapore when we shipped it to Singapore. I thought it was going to India at that time. When we got involved with Tektronix equipment in large quantities, I had a strong-I'm trying to think of the word-idea that it was not going to a compa- ny in India because of the quantities. It would take a company the size of General Motors to need that kind of quantity of Tektronix equipment. So it was at that point in time that I had a feeling it was going some place else. Mr. SUNDQUIST. How much money did you receive over the course of the diversion operation from Mr. Mohan? Mr. CASPERSON. Probably somewhere between $1.3 and $1.4 mu- lion. Mr. SUNDQUIST. What happened to that money? Mr. CASPERSON. The Government has almost all of it. Mr. SuNnQuIsT. They seized it? PAGENO="0289" 285 Mr. CASPERSON. Yes. Mr. SUNDQUIST. Almost all of it? Mr. CASPERSON. What they don't have in cash they have in the equipment. Mr. SUNDQUIST. I see. Where did you think that money came from? Mr. CASPERSON. I thought it all originated from Mr. Mohan. I knew it was coming through banks in London and in New York. Mr. SUNDQUIST. Tell us about when the Commerce agents came to see you and showed you the smoking gun memo. Mr. CASPERSON. Which memo? Mr. SUNDQUIST. The memo that you had sent describing that you were going to have to be careful. Didn't Commerce show that to you when they came and in fact raided your company? Mr. CASPERSON. They obtained that during the search warrant. They obtained that from my office. Mr. SUNDQUIST. So they didn't have that when they- Mr. CASPERSON. No. Mr. SUNDQUIST. What was your reaction when they confronted you with that? Mr. CASPERSON. I knew they had it. Mr. SUNDQUIST. You knew they had it. Mr. CASPERSON. Oh, sure. Mr. SUNDQUIST. Were you worried about them finding it? Mr. CASPERSON. At that point, I knew I was in trouble. Mr. SUNDQUIST. You knew you were in trouble. Mr. CASPERSON. Worried-I was scared to death already. At that point it didn't make a big difference. Mr. SUNDQUIST. At that point had you already agreed to cooper- ate? At that point had you already agreed to cooperate when they found that? Mr. CASPERSON. Yes. Mr. SUNDQUIST. What should we do to change our export laws, Mr. Casperson? What should we do to keep these things from hap- pening? What should we do to put people like Mr. Mohan and others out of business? What should we do to keep equipment from going to the Soviet Union or countries that want to use it for other reasons? Mr. CASPERSON. You have got a real paradox in that you have the Commerce Department on one side trying to control and regu- late, and then you have other agencies on the other side wanting to open up free trade. Things are real difficult. I think, as I said in my statement, one of the major areas is to educate the business community in areas of what the penalties are. Put it right on the documents that falsifying these documents could result in a $50,000 fine and five years in prison. It is a short statement. It would be easy to put on documents, put it on all the documents. Mr. SUNDQUIST. You think that would have made a difference with you? Mr. CASPERSON. Absolutely. I had no idea I could spend 5 years in jail. I knew it was wrong, but I didn't realize I could spend 5 years in jail for it. [The prepared statement follows:] 51-840 0 - 92 - 10 PAGENO="0290" 286 STTVIEMEr1T OR ROBERT J CASPERSOK PRESiDENT of C-fEE COMPUTERS INC. APRIL 18,1991 Mr. Chairman, and members of the Subcommittee. My name i Robert Caspirson soil I sin the president ot C-Tek Computers, Inc. of Kirkland, Washinciton. We buy and sell compute rs and a 1 so d) consul Ii ng work with corpora t ions regarding exportinq. I would like to share with iou my experiences and observations n~ the U.S l)epartment of Commerce otfice ot Export Enforcement regarding the transshipment of goods through Canada. As you know C-TEE Computers was involved in a case regarding the shipment of computers to Singapore without the proper export 1 i cense or sh 1 pp jog documents. After icy i og been served with a search warrant by agents of the Office of Export Enforcement of the U.S. Department of Commerce, I agreed to take part in an undercover operation that resulted in the arrests of three foreign nationals and one lJ.S. citizen who were involved in the case. There are also indictments outstanding for several other foreign. nationals and foreign companies that were involved in this transaction and other transactions that occurred during the undercover operation. One of the questions the agents asked no after the conclusion of this case was if we had it to do over again how would we do it. My response was first of all T would not do it again. Even though I stood to make in excess of $600,00D in a 6-3 month period, no amount of money is worth the impact that this has had on me or especially my family both emotionally and financially. It I were to do it again and had the knowledge that I have today as a result of my experiences in the undercover operation, I have found that it is very easy to ship and divert goods out of the U.S. to virtually any destination that you would choose. A lot ot what T am going to share with you I just stumbled upon. Anyone who wanted to make a career of this and took the time to study the export regulations of both the U.S.- and Canada could do this very easily with very little chance of being caught or if caught very little chance 01 being successfully prosecu ted. First of all we would find a nice small to medium sized broker located in Canada that sells the type of equipment that we would want to divert. I would tell them what I wanted to ship and to what (lest i nat ion and preferably I would let the Canadian broker purchase the equipment either in Canada or in the US. Actually it would not matter where he bought the equipment. If he could buy it in Canada that would sake it even harder to detect. The Canadian Broker would then apply for a Canadian Export 1 i cense or as they are called in Canada an Export Permit, and fill out the application truthfully. Oo the application form there is a block asking for the origin ot the items to he exported. The Canadian broker would put in this block that the origin would be the U.S. In our particular case the Canadian broker involved applied for more than seven different export permits, all of which showed that the origin of the computers was the U.S. There was no question that all of the computers that would be exported to either Singapore or India would be transhipped from the U.S. through Canada on to either India or Singapore. The Canadians did not ask if a U.S. re export license had been applied for in regards to any of the applications. Except for one application for graphics terminals that were to be shipped to Tndie, all of the applications were approved in under PAGENO="0291" 287 two weeks. At this caste time it was taking two to three months to get a U.S. export license approved. The application to India took about 3 1/2 months for approval , hut only because they requested letters from two companies in India regarding the application and Mr. Mohan, who was the purchaser of this equipment, was very slow in sending these. Had he responded faster the applications would have been approved a lot faster. By shipping the goods in the fashion T have described there is very little chance of it coming to Lbs attention of the US Commerce Department office of Export. Enforcement. Just tsr argutsents sake lets say that Commerce Department lid happen to stumble upon one of these transactions. The Caned ian broker would just say that he purchases equipment all the Lime in the U.S. and with free trade between the two countries it is his understanding that he did not need a U.S. export license to ship eguipment to Canada and as a Canadian citizen he is not familiar with the tJ.S. Export Regulations. He is though very famitiar with Canadian Export Regulations and has complied with all of their requirements and he told them that the origin of the equipment was the U.S. and they never informed him that he would need a re export license from the U.S. Department of Commerce. Tn this particular scenario there is nothing to f ie the tJ . S. cit i zen involved, to the transaction. I am not a attorney, hut I would fbi nk i t WOil id be very Ii f i Co 1 t ti pr cecil Ii inyone in t ft i case. It is my observaf ion that this type of transaction is going to become easier to do in the coming years with the advent of free trade with the Common Market and the possibility of free trade with Mexico. The question then is how do you stop this type of transaction. I do not think the Commerce Department can get the type of budget that would be required to hire the number of agents that would be needed to check every shipment that would be leaving the U.S. Even If they had the help of Customs it would he an impossible task to check the final destination of every shipment going out of this country. As I see it there are only a few things that can be done to slow it down. Dne is to educate the business community that there is an Dff ice of Export Enforcement that is checking on goods that are being shipped out of the U.S. I did not realize that the Department of Commerce had an office of Export Enforcement until after they served their search warrant. Tn fact I thought that they were customs agents urit i 1 the (lay after they did a search of my office. I would also educate the business community in regards to what the penalties would he if they were to be caught making illegal shipments. In my case I had no idea that I could spend up to five years in jail for this type of activity. I have to admit I did not go out and ask anyone either, t)ut the point is there needs to he a campaign to notify bus mess peoplit what the penalties would be. It) my case this would certainty have made me think twice about what I was about ta do. Right now you need to he very familiar with the export regulations to know this. I also think that the retulatmoos as they pertain to shipments to Cartada need to l)e rev ised and made easier to understand. Purl 0] the unde rc toe r operation the agents gave me sect ions of the regu Tat ions to read that wore highlighted in the areas that perta med to Canada. The agents i oterpretat ion was different from my interpretation and aftr I gave a copy to my attorney to read, he had a third interpretation of the same regulations. What I am trying to say is, that the way they are written is very confusing. The U.S. Department of Commerce is also going to have to find ways to m~m5t better cooperation will) their counterparts in Canada, the Common Market ~of in the fitter probably Mexico. PAGENO="0292" 288 They need to get the help o1 the exporting agencies in these countries to make their citizens aware of what the re export requirements are with regard to goods that originate in the United States. One thing that I found dealing with other computer brokers during the undercover operation, who do extensive exporting was that it is common practice to avoid the licensing proces:; it possible. They would do this not to divert goods to somewhere it should not go, but to avoid having to deal with the Commerce Department and expedite their shipments. One example was a computer broker in Minneapolis who had a cusl:o:ner in England who wanted to buy a large DEC VAX computer. The broker found one for sale in Australia. Rather than go through the hassle of dealinn with the Washington office of the Commerce Department and waiting the 1-2 months it would take for approval of a re export license, he found an Australian computer broker who already had a license to ship tim i a type of equipment to one of h is cus loner'; in London. So the US broker had the Australian broker pick up the equipment and ship it to his customer in London on his lustralian re export license. When the equipment arrived in London the U.S. broker had the equipment picked up and shipped to his customer elsewhere in England. I think the department of commerce has made great strides in the last two years with regards to the handling of license applications and answering questions that exporters might have. You now have a pretty good idea within two weeks of where your application is in the approval proceso. The hoot thing they did was open offices in Newport Beach, California and Portland, Oregon. The employees in these oft ices uni ike the Washington D.C. office are friendly, knowledgeable and very responsive. if they do not know the answer to a question and cannot direct you to someone who can, they say they will find out and call you l)ack. The best part is they actually do call back. Over the eighteen month period that the undercover operation, and the following investigation look place, I worked very closely with the agents of the office of Export Enforcement from San Jose, California. I can honestly say that the agents that I worked with always acted in a very professional and courteous manner. There were tines that they were insensitive as to how the undercover operation was effecting my family and as a result were effecting ny performance, though I believe that as a result of this investigation that they have learned a great deal about how they should handle cooperating defendants in the future. Tn the beginning ot this operation the agents did have difficulty in understanding how our industry worked aol the mechanics involved in this very complex case. By the end ot the investigation, I would have to say they are probably the mnost knowledgeable agents in the country with regards to the exporting of any sophisticated high tech equipment. T think we all learned a great deal about how goods could and are being diverted out of this country. I think that the Department of Commerce has a very valuable resource here, and one way that they could capitalize on this knowledge would he to give semi oars for all of their field agents. The content of those seminars should focus not only on the techniques usod to divert goods, hut also on what to look for as signs that individuals or companies are taking part in this sort of activity. If these seminars were to he responsible for stopping just one shipment, it would he worth the cost of doing. Once again I would like to thank you for the opportunity to address you, and I hope that my remsarks will be of some value to you. PAGENO="0293" 289 STATEMENT OF SHIV MOHAN MUKKAR, RAYBROOK, N.Y. Mr. SUNDQUIST. Mr. Do you prefer being called Mr. Mukkar? Mr. MUKKAR. Mukkar or Mohan, same thing. Mukkar. Mr. SUNDQUIST. Mukkar, Mr. Mukkar. Mr. MUKKAR. That is my family name, sir. Mr. SUNDQUIST. Mr. Mukkar, where is your home? Mr. MUKKAR. New Delhi, India, sir. Mr. SUNDQUIST. New Delhi. Mr. MUKKAR. Yes. Mr. SUNDQUIST. When did you leave New Delhi last? Mr. MUKKAR. The 17th of July 1989. Mr. SUNDQUIST. For what purpose? Mr. MUKKAR. I was coming to basically see my son in London who was at that time, and then also meet Mr. Townsend here and Casperson because I placed large orders and the equipment was not coming in. Mr. SUNDQUIST. You came over here for the meeting in Buffalo? Mr. MUKKAR. Yes, to settle the accounts. Mr. SUNDQUIST. Are you the owner of Perfect Technologies? Mr. MUKKAR. I am one of the directors, sir. Mr. SUNDQUIST. Who were the other owners? Mr. MUKKAR. There are two of them. One is, of course, my wife and there is one guy Sadewa. Mr. SUNDQUIST. Pardon me? Mr. MUKKAR. Mr. Sadewa. He was. He is no longer. After I was arrested, the company's almost closed, and he-you know, he left the company. He was a director at the time I left India. Mr. SUNDQUIST. Where did you have offices at that time? Mr. MUKKAR. At the time of my arrest, I had office in Bombay and Delhi. Mr. SUNDQUIST. London? Mr. MUKKAR. London is my agent where there is always-he is my partner in-not Perfect Technologies. He is my partner in other activities. I was trying to make an amusement park in India. Mr. SUNDQUIST. But he was your partner, and you had an office there? Mr. MUKKAR. No. He is my partner in India, in another venture. Perfect Technologies, he is the director and he owns the company 100 percent. Mr. SUNDQUIST. Excuse me one second, Mr. Mukkar. Ms. Moore, if you disagree, would you speak up at this point, or any point? Ms. MOORE. Yes. I would just-I think that Mr. Mohan forgot to mention Sidhartha Bose as an officer of Perfect Technologies and also forgot to mention that Perfect Technologies maintains an office in Russia. Mr. SUNDQUIST. I was just getting to that. What is Mr. Bose's role-was he not an officer? Mr. MUKKAR. No, sir. He owned the company and all those docu- ments are in-was given to me even in the discovery material that Sidhartha Bose owned the company. Mr. SUNDQUIST. Owned what company? Mr. MUKKAR. Perfect Technologies, Ltd. PAGENO="0294" 290 Mr. SUNDQUIST. So he was an owner of the company? Mr. MUKKAR. He is the owner of the company of Perfect Technol- ogies. They are my agents duly approved by Reserve Bank of India. Mr. SUNDQUIST. Mr. Mukkar, I do want to remind you that you are under oath. Mr. MUKKAR. I am under oath, sir. I know. Mr. SUNDQUIST. And you swore to tell us the truth. Mr. MUKKAR. Right, sir. Mr. SUNDQUIST. And when I ask you the question of who the offi- cers were, you failed to mention-or who the owners were, owners or officers-you failed to mention Mr. Bose. Mr. MUKKAR. Dr. Bose is the owner of Perfect Technologies. Mr. SUNDQUIST. So you would like to correct what you said previ- ously, right? Mr. MUKKAR. Oh, I see. It is a limited company. I will put it this way. Then if it is the technical language to be used, Dr. Bose owns majority shares of the company. Mr. SUNDQUIST. Where is Mr. Bose now? Mr. MUKKAR. I do not know. Last he was in India because it was his daughter's birthday. My agent for exports, he was from 19-Dr. Bose actually was working for an American company in 1983. Mr. SUNDQUIST. Did he not benefit from the income of Perfect Technologies that you owned or were officer in? Mr. MUKKAR. I am not an officer in Perfect Technologies, sir. Mr. SUNDQUIST. You are not a part owner of- Mr. MUKKAR. No, sir. Mr. SUNDQUIST. You didn't own any part of Perfect Technologies? Mr. MUKKAR. No, sir. I did not own any part of Perfect Technol- ogies. Mr. SUNDQUIST. You did not benefit from sales made by Perfect Technologies? Mr. MUKKAR. Yes, I benefit because they are my agents and that approval is given to me by the Government of India. Mr. SUNDQLTIST. What? Mr. MUKKAR. They are my agents. Agents. They sell my equip- ment. They are my agents in England, and they have an office in the Soviet Union also. Mr. SUNDQUTST. So they sold for you? Mr. MUKKAR. Not essentially me. They were agents for a lot of other companies like Technicom. Mr. SUNDQUIST. Did they sell for you in addition to other compa- nies? Mr. MUKEAR. Yes, I was one of their principals. They had many other principals also. Mr. SUNDQUIST. Is it true that there is a warrant out for~ Mr. Bose? Do you know if Mr. Bose has a warrant out for his arrest? Mr. MUKKAR. I do not know, sir. Mr. SUNDQUIST. You don't know that? Mr. MUKKAR. No. Mr. SUNDQUIST. Ms. Moore, do you know? Ms. MooRE. Yes, there is a warrant out for his arrest. Mr. SUNDQUIST. For what reason? Ms. MOORE. He is charged in the indictment, the same indict- ment that Mr. Mohan pled guilty to. PAGENO="0295" 291 Mr. SUNDQUJST. But, Mr. Mukkar, you didn't know that he was charged in the same indictment? Mr. MUKKAR. He was charged in the same indictment, but whether there was a warrant out or not, I did not know, sir. Mr. SUNDQUIST. And Perfect Technologies had an office or has an office in Moscow? Mr. MUKKAR. Yes, sir, they have an office- Mr. SUNDQUIST. Have you ever been to Moscow? Did you ever go to that office?~ Mr. MUKKAR. Yes, sir, I have been to Moscow a couple of times. Mr. SUNDQUIST. These are the minutes from a meeting on June 30, 1988. Mr. MUKKAR. Right, sir. Mr. SUNDQUIST. It is the minutes of a meeting discussing the export orders from the U.S.S.R. Mr. MUKKAR. Right. Mr. SUNDQUIST. You are familiar with that? Mr. MUKKAR. Yes, right, sir. Mr. SUNDQUIST. And you were present during that meeting? Mr. MUKKAR. June of-I do not know what document it is, sir. Mr. SUNDQUIST. This is where terms of business with PTL were discussed, the cover charge, the commissions- Mr. MUKKAR. Right, sir. Right. Mr. SUNDQUIST. You were present then? Mr. MUKKAR. Right, sir. Mr. SUNDQUIST. Ms. Moore, would you walk us through this just generally? Ms. MOORE. Yes. I gave you my only copy of the document. Mr. SUNDQUIST. I will give it back. Ms. MOORE. This document, which bears the Bates number 7120, is a document that was seized pursuant to a search warrant from another individual who was charged in the indictment named Mr. Malhotra, who is located in New York. Mr. Malhotra subsequently pleaded guilty to a misdemeanor. This document reflects the minutes of a meeting on June 30, 1988, between Shiv Mohan, Sidhartha Bose, and an individual named Mr. Beliga, where they appear to be setting up the terms, the commissions that the parties would get for export orders to the U.S.S.R. This was the first documented proof that we had of an agree- ment between PTL, Perfect Technologies, Ltd., and Kohinoor Impex. When I give you back the document, you will see Kohinoor is listed in here, and Kohinoor, of course, is the company owned by Mr. Mohan. This date coincides with the date that Mr. Mohan was contacting John Townsend and Mr. Casperson for large orders of Tektronix 4225's and Micro VAX 2 computers. This document also seems to contradict Mr. Mohan's attorney's statement to the court in Buffa- lo, New York, wherein he stated that Mr. Mohan was just a small- time businessman who, if he sold anything at all to Russia, it was simply personal computers. Mr. SuNDQuI5T. Thank you, Ms. Moore. Mr. Mohan, could you tell us about this-is it Kohinoor, the busi- ness? PAGENO="0296" 292 Mr. MUKKAR. Yes, sir. I will explain to you, sir. Actually, this document if anybody will see he will get confused. Dr. Bose's company, Perfect Technologies, is my agent for any export order they get from any place in Soviet Union-the coun- tries that are defined in the agreement. Now, Indian Government allows that if you import components and assemble those components and have some added value in that manufacture, you could export it to Soviet Union. Otherwise, the export is not allowed to Soviet Union. If. you buy in dollars, you cannot sell in rupees. You have under the bilateral agreement, it is so. So the indian Government, you have to go to the Indian Gov- ernment and say that I need components for 500, 1 will export for 1,000, the Government gives you a license for 500, and then you export for 1,000. Now, besides Dr. Bose was my agent for sales, sometimes it hap- pened that he had to buy some components for me also. Just about that this was written, it coincided with the time when I was talk- ing to Townsend, but also it coincided with the time when I was negotiating 1,000 pieces of personal computer components from Taiwan. So I told them that I cannot pay you 5 percent on both sides, when I buy and I sell, so I give you only 2 percent on those components which you buy, and then 5 percent on the normal com- mission, because if you are giving me the components, same compo- nents I am assembling, and I am selling it to the Soviet Union, you are my agent as per Reserve Bank of India, so you start getting- and this, for this 2 percent also, we got the approval additional 2 percent. We got the approval from the Reserve Bank of India. Mr. SUNDQUIST. This is the contract that resulted in your sen- tencing, I assume. This is the sale of the equipment. Mr. MUKKAR. No, sir. This is a general contract. Actually this was-there was a big- Mr. SUNDQUIST. This is not the basis, Ms. Moore? Ms. MOORE. This is one of the pieces of evidence that establishes the diversion to the Soviet Union. The contract for the 8700 is a different document. Mr. SUNDQUIST. I understand that. Ms. MOORE. I think Mr. Mohan, perhaps he could tell us what equipment it was that is referred to in this document that he was- Mr. MUKKAR. I have documents attested by the American Em- bassy which I wanted to give at the trial. Mr. SUNDQUIST. If you could briefly describe it, and then if we could have those for the record- Mr. MUKKAR. Starting from videocassettes, radio tape recorders, silver plates, pencil sharpeners, and practically 15 other products I was exporting to Soviet Union, plus personal computers starting from 1987. Mr. SUNDQUIST. So you have supplied computers to the Soviet Union? Mr. MUKKAR. Only personal computers. Mr. SUNDQUIST. Only personal computers. Mr. MUKEAR. Only personal computers. Mr. SUNDQUIST. And you had no part in the computer shipment that was discussed and the meeting in Buffalo was arranged for? PAGENO="0297" 293 Mr. MUKKAR. That Buffalo-I mean, sorry, sir. Are you talking about Tektronix? Mr. SUNDQUIST. Yes, Tektronix. Mr. MUKKAR. Yes. Tektronix, a license was obtained. I was told by Mr. Casperson that the license was-now through Mr. Town- send. The first time I met Mr. Casperson at the meeting in Buffalo. I had not met him ever before. Mr. SUNDQUIST. What kind of equipment were you ordering? Mr. MUKKAR. 4225 for shipment to India. Ms. MOORE. Perhaps Mr. Mohan could then explain for us, if this equipment was to go to India, why he did not have an Indian export license for the 4225's as required by Indian law. Mr. MUKKAR. Export license or- Ms. MOORE. Import license. Mr. SUNDQUIST. Import license. Mr. MUKKAR. I had the import license. I can give you that also. Maybe it will be with me. Actually, terminals at that time-I have to correct myself. Terminals at that time were OGL, but I will still check up and I will give you the detailed reply. It was an open gen- eral license, one item, whether it was terminals or-this was not a workstation because every time-it was termed in the indictment also as a workstation. Whereas, 4225 was a terminal. And an export license from Canada was obtained in the name of Kohinoor Impex for that. Ms. MOORE. But no import certificate or license was obtaining from the Government of India. Isn't that correct? Mr. MUKKAR. Import certificate applicability started from April of 1989. Mr. SUNDQUIST. Mr. Mohan, if what you are saying is true, why did you plead guilty to conspiracy for making false statements and money laundering? Mr. MUKKAR. Sir, money laundering is an automatic offense. Mr. SUNDQUIST. What about the false statements? Mr. MUKKAR. No false statements. I have pleaded guilty to knowledge of the offense- Mr. SUNDQUIST. What about conspiracy? Mr. MUKKAR. I am not pleading guilty for that, sir. Mr. SUNDQUIST. Ms. Moore? Ms. MOORE. No, he has not, is my understanding. Mr. SUNDQUIST. What did you plead guilty to? Ms. MOORE. To knowingly violating U.S. export laws pursuant to 2410(a), which does not specify going to a controlled country. Mr. MOODY. Would the gentleman yield for a minute? Mr. SUNDQUIST. I would yield. Mr. MOODY. Mr. Mohan, this document right here, numbered 7120- Mr. MUKKAR. Right, sir. Mr. MOODY. Where were these items to go? What was your un- derstanding of where they would finally go? Mr. MUKKAR. 4225, originally when we decided when I was im- porting the material-there were three items, sir: Micro VAX's, 4225's, and 8700. They are the only three items totally described in the indictment and various papers, whichever has come to us. PAGENO="0298" 294 Micro VAX, first the order was placed in May of 1988. The reason the order was placed, because DEC was coming into- Mr. MOODY. Just try to answer the question I asked you without giving me other information. Mr. MUKKAR. Right. Mr. MOODY. What equipment does this cover? This is the minutes of the meeting on 30/6/88, June 30, 1988. Mr. MUKKAR. There is a big list of equipment which was going, and it is gone already. Mr. MOODY. Did you know this would go to the Soviet Union? Mr. MUKKAR. Which one? Mr. MOODY. Did you know that these would end up in the Soviet Union? Mr. MUKKAR. Which one? The- Mr. MOODY. The ones referred to in this-covered by the minutes of this meeting. Mr. MUKKAR. No, sir, I don't understand what you are saying. These computers in the indictment were not going to Soviet Union at all. Mr. MOODY. Where were they going? Mr. MUKKAR. They were going to India. Mr. MOODY. But as Ms. Moore pointed out, you had no license to take them to India, no Indian license. Mr. MUKKAR. Not required, sir, until that time. The license re- quirement came in April of 1989. Mr. MOODY. Did you participate in anything going to the Soviet Union? Do you have any knowledge of anything going to the Soviet Union? Mr. MUKKAR. Not at all, sir. Mr. MOODY. You didn't have knowledge of anything going to the Soviet Union? Mr. MUKKAR. I had no knowledge at all of anything going to the Soviet Union other than what I was manufacturing. Mr. SUNDQUIST. Mr. Mukkar, I want to remind you you are under oath. Mr. MUKKAR. I know, sir. Mr. SUNDQUIST. It is very serious. Mr. MUKKAR. Anything is if I am then referring to the equip- ment you are talking about. Mr. SUNDQUIST. Now, the- Mr. MOODY. Don, let me just finish this point. You say you had no knowledge of anything going to the Soviet Union, correct? Mr. MUKKAR. No, no, sir. Anything means anything-I mean, I was exporting a lot of things to Soviet Union. Mr. MooDY. But nothing of the-none of this controlled technolo- gy? Mr. MUKKAR. I do not know, sir. I was exporting-whatever I was exporting from India, I was exporting with a new export li- cense from-issued to me by the Government of India. Mr. MOODY. Ms. Moore, maybe you can help me. Am I not asking the right question? Ms. MOORE. Perhaps, Mr. Mohan, you admit, Mr. Mohan, that you were involved or placed an order for an 8700 computer. Is that correct, sir? PAGENO="0299" 295 Mr. MUKKAR. Right. Ms. MOORE. And could you explain to the Congressman why that computer, which is approximately 8 feet tall, weighs 2,000 pounds, was going to a private apartment in Singapore? Mr. MUKKAR. A private-we, I had to start my own business in Singapore, which I started in June of-before I got arrested. June of 1988 I started a company with Dr. Bose. Mr. MOODY. Are you telling us that that computer that Ms. Moore just described was going to a personal private apartment? Mr. MUKKAR. No, sir. It was going to be used by me. Mr. MOODY. To do what? Mr. MUKKAR. To make-to start software project. Mr. MOODY. In Singapore? Mr. MUKKAR. In Singapore, sir. Mr. MOODY. You lived in Singapore? Mr. MUKKAR. I had bought a house, and I was to shift to Singa- pore thereafter. Mr. MOODY. Ms. Moore, we are missing something? Mr. Mukkar, can you tell us why you didn't get an import certifi- cate from Singapore for that equipment, sir? Mr. MUKKAR. I asked these people, which is on the recording. They never asked me that an import certificate required. They had been getting the license- Mr. MOODY. Who is "they" in this case? Mr. MUKKAR. They means Mr. Casperson and Mr. Townsend. Mr. MOODY. But is Ms. Moore correct? If you thought you were taking it to Singapore, why didn't you have an import license for Singapore? Mr. MUKKAR. Because there always they were exporting from Canada and there was no requirement of import certificate from Canada. Ms. MOORE. Mr. Mohan, you knew that the 8700 was not coming from Canada. You got documents from John Townsend telling you it was being shipped from Seattle. Mr. MUKKAR. But did they ask me- Ms. MOORE. You got a fax- Mr. MUKKAR. Did they ask me for import certificate then? Mr. MOODY. But you knew it wasn't coming from Canada, so why do you bring Canada into the 8700 discussion? Mr. MUKKAR. Originally, in September, October, they told me that the machine is available from Canada through David Whyte. In November they told me that they are shipping the material from-what you call-the United States. Mr. Casperson confirmed to my man, Mr. Beliga, that everything what we were doing was legal. It's on the tape in the conversation. It is one of the docu- ments that I have submitted. Mr. MOODY. Ms. Moore, comment? Mr. MUKKAR. And, sir, one small thing. 8700 document, the Rus- sian document which has been the contract which has been al- ready-$560,000 and the bank document which has been said. The total contract value of this contract- Mr. MOODY. Say that again? Mr. MUKKAR. The total contract value of the contract submitted to the bank is $562,000. PAGENO="0300" 296 Mr. MOODY. Right. Mr. MUKKAR. The cost price of 8700 from Mr. CASperson was $650,000. Either I must be a crazy man buying a machine for $650,000 and selling for $562,000? This was a different contract. Mr. MOODY. You mean the Soviet contract that you have there was for a different piece of equipment? Mr. MUKKAR. Different piece of equipment. Mr. MooDY. Where did the 8700 finally end up? Mr. MUKKAR. 8700 went to Singapore. They was select-I am sorry with my English. Mr. MOODY. Just take your time. Mr. MUKKAR. The first 8700 I gave a letter of credit for a com- plete machine from another company owned by the same group of people. These are the people chart accountants like any compa- ny- Mr. MOODY. Just answer my question. Where did the 8700 finally end up? Mr. MURKAR. Original intention-original destination Singapore. Mr. MOODY. And that is where it is now? Mr. MUKKAR. No. Then later on, when the machine went, Mr. Casperson and Mr. Townsend both travel to Singapore to assemble the machine. Mr. Moo:DY. Is that true, Mr. Casperson? Mr. CASPERSON. Yes, it is, sir. Mr. MOODY. When you assembled it, where did you think it was going, Mr. Casperson? Mr. CASPERSON. I thought it was going on to India at that time. Mr. MOODY. Sorry? Mr. CASPERSON. I thought it was going to India. Mr. MooDY. You thought it was going to India. Who told you that? Mr. CASPERSON. John Townsend. Mr. MOODY. Where did you think it was going, Mr. Mukkar? Mr. MUEKAR. Sir, it is just unthinkable to imagine that I-the way I have been projected as a con man, that I will ask to break the machine, take it to Singapore, come there, assemble it again, and then I break it again and send it somewhere else. Ms. MOORE. Mr. Mohan, are you aware that John Townsend, pur- suant to his plea agreement, your partner John Townsend has told prosecutors that you told him that the 8700 was destined for either Bulgaria or Romania? Mr. MOODY. Did you say that, Mr. Mukkar? Mr. MUKKAR. No, sir. Mr. SuN]QuIsT. If I could reclaim my time. Mr. SASTRA. You should not cross-examine him in this proceed- ing. Mr. SUNDQUIST. Pardon me? Mr. SASTRA. She should not cross-examine him in this proceed- ing. Mr. SUNDQUIST. I have invited her to, so it is no problem. I have asked her to speak up because- Mr. MOODY. We are just trying to get the facts. Mr. SUNDQUIST. That is what we are trying to do. PAGENO="0301" 297 Mr. ANTHONY. Would the gentleman yield? Let me advise Mr. Sastra that under the rules of the committee, you are not permit- ted to speak other than to your client. If you would like to talk to him in private, that is the purpose of your being allowed to appear, only directly to him off the record. Do you need a minute to talk to him? Mr. SASTRA. Just one second. I don't want Ms. Moore to- Mr. ANTHONY. You are not supposed to say it to us. We will attend to that. Mr. SUNDQUIST. Mr. Chairman, if I could just- Mr. ANTHONY. Ms. Moore, if you have a question, we certainly don't mind your helping us inasmuch as you- Ms. MOORE. Thank you, Mr. Anthony. Mr. ANTHONY. You prepared for a trial in this case. If you have some suggested lines of questions, just direct it directly to me, and we will see to it that the question is asked. That will satisfy the concerns there. Mr. SUNDQUIST. Mr. Mohan, what I am trying to figure out is the contract with the Soviet Union. Mr. MUKKAR. Right, sir. Mr. SUNDQUIST. The letter of credit specifically. The letter of credit from the Soviet Union was for the same amount, as I under- stand it, as the VAX purchased from Perfect Technologies, same amount of money. Now, that is just not a coincidence, is it? Mr. MUKKAR. No, no, sir. They asked for $490,000. They sent $490,000. Mr. SUNDQUIST. From the Soviet Union? Mr. MUKKAR. Not from the Soviet Union. This was sent from London, sir. This money was sent from London. Mr. SUNDQUIST. Why is it printed in Russian? Mr. MUKKAR. The contract given, as I said, it is very-if you have two houses, if you want to buy a house and you have a house already, you don't have the mortgage on that. You take the mort- gage on the first house and buy the second house. So this was a contract which we had on which-I mean not we, which the agent had. And he sent this document to the bank. This is what was ex- plained to me, and then I was going- Mr. SUNDQUIST. In Russian? Mr. MUKKAR. No, no. This is a contract- Mr. SUNDQUIST. Do you speak Russian? Mr. MUKKAR. No, sir, I don't. My agent-that is the reason I need an agent. Mr. SUNDQUIST. So it was for the purchase of these machines? Mr. MUKKAR. No, sir. This particular contract, which was given to the bank, was a contract for the supply of certain equipment, part of which equipment went from America, from a company called Technicom, which I check, later on. Because when I saw this document I was also equally shaken. Mr. SUNDQUIST. Mr. Casperson, could you shed some light on this in terms of that contract? Mr. CASPERSON. The contract from London I was not aware of until July of this past year. Mr. SUNDQUIST. You have no knowledge of it then? Mr. CASPERSON. No, I did not, sir. PAGENO="0302" 298 Mr. SUN1JIQUIST. Ms. Moore? Ms. MOORE. The amount of money that is in the document at- tached to the contract is the same amount of money that was used to purchase the 8700. Mr. SUNDQUIST. Ms. Moore, you don't think that is just a coinci- dence that it would be the precise amount of money? Ms. MOORE. No, I do not, sir. Mr. SUNDQUIST. You feel that we are fairly safe in assuming that that was for the VAX machine? Ms. MOORE. That, coupled with other evidence in the case, yes. Mr. SUNDQUIST. What is the other evidence? Ms. MOORE. The fact that it went to an apartment building, the fact that it was broken down, the fact of the Soviet connection, yes, sir. Mr. SUNDQUIST. My last question, Mr. Mohan. Where did the money come from, the million dollars that was put up for your bail in Buffalo? Mr. MUKKAR. From a friend of mine whom I met immediately after my marriage. He also had got married at the same time. It is a matter of coincidence. He had one son; I had one son. And we became- Mr. SUNDQUIST. What was his name? Mr. MUKKAR. Mr. Bernard Lang. Mr. SUNDQUIST. Where is he from? Mr. MUKKAR. He is from Geneva. His sister is married to the family of his family, and his father is a leather manufacturer in Brussels, Belgium. So on the bail money, the magistrate, magis- trate put up a bail for a million dollar cash only. He put the re- striction, million dollar cash only. I have a lot of friends and rela- tions in this country, but since it was cash only, I don't have such friends who have a million dollars. I have to look for a rich friend. Mr. SUNDQ,UIST. Do you have a fax machine in prison? Mr. MUKKAR. In where, sir? Mr. SUNDQUIST. Did you have a fax machine in your prison? Mr. MUKKAR. No, sir. Mr. SUNDQUIST. You don't? Mr. MUKKAR. No, sir. I don't have-there is a fax machine with the case manager. Mr. SUNDQUIST. It is not yours? Mr. MUKKAR. No, it is not mine. Mr. SUNDQUIST. Do you have access to it? Mr. MUKKAR. Pardon me? Mr. SUNDQtJIST. Do you have access to it? Mr. MUKKAR. No, sir. The fax which I sent to Mr. Onner, I am sure you are referring to that, was sent by my son. Mr. SUNDQUIST. You have sent no faxes from prison or you have no fax machine- Mr. MUKKAR. No, I have no- Mr. SUNDQUJST. You have no access to a fax machine. Mr. MUKKAR. No, I said, and they don't-they only gave me the fax which was sent by the Congress to the prison. I have got no access to any fax machine. Mr. SUNDQUIST. Are you still conducting business with Mr. Bose? PAGENO="0303" 299 Mr. MUKKAR. Sir, I am in prison. How can I-I work for Unicor now. Mr. SUNDQUIST. Thank you. Thank you, Mr. Chairman. Mr. ANTHONY. Ms. Moore, you are familiar with the final plea, the plea bargain, and what was actually entered of record? Ms. MOORE. Just briefly, Mr. Anthony, not the specifics. But I can try. Mr. ANTHONY. I was curious as to whether or not there was a plea of record of more than just money laundering? Was there a plea of a specific count that concerns the Export Administration Act? Ms. MOORE. It is my understanding that there was a plea to a 2410(a) violation. Which specific count it involved, whether it was the 8700 or the micro VAX's. I cannot tell you, but I am sure that there was a plea to 2410(a). Mr. ANTHONY. Is that your recollection, Mr. Mukkar? Mr. MUKKAR. Yes, sir. It is 2410(a). Mr. ANTHONY. But it is your recollection that you knowingly pled guilty in a court of law to more than just a money laundering of- fense? Mr. MUKKAR. Yes, sir, because they said it is money laundering and that goes side by side. Sorry, sir. My English knowledge is not very good. Yes, sir, I pleaded knowledge to this violation, to this count, both the counts. I pleaded guilty to both the counts. It is an export viola- tion. Mr. ANTHONY. So to rephrase my question, or repeat my ques- tion, you knowingly pled guilty in court to more than just money laundering? So you have acknowledged, for the public record, that you are guilty of some violation of the United States statutes deal- ing with shipments that would require export licensing? Mr. MUKKAR. I have pleaded guilty that I had the knowledge of that violation, that it makes me guilty. Mr. ANTHONY. And you had the knowledge it made you guilty? Mr. MUKKAR. Yes. Mr. ANTHONY. When that was advised to you in court, you re- tained your attorneys. Based, I assume, on a multitude of options, you chose to accept the plea bargain arrangement rather than go to a trial? Mr. MUKKAR. Right, because it was told in the court that it is better that we settle the case outside the-you know. Mr. ANTHONY. In other words, you felt that it was better to plead to 33 months in prison and a $1.5 million fine rather than fight for your full innocence before a jury, although you say that you are innocent? Mr. MUKKAR. The guidelines was 16 years. I would have been 60 years old by the time I would have got out. Mr. ANTHONY. But had the jury believed you, you would have been set free. Mr. MUKKAR. But juries are not predictable. It was a very big chance for my life. Mr. ANTHONY. So you chose to- Mr. MUKKAR. I chose to plead guilty, sir. PAGENO="0304" 300 Mr. ANTHONY. So you chose to plead guilty. Has the fine been paid? Mr. MUKKAR. Yes, but my plea agreement, some fine has to be paid in Indian rupees-I mean, not in Indian rupees, with the per- mission of my government, because otherwise it becomes a viola- tion by me. So it has been applied for, or not applied for, I do not know. I think I was advised that it has been applied for. I can find out. Mr. ANTHONY. Were you familiar with all of the requests for the shipment of the various computers? Do you have sufficient recall that if I ask you about some of the computer shipments, you will be familiar with them? Mr. MUKKAR. I will try to answer your questions. Mr. ANTHONY. Did you have sufficient contact with each one of the shipments that you think you would be familiar- Mr. MUKKAR. No, sir, except for one shipment, the second ship- ment when it went, 8700. One portion of material, I was coming to the same thing. Mr. Townsend and Mr. Casperson were in Singa- pore. They cleared one shipment and then they left the place. Mr. Casperson came to America. Then we found some problem, advised by the Singapore Govern- ment, that the computer has been shipped illegally, without a li- cense. The person who was there, he sent the computer not only which was the Singapore Government advised us, that even the material which was cleared because Department of Commerce was only investigating W.K. Agency. The computer was shipped to two companies. One company's material was cleared already by the customs. One company, they stopped the material. The second company my man was advised that it has been shipped without license. So he not only did the ship and paid the money for the freight also, even that material which was lying here in the customs. Mr. ANTHONY. Let me ask you about the five microVAX-Il com- puters. Do you know what happened to them? Mr. MUKKAR. I had known they went to Singapore. But immedi- ately went to Singapore, originally those computers were to go to India. Then a Canadian license, they were unable to obtain a li- cense for India. I did not want the computers because my basic ob- jective was gone. My basic objective was to sell those computers by the time DEC India comes into. DEC India started manufacture of equipment in 1989, February. Now I had to compete directly with DEC. It was difficult for me to sell. I told Townsend that if he could sell the material here, he could not. Then I asked people in Singapore, they said we will buy it, so a license was obtained for Singapore and sent to Singapore. Thereaf- ter, I am run either for money, from thereafter- Mr. ANTHONY. Do you know where those computers are? Mr. MUKKAR. I really do not know, after it went to Singapore. Mr. ANTHONY. Let us talk about the 50 model 4225-II-D Tek- tronix graphics workstations. I understand they are valued at about $17,000 each? Mr. MUKKAR. The sale price to me was $22,000. Mr. ANTHONY. How much? PAGENO="0305" 301 Mr. MUKKAR. $24,000. Mr. ANTHONY. What did you intend to do with the 50 Tektronix workstations? Mr. MUKKAR. Sir, DEC India had started manufacturing comput- ers in India, the same micro VAX-IT, which- Mr. ANTHONY. Did you have a purchaser for them in India? Mr. MUKKAR. We had few purchasers, but all my life I have been a success selling material from stock. Mr. ANTHONY. You were going to take them and put them in your inventory? Mr. MUKKAR. In my inventory. Sir, I have been buying 10,000 Honda engines at one time. I was the biggest buyer from Hawkins Sidley, biggest buyer from Cummins Engine Co. And my success has been because of keeping the stock and selling from stock. Mr. ANTHONY. Did you have a warehouse where you would keep this inventory stock? Mr. MUKKAR. 60,000 square foot of warehouse. Mr. ANTHONY. Mr. Sike, Mr. Hobbs, did you all ever find this warehouse, and did you find the 50 Tektronix workstations stored there for future sale? Ms. Moore? Ms. MOORE. The Tektronix were not exported. That was part of the sting operation, but you may want to ask- Mr. ANTHONY. They were actually stopped after the arrest in Buffalo? Ms. MOORE. That is correct, but you may want to ask Mr. Mohan, who testified or who caused to have testimony presented at his original detention trial, that Multi-Rubber was going to be a cus- tomer for one of these pieces of equipment, the Tektronix. We con- tacted Multi-Rubber in India, who had no knowledge of Mr. Mohan and denied ever having placed any purchase order. Mr. ANTHONY. Do you have any proof or did you submit any proof that you had a-rather than going into it, let me just say this. Through your attorney, if you have some proof that you actu- ally had a customer that was never presented to the court- Mr. MUKKAR. That is what I was submitting, sir. Mr. ANTHONY. If you had that, we would allow you to submit that for the record. Mr. MUKKAR. It is already submitted to the court. Mr. ANTHONY. If it is already submitted as part of the court record, we have all of those transcripts and we have that informa- tion. Mr. MUKKAR. Immediately I got arrested- Mr. ANTHONY. Let me ask you this question. You stated that in your opinion you were going to buy them and put them in invento- ry, although you did not have sufficient customers to sell them im- mediately? Mr. MUKKAR. Right, sir. Mr. ANTHONY. There is a dispute between the witnesses at the table and what the investigative file shows. Where this one person that you said was going to purchase it, we have a statement in the file that says that is not correct. So at least that is there. You have got your statement and they have got their statement. But knowing that you are telling this subcommittee that the in- tended use was a legitimate use, why was there an attempt to cir- PAGENO="0306" 302 cumvent the U.S. export control laws by shipping through Canada? Why did it just not go direct from the United States? Mr. MUKKAR. Because I was told that Canadian law-Mr. Casper- son told me, even up to do the day I think before his arrest, I was told that Canadian law was-even the discovery material says that Canadian licenses are as good as United States licenses. Mr. ANTHONY. Mr. Casperson, what is your response? Mr. CASPERSON. That was all during the undercover operation and that was part of- Mr. ANTHONY. That was part of the sting? Mr. CASPERSON. Yes. One thing, earlier you had said in my state- ment that I would break down equipment and send it to Canada. It is easier than that. Mr. ANTHONY. Tell me how you would do it? I want Mr. Hobbs and Mr. Sike to listen to this. Mr. CASPERSON. I would not break down anything. I would not lie to the Canadian Government, at this point. I would tell them exact- ly what we were doing. Mr. ANTHONY. You would ship it in whole, and you would tell the truth? Mr. CASPERSON. We have a broker in Canada buy the equipment. Where he bought it, we really would not care. He would go and get his Canadian export license and put it on his permit application that the origin of the goods was the United States. In every case, in over seven of the permits that the Canadian broker applied for, in every case he put on the document that the origin of the goods was the United States. And the Canadian Gov- ernment never asked him whether or not he had a reexport license from the United States. Mr. ANTHONY. Mr. Casperson, if you decided to be a recidivist and understood that there was a lot of money out there and under- stood that there were a lot of clients available out there, with the exception of. the fear of a tip going to Commerce and Customs, what would be your overall fear of being detected on making these illegal shipments? Mr. CASPERSON. I think I misunderstood you. Mr. ANTHONY. I am just saying if you got back into the business, and taking out the fact that somebody would get suspicious, a tip- ster-and what we have determined up here is that a tipster is really a competitor. Mr. CASPERSON. Right. Mr. ANTHONY. Somebody that is mad at somebody else for making a sale when they would not make the sale. So somebody said that it was the patriotism of the businessman. Some of us think that it may be the greed of the businessman not to lose a sale. But anyway, what would be your fear of being caught, knowing what you know? You are a much better expert at the laws now, in terms of--you stumbled into them. Mr. CASPERSON. Knowing what I know now, I would have very little fear. Mr. ANTHONY. You would have every fear of getting caught? Mr. CASPERSON. Very little fear of being caught. PAGENO="0307" 303 Mr. ANTHONY. You have heard all these witnesses testify about what a great job they are doing and the licensing and the investi- gatory being hand-in-glove and what a great job they are doing. I do not understand. Here is the criminal who is saying that he has already been caught and punished, but if he went out and did it again he would have absolutely no fear of getting caught, or little fear of getting caught. We have the other side bragging about how easy it is to detect you and shut you down. Tell me what you would do? Mr. CASPERSON. There would be very little chance of connecting a U.S. citizen to that type of a transaction, in the way I described it. Mr. ANTHONY. So that is what you would do? You would just ship it all up to Canada, find a legal broker up there? Mr. CASPERSON. A legal broker in Canada would be taking care of everything. Mr. ANTHONY. That would take care of everything? You would just ship it up there. Do you have a response to that, Mr. Hobbs, Sike, Deliberti? What would Commerce do if he was back out on the street under another name, selling illegal high technology goods from the United States and just transshipping it through Canada and using truth on the forms, et cetera, just like he said? What in our system would catch that? Mr. DELIBERTI. It may happen where he may beat the system. There is no doubt about that. He may beat the system. But then again, he may not. There are many people out there who are aware of export controls. He is going to have to get financing. He is going to have to go to a manufacturer. He is going to have to go to a packer. He is going to have to go to a freight forwarder. He is going to have to go to an airline. He is going to have contact with quite a few people. And he may beat the system. But then again he may have a sharp exporter, a sharp traffic manager, a sharp salesman who looks at these red flag indicators that we give them and he may be able to be picked up again. Mr. ANTHONY. I guess I agree with you in theory. The only thing that disturbs me is that he might make ten sales before that occurs. And then I am worried about what happens with the end use of those ten that go. I guess I am trying to find out if there is a way that we can cooperate with you and your agencies and find tighter controls. I am telling you, it disturbs me. It has got to make Ms. Moore just fume to hear a criminal that she had investigated and pros- ecuted come right back and tell me, Mr. Prosecutor, "If I want to go back out on the streets, I can do it again. I have absolutely little fear of getting caught." I would almost feel like I had not done my part of the job, Ms. Moore. It is very disheartening to hear that kind of conversation. Mr. Mukkar, it is a little bit more difficult to do business with you because you say you are innocent but you pled guilty, and you are serving time in prison and you have to pay a big fine. So it is more difficult to deal with your situation, but I will say this, from what Ms. Moore, Mr. Casperson, Mr. Sike, Mr. Hobbs have laid out on the table for this committee to read in terms of documentation PAGENO="0308" 304 in tracing you and your connections with certain organizations and certain countries, I think I know why you did not take it to a jury trial. I have a feeling that if a jury read what I read or heard, and took it in the jury room and deliberated on it for long, Ms. Moore would have gotten her wish. It sounds to me it would have been perfect jury appeal. With the arrogant attitude that you are displaying right now, if I had you in a courtroom and under cross-examination for about a day-and-a-half and let the jury get a good taste of you and how much money you have made out of this and what you have done, assuming that the law had not been changed in terms of decertify- ing a piece of equipment, I would relish my closing argument. T would love to have Mr. Sastra come in behind me and cover up and explain how you are this innocent businessman who has set up these false fronts and ordered all this equipment and shipped it through so many different places. I must tell you, you have not im- pressed me one whit. There may be some other people on this committee that think that you are an innocent businessman out there buying computers and you have been duped by all of these other people. Mr. Sastra may be an excellent attorney and, in the final analysis, he may have earned his fee by advising you to plead guilty. I think he may have understood more about the American judicial system than his client did. I got you under a bind because I can make a statement and I will not allow you, for the record, to comment. I think, though, having you here has proven a useful purpose for us in terms of under- standing the mental attitude of the operations and the difficulty with which Mr. Sike and Mr. Hobbs have to investigate these cases. And also with the policymakers over at Commerce, in terms of trying to establish what is going to be our exact policy in terms of dealing with these multinational business people who some of us think, and the law has already proven, have skirted and gone to the illegal side. I want to close-just let me get Mr. Casperson's final comment for the record. Tell me, from your viewpoint, are there any sugges- tions that you could make to this subcommittee now that you have cooperated. And I would like to compliment you for cooperating. It was obviously the very best thing to do and you were rewarded. You were rewarded for your cooperation. You may be destitute in terms of finances, but you have got your freedom. Mr. CASPERSON. Absolutely. Mr. ANTHONY. So you have been rewarded through the system. You got the least punishment of all, yet you were the most cooper- ative. Do you have any suggestions for us in terms of how can we stop it 5C) that we do not have to depend upon a patriotic casual tip? Mr. CASPERSON. Yes, I think education of the business communi- ty is the primary thing. Notifying the business community of what the penalties would be if they are caught, letting them know that the Commerce Department does have an enforcement division out there checking along with Customs. Whether they have the man- power or not, I think it would be impossible to ha~~ ~n~gh people PAGENO="0309" 305 to check every shipment going out of this country as to what the ultimate destination is. But knowing that there are people out there checking raises that risk considerably of being caught, at least in the perception. Whether in truth it raises it or not, the perception is that they are checking. And if they are checking, your chances of being caught are quite good. Mr. ANTHONY. Ms. Moore, you wanted to make a statement? Ms. MOORE. I just wanted to correct for the record, with respect to the Tektronix 4225 deal, Mr. Mohan was never told that he did not need a U.S. license. In fact, if you check the tape recordings at the time of the defendants' arrest, you will hear conversations be- tween Mr. Mohan and Mr. Whyte wherein Mr. Whyte is explaining the lies that he told to the U.S. manufacturers to get around the U.S. export regulations. I just did not want that to be in the record that he was told he did not need a U.S. license. That is not true. Mr. ANTHONY. I thank you for the correction and compliment you for either going over and getting re-prepared for your testimony or having a good keen memory from the case. Mr. Sundquist, you have some additional questions? Mr. SUNDQUIST. Thank you, Mr. Chairman. I have one short series of questions, Mr. Mohan, I did not ask earlier. What was your association with Virtual Computers? Mr. MUKKAR. Sir, he was-I place an order in the month of May. I was not registered-I was not having an office in Bombay and all my end users were all Bombay, Maharashtra based companies. There is interstate sales tax and taxation. So since I required an importer in Maharashtra I took-he was-we never-all the time Government has been saying that Virtual Computer is the end user, Virtual Computer is the end user. Virtual Computer was never an end user. Mr. SUNDQUIST. I agree with that. Virtual Computers has stated that it never ordered any equipment from you, nor provided any end use statements. The president of Virtual told U.S. authorities that the signatures on the documents purportedly from Virtual are forgeries. Now who prepared the documents on Virtual Computer letterhead? Mr. MUKKAR. Virtual Computer themselves place the document and I have an affidavit from Virtual Computer. Mr. SUNDQUIST. Just tell me the answer, who prepared the docu- ments on Virtual Computer letterhead? Mr. MUKKAR. V.R. Nik himself. Mr. SUNDQUIST. Mr. Nik said that is not true, he did not order anything. He said he gave your associate, Mr. Balega the blank sta- tionery because you provided Mr. Nik with a line of credit. Is that true? Mr. MUKKAR. Sir, he has given affidavit contradicting every statement of this. He said the statement was taken under duress from him. Mr. SUNDQUIST. Mr. Nik said he gave your associate Mr. Balega blank stationery because you provided Mr. Nik with a line of credit. Is that true or false? Mr. MUKKAR. I have no idea whether Balega took the paper or not. I have this affidavit of Mr. Nik which says that this statement PAGENO="0310" 306 was taken under duress from him. It is duly attested by the Ameri- can Embassy in India. Mr. SUNDQUIST. How can you claim to be an innocent importer when apparently you went to such lengths to secure bogus shipping documents to be used to circumvent U.S. export laws? Mr. MUKKAR. Sir, there was no-if I read out to you the Canadi- an-the Canadian law which I was told was- Mr. Sur~rnQuIsT. You are getting off the subject. You are not even addressing my questions. Answer the questions, if you would, sir. Mr. MUKKAR. Right. What are the question, sir? I have not fol- lowed you. Mr. SUNDQUIST. Did you or did you not prepare the Virtual Com- puter documents, sign them and use blank stationery? Mr. MUKKAR. No, sir. Mr. SUNDQUIST. You did not. Did you or did you not receive blank stationery from Mr. Balega, or did Mr. Balega fill this out or did you? Mr. MUKKAR. I do not know. Mr. SUNDQUIST. Did you have a line of credit that you furnished to Virtual Computers? Mr. MUKKAR. I had no personal line of credit to Virtual Comput- er. Any of my companies maybe having, I do not know. Mr. SUNDQUIST. Ms. Moore, do you have any comments on this? Ms. MOORE. I do not know about that aspect. Mr. SuNDQuI5T. Mr. Chairman, I know that Mr. Moody, our col- league, is going to ask some questions. But I think this has been very helpful to have the hearings. My hat goes off to the folks from Commerce for the job they did. We now know the challenge that they face, as you say. Mr. ANTHONY. Would you yield for one moment, Mr. Sundquist? Mr. SUNDQUIST. I will. Mr. ANTHONY. Based on your exchange with the witness, Mr. Mukkar--he is under oath and there is a quorum present for the subcommittee. I just want to advise that there is a possibility, upon close examination of all of the documents and evidence, that perju- ry could or could~ not have occurred here. I just want the record to know that, and I want the attorney to be knowledgeable about that. We will obviously refer that to the proper authorities. Go ahead, Mr. Sundquist. Mr. MUKKAR. I want to rectify. You know, in one case you said Multi-Rubber. I was about to explain but then the subject was- Multi-Rubber, when I was asked by the agent on my arrest I did not remember the name. I said Multi-Rubber. It was Multi-Periph- erals. I did not remember the right name. Then Multi-Peripherals, the confirmation was given to the prosecution or the judge or the court for that purpose. Mr. SUNDQUIST. Are there any other corrections you would like to make before I finish? Mr. MUKKAR. No, sir. Thank you very much. Mr. SUNDQUIST. I think we see the challenge that Commerce faces, arid I think we see the challenge that the Justice Depart- ment faces. Ms. Moore, I wish we had many more of you. Mr. Cas- person, i[ feel bad for you. I think you got caught in the wrong place. I think you were used and I think it is unfortunate that you PAGENO="0311" 307 got involved. I am sorry you did and I think you understand the mistakes that you made. But I have to tell you, Mr. Mukkar, if I am judge of people, I would say you have got some real problems with perjury. The pos- sibility does exist. I find many inconsistencies in what you have said. It just shows me how tough it is for this country to try to pro- tect things in commerce. Thank you, Mr. Chairman. Mr. ANTHONY. Thank you, Mr. Sundquist. I would like for the record to reflect my own personal positive feelings about Commerce and Ms. Moore. I think, based on the documentation that I saw, I read, and having had some previous experience in the past of work- ing on complicated cases-this certainly goes beyond the scope of anything I was forced to work on or oversee in terms of the juris- diction that I had. I think Mr. Sundquist is correct, it does show the difficulty with which you have an assignment. But I think it is also the reason why we are taking a look at it to see if we can find ways to give you additional tools so that not only can you be diligent and expert and professional in the way you do it currently, but maybe we can even add some additional fodder for your files and your investiga- tive techniques. And then, Ms. Moore, obviously take into consider- ation the recommendations that you have made to see if there are additional circumstances there that can help. The one that I think really impresses me the most is the need for more international cooperation. I must tell you that I have never been one to feel like you had to raise the penalty to where it was. Whether it was 10 years or 15 years, I do not think Mr. Casperson would have blinked an eye. Usually it is money at that level that gets you seduced into something. Ten years, if the judge is tough enough and wants to give the full 10 years, I think that is it. Maybe it is more changing the attitude inside the judiciary as well as educating the public businessperson. A dual need there could ac- complish your goals. But something that has been made very clear by your charts, by your testimony and by your tracking of the evidence is the fact that this is multinational, multicountry involved. Without ques- tion, we have got to find a way to get more international coopera- tion so that you can do it even faster and more efficiently. I think then you would probably start addressing one of my key concerns and that was the overall cost of these. Mr. Casperson, it is my understanding that you are back in the business of legally selling computers? Mr. CASPERSON. Yes, sir. Mr. ANTHONY. That was your original business and I assume that you were a success at it. Mr. CASPERSON. Yes, sir. Mr. ANTHONY. For whatever failure occurred that got you into the illegal side of it. The record is very clear that you are one of the most cooperative witnesses that I have seen. When you partici- pate in 180 consensual telephone conversations and you actually lure fugitives from around the world into the United States for them to be arrested, so that Ms. Moore can even practice her pro- fession, I think you should be complimented for that. PAGENO="0312" 308 Mr. CASPERSON. It was a very difficult time. Mr. ANTHONY. I know it was a difficult time. Anyway, you made the right choice. Let me just tell you that, you made the right choice. I hope that you continue to be a successful businessman. I hope that you also become somewhat evangelical about telling other businesspeople not to get in there and try to make a buck because if they do, they may be in a very large, uncomfortable situ- ation in room 1100. Then you can also look to your left and just be thankful. The two guys standing back behind you are getting prepared to take this gentleman back to his residence. He is not going to see a lot of sun- light, and he is going to have a lot of bars and his freedom taken away from him. I do not have very much to say to Mr. Sastra and his witness because as soon as I say something I will be listening to a 15- minute response. It is 10 after 5:00. It is real pretty outside and we have had a long day. I think the record has been made clear from all of the investigation. I just want to thank everybody for cooper- ating with us. This is only the first of what will be a series of hear- ings ~th that I close and yield to Mr. Moody. ~ MOODY. Thank you, Mr. Chairman, I will not take long. Ms. Moore, I have just a brief question. Clearly, proving knowledge is very tough and that is what the criminal standard requires, knowl- edge of an illegal transfer of technology and equipment. You have discussed raising the penalties for doing so, but the burden of prov- ing knowledge is still very, very tough on the prosecution. What about joining up the criminal side with civil penalties where you would not have to prove knowledge if the computers, as in this case, ended up in illegal use? For example, the U.S. broker or the person who made the critical decision to sell the equipment and have it shipped overseas, that person would face a monetary fine of some sort. As a result, that person would feel under an obli- gation to make sure that controlled technology did not get to the wrong place and to follow up on exports. What do you think about a civil forfeiture as something to strengthen the hand or strengthen the inducements against this sort of activity? Ms. MOORE. I think that is a good idea. I do not think that would have worked in this case because in this case, particularly with Tektronix, the Tektronix people were doing their job, were asking the questions, and they lied to them. So what do you do when you have people like Mr. Mohan and others who simply lie despite the company's best efforts? So I would need to give that more thought. I like the idea. Mr. MOODY. Yes, Tektronix was lied to, but if they had any in- kling they might be lied to-in their position as being lied to, they would assign someone to follow this thing all the way through to the end. They would institute controls of their own in case they might be lied to Ms. MOORE. I think that is a good idea if you could do it constitu- tionally; some type of reasonable person standard that the compa- ny should have known. I do think, Mr. Anthony, with all due re- spect that the way that you are going to stop these exports the most is through the private ~e~toi' and r@quiring thorn to do ~orne~ PAGENO="0313" 309 thing. That is what happened in this case in every instance. With- out the private sector we could not have proved the knowledge, be- cause it was the lies they made to the private sector that really was the backbone of our case; that they knew what they were doing. Mr. MOODY. Thank you. Mr. ANTHONY. Again, this subcommittee's members are thankful for your cooperation and your testimony. The subcommittee will stand in adjpurnment subject to the call of the chair. [Whereupon, at 5:14 p.m., the hearing was adjourned, to recon- vene at 9:30 a.m. on Wednesday, May 1, 1991.] PAGENO="0314" PAGENO="0315" ADMINISTRATION AND ENFORCEMENT OF U.S. EXPORT CONTROL PROGRAMS WEDNESDAY, MAY 1, 1991 HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, SUBCOMMITTEE ON OVERSIGHT, Washington, D.C. The subcommittee met, pursuant to notice, at 9:35 a.m., in room 1100, Longworth House Office Building, Hon. J.J. Pickle (chairman of the subcommittee) presiding. Chairman PICKLE. The committee will come to order, and we will ask our guests to please take their seats. The subcommittee's first day of hearings on enforcement of U.S. export control laws, held on April 18, 1991, clearly illustrated that we do have questionable export control policies and enforcement programs-a problem that, if not quickly addressed, will lead to an- other dictator threatening his neighbors with weapons of mass de- struction and jeopardizing our national security. The military might of this Nation is no substitute for effective export controls. Despite its great success, the cost of Desert Storm far exceeded the price of developing and implementing an effective export control policy. This country needs a rational and enforceable export control system, one that preserves international trade but stems the prolif- eration of weapons of mass destruction. That is not an easy task, but the consequences of delay could be catastrophic, particularly when considering the number of nations now trying to procure nu- clear weapons with ballistic missile delivery systems. The ability of potential adversaries to acquire sensitive U.S. tech- nology, equipment, and materials is largely beyond the current control mechanisms established by the United States. Dr. Stephen Bryen, former Director of the Defense Technology Security Admin- istration, of this country, testified on April 18 that, Our ability to prevent the proliferation of weapons of mass destruction to coun- tries is extremely limited. The reasons for this are: one, the near collapse of our own domestic export control system and that of our allies to the point where no system in the West can be relied upon to operate effectively to restrain the sale of goods, technology and know-how; two, the disintegration of multinational controls on critical technology; and, three, the absence of international cooperation on en- forcement where proliferation controls are involved. Our investigation of this issue supports Dr. Bryen's conclusion. He was one of our top defense officials. Today is the subcommittee's second day of hearings on the ad- ministration and enforcement of U.S. export control laws. At the (311) PAGENO="0316" 312 first hearing, we examined four export control cases which illus- trated how the game is played, who the players are, the role of Customs and other Federal agencies, and the methods or diversion schemes used to circumvent our export laws. We were able to trace those cases from beginning to end, identifying a long list of defi- ciencies in our export control system. Today, the subcommittee's goal is to sort through the issues raised by these cases and identify overall the problems the Federal Government faces in administer- ing the law. Most importantly, we need to look carefully at the agency's evaluation of the situation and consider their specific pro- posals to improve our enforcement effort. As evidenced in our April 18 hearing, the problems are clear and the solutions complex. It seems that our export control programs depend heavily on in- formant sources and intelligence information, and very little on systematic agency program operations. Also, someone who wishes to export sensitive commodities illegally without detection can do so with relative ease. Finally, it doesn't seem as though all the Fed- eral Government's efforts have much of a deterrent effect in stop- ping illegal exports. I don't think the Federal Government is even close to knowing whether we get 10 percent or 90 percent of the commodities prohibited from export. For example, in three out of the four cases we considered, we were not able to "catch the crooks" until substantial quantities of the goods had already left the United States. Many of the criminals are living grand lifestyles, right out in the open, and we don't seem to be able to touch them. Even those that we did catch only got a few years in prison or were just put on probation. In one case, 630 tons of chemicals used to make mustard gas was sold to Iraq and Iran before Customs "got a tip." Further, no one who worked for the exporter went to jail, and the company only was fined $438,000--less than the profit that the company made on the ille- gal sales. In another case, only two members of a smuggling ring which relied heavily on Egyptian Government diplomatic officials went to jail, and they only got a little over a 3-year sentence each. In the final case reviewed, high-tech equipment was smuggled out of the United States without detection, using our Canadian neigh- bor as the diversion point. The international ringleader involved here continues to deny complicity, after pleading guilty to violation of the U.S. export laws, and he will be out of prison soon and be able to conduct business as usual. Government witnesses reported that the criminal hasn't told the U.S. Government a "sliver" of what he knows. That is his quote. In concluding, I want to say for the record that this subcommit- tee has never had more difficulty investigating the effectiveness of a set of laws, and the administration's performance and enforce- ment efforts. The purpose of today's hearing is to complete the hearing record of April 18 and to get answers to some basic ques- tions. Some of the witnesses at the earlier hearing, I believe, were less than candid when asked direct questions, or suggested that today's witnesses could better address such matters. We intend to go through these unanswered questions of April 18 and address overall policy and enforcement issues. We have a very distin- guished li6t of witn~~s here today7 and I hope we will dispel any PAGENO="0317" 313 suspicion that the administration or the individual agencies have anything to hide. I am pleased that our first two witnesses today are members of the committee-that is, this committee-and they have expressed longstanding interest in the subject of U.S. export controls. I wel- come them both: Congressman Pete Stark and Congressman Jim Moody. Following their testimony, we will hear from the Depart- ment of the Treasury Office of Foreign Assets Control, commonly referred to as OFAC, with regard to its role in formulating, admin- istering, and enforcing financial and trade sanctions. Then the sub- committee will proceed with the statements and questioning of the U.S. Customs Service Commissioner, Carol Hallett; the Department of Commerce Deputy Assistant Secretary for Export Enforcement, Kenneth A. Cutshaw; and the Department of State Deputy for De- fense Trade, Bureau of Politico-Military Affairs, Charles Duelfer. Now, our first witness will be Mr. Pete Stark, but before I yield to him, I will ask Mr. Schuize if he has any opening statement. Mr. SCHULZE. Thank you, Mr. Chairman. I am pleased to join you in this second day of hearings on the enforcement of U.S. export controls. At our hearing on April 18, the subcommittee learned what I have known for a long time, and that is that our export controls are weak and we are being beaten at every turn. We heard credible testimony from export enforcement officials that diversions contin- ue to this day and that it is extremely easy to get away with illegal export schemes. A major reason we find ourselves in this dilemma, Mr. Chair- man, is that Congress pushed our export administrators in the wrong direction time and time again over the last decade. For ex- ample, in the 1985 Export Act, so-called foreign availability re- quirements added to a steady erosion in export enforcement. Under this twisted logic, if another country sells a controlled commodity to one of our enemies, then we should, too, because to do otherwise just hurts business. In the omnibus trade bill of 1988 and again in the Export Act amendments of 1990, Congress prevailed in essen- tially removing the Defense Department from export control deci- sions-a serious mistake, in retrospect. Before we in Congress start pointing the finger elsewhere, many of us should check our own voting records rather than spread the blame. It is time for Con- gress to "get religion" and change the law to prevent the next Iraq from happening. Mr. Chairman, the subcommittee's investigation found weakness at every point in the export control system. Smugglers most often bypass the elaborate and confusing licensing system altogether, and many dangerous commodities aren't even controlled. In both licensing and enforcement, it appears that there may be just "too many cooks in the kitchen." The constant back and forth between agencies may ci-' more to confuse things than to enhance them. I was disturbed to find how easy it is to buy controlled goods on the U.S. market. In fact, you and I could go out right now, Mr. Chairman, and buy dangerous amounts of these sensitive con- trolled commodities as long as we promised that they were only for domestic use. We could then easily change the markings on our high-tech package and send it on its way to Singapore and on to PAGENO="0318" 314 God knows where from there. Yet many U.S. companies go on sell- ing without knowing to whom they are selling, and by looking the other way, our so-called friends in Europe and the Orient have pro- vided an open conduit to our foes in the Middle East and else- where. To be fair, when our agents in the field have been alerted to an illegal export operation, they do a very good job of shutting it off. However, the big problem is that most often these schemes go on for years before we catch on, if at all. We discover the problem usu- ally based on a tip that comes after the "horse is already out of the barn." Sc) we just sit back and wait for the next big tip. It is clear that the law needs to be changed and toughened to take the profit out of illegal exports and prevent those who are caught from walking away scot-free. I hope that today's witnesses don't come in here and try to "pull the wool over our eyes," but rather, offer constructive suggestions on how to improve export control enforcement. Mr. Chairman, I thank you for having this series of hearings. I think they are informative and interesting, and I look forward to receiving the testimony from today's witnesses. Chairman PICKLE. Thank you, Mr. Schuize. Mr. Anthony, do you have an opening statement? Mr. ANTHONY. I have no statement, Mr. Chairman. Chairman PICKLE. The first witness will be the Honorable Fort- ney Pete Stark who has been interested in this subject for some time. Mr. Stark, we are pleased to have you this morning. STATEMENT OF HON. FORTNEY PETE STARK, A REPRESENTA- TIVE IN CONGRESS FROM THE STATE OF CALIFORNIA Mr. STARK. Thank you very much, Mr. Chairman. I could make your job much shorter by just bringing to you and asking you to put in the record testimony that I heard as a member of the Joint Economic Committee last week, which in the words of the distinguished Chair was "a bag of horsefeathers." You are going to hear from Commerce and the State Department that, yes, there may have been some problems but they have their act together. If you look at the charts of how they think they have their act together, I would assume that this committee would find, as the Joint Economic Committee found, that they don't. They are representing sellers-which they should do-and there is a conflict of interest. But I am here on a particular issue; and I am going to deal with one country, although there are several, and I am going to deal with one type of export-nuclear paraphernalia, equipment, the means with which other countries could build nuclear weapons. Particularly, seeing as Germans like Mr. Schulze and myself like weapons, we can talk about the land of our forefathers and say that they are really not obeying the law. Even if this committee were able to bring pressure on our own Government, how do we stop Seimans, a Germany company, from selling to Iraq or Paid- stan the equipment to build a nuclear weapon? And the answer is we can't. They don't obey our laws. They obey German laws. PAGENO="0319" 315 Weak export controls have led to Pakistan acquiring nuclear dual-use items from Germany to build a centrifuge plant to enrich uranium, which they will tell you is there to generate electricity. But the CIA and our own State Department was telling us as long as 16 years ago when I was there that Pakistan is building the ca- pability for nuclear weapons. Iraq was building a centrifuge plant with help from German, British, and other firms. Now Iran wants to build nuclear weapons with a German firm's products-Seimans. They want to resume construction of two large nuclear reactors. We might be powerless to do anything. Quiet diplomacy has been tried by the State Department with absolutely dismal results. The Germans have admitted they paid absolutely no attention to our warnings. In the war in the gulf, we have the attention of Germany and other countries, and now we should let them know that we will not tolerate their subverting nuclear proliferation agreements. Exports are much more important to Germany and make up a third of their GNP, half of Holland's GNP, where it is less than 10 percent of ours. However, we cannot tolerate our punishing our own manu- facturers, as Mr. Schuize just indicated, and stand idly by while our allies are arming Iraq and Pakistan. Just for example, Daimler-Benz-you are all familiar with the Mercedes Benz, oh, so popular in this country. They are also mar- keting equipment to others, Iraq and particularly in Pakistan, that would allow them to get into the nuclear weapons business. I have a very simple proposal. If they sell in contravention to our policy nuclear weapons to a third country, they don't have to export any- thing to the United States. Mercedes can make mushroom clouds in Iraq, or they can sell Mercedes Benz in America, but not both. Last fall, we passed legislation similar to this to punish foreign countries if they sold missile, chemical, or biological weapons tech- nology. The President vetoed the chemical and biological weapons sanction, thus allowing Iraq to get more biological weapons equip- ment than they might otherwise have had. This is the same bill, the same language, the same waivers, the same exceptions. It just addresses nuclear proliferation instead of missile proliferation. I urge this committee, as they take testimony and continue their investigation, to consider putting tough sanctions on companies, not countries, who don't pay any attention to our roles and whose own countries don't have rules to prevent them from circumvent- ing or increasing nuclear proliferation for fear one of these days we will be staring at our own weapons coming back at us from poten- tial enemies in the future. I thank the Chair for allowing me to testify this morning. Thank you. [The prepared statement and attachments follow:] PAGENO="0320" 316 STATEMENT OF CONGRESSMAN PETE STARK OVERSIGHT SUBCOMMI1TEE COMMITFEE ON WAYS AND MEANS MAY 1, 1991 Thank you, Mr. Chairman, for holding these hearings and for the opportunity to testify before your subcommittee on this matter of vital importance to our national security. We have heard a great deal about the flaws in and limitations of United States export controls--the smuggling operations and the turf battles between the State, Commerce, and Customs. For example, we know that the Commerce Department licensed more than $1.5 billion worth of sensitive dual-use technology to Iraq between 1985-1990. These hearings are an important step towards bringing more attention to these problems and helping bring about more effective licensing and enforcement procedures. But even if U.S. export controls were perfect, our efforts at preventing proliferation would be weakened by the limitations of export laws and enforcement in foreign countries, including some of our closest European allies. My remarks today will specifically address the problem of foreign companies which sell nuclear weapons technology to countries of proliferation concern. With the events of recent years--the easing of East-West tensions, the liberation of Eastern Europe, and the Soviet Union's slow, uneven, but definite progress towards democracy and capitalism-nuclear proliferation is now the leading threat to U.S. national security. Currently, nine nations are considered to have the bomb: The United States, the Soviet Union, the United Kingdom, France, China, Israel, India, South Africa, and Pakistan. A host of others, including Iraq, Iran, Brazil, Argentina, North Korea, and Algeria, have nuclear weapons programs at various stages of development. If we don't take steps today to better control the spread of nuclear equipment, material, and technology, we could wake up a decade from now and find ourselves in a world with every terrorist nation brandishing the ultimate weapon. Making a nuclear weapon is, of course, no simple matter. But the only real barrier out there is the difficultly of obtaining fissile material, such as separated plutonium or highly enriched uranium. One way to enrich uranium is through a high-speed centrifuge facility. It takes a great deal of time, expertise, and high technology to build such a facility, but it can be done, even by a developing country. It took Pakistan more than a decade, but today Islamabad has the indigenous capability to er.~kh uranium and can start assembling a nuclear arsenal. Before the war in the Persian Gulf, Iraq was closely following Pakistani model, and was building its own centrifuge facility. According to various estimates by non-proliferation experts, Iraq was somewhere between 5 and 15 years away from completing the facility and having a nuclear weapons capability. In the history of the world, 5 to 15 years is not a lot of time. We may have dealt Baghdad a setback, just as Israel did in 1981 when it bombed PAGENO="0321" 317 the Osiraq nuclear reactor, but Iraq could once again resume its work and Libya, Iran, and Syria could follow its model. The key to both Iraq and Pakistan's efforts was the assistance furnished by Western firms, especially from Germany. These companies took advantage of lax export controls, poor enforcement, and weak penalties for violators, to supply critical components for Iraq and Pakistan's nuclear weapons program. Some of the firms involved were simply front companies set up by Iraq's extensive overseas smuggling network. But also involved were some major multi-national corporations, including Messerschmitt-BoelkoW-Blohm GmbH (MBB). MBB is Germany's largest aerospace firm and a subsidiary of Daimler-Benz. As an addendum to my testimony, I have included a set of two dozen case studies of foreign firms which have assisted the nuclear weapons programs in Iraq, Pakistan, India, South Africa, and other countries. You will find quite a few multi-national firms implicated there. Currently, a subsidiary of the German conglomerate Siemans is informally applying for an export permit to build two large nuclear reactors in Iran. Next week, German foreign minister Hans Dietrich Genscher is going to Iran where he will discuss the prospects of resumed nuclear cooperation. I find this development very troubling indeed, in light of Iran's record on supporting international terrorism and its use of chemical weapons in the Iran-Iraq war. For years, the United States tried to use quiet diplomacy to get our allies to tighten their export controls and take the threat of nuclear proliferation more seriously. The State Department will argue that they achieved some success in this area. It is possible that the record could have been worse, but according to the available evidence, our warnings had essentially zero impact on, for example, Germany's export control policy. The following quote appeared last fall in the German newsweekly Der Spiegel: "Far more than a thousand times the Americans have briefed the German services and high-ranking Bonn ministry officials about sensitive arms deals with the Middle East, the Far East, and South America over the past six years...Not much has been done as a consequence. Many of the written warnings, which have been declared so-called nonpapers in Bonn, immediately ended up in the trash can." Since that time the Germans and others have talked much of new and better enforced export regulations. And yet, as late as last fall dozens of German firms were violating the Iraq embargo. Again, despite our quiet protestations, Bonn stood by while the sanctions were critically weakened and war became a more likely possibility. It was only when allegations against German companies surfaced in the media that the German government started to take action against the embargo cheaters. But I am less concerned about seeing export violators punished than in having the violations prevented in the first place. Furthermore, even as they moved to tighten controls on arms exports last fall, Bonn liberalized its controls over many nuclear items, including centrifuge technology. This may have been an oversight, but it certainly is not a good sign. In the past Germany has pledged to crack down on its exports of sensitive technologies, only to return to business as usual when the heat was off. In 1984, under pressure from the United States, Germany changed its laws to prevent the company Karl Koib from building the Samarra poison gas production facility in Iraq. Less than a year later, the changes were watered down and work on the plant continued. 51-840 0 - 92 - 11 PAGENO="0322" 318 I don't mean to exclusively bash the Germans--my immigrant grandparents wouldn't like it. The Germans certainly haven't been the only contributors to proliferation, just one of the worst. One of the basic problems 1 see is that many of our European allies rely far more on exports for economic growth. Exports make up over a third of Germany's GNP, more than half of Holland's, but less than a tenth of the United States'. Europe has always fought us on export controls-they fought us on COCOM and they will fight us here. In the aftermath of the war in the Gulf, we may temporarily have their attention on this issue, but I am not optimistic for the long run. Having tried the soft, diplomatic approach for some time, I would suggest we now make some use of the "stick." I recently introduced the Nuclear Non- Proliferation Enforcement Act (HR 830). This legislation would impose import sanctions on foreign firms furthering the spread of nuclear weapons. Any foreign company that sells-without the proper safeguards- nuclear equipment, materials, or technology will have its goods barred from entering the United States. This legislation will help send a strong consistent message to our allies that if they cannot or will not control their exporters, then the United States will step in and do the job for them. HR 830 is the product of months of work after consultation with leading experts in the nuclear non-proliferation field as well as scholars in international law. This is a workable approach which, I strongly believe, will create strong incentives for both foreign companies and foreign governments to get their acts together. Governments will wish to avoid the embarrassment of having their companies publicly and visibly named as assisting nuclear proliferation. Firms, especially large multi- national conglomerates such as Daimler-Benz, will have strong incentives to more closely monitor the dealing of their many subsidiaries when confronted with the prospect of losing access to the world's richest single market. This approach is not really extraterritorial. If the country concerned has effective measures to prevent proliferation and has imposed the appropriate penalties on the company concerned, then sanctions would not be imposed. Our allies have made an internationally binding commitment to prevent nuclear proliferation. It's only when they fail to carry through on this commitment that the sanctions would occur. No export controls will be perfectly leak-proof: we just expect our allies to make a good-faith effort. Further, the companies named as violators will have an opportunity to present their case, as they may appeal the President's decision to the United States Court of International Trade. Nor would this legislation violate U.S. obligations under the General Agreement on Tariffs and Trade (GAiT). Article 21 of GAiT contains a very dear exception for cases of this kind. The article reads in part "Nothing in this agreement shall be construed... `(b) to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests (i) relating to fissionable materials or the materials from which they are derived; (ii) relating to the traffic in arms, ammunition and implements of war and to such traffic in other goods and materials as is carried on directly or indirectly for the purpose of supplying a military establishment." The violations that would trigger the sanctions are also very specifically defined in the bill. A company commits a violation if it (A) sells nuclear PAGENO="0323" 319 items without getting the equivalent safeguard guarantees mandated in U.S. law, (B) retransfers nuclear items exported from the United States without U.S. permission, (C) sells nuclear items to countries which do not have international safeguards on all of their nudear facilities, such as India and Pakistan, or (D) sells certain nuclear dual-use technology to a controlled country. A controlled country is one which is not party to the Nuclear Non- Proliferation Treaty, has violated an agreement made with the International Atomic Energy Agency, has made efforts to build nuclear weapons clandestinely, or has repeatedly provided support for international terrorism. If these guidelines are carefully adhered to by the major international nuclear suppliers, we can significantly slow the spread of nuclear weapons. If not, further nuclear proliferation is only a matter of time. This legislation, while strict and specific on what triggers the sanctions, provides maximum flexibility for the President to administer them. The Administration will determine when violations have taken place and how long the import ban should occur, though it must be imposed for at least two years. The President may waive the sanction altogether, if he deems such a step essential for U.S. national security, but he must notify Congress twenty days in advance and provide the rationale for doing so. On the other hand, the legislation would not bar the importation of defense articles, spare parts, maintenance services, or component parts, in cases in which no reasonable alternative is available. We don't wish to put our own economic or national security at risk. Finally, the legislation includes a "privatization" clause to take advantage of the many fine people working in the nuclear non-proliferation field outside of government. Any person may petition the government to investigate a foreign company for its involvement in nuclear proliferation. They would have to show significant probable cause and it would then be up to the Administration to decide whether to pursue the case. This section is modeled closely on similar petition-clauses in several United States Trade laws. This legislation is specific, flexible, just, and effective. And, it has ample precedent. HR 830 very closely parallels--almost word for word at points-the missile technology sanctions passed in the Defense Authorization Act last fall. If the President could sign that legislation, he should fmd this bill acceptable as well. The only losers in this legislation are the "proliferation profiteers" and their weak-kneed governments which refuse to stand up to them. I am not arguing that this is the only approach for addressing this problem. I just think it would be one more useful policy tool. The State Department understandably hates to lean too heavily on other countries for specific concessions. They can continue to play the "good cop" while Congress can play the tough cop, threatening sanctions if results are not delivered. In the long run, what we need is an institutional multilateral system of export controls on all sensitive technologies, with a common sanctions regime on offenders. I believe that this legislation is a small, but useful step in this direction. The alternative is Waking up a decade from now and finding Syria armed with the bomb and the means to deliver it. PAGENO="0324" 320 FOREIGN FiRMS REPORTED 70 HAVE ENGAGED IN ILLICIT NUCLEAR TPADE (19s0-zm) FOREIGN SELECTED IMPORTERS OF NUCLEAR WEAPONS-RELATED iTEMS SUPPLIERS ARG~TTNA IL4ZZL L'4D(A IRAQ LUYA PA~TA~( S. ATZICA U.S-TRADE RELATIONS A1fred~~94l x x x ~TS BsLgocucle~ire 9_ X X . Aeronau&s Co. X x ~=°~ X X yoS EopoU~~~ X ? X H&llMetoYorno X ? InduntriaaCardoooi X bIer-Nudest sno~.~o X ` LId X X X ? x x ? Matrix~Cburbifl X Messerscbniill.Boeb;ow- X X Neue-Technoio~ien X X X YES X X X X X X ? X 0cc X ? X ? X ? X X YES; n.e 59% 40os. nub. X SO(5CE$; ArOd.., pc~ enponto .nd 5.4k. bdd by lb. ddnk.s, nod Lbcuey .0th. Fnurin~ N,ok.e SupplIer. & Nnop t.r~(n~ Pr.j.d, il~utnr.y Tusle. odiRde.. Penp.r.dby CA. RcbI.y. YorR6beb!onuot,o~ en, hnulenonulk...e.ctE6SPCT.b (40I)647.3$ISn~T. (401)641-4199. PAGENO="0325" 0 z C,, ~ ~ n z 0 : d a 0 ~ 0 B 4~i~ ~q >~ -~ 8 0 z PAGENO="0326" I PAGENO="0327" I I o 0 z ~1I~ PAGENO="0328" 324 Emerging Nuclear Suppliers & Nonproliferation Project TWELVE FOREiGN FIRMS REPORTEDLY ENGAGED 1N INTERNATiONAL NUCLEAR WEAPONS-RELATED TRADE' (Part 1) Firm 1: Belgonucleaire SA (Belgium) The Belgian firm Belgonucleaire SA is a leader in plutonium waste treatment and technology, including the manufacture of mixed plutonium fuels for advanced nuclear reactors. Belgonucleaire offers its products as well as nuclear engineering and consulting services on a worldwide basis. In 1987, it was implicated in a major corruption scandal involving several German firms, most importantly Nukem GmbH and its subsidiary Transnuklear GmbH, who for years illegally transferred or disposed of toxic radioactive waste through fraudulent contracts with the Nuclear Research Center at Mol, Belgium. The Mol center held a 50 percent share in Belgonucleaire, which together with Nukem and Transnuklear held all shares in the Belgian firm Transnuble NV. Transnubel is the Belgian enterprise responsible for the transport of radioactive materials. Because of the scandal between Transnuklear and Mol, which revolved around deliberate mislabeling of nuclear waste containers, Germany's Der Spiegel, accused Belgonucleaire of participation in the clandestine transfer of nuclear weapons materials onto the international black market, perhaps even to Pakistan or Libya. Although such claims have not been verified, Belgonucleaire had on numerous past occasions solicited orders from Pakistan, Libya, Egypt, Taiwan, and Korea -- all states of proliferation concern. Historically, Belgonucleaire has provided a considerable degree of technical assistance to both Libya and Pakistan. Belgonucleaire has also provided training services for employees of Pakistan's Atomic Energy Agency (PAEA) that involved individuals known to have been associated with Pakistan's nuclear weapons program. The president of the PAEA, Munir Khan, once recognized Belgonucleaire for its services in the construction of a small nuclear "pilot facility," built during the seventies, which gave Pakistan the "capability to produce the necessary plutonium for a bomb." Sources: Bruo.seln Domestic Servwx, 1/17/88; Bulletin of th.e Atomic Scientists, 4/89. pp. 21-27 by Dan Charles; Nuclear News Buyers Guide. 3/89, p. 4; ~ 1/29/88, p. 4 by Guy Duplat; Der Spiced, 1/18/88, pp. 18-30, 9/17/88, pp. 22-26, 9/30/89, pp. 59-61; I.e VIfIL `Express (Brassel.c). 4/24/87, pp. 10-19 by Michael B. Balzhasa,s; Nucleonices Week, 2/18/88, pp. 1, 8-9 by Mark Hibbs & Ann MacLachlan. t~ftme abstracts were compiled by Cameron Binkley from articles held in the Emerging Nuclear Suppliers & Nonproliferation Project database. The validity of information contained within an abstract is based solely upon the original sources. Monterey Institute of International Studies PAGENO="0329" 325 Emerging Nuclear Supplieri & Nonproliferation Pmjms 2 Firms 2 & 3: Neue Technologien GmbH & Physikallsch Technische BeratungjGermany) Neue Technologien GmbH (NTG) is a German nuclear engineering firm of approximately 100 employees, active in many areas including nuclear materials handling, decontamination, metallurgy, and vacuum technology. It was known until 1986 as NTG-Nukleartechnik GmbH und Partner. Physikalisch Technische Beratung (PTB) was a subsidiary of NTG established by Rudolph Maximilian Ortmayer to protect NTG's anonymity and to serve as an intermediary in transshipments to Pakistan. After Ortmayer was fired in mid-1988 as NTG's Technical Director, investigations of both firms were begun for illegally exporting nuclear components and materials from Germany to Pakistan, India, and South Africa between 1982 and 1988. The illegal exports to Pakistan reportedly included both tritium and tritium processing equipment, components of an installation to make nuclear fuel, and transport and storage containers for uranium hexafluoride (used to enrich uranium). Tntium exports are especially sensitive because tritium is an essential link in the process of constructing a hydrogen bomb. The total value of the deliveries was estimated at DM 20 million. NTG is also believed to have sold India "reflector material" and equipment used to control atomic reactions in nuclear plants. In addition, a device used to make nuclear fuel was illegally exported to South Africa. The director of PTB, Peter Finke, acknowledged that zircalloy cladding (used to make nuclear fuel) assemblies was sent to Pakistan for its Kanupp heavy water reactor. The German firms supplied the U.S-origin zircalloy after Canada had refused the sale due to proliferation concerns. In 1986, NTG re-exported from Germany to Pakistan two high-powered lasers, which were made in the United States and used for nuclear fuel fabrication. The U.S. suppliers to NTG were Coherent General and General Electric Corporation, both of which thought that the lasers were going to stay in the FRG. Instead, the lasers were sent to Margalla Enterprises of Pakistan (allegedly a procurement agency for the Pakistan Atomic Energy Commission). A PTB director said that Pakistan repeatedly pressured him to acquire an entire range of nuclear technology, including technology to produce a thermonuclear weapon. In 1987, the U.S. firm Imperial Clevite Corporation (a subsidiary of the U.S. finn Gould Inc.), sold components for a reactor refueling machine to an NTG agent in the United States. The components eventually were illegally re-exported to India. Through its subsidiary, Scientific International, NTG also participated in the bidding process for the laboratory construction projects of several prominent U.S. companies and research centers. By means of bidding documents, it acquired sensitive nuclear-related blueprints from the United States, which German officials believe were passed on by NTG to its clients in Pakistan. NTG has supplied technology to numerous international customers, including the United States' Oak Ridge and Los Almos National Laboratories. Sources: DPA (Hamburg). 1/26/89, New York Times, 12/22/88 by Michael R. Gordon. Nuclear Fuel, 12/26/88, pp. 1. 9-11, 1/9/89, p. 2. 4/3/89, pp. 6-7, 5/1/89, pp. 12-13, 8/21/89, pp. 4-5 by Mark Hibbs; Nuclear Encineerinc !nternatio~y~j, 4/89, p. 3; Nucleonics Week, 1/5/89, pp. 3-5, 8/24/89, PP. 8-9 by Mark Hibbs; Polizis-le-Cizoyen (Paris), 2/22-28/9-), pp. 5().55 by `,4y& Schneider; Der Spiced, 11/6/89, pp. 125-13!. Die Tageszeisunc (Berlin), 9-16-89, p. 4 Isv Thomas Scheuler; Welt am Sonatag, 12/25/88, pp. 1-2, by Heinz Vielan. Monterey Institute of International Studies PAGENO="0330" 326 Emerging Nuclear Suppliera & Nonproliferation Project Firm 4~Nukem GmbH (Germany) Nukem GmbH, with many major facilities centered around Hanau, is one of Germany's largest nuclear enterprises involved in numerous areas of the nuclear power and the sensitive nuclear fuel cycle industries. Nukem's operations in the nuclear sector are global and include major transactions in the nuclear fuels of uranium (at various stages of enrichment) and plutonium. Some of Nukem's exports have caused concern. For instance, in 1987 Nukem received the German government's "rubber stamp" to export three electronic testing devices to South Africa potentially useable in a nuclear weapons program. A second permit was issued in May 1988. On other occasions, Nukem has been accused of bypassing international agreements on the transfer of uranium as when it delivered U.S.-embargoed uranium to the United States from South Africa by changing certificates of origin while en route. Of course, Nukem's legitimate trade relations with the United States have been considerable. Over the years, the firm has received under U.S. license large quantities of enriched uranium and has conducted business with major U.S. public service utilities, such as Rochester Gas & Electric Corporation and American Electric Power Corporation. Nukem holds 100 percent share in its U.S. subsidiary Nukem Inc. and through 1988 these two companies together dominated the greater percent of world trade in critical nuclear materials. In addition to several European companies, Nukem holds major shares in important German nuclear industrial firms such as Alkem GmbH, Reakior-Brennelement Union GmbH, and Uranit GmbH. Until early 1988, Nukem also held a two-thirds share of the nuclear materials transport firm Transnuklear GmbH. At that time the company experienced a major corporate shakeup with its management being taken over by the Nukem parent firm Degussa AG. This reorganization took place after Nukem was caught up in the major nuclear industry scandal that engulfed its Transnuldear subsidiary late in 1987. Several top executives of Nukem and Transnuklear were charged with illegal waste handling and corruption, and were investigated for suspicions of having transferred nuclear weapons-related materials to Pakistan, Libya, or Sudan. Although the later allegations were never proven, Nukem was forced to dispose of all nuclear fuel handling divisions while spending millions to promote the image of a "New Nukem" to a public and nuclear industry whose confidence in the organization had plunged precipitously. Sources: Bulletin of the Atomic Scienticts,,4/89, pp. 21-27by Dan Charles; Nuclear Fuel, I125/&f,pp. I. 71"y Mark Hlbbs; Nuçlegr Fuel, 3/21/88, p.9; Nuclear Fuel, 4/4/88, pp. 3-4, 10/3/88 by Eric Lindeman; Nuclear News, 3188, pp. 88-92, 8/89, p. 154; Nucleonic.s Week, 9/21/89, p. 3 by Mark Hibbs; Nucleonics Week, 2/18188, 1, 10-11 by Mark Hi.bbs & Ann MacLachlan; Der Spiegel. 1/18188, pp. 18-30, 6/12/88, pp. 70-86, 11/29189, pp. 33-35; Die ~ (Hamburg), 3/14/88, pp. 32-39 by Horn Bieber, ci a!. Monterey Institute of International Studies PAGENO="0331" 327 Emcrging Nuclear Suppliers & Nonproliferation Project FirmS: Transnuklear GmbH (Germany) Until 1988, Transnuklear GmbH was Germany's foremost nuclear waste and nuclear materials handling firm, two-thirds owned by the German firm Nukem GmbH and one-third owned by the French firm Transnucleaire SA. Transnuklear maintained several overseas offices, including in the United States where the company held a 50 percent share of the U.S. firm Transnuclear Inc. Twenty percent of the U.S. subsidiary's export trade was conducted with its European parent firms. Transnuklear was the source of a major German nuclear industry scandal that surfaced late in 1987 and centered around the firm's fraudulent business practices involving international nuclear materials transport and disposal. These practices allegedly included deliberate mislabeling of radioactive substances, bribery, and embezzlement. Furthermore, through its association with the Belgian Nuclear Research Center at Mol, Transnuldear reportedly shipped weapons-grade materials, possibly through Luebeck, Germany, to Pakistan, Libya, or possibly Sudan. Charges were also made that the firm paid the Belgian subcontracting firm Smet-Jet DM 16 million to illegally dispose of German nuclear waste in the North Sea. These charges were never substantiated. Transnuklear had its license suspended and was dissolved in 1988 following the corporate reorganization of its parent company, Nukem, in the wake of the scandal. One of the company's chief executives committed suicide after being fired. At one point no less than 13 different commissions were investigating Transnuklear and its relationship to the research center at Mol. Sources: DPA (Hamburg), 1/15/88; Bulletin of the Atomic $cjemfjyts 4/89, PP. 21-27 by Dan Charles; fjgJ~gjk flpjg~., 2/7/88,p. 11 by Serge Schntemann; Nuclear Encineerin~ Interratknoi, 8/88, pp. 57-58, 60-61; Nuclear FueL 1/25/88, pp. 1, 7 by Mark Hibbs, 3/7/88, p. 11 by Eric Lindeman, 9/31/88, p. 4, 10/31/88, 4-5 by Mark Hibbs; NuclgorNcws 4/88, pp. 73-74; Nucleonics Week. 2fl8/88, pp. 1, 8-9 by Mark Hibbs & Ann MacLachlan; Qgg ~j~g.gl 1/18/88, pp. 18-30, 9/30/89, pp. 59-61; Qjg~iet (Hamburg), 1/22/88, pp. 11-14 by Horst Bieber, ci at Monterey Institute of International Studies PAGENO="0332" 328 Emerging Nuclear Suppliers & Nonproliferation Project TWELVE FOREIGN FIRMS REPORTEDLY ENGAGED IN INTERNATIONAL NUCLEAR WFAPONS-RELATED TRADE* (PwY 2) Firm 6: Alfred Hempel GmbH (Germany~ Alfred Hempel GmbH was the chief concern, until his death in 1989, of former Nazi officer Alfred Hempel. Through his company, and a network of subsidiaries, namely Rohstoff Einfuhr GmbH of Germany and Orda AG of Switzerland, Hemple conducted a lucrative import/export trade in nuclear materials. According to numerous sources, the firm often operated at or beyond the fringe of legality. Other Hempel German subsidiaries included Fundus GmbH, Inter-Nuclear Service Society for Waste Disposal (implicated in the Nukem-Transnuklear scandal), Isotron, IRE Diagnostic, GB Chemicals, and Kapp Chemicals. Hempel's foreign subsidiaries also included Pomera AG and Inter-Nuclear Service AG (both of Switzerland) as well as two overseas mining firms in Namibia. Outside Germany and Switzerland, Hempel maintained offices in Argentina, the People's Republic of China, the Soviet Union, and the United States. Hempel activities included the purchase of heavy water from countries such as Norway, the PRC, and the Soviet Union for export to countries such as Argentina, India, and Pakistan. Heavy water is used as a coolant in some nuclear reactors that produce plutonium as a byproduct -- one of two possible nuclear weapons core ingredients. In one case, Hempel allegedly arranged the transfer of 100 tons of heavy water from the PRC to India. The company is also believed to have brokered the S90 million sale and shipment of between four and six tons of Chinese enriched uranium to South Africa for use in its nuclear facilities while Western suppliers were boycotting the country. U.S. officials protested Hempel's transactions to the German government on several occasions, as did Norway and Switzerland, but to no avail. Sources: Christian Science Monigf, 7/8/88, pp. 1, 14 by E. A. Wayne; Nuclear Fuel, 7/25/88, pp. 7-8 by Mark Hibbs; Der Spiegel, 1/18/88, pp. 18-30, 10/17/88, pp. 22-26; Die Tageszeizung, 10/7/89, pp. 14-15 by Thomas Scheuer; Wall Street Journal, 1/3/88, pp. 1. 6, 6/21/88, p. 34 by John I. FiaLka; QJg,~gis 10/21/88 by Wo~fgang Hoffinann. *These case studtes were compiled by Cameron Binkley from articles held in the Emerging Nuclear Suppliers & Nonproltferation Project database. The validity of information contained within each case study is based solely upon its original sources. Monterey Institute of International Studies PAGENO="0333" 329 Ernergmg Nuclear Suppliers & Nonproliferation Project Firm 7: Degussa GmbH (Germany) Degussa GmbH is a major German metal and chemical company that maintains considerable trade relations with the United States. Until July 1990, it was attempting to purchase the worldwide gold and silver businesses of the U.S. firm Engelhard Corporation. Degussa has numerous subsidiaries, several of whom, like Leybold- Heraeus GmbH have been implicated in illicit nuclear trade deals. In 1988, executives of Degussa replaced the top executives of Nukem GmbH, which was plagued by one of Germany's worst nuclear industry scandals. Degussa once held a 35 percent share in the firm, but divested most of its interest to Rheinisch- Westfaelisches Elektrizitaetwerk AG in 1990. In January 1989, information surfaced that Degussa had shipped 95 kilograms of beryllium to India in 1984. Beryllium is used to decrease the amount of plutonium needed to manufacture a nuclear bomb. The amount sold by Degussa roughly represented enough useable material for 20 such devices. In violation of U.S. export laws and regulations, Degussa obtained the beryllium from the United States and transferred it to India without acquiring U.S. consent. In March 1990, Degussa agreed to pay $800,000 in fines to the U.S. Commerce Department for the company's illegal export activity. Sources: DPA Hwnburgl, 1/28/89; New York Tjrng~, 2/1/89, p. A2 by Stephen Er.gelberg; Nuclear FueL 4/2/90, p. 1; Nuclearligygs. 3/88, pp. 88-92; Der Soiree!, 1130/89, pp. 22-23; Wall Street Journal, 1/19/88, p. 24, 2/1/89, p. 411 by Thomas F. O'Boyle, $122190, p. AS, 1/4/91, p. A4; Washington j~jjj~ 2fl/89, p. A19 by Don Oberdotfer. Monterey Institute of ls,tensutional Studies PAGENO="0334" 330 Emerging Nuclear Suppliers & Nonproliferation Project 3 Firm 8: Inter-Nuclear Service AG (SwitzerIan~ Inter-Nuclear Service AGof Zug, Switzerland is a small nuclear industry firm involved in the import and export of nuclear materials. The company is a subsidiary of Germany's Nukem GmbH, but was also associated with the group of firms connected to Alfred Hempel GmbH of Duesseldorf. The Hempel group was implicated in the illegal export on numerous occasions of heavy water, a sensitive nuclear weapons-related material, from Norway, the People's Republic of China, and the Soviet Union to Argentina, India, Israel and Pakistan from at least 1977 through 1987. Der Spiegel claimed in January 1988 that Inter-Nuclear Service, with supervision from its Nukem management, supported Pakistan's nuclear weapons research by secretly supplying that country with heavy water and acting as a Swiss go-between for the firm's German parents. Sources: Nuclear Fuel, 9/19/88, p. 4 by Mark J-libbs; Der Spiced, 1/18/88, pp. 18-30; ~jg~ie! 10-21-88 by Wo~fgang Hoffinann. Firm 9: OrdaAG (Switzerland) Orda AG of Switzerland is a small nuclear materials trading firm established by Alfred Hempel GmbH of Germany in 1980 with an investment of $34,000 that grew into a multimillion dollar enterprise in just five years. According to British intelligence sources, the firm's location in the nuncontrol1ed~ Swiss tax haven of Zug enabled it to act as a transshipper for sensitive nuclear materials -- most importantly heavy water useful in the production of plutonium for nuclear weapons -- without regard to German export laws and regulations. The Hempel group apparently channelled all deliveries of such heavy water to India through the Swiss subsidiary. Orda is also believed to have shipped between four and six tons of enriched uranium from the People's Republic of China to South Africa as well as several tons of uranium ore from the PRC to Argentina. Sources: Nuclear Fuel, 7/25/88, pp. 7-8, 9/19/88, p. 4 Icc Mark /libbs; Die Taeeszgjp~gg, 10/7/89, pp. 14-15 ~. Thomas Scheuer; Wall Street Journal, 6/21/88, p. 34, 1/3/89, pp. 1, 6 Icc John J. Fia&a; ~ 1021/88 Icc Wolfgang Hoffinann. Monterey Institute of International Studies PAGENO="0335" 331 Emerging Nuclear Suppliera & Nonproliferation Project 4 Firm 10: Pechiney SA (France~ Pechiney SA is one of France's major state-owned firms employing over 71 ,000 workers in the primary and fabricated metal products industries. Pechiney's annual revenues are in the $7 billion range. The firm has extensive trade and business relations with the United States, completing in 1989 the $1.26 billion acquisition of Triangle Industries Inc. Pechiney also maintains ownership, partial ownership, or joint-venture activity in several other U.S. enterprises such as American National Can Company, Howmet Corporation, Reynolds Metal Company, and the U.S. nuclear fuel service activities of Babcock & Wilcox, Inc. Pechiney controls two subsidiaries, who, according to Politis-Le Citoyen, were allegedly engaged by Rudolph Ortmayer's Neue Technologien GmbH (NTG) to participate in the enterprise of evading German export controls on the sale of nuclear technology. The first of the two French subsidiaries, Compagnie Europeenne Du Zirconium Cezus (wholly owned by Pechiney), produces special metals and alloys, pipes and tubing, and zirconium. The second subsidiary, Zircotube (51 percent- owned by Pechiney and 49 percent-owned by France's huge nuclear engineering firm, Framatome), manufactures zircalloy tubing. These materials are used in the construction of nuclear reactors that can produce plutonium for a nuclear bomb. NTG procured these sensitive items from Pechiney's subsidiaries following meetings between representatives of the two companies in Germany. NTG allegedly altered the labels and destination of the shipments in Frankfurt and is believed to have subsequently routed up to 30 tons of the material from France to Pakistan. Sources. Nesc Yorkiisoes., 11/22/88, p. Dl by Steven Greenhouse; New York Thnes. 11125188, p. D3 by Deborah Wise; Nuclea~N~pg.y, 1/88, p. 53. Politis-Le Citçy~.j~ (Paris), 2/22-28190, pp. 50-55 by Mycle Schnezder;Der Sri egel 11/6/89, pp. 125-131; Wall Streetjp9~upl 4/29/87, p. 49, 4/27/88, p. 22, 12/5/88, p. B5, 1/27/89, p. A12; World Nuclear Jndustr9 ~ 1990, pp. 188, 193, 191. Monterey Institute of International Studies PAGENO="0336" 332 Emerging Nuclear Suppliers & Nonproliferation Project Firm 11: Prometron Technics Corporation (Japan) Japan's Prometron Technics Corporation, which was founded in 1973, is a small industrial machinery manufacturing and trading firm with branch offices in Berlin, Chicago, and Singapore. In May 1889, the firm was investigated for small but illegal shipments of hafnium wire to East Germany. Hafnium is a metal used in the construction of nuclear reactors that, according to Japanese sources, have mainly military applications. Japanese authorities suspect that the material was originally acquired in the United States. In July 1989, Prometron's president, Hirokuni Matsuda, was arrested on charges stemming from the case, and was later released after a Tokyo court fined him for illegally exporting the material. Japanese authorities alleged, but never proved, that Prometron had shipped other items restricted by regulations of the Coordinating Committee for Multilateral Exports Controls (COCOM) of which Japan is a participant. Sources: ~ 5/24/89; New Yor*,Tiews 5/26/89, p. Dl. 5 by David E. Sanger; Nuclear Fuel, 5/29/89, p. 9; Wall Street Journal, 5/24/89, p. Al. 5/25/89, p. Al4 by Jeremy Mark & Masa'yoshi Kanabayashi; Wall Street Lgjctagj, 7/7/89, p. B4, 11/29/89, p. All. Firm 12: Radium-Chemie AG (Switzerland) Radium-Chemie AG is a Swiss firm involved in the manufacture and trade of tritium-based products such as luminescent paints. It has acquired some of its tritium imports from the U.S. Department of Energy. Tritium is a sensitive element used to produce hydrogen bombs and to boost the efficiency of other nuclear weapons. Radium-Chemie allegedly procured 8000 curies of tritium, some of it military-grade, and illegally exported the material to Pakistan through an intermediary, Gutekunst Leuchtfarben of Germany, to avoid dealing with Pakistan directly. Gutekunst sent the tritium that it had obtained from Radium-Chemie to Pakistan in containers falsely declared to be empty (in violation of Germany's Military Weapons Control Law). The United Nations International Atomic Energy Agency does not regulate tritium exports, and because Switzerland is not a member of the European Community or Euratom (the European nuclear regulatory organization) no international controls applied to the tntium transfers of the Swiss firm. Sources: Nuclear Fuel, 6/27/88, p. 13, 4/3/89, pp. 6-7lry Mark Hibbs, 7/10/19, pp. 6-7; Polizis-Le Cucrven (Paris.), 2/22-28/%, pp. 50-55 by Mycle Schneider; Q PM,gJJ. 11/6/89, pp. 125-131. Monterey Institute of Interentiona! Studies PAGENO="0337" 333 Summary of HR 830, the Nuclear Non-Proliferation Enforcement Act This legislation would impose import sanctions on foreign firms which contribute to the proliferation of nuclear weapons. Much of this bill, especially the language on waivers and exceptions, was taken directly from the Missile Technology sanction legislation which passed last fall. Specifically, the firms would have their goods banned from entering the customs territory of the United States if they engaged in any of the following activities: 1. Selling nuclear items (that is, nuclear equipment, materials, or technology) without requiring safeguard measures equivalent to those mandated in the U.S. by the Atomic Energy Act. 2. Retransferring nuclear items exported from the U.S. without the permission of the United States. 3. Selling nuclear items to countries, such as India and Pakistan, which do not have international safeguards on all of their nuclear facilities. 4. Selling dual-use nuclear items (controlled under the Nuclear Non- Proliferation Act of 1978) to controlled countries. A controlled country being one which is not party to the Nuclear Non-Proliferation Treaty, has violated a safeguards agreement with the International Atomic Energy Agency, has made efforts to build nuclear weapons clandestinely, or has repeatedly supplied support for international terrorism. The President will determine if violations have taken place. He must impose the sanction for at least two years. He may waive the penalty altogether if he deems such a step essential for U.S. national security, but he must notify the Congress twenty days in advance and provide the rational for doing so. The sanctions may not be imposed on U.S. imports of products such as spare parts, maintenance services, component parts, and defense articles, for which no reliable alternative exists. The sanctions will also not be imposed in cases in which the countries do have adequate measures to prevent the above kind of nuclear transfers from occurring and are invoking the appropriate punishments on the company concerned. Companies named will have the opportunity to appeal the sanctions to the United States Court of International Trade. Finally, HR 830 contains a "privatization" clause to take advantage of the many fine people working in the non-proliferation field in the private sector. Any person may petition the Admini~Lration to initiate an investigation on a company suspected of contributing to proliferation. They must, of course, present substantial evidence of their case and it is then up to the Administration to choose whether to pursue the investigation. PAGENO="0338" 334 102D CONGRESS 1s~ SESSION To provide for the imposition of economic sanctions on any foreign person that engages in the trade of nuclear equipment and technology under certain circumstances that are prohibited under United States law. IN TIlE HOUSE OF IREPRESENTATIVES FEBRUARY 5, 1991 Mr. STARK (for himself and Mr. PENNY) introduced the following bill; which was referred to the Committee on Ways and Means A BILL To provide for the imposition of economic sanctions on any foreign person that engages in the trade of nuclear equip- ment and technology under certain circumstances that are prohibited under United States law. 1 Be it enacted b7,i the Senate and House of Representa- 2 tives of the United States of America in Congress assembled, 3 SECTION 1. SHORT TITLE. 4 This Act may be cited as the "Nuclear Non- 5 Proliferation Enforcement Act of 1991". 6 SEC. 2. IMPOSITION OF SANCTION. 7 (a) BAsIS FOR S~oTIoN.-The President shall impose 8 the sanction set forth in subsection (c) on a foreign person if PAGENO="0339" 335 2 1 the President determines that such foreign person know- 2 ingly- 3 (1)(A) exports, transfers, or is otherwise engaged. 4 in the trade of any nuclear materials and equipment or 5 nuclear technology- 6 (i) which violates paragraph (4) of section 7 127 of the Atomic Energy Act of 1954 (42 8 U.S.C. 2156(4)); 9 (ii) which fails to meet all the criteria set 10 forth in section 127 of the Atomic Energy Act of 11 1954, except that for purposes of this clause ref- 12 erences in paragraphs (4) and (5) of such section 13 to the United States shall be deemed to refer to 14 the exporting country; or 15 (iii) to any non-nuclear-weapon state that 16 does not meet' the requirements of non-nuclear- 17 weapon states that are set forth in section 104(d) 18 of the Nuclear Non-Proliferation Act of 1978 (22 19 U.S.C. 3223(d)); or 20 (B) has knowingly or materially contributed- 21 (i) through the export, transfer, or other en- 22 gagement in the trade of any goods or technology 23 that are subject to the jurisdiction of the United 24 States and controlled under the Export Adminis- 25 tration Act of 1979 pursuant to section 309(c) of *HR 830 III PAGENO="0340" 336 3 1 the Nuclear Non-Proliferation Act of 1978, be- 2 cause of their significance for nuclear explosive 3 purposes, or 4 (ii) through the export, transfer, or other en- 5 gagement in the trade of any goods or technology 6 that would be, if they were subject to the jurisdic- 7 tion of the United *States, controlled under the 8 Export Administration Act of 1979 pursuant to 9 section 309(c) of the Nuclear Non-Proliferation 10 Act of 1978, because of their significance for nu- .11 clear explosive purposes, 12 to the efforts by any foreign country described in sub- 13 section (b) to use, develop, produce, stockpile, or other- 14 wise acquire nuclear weapons; or 15 (2) conspires or attempts to engage in or know- 16 ingly assists in an export, or in a transfer or trade, de- 17 scribed in paragraph (1). 18 (b) Coin~TRIEs RECEIVING ASSISTANCE.-The coun- 19 tries referred to in subsection (a)(1)(B) are- 20 (1) any non-nuclear-weapon state that the Presi- 21 dent determines has, at any time after January 1, 22 1980- 23 (A) used a nuclear weapon; 24 (B) tested a- nuclear weapon; 25 (0) produced a nuclear weapon; or *HR 830 IH PAGENO="0341" 337 4 1 (D) made substantial preparations to engage 2 in any activity described in subparagraph (A), (B), 3 or (C); 4 (2) any foreign country which has not ratified the 5 Treaty on the Non-Proliferation of Nuclear Weapons 6 and concluded an agreement with the International 7 Atomic Energy Agency for the application of Interna- 8 tional Atomic Energy Agency safeguards on all the 9 country's nuclear facilities; 10 (3) any f~reign country which has violated such 11 an agreement with the International Atomic Energy 12 Agency relating to safeguards; and 13 (4) any foreign country whose government is de- 14 termined for purposes of section 6(j) of the Export Ad- 15 ministration Act of 1979 to be a government that has 16 repeatedly provided support for international terrorism. 17 (c) SANCTION.-The sanction which applies to a foreign 18 person under subsection (a) is that the President shall pro- 19 hibit, for a period of at least 2 years, the entry into the cus- 20 toms territory of the United States of any article that is the 21 growth, product, or manufacture of that foreign person. 22 (d) EXPANSION OF SANCTION TO OTHER ENTITIES.- 23 The President shall impose the sanction imposed on a foreign 24 person under this section on any other entity that controls, is eHR 830 III PAGENO="0342" 338 5 1 controlled by, or is under common control with, that foreign 2 person. 3 SEC. 3. ANNUAL DETERMINATIONS BY THE PRESIDENT; 4 APPEAL OF DETERMINATIONS. 5 (a) DETERMJNATIONS.-The President shall, at least 6 once each year, determine which, if any, foreign persons have 7 carried out acts described in paragraphs (1) and (2) of section 8 2(a). The President shall publish all such determinations in 9 the Federal Register. The President shall impose the sanc- 10 tion required by section 2 upon making such determination. 11 (b) APPEALs.-Any person who the President deter- 12 mines has carried out any act described in paragraph (1) or 13 (2) of section 2(a), may obtain review of the determination by 14 filing an appeal, within 60 days after the determination is 15 published in the Federal Register, in the United States Court 16 of International Trade, which shall have jurisdiction to 17 review such determination. 18 SEC. 4. EFFECT OF ENFORCEMENT ACTIONS BY OTHER 19 COUNTRIES. 20 The sanction set forth in section 2 may not be imposed 21 under such section on a foreign person with respect to acts 22 described in paragraph (1) or (2) of section 2(a), and any such 23 sanction that is in effect against a foreign person on account 24 of such acts shall be terminated, if-' *HR 830 IH PAGENO="0343" 339 6 1 (1) the country from which the export, transfer, or 2 other act originates has in effect laws restricting the 3 export, transfer, or other activity in a manner substan- 4 tially similar to the restrictions imposed by United 5 States laws or regulations on such exports, transfers, 6 or other acts, 7 (2) the foreign person is subject to those laws, and 8 (3) the country has imposed on that foreign person 9 the appropriate penalties pursuant to those laws. 10 SEC. 5. ADVISORY OPINIONS. 11 The President may, upon the request of any person, 12 issue an advisory opinion to that person of whether a pro- 13 posed activity by that person would subject that person to the 14 sanction under section 2. Any person who relies in good faith 15 on such advisory opinion which states that the proposed ac- 16 tivity would not subject a person to such sanction, and any 17 person who thereafter engages in such activity, may not be 18 made subject to such sanction on account of such activity. 19 SEC. 6. WAIVER AND REPORT TO CONGRESS. 20 (a) WAIVER.-In any case other than one in which an 21 advisory opinion has been issued under section 5 stating that 22 a proposed activity would not subject a person to the sanction 23 under section 2, the President may waive the application of 24 section 2 to a foreign person if the President determines that *HR 830 IH PAGENO="0344" 340 7 1 such waiver is essential to the national security of the United 2 States. 3 (b) REPORT TO CONGRESS.-In the event that the 4 President decides to apply the waiver described in subsection 5 (a), the President shall so notify the Congress not less than 6 20 working days before issuing the waiver. Such notification 7 shall include a report fully articulating the rationale and cir- 8 cumstances which led the President to apply the waiver. 9 SEC. 7. ADDITIONAL WAIVER. 10 The President may waive the imposition of the sanction 11 under section 2 on a person with respect to a product or 12 service if the President certifies to the Congress that- 13 (1) the product or service is essential to the na- 14 tional security of the United States; and 15 (2) such person is a sole source supplier of the 16 product or service, the product or service is not avail- 17 able from any alternative reliable supplier, and the 18 need for the product or service cannot be met in a 19 timely manner by improved manufacturing processes or 20 technological developments. 21 SEC. 8. EXCEPTIONS. 22 The President shall not apply the sanction under see- 23 tion 2- 24 (1) in the case of procurement of defense articles 25 or defense services- *HR 830 IH PAGENO="0345" 341 8 1 (A) under existing contracts or subcontracts, 2 including the exercise of options for production 3 quantities to satisfy requirements essential to the 4 national security of the United States; 5 (B) if the President determines that the 6 person to which the sanction would be applied is 7 a sole source supplier of the defense articles and 8 services, that the defense articles or services are 9 essential to the national security of the United 10 States, and that alternative sources are not read- 11 ily or reasonably available; or 12 (C) if the President determines that such ar- 13 tides or services are essential to the national se- 14 curity of the United States under defense copro- 15 duction agreements or NATO Programs of 16 Cooperation; 17 (2) to products or services provided under con- 18 tracts entered into before the date on which the Presi- 19 dent publishes his intention to impose the sanction; or 20 (3) to- 21 (A) spare parts, 22 (B) component parts, but not finished prod- 23 ucts, essential to United States products or 24 production, *HR 830 IH PAGENO="0346" 342 9 1 (0) routine services and maintenance of prod- 2 ucts, to the extent that alternative sources are not 3 readily or reasonably available, or 4 (B) information and technology essential to 5 United States products or production. 6 SEC. 9. PETITIONS BY INTERESTED PERSONS. 7 (a) FILING OF PETITIONS.-Any United States person 8 may file a petition, in accordance with regulations issued by 9 the President, requesting that an investigation be conducted 10 to determine whether sanctions are warranted under sec- 11 tion2. 12 (b) ACTIONS ON PETITIONS.-The President shall con- 13 duct an investigation pursuant to a petition filed under sub- 14 section (a) if, on the basis of facts set forth in the petition, the 15 President determines that there is a reasonable basis to be- 16 lieve that a foreign person has engaged in any act described 17 in paragraph (1) or (2), of section 2(a). 18 (c) PETITION DETERMINATIONS:-The President shall, 19 within 20 days after receiving a petition under subsection (a), 20 determine whether to conduct an investigation pursuant to 21 the petition, notify the petitioner of the determination, and 22 publish the determination in the Federal Register, together 23 with the reasons for the determination. 24 (d) APPEALS.-A person filing a petition under subsec- 25 tion (a) may appeal a determination of the President on the *HR 830 III PAGENO="0347" 343 10 1 petition by bringing an action for review of the determination 2 in an appropriate United States district court. The court shall 3 review the determination in accordance with section 706 of 4 title 5, United States Code. 5 SEC. 10. DEFINITIONS. 6 As used in this Act- 7 (1) the term "non-nuclear-weapon state" means a 8 non-nuclear-weapon state within the meaning of the 9 Treaty on the Non-Proliferation of Nuclear Weapons, 10 done at Washington, D.C., London, and Moscow on 11 July 1, 1968; 12 (2) the term "nuclear materials and equipment" 13 has the meaning given that term in section 4(4) of the 14 Nuclear Non-Proliferation Act of 1978 (22 U.S.C. 15 3203(4)); 16 (3) the term "nuclear technology" means sensitive 17 nuclear technology (as that term is defined in section 18 4(6) of the Nuclear Non-Proliferation Act of 1978 (22 19 U.S.C. 3203(6)) and Restricted Data (as that term is 20 defined in section 11 y. of the Atomic Energy Act of 21 1954 (42 U.S.C. 2014(y)); 22 (4) the term "foreign person" means any person 23 other than a United States person; *HR 830 III PAGENO="0348" 344 11 1 (5) the term "United States person" has the 2 meaning given that term in section 16(2) of the Export 3 Administration Act of 1979 (50 U.S.C. App. 2415(2)); 4 (6) the term "person" means a natural person as 5 well as a corporation, business association, partnership, 6 society, trust, any other nongovernmental entity, orga- 7 nization, or group, and any governmenta.1 entity, and 8 any successor of any such entity; and 9 (7) the terms "otherwise engaged in the trade of" 10 and "other engagement in the trade of" mean, with re- 11 spect to a particular export or transfer, to be a freight 12 forwarder or designated exporting agent, or a con- 13 signee or end user of the item to be exported or trans- 14 ferred. 15 SEC. 11. REGULATORy AUTHORITy. 16 The President may issue such regulations and orders as 17 are necessary to carry out this Act. *HR 830 IH PAGENO="0349" 345 Chairman PICKLE. Mr. Stark, we certainly thank you for your testimony and for your interest and leadership in this matter. I think your bill, H.R. 830, will be closely followed and watched by this committee and by the administration. I am glad that you have appeared in other committees to express this viewpoint. We cer- tainly appreciate your entire statement. I said earlier that your entire statement, which is very well docu- mented and extremely well prepared, will be made part of this hearing. So we thank you very much for your testimony. Mr. STARK. Thank you, Mr. Chairman. Chairman PICKLE. Mr. Schulze. Mr. SCHULZE. I just want to thank our colleague for his presenta- tion. Pete, given the threat of chemical and biological and missile technology and proliferation in the Third World, why have you homed in on nuclear technology rather than broadened it? Mr. STARK. Well, there was some attempt to add all of these. The President vetoed chemical and biological weapons, and I think those should be included. We have done a relatively better job in controlling nuclear type exports from our country, and my theory is I will take any help I can get. I am more scared about nuclear weapons than I am about missile- or biological- or chemical-weapon technology. But once that nuclear genie gets out of the bottle, there is almost no stopping him. The gentleman from Pennsylvania can well imagine what we would have been faced with if the SCUDS had any kind of nuclear warheads on them. We would have been facing a much different situation. That to me seems the most horrendous, the easiest one to zero in on, and the easiest one to bring sanctions against individual compa- nies. But I would- Mr. SCHULZE. Does this affect any of our allies? Mr. STARK. Of course it does. It affects companies that are resi- dent. Germany is our ally. And I have no quarrel with Daimler- Benz. I think they make wonderful cars and trucks. And I am per- fectly willing to even buy them in spite of the UAW's opposition to my perhaps doing that. But I see no reason then that we have to allow them to export to this country if they are at the same time shipping the means for nuclear weapons to a country like Pakistan or Iraq or Iran. Mr. SCHULZE. I thank you. Thank you, Mr. Chairman. Chairman PICKLE. The Chair has observed that no other mem- bers of the committee have any questions. Mr. Stark, we thank you very much for your testimony. Our next witness will be our colleague, the Honorable Jim Moody. Mr. Moody, will you take your place at the stand? STATEMENT OF HON. JIM MOODY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WISCONSIN Mr. MooDy. Thank you, Mr. Chairman and colleagues. I commend the subcommittee for its efforts to pursue this matter. I will not read my statement in its entirety and would re- quest it be put in the record. PAGENO="0350" 346 Chairman PICKLE. Your entire statement will be made part of the record. Go ahead, Mr. Moody. Mr. MOODY. Thank you, Mr. Chairman. I will focus primarily on the Customs Service. It can and should do more to stop inappropriate and illegal export of military-related items. But Customs is essentially a "cop on the beat," not the pol- icymaker. It has the authority to look in any crate, carton or con- tainer leaving the country. But since there are literally millions of those, Customs badly needs help to know where to look and what to look for. I will elaborate on that in a moment. I have talked with businessmen, legitimate and not so legitimate arms brokers, journalists, officials in Customs, State, Commerce, and DOD. As a result, my misgivings about the direction of U.S. policy and the way it is being implemented has grown ever strong- er. Recent revelations have described the unwitting and sometimes witting role of America and other NATO countries in arming un- democratic countries like Iraq in volatile regions like the Middle East. Only yesterday we hear that Algeria is now moving to devel- op nuclear technology as well. I want to identify briefly seven spe- cific problem areas which seem to me need addressing. Number one, conflict of interest within lead U.S. agencies. The Commerce Department has final discretion over licensing of dual- use technology. Other agencies have advisory roles. But Com- merce's primary overseas function, after all, is to promote and fa- cilitate U.S. exports, not to curtail them. Emphasizing today's sale while ignoring tomorrow's consequences can be directly harmful to U.S. interests. I believe this is a built-in conflict of interest which needs to he addressed and should make the Commerce Department not necessarily the sole gatekeeper of dual-use technology. Similarly, the State Department, which has sole discretion over munitions sales abroad, also has a conflict of interest. It is in State's interest to maximize U.S. influence with other countries, develop favorable relations. It does not like to say no. We know that State pursued closer ties with Iraq right up to the invasion of Kuwait. Frequently the main force of leverage the United States has through State with undemocratic countries is the sale of arms. As we know, these governments can often be more interested in building regional power or suppressing internal dissent than in legitimate self-defense. I lived and worked for a year in Iran, and the arms we poured into Iran were primarily used not for defending Iran against out- side countries, Mr. Chairman, but by enforcing internal control inside the country of Iran. And when that country flipped political- ly, of course, all those arms were simply passed into the hands of the Ayatollah. The Departments of Commerce and State are committed to agen- das that in their eyes may loom larger than controlling the export of arms technology. These institutional blinders continue to under- mine our ability as a Nation to protect our country's long-term in- terest in this area. Now, the DOD for its part has both strengths and weaknesses. The DOD can, of course, bring critical knowledge and the national security dimension to this issue. It now has an advisory role to PAGENO="0351" 347 Commerce, but it is often ignore'd. Commerce will approve licenses over the strong objections of DOD. Unfortunately, DOD's credibil- ity with Commerce and State has apparently been undermined by its continuous opposition to even relatively unthreatening technolo- gy transfers to the Soviet bloc over a number of years. It has been focused on Soviet bloc exports, of course. We understand why that made sense. Perhaps, however, DOD has not been so careful with respect to the Middle East. Curiously, DOD has been relatively willing to support arms sales to the Middle East. Of the 771 export licenses approved for sales between 1985 and 1990 to Iraq alone, 487 were referred to DOD for their recommendation. It concurred in every single one except 9 of those 487 requests. DOD approved 478 requests, while turning down only 9-including numerous sales to the Iraqi Defense Minis- try. Number two, relying on the world of the seller or purchaser. In approving licenses for the export of dual-use technology, it is criti- cal to determine the actual end use of the item. Yet Commerce is not obliged to do more than simply ask the seller and the purchas- er what their intentions are. Ironically, at Commerce, the word of an applicant-even the Government of Iraq-has sometimes car- ried more weight than objections of our own DOD. In 1988, Iraq attempted to purchase high performance ovens which it said was used for constructing prosthesis devices. Later it was accidentally determined that the real intention was to produce ballistic missile nose cones. Commerce continued to push hard on this sale right up until the very moment when it was revealed in public press, and the matter was stopped only after newspaper ac- counts. There is another case now in court in England of nuclear trig- gers. They were labeled as high speed electrical switching devices, and they were told they were for electronic gear, high performance electronic gear. Actually, their real purpose is nuclear triggers. An American company was simply exporting these. They were told they were allowed to say on their application that these were for electronic purposes, when, in fact, due to a sting operation-and due to a tip from inside the company-it was discovered these were actually nuclear trigger devices. And yet the simple statement of the purchaser was to the contrary, and that was accepted under our system. Another brief point. Today, criminal penalties apply to U.S. com- panies only if they willfully and knowingly misrepresent the end use of an exported product. The U.S. Government must, therefore, prove that the firm had prior knowledge, which is no easy task. There is, therefore, a clear incentive under the present structure for U.S. firms not to ask too many questions, much less follow up on the end use to verify what that end use would be. I would say that powerful incentives are needed for U.S. firms, in fact, to ask those very questions, and if necessary do on-site follow- up. To this end, I suggest the law be amended to impose civil penal- ties on U.S. firms that export dual-use technologies that are later found to have been used for military applications, contrary to the stated purpose on the license. This would be a lower threshold of proof, but for the first time would establish the correct incentives PAGENO="0352" 348 for U.S. export firms to be themselves part of the enforcement net- work. Unbelievably, there is now only random and occasional foilowup by U.S. Government agencies to determine the actual end use of dual-use items. The Customs Service would be the logical agency to determine if exports were, in fact, being used for military purposes. But Customs has a very limited authority to operate overseas. Sources inside Customs tell me of an undercover attempt to investi- gate sales to Iraq that were stymied by the refusal of the State De- partment to grant a passport to a Customs agent because it did not want to allow him to travel under an assumed name. Therefore, that investigation was stopped before it ever got started. Item number three, the so-called general destination loophole. American companies are free to ship items to any destination if Commerce classifies the commodity as "general destination," meaning it can go anywhere and does not require an export li- cense. This committee heard the case of the Warren pumps where Dr. Steven Bryen testified on April 19. His company requested to ship general purpose pumps to Iran and received a general destination classification. Customs seized the shipment on the dock in New Jersey only because the shipping label stated, "Defense Organiza- tion of the Islamic Republic of Iran (Chemical)." If it had not been labeled that way, it probably would not have been seized, and those pumps-which, in fact, are not for pumping chocolate or peanut butter but are able to make high powered explosives-would have arrived in Iraq, their intended destination. The Warren pumps company told us that it did not provide more information because U.S. law did not require them to do so. U.S. law should require them to do so. Somehow we need to find a way to factor end users into the licensing process even for products that may seem on the surface to be innocuous. Number four, the Canada loophole. Most high-technology prod- ucts can travel to Canada without any license requirements simply by declaring that Canada is the final destination. Then firms within Canada, either Canadian or foreign, can then reexport these products to third nations without even informing any U.S. agency, much less receiving permission. We saw a clear example of this in the C-TEK computer case discussed by this committee, again, on April 18. This committee heard testimony from Robert Casperson that this was a common and "reliable" export route for weapons technology. This loophole, Mr. Chairman, must be closed. Number five, lack of cooperation between intelligence and en- forcement. The information gathered by the CIA regarding the ac- tivities of other countries trying to develop nuclear and other mili- tary capabilities, chiefly by imported technology, is routinely passed up the CIA chain of command. Fine. But this vital informa- tion is normally not shared with Customs. The CIA is under no policy obligation at this time to inform Customs or any other agency about the expected use of exported U.S. arms technologies. Usually it is the CIA that comes to Customs for information, not the other way around. Number six, lack of cooperation between licensing and enforce- ment agencies. Incredibly, the Customs Service is not currently in- PAGENO="0353" 349 formed in any systematic way of new licenses for dual-use high- tech items. If Customs receives a specific prior tip from an outside or private source, it can request information on a specific export license issued by Commerce. Otherwise, it knows very little about the export licensing universe. Customs would have a significant leg up in enforcement if Commerce reported, one, all licenses that had been denied and the reasons for those denials; and, two, even more importantly, all licenses that had been approved having military potential, particularly those going to countries now or previously on the terrorist list. In this way, Customs would have some idea of what to look for, and this would greatly enhance and simplify their task. Finally, Mr. Chairman, number seven, Customs resources concen- trated on imports rather than exports. Customs resources are so overwhelmingly directed at this time toward stopping contraband such as drugs from coming into the country that it has few re- sources to control goods going out of the country. According to Cus- toms agents I have talked with, it catches only the smallest tip of the iceberg. Even with a full-court press on screening incoming goods, it is now estimated that only about 10 percent of drugs smuggled into the United States are actually stopped. To say that Customs stops even 5 percent of illegally exported arms-related items is probably an exaggeration. Let me just make a point and then close, and that is that process reform is no substitute for policy reform. The recommendations I have made here all relate to process. The main reason current processes failed to prevent export of many high-tech products to Iraq and other countries is, in fact, political. The implementation of policy cannot be better than the policy itself. Up until Iraq's in- vasion of Kuwait, the Reagan and Bush administrations actively pursued closer political and commercial ties with Iraq. President Reagan made the political decision to take Iraq off the terrorist list. The administration shared intelligence with Iraq and permit- ted its access to certain controlled technologies. In our efforts to improve the process, we must not lose sight that the underlying policy can be flawed. To this end, the Commerce and State Departments and other agencies will not be more dili- gent than the administration directs them to be. U.S. arms exports must be guided by coherent, centrally focused foreign policy and national security concerns. We need to ask, What future Husseins are we now arming? Who are we exporting technology to today that will be tomorrow's adversary? In conclusion, Mr. Chairman, the United States is now essential- ly a sieve-leaking high-technology and dual-use products to friends and foes alike throughout the world. We cannot continue to undermine our ability to protect our country's long-term interest in the area of arms and dual-use sales. We cannot wait until future Iraq or Syria or Algeria or some other country has acquired high-tech military capacity in order to then recognize too late the importance of implementing comprehensive export arms control policies. Thank you very much for the opportunity to testify. [The prepared statement follows:] 51-840 0 - 92 - 12 PAGENO="0354" 350 * JIM MOODY 1019 Loaswosm 8UTWING WISCONSIN WASHINGTON. DC 20515 ~ong~ve~ of t~jc ~initeb ~`tatc~ ~ou~c of ~epre~cntatibe~ (414) 29711331 ~a~jington, ~ 20515 STAT~IENT OF THE HON. JIM MOODY (D-WIS.) BEFORE THE COMMITTEE ON WAYS AND MEANS SUBCOMMITTEE ON OVERSIGHT WEDNESDAY, MAY 1, 1991 I commend this Subcommittee for its effort to shed light on inappropriate and often illegal exports of U.S. military technology. As I have learned sore about this subject, I have become increasingly concerned about U.S. policy -- or lack of policy -- on the exports of U.S. high technology and sensitive military items. Policy on "dual use" products -- items that have both military and civilian applications -- are in special need of overhaul. My comments here will focus on the customs Service. It can and should do more to stop inappropriate and illegal export of military-related items. But Customs is essentially the "cop on the beat"--at airports, ports, and borders--not the policy maker. It has the authority to look at any crate, carton, or box that as it deems fit. Since there are literally millions of different boxes, cartons and containers leaving the country, Customs badly needs help to know where to look and what to look for. More on this in a minute. I have talked with businessmen, legitimate and not so legitimate arms brokers, journalists, and officials in Customs, State, Commerce, and the Defense departments. As a result, my misgivings about the direction of U.S. policy and the way in which it has been implemented have grown ever stronger. Recent revelations have described the unwitting and sometimes witting role of American and other NATO government agencies and businesses, in arming undemocratic countries like Iraq in volitile regions like the Middle East. Today I want to identify what I see as seven problems with the current system. I do not claim to have magic solutions, but I do seek to identify some key issues that must be addressed. 1. Conflicts of Interest within Lead U.S. Agencies The Commerce Department has final discretion over the licensing of dual use technologies. Other agencies having only advisory roles. But Commerce's primarily oversees functon is to promote and facilitate U.S. exports, not to curtail them. Emphasizing today's sale while ignoring tomorrow's consequences can be harmful to U.S. national interests, as was the case in Iraq. I believe that the Commerce Department's built-in conflict of interest renders it inherently un-suited to be the sole gatekeeper on dual use exports. similarly, the State Department has an inherent interest conflict. It has the final say in the licensing of munitions. But one of State's main goals is to maximize U.S. influence and maintain favorable relations with other governments. It does not like to say "no" to friends or potential friends. PAGENO="0355" 351 For example, it pursued closer ties with Iraq up to the day of the invasion of Kuwait. In general, State wants countries to vote with us in the U.N. to support our diplomatic initiatives, to work closely with us, etc. Frequently the main form of leverage the U.S. has with undemocratic governments is the sale of arms. These governments can be more interested in building regional power or suppressing internal dissent than in legitimate self defense. Thus State, like Commerce, is institutionaly inclined to accomodate--not block--countries seeking U.S. arms, and is inherently unsuited as sole gatekeeper over munitions exports. The Departments of Commerce and State are commited to agendas that, in their eyes, loom larger than controlling the export of dual use technology. And these institutional blinders continue to undermine our ability to protect our country's longterm interest in the area of arms and dual use sales. The Defense Department, for its part, has both strengths and weaknesses. DOD can bring critical knowledge and the national security dimension to decision making in arms export policy. It now has an advisory role but the Commerce Department has, in some key instances, approved export licenses over the strong objections of DOD. Unfortunately, DOD's credibility with Commerce and State has been undermined by its continuous opposition to even relatively unthreatening technology transfers to the Soviet Bloc over a number of years, and to this day. (DOD currently even opposes the export of fiber optics technology to improve communications in Eastern European countries.) As a result, DOD's legitimate concerns about technology transfer to third world countries have not received the credence they deserve. Curiously, DOD has been relatively willing to support arms technology exports to the Middle East. Of the 771 exports licenses approved for sales between 1985-1990 to Iraq alone, 487 were referred to DOD for their recommendation. It concurred in all but 9 of them -- including numerous sales to the Iraqi Defense Ministry. 2. Relying on the Word of the Seller or Purchaser In approving licenses for the export of dual use technology it is critical to determine the real end use of the item. Yet the Commerce Department is not obligated to do more than simply ask the seller and the purchaser what their intentions are. ironicaI!~, at Commerce the word of an applicant -- even the Governments of Iraq, Iran, or Syria --has sometimes carried more weight than the objections of our own Department of Defense. In 1988, Iraq attempted to purchase high performance ovena which it said was for constructing prosthesis devices. Later it was determined that the real intention was to produce ballistic missile nose cones. Commerce continued to work hard to promote the sale despite DOD warnings. (They were stopped at the last minute--but only after extensive publicity). The fact is that almost all significant illegal exports that haye been stopped were stopped only as a result of tips from private U.S. businesses -- not from activity by government agencies to discover the real end use. Given the institutional weaknesses cited above, getting the business community more involved in export control is one important way of improving enforcei~ent. Another point: Today, criminal penalties apply to U.S. companies only if they will~ully and knowingly misrepresent the end use of exported products. But the U.S. Government must prove that the firm had prior knowledge -- no easy task. There is therefore a clear incentive for U.S. firms not to ask too many questions, much less to follow up purchases to verify end use. Powerful incentives are needed for U.S. firms to ask those questions and to do on-site follow up. To this end, I suggest the law be amended to impose civil penalties for U.S. firms that export dual use products that are later found to have been placed in military use contrary to the stated purpose. This lower threshhold of proof Would establish the correct incentives would the U.S. export firms. PAGENO="0356" 352 Unbelievably, there is now only random and occasional follow-up by any U.S. Government agency to determine the actual application of dual use items. The Customs Service would be a logical agency to ascertain if the exporter allowed military-use items to leave the country under false representations. But Customs has very limited authority to operate overseas. Sources inside Customs tell me of undercover attempts to investigate sales to Iraq that were stymied by the refusal of the State Department to issue a passport to a Customs agent under an assumed name. In any event, U.S. policy can no longer rely solely on the word of the purchaser. 3.The General Destination Loophole American Companies are free to ship items to any destination if Commerce classifies the commodity as "general destination", meaning that it can go to any destination and does not require an export license. Dr. Steven Bryen testified before this Committee on April 19 and he discussed the Warren Pumps case. This company requested to ship general purpose pumps to Iran and received a "general destination" classification from Commerce. Customs seized the shipment on a dock in Newark, New Jersey because, fortunately, the shipping labels stated: "Defense Organization of the Islamic Republic of Iran (Chemical)." The types of pumps Warren was shipping can be used to pump chocolate and peanut butter. But, according to Dr. Bryen, Iran intended to use the Warren pumps to manufacture explosives. In its original letter to Commerce, the Warren Pumps Company stated that the pumps were going simply "to Iran" not that they were going to the Chemical section of the Iranian Defense Minist~ybecause, the U.S. company said, U.S. law didn't require them to so state. U.S. law should so requre and Commerce should ask who the actual end user is. Somehow we need to find a way to factor end-users into the licensing process, even for products that may seem innocuous. 4. The Canada Loophole Most high technology products can travel to Canada without any license requirement simply by declaring that Canada is their final destination. Firms within Canada --either Canadian or foreign--can then re-export these products to third nations without even informing any U.S. agency, much less receiving its permission. We saw a clear example of this in the C-TEK computer case discussed by this Subcommittee in its hearings on April 18. This Subcosmittee heard testimony from Robert Casperson that this was a common and "reliable" export route for weapons technology. This loophole must be closed. 5.Lack of Cooperation between Intelligence and Enforcement The information gathered by the Central Intelligence Agency regarding the activities of other countries trying to develop nuclear and other military capabilities--chiefly by imported technology--is routinely passed up the CIA chain of command. But this vital information is normally not shared with the Customs Service. The CIA is under no policy obligation to inform Customs or other agencies about expected use of exported U.S. Arms technologies. Usually it is the CIA that comes to Customs for information -- not the other way around. PAGENO="0357" 353 6. Lack of cooperation between licensing and enforcement agencies. Incredibly, the Customs Service is not currently informed in any systematic or selected way of new licenses for dual use high tech items. If Customs receives a specific prior tip from an outside or private source it can request information on a specific export license issued by Cosserce. Otherwise, it knows little about the export licensing universe. Customs would have a significant "leg up" in enforcement if Commerce reported (1) all licenses that had been denied, and the reasons for denial, and (2) all licenses that had been approved having military potential--particularly those going to countries now or previously on the terrorist list. In this way, Customs could have some idea of what to look for and this would greatly enhance and simplify their task. 7. Customs Resources Concentrated on Imports Rather than Exports Customs resources are so overwhelmingly directed toward stopping contraband such as drugs from coming into the country that it has few resources to control goods going outAccording to Customs agents I've talked with, it catches only the smallest tip of the iceberg. Even with a full court press on screening incoming goods, it is estimated that only 10% of drugs smuggled into the country are actually stopped. To say that Customs stops even 5% of illegal arms-related items leaving the country would probably be an exageration. Process Reform No Substitute for Policy Reform The recommendations I have made here all relate to process. The main reason current processes failed to prevent export of many high tech products to Iraq and other countries is political. The implementation of policy cannot be better than the policy itself. Up until Iraq's invasion of Kuwait, the Reagan and Bush Administrations actively pursued closer political and commercial ties with Iraq. President Reagan made the political decision to take Iraq of f the terrorist list. President Bush shared intelligence with Iraq and permitted its access to controlled technologies. In our efforts to improve the process, we must not lose cite that the underlying policy was flawed. In the end, The Commerce Department the State Department and other agenr~ies will not be more diligent than the Administration directs them to be. U.S. arms exports must be guided by coherent, centrally focused foreign policy and national security concerns. We need to ask, what future Husseins are we now arming? Who are we exporting technology to today that may be tomorrow's adversary? In conclusion, the United States is essentially a sieve--leaking high technology and dual use products to friends and foes throughout the world. We cannot continue to undermine our ability to protect our country's long term interest in the area of arms and dual use sales. We cannot wait until future Iraq or Syria has acquired a high tech military capability to recognize the importance of implementing comprehensive export arms controls. Thank you very for giving me the opportunity to testify before you today. PAGENO="0358" 354 Chairman PICKLE. Mr. Moody, we thank you very much for your statement, and this entire statement will be made a part of our record. I especially want to compliment you on making these seven very important points, which we will not only consider in this commit- tee, but pass on to the committee of jurisdiction. I am particularly impressed on your number six where you point out the lack of co- operation between the licensing and enforcement agencies, particu- larly between Commerce and Customs. There must be some defi- nite improvements, and that lies specifically in our jurisdiction. We are glad to have this statement. It is a very complete and substantial statement, and we thank you for it. Mr. MOODY. Thank you. Chairman PICKLE. Mr. Anthony. Mr. ANTHONY. Thank you, Mr. Chairman. Jim, I was real interested in your comment about the State De- partment and the conflict with DOD. I don't know if I wrote the numbers down correctly, but I wrote down that Commerce had ap- proved 487 sales of munitions to Iraq that required some review by DOD and that 9 had been turned down. I just wondered if you could expand on that part of your testimony. Mr. Moo]Y. My staff has been in touch with those agencies and has provided those numbers. I can get backup to you in detail for you. I would be happy to do that. Mr. ANTHONY. At what point in time were these sales being made to Iraq? Mr. MooDy. This is between 1985 and 1990. Right up to 1990. Mr. ANTHONY. Right up until 1990. Mr. MOODY. It doesn't cover 1991. It goes through calendar 1990, long after the Iran-Iraq war ended. There was a certain policy ra- tionale which the administration had. You could agree or disagree, but there was a rationale provided that during the Iran-Iraq war we did not want to see Iran overwhelmingly win; therefore, there was a tilt towards Iraq in a number of areas-the sharing of intelli- gence, taking them off the terrorist list, et cetera. But the war ended in 1988. For 2 more years that we know of, and probably 2½ if we had the final information, the DOD contin- ued to approve overwhelmingly the numbers of items that request- ed their comments on from Commerce in order to sell arms-related items to Iraq. Long after the Iran-Iraq war ended, any policy that might have existed for tilting towards Iraq had long since ended. Mr. ANTHONY. Any additional information that you have on that particular part of your testimony I think could be beneficial. I think that part shows a strong conflict between DOD and the State Department in terms of what policy is and in terms of diplomatic relationships and what other worldly goals we are pursuing at the same time. Commerce is just trying to assist local manufacturers of particular items. Mr. MooDy. Right. Mr. ANTHONY. So any additional evidence or testimony or facts that you could add to that, I would appreciate it. Mr. MOODY. I would be happy to get more detail for you. Mr. ANTHONY. Thank you. PAGENO="0359" 355 Mr. MOODY. I think it goes to the basic point that without many recriminations, there is an inherent conflict between the role of Commerce and our export arms control policies-namely, Com- merce's job is to push exports, promote them, facilitate them, and encourage them, and that is their role for balance of payments of purposes. They have the final say-so. Then we shouldn't be sur- prised if they go overboard. Mr. Schulze made a good point in his introductory comments that the DOD has been in some sense removed from having the veto role. On the other hand, I would point out that even DOD's recommendations, except in nine cases, were to go ahead and let the stuff go. It appears that DOD has been much more careful, and appropriately so, looking backward in the past, over exports going to the Soviet bloc than they were to other areas of the world which might be volatile. Mr. ANTHONY. What you are saying is when Iran and Iraq got into their conflict, President Reagan in 1982, if I am not mistaken, took them off the list of being a terrorist country. Mr. MOODY. I don't know what year, but he did do that. Mr. ANTHONY. I think it was 1982, then I think in 1984 he re- stored full diplomatic relations with Iraq, which meant then that all of these goods obviously could be sold. So your time frame for your sales that you have outlined started from that point through 1990. Mr. MOODY. Right, 1985 through 1990. Mr. ANTHONY. 1985 through 1990, and I think President Reagan in 1984 established full diplomatic relations with the country of Iraq. Well, obviously I will talk to you in private, but any addition- al evidence that you have on those specific sales, especially those nine that were turned down, I would be real curious to see what was so bad about those nine. Mr. MOODY. All right. Mr. ANTHONY. And what was so good about the 487. Mr. MOODY. Right. We will do so. We will get some more infor- mation to you. Mr. ANTHONY. See where some of those inherent conflicts arise. I thank you. *Chairman PICKLE. Thank you, Mr. Anthony. Mr. Schulze, do you have any questions? Mr. SCHULZE. Just briefly. I thank the gentleman for his testimo- ny. I don't have with me all of the votes of all the Members, but it just seems to me that Congress does share a large part of the blame in this. There has been a great push from Congress to all of the bureaus involved to sell goods overseas. In fact, the message has been to DOD and others to stop holding up these sales. And I think we have got to start sending a clear message. I opposed most of that legislation, and I think it is about time that we send a clear message that we would rather sacrifice some sales than have a pro- liferation of some of these weapons. So I cannot blame administra- tions and bureaus for some of Congress' schizophrenia. I think that perhaps now we can speak with one tongue and tighten up some of these rules and regulations so they know where they stand. PAGENO="0360" 356 I can understand the gentleman's concern, but I hope that his record will bear out that concern so that we can send clear signals to the bureaucracy. Mr. MOODY. I agree. I don't disagree with that at all, Mr. Schulze. I am simply saying that DOD's role with respect to the Soviet bloc is one thing. They have been very, very cautious, and I would not fault them for it at all. DOD's role with respect to the Middle East and perhaps other volatile areas has not apparently quite so tough-minded. Maybe that is something we should look at. Mr. SCHULZE. I think that they received the message from Con- gress in that direction. And the only thing that they were told to do was watch Communist countries, and anybody who could buy anything anywhere else, they were to open the floodgates. That message-I have in my office the statements made on the floor by the export caucus and others over the last decade, and the message was very, very clear, and the votes were very, very clear to the bu- reaucracy. That is, open the gates and start selling stuff. Anything that can be bought anywhere else, sell it. Now, if we are going to change that-and I didn't think we should have done it in the first place-then we should send that clear message. We have got to give these people some direction. I am just as happy to point the finger of blame, but we have got to understand that we right here in this body are largely responsible for any of these sales and that we have the oversight, the author- ity, even through the intelligence community, at any point to stop any of them. So I enjoy the luxury of blaming others, but we have got to be introspective once in a while and say that we do share responsibility in this and we are going to change the law and here is the way we want it. Mr. MOODY. Well, the thrust of my testimony is not a blame thrust at all. It is pointing out seven areas I think we need to ad- dress, and that is what I would like to leave with the committee. Chairman PICKLE. Mr. Moody, again, I want to thank you. Your testimony is very thorough and important to us. We will be looking at this whole problem, and we will be calling you again. We also want to invite you to be a part of any of our continuation of testi- mony and hearings today. Mr. MOODY. Thank you very much. Chairman PICKLE. Thank you very much, Mr. Moody. We will next hear from the United States Department of the Treasury. We will hear from Richard Newcomb, who is the Direc- tor of the Office of Foreign Assets Control, or OFAC. Mr. Newcomb, will you please take your position at the witness table and identify any of the gentlemen that you might have with you. STATEMENT OF R. RICHARD NEWCOMB, DIRECTOR, OFFICE OF FOREIGN ASSETS CONTROL, OFFICE OF ENFORCEMENT, U.S. DEPARTMENT OF THE TREASURY Mr. NEWCOMB. Thank you, Mr. Chairman, members of the sub- committee. I am here today to discuss Foreign Assets Control role in formulating, administering and enforcing economic sanctions programs imposed against Iraq, Kuwait, and Libya. OFAC ha~ pri- PAGENO="0361" 357 mary responsibility within the executive branch for implementing the financial and trade sanctions currently in effect with respect to a number of countries. In addition to Iraq, Kuwait, and Libya sanctions, we administer comprehensive sanctions against Cuba, Vietnam, North Korea, and Cambodia. We also administer the import embargo currently in effect against Iran, and the import and new investment prohibi- tions against South Africa, under the Comprehensive Anti-Apart- heid Act. In recent years, we administered the economic sanctions programs against the Sandinista regime in Nicaragua, and the Noriega regime in Panama. In view of your interest in the programs affecting Middle East- ern countries, my comments today will be directed to the Iraq, Kuwait, and Libya programs, our assessment of the programs and specific strategies we have employed in fulfilling our mission, in- cluding our specially designated nationals program. As you know, Iraq's invasion of Kuwait on August 2 resulted in the immediate declaration of a national emergency by the Presi- dent under the International Emergency Economic Powers Act, an issuance of two Executive orders freezing all Iraq and Kuwait Gov- ernment assets in the United States, or under the control of U.S. persons, and imposing a comprehensive trade embargo against Iraq, similar in scope to the one imposed under IEEPA against Libya in 1986. Following the August 6 resolution of the United Nations Security Council calling on U.N. member States to impose sweeping econom- ic sanctions against Iraq and occupied Kuwait, the President, on August 9, issued another Executive order broadening the sanctions previously imposed against Iraq, and a fourth Executive order ex- tending the same comprehensive sanctions to Kuwait, then under Iraq control. Since the liberation of Kuwait by allied military forces and Oper- ation Desert Storm, the prohibitions of August 9 on most trade and financial transactions with respect to Kuwait have been removed by the issuance of general licenses authorizing such transactions. Except for seven Kuwait banks, the U.S. property of the Govern- ment of Kuwait has been effectively unblocked by general license. The seven banks, while remaining blocked, have been issued specif- ic licenses to use their assets to settle pre-August 2 obligations. Also these seven banks have now been licensed to engage in letter of credit and foreign exchange transactions. We anticipate that the banks will be unblocked and fully able to operate in the United States by the end of this month. A comprehensive economic sanctions program, similar to that against Iraq, was imposed by the President against Libya in Janu- ary of 1986. The Libya sanctions blocked the U.S. property of the Government of Libya; and prohibited imports to and exports from Libya; prohibited financial transactions and travel transactions. The objectives of the August 2, and August 9 Executive orders were to deprive Iraq of any economic or financial benefit as a result of its illegal invasion and occupation of Kuwait, and to pre- serve and protect the substantial U.S. assets of the Government of Kuwait for the benefit of their rightful owner. Through the swift and coordinated actions of the President, the National Security PAGENO="0362" 358 Council, and the Treasury and State Departments on the night of the Iraqi invasion, the legal authority to implement sanctions was in place and operational responsibility assigned before U.S. finan- cial markets opened the following morning on August 2. Much of the initial success in implementing the sanctions after the decisive steps taken by the President can be attributed to the quick application of restrictions to the complex commercial and fi- nancial relationship that existed between the United States and Kuwait and Iraq. In many cases, these actions set the pace or became the model for the sanctions program administered by other countries. The most immediate and pressing problems we faced in the aftermath of the Executive orders was identifying which insti- tutions were actually owned or controlled by the Governments of Kuwait and Iraq, winding down financial and commercial transac- tions entered into prior to the sanctions, and structuring a regula- tory program that provided a reasonable degree of investment flexibility for the billions of dollars of blocked Kuwait property, while assuring that the property remained fully protected. The President's orders immediately and effectively immobilized tens of billions of dollars of Kuwait and Iraq Government-owned assets in the United States. These orders interfered with or halted altogether billions of dollars of capital flows. These included for- eign exchange contracts, oil payments, repurchase agreements, cur- rency swaps, payments to international banking syndicates, and a wide variety of overnight investment arrangements involving cap- ital markets in different political jurisdictions. Resolving the problems resulting from the blocking orders was a complicated and difficult task, especially in today's sophisticated capital markets, with their international scope and highly devel- oped dependence on the execution of interlocking contractual obli- gations. We've had considerable experience over the years in freez- ing assets of adversarial countries, but not since World War II have we been tasked with imposing and administering such a large-scale protective asset freeze involving a country with such complex and extensive multinational investment holdings as Kuwait. In addi- tion, most past freezes had not occurred suddenly, but after a period of escalating international tensions. This freeze was imposed literally overnight. Almost immediately our blocking program developed into a two- track approach. First, we had to identify and make known to the financial and export communities, the Kuwaiti banks, and other in- stitutions frozen by the Executive orders, and how preexisting fi- nancial and other contractual arrangements could be completed, wound down, or continued without violating the freeze order. Second, we had to identify, license, and develop operational guidelines for the Kuwait Government-owned institutions deter- mined to be under the control of the legitimate authorities so that they could continue to function within the international frame- work established by the U.N. sanctions program. The day after the freeze, on August 3, we issued guidance to U.S. persons concerning the completion of existing contracts involving pre-invasion oil ship- ments en route to the United States, securities transactions, for- eign exchange contracts, and letter of credit payments to U.S. ex- PAGENO="0363" 359 porters for goods and services exported to Iraq or Kuwait prior to the effective date. That day we also began what became an extensive and ongoing cooperative consulting process with the Kuwait authorities, as well as with many other companies and financial institutions affected by the freeze, to ascertain, for example, which of the blocked Kuwait Government institutions had sufficient senior officials and management personnel outside of Kuwait to resume limited oper- ations. We met with CEOs and other senior officials of Kuwait-con- trolled institutions to tailor specific licenses designed to permit U.S. persons, including holders of blocked property belonging to the institutions, to engage in specified types of transactions inyolving the institutions. This licensing scheme was followed to ensure that transactions permitted by the license remained subject to U.S. jurisdiction and control, while allowing the institution sufficient flexibility to resume operations. We consulted regularly with the Federal Reserve Bank of New York and various U.S. Government agencies, including the Depart- ment of State, Commerce, and Defense, the U.S. Customs Service, the FBI, the NSC, and members of the intelligence and law enforce- ment communities. We also established an ongoing program with foreign govern- ments to meet regularly with their embassies to coordinate actions and ensure uniform application of all U.N. resolutions, and partici- pated in coordination meetings with our allies in such forums as the Bank of International Settlements, the Organization of Eco- nomic Cooperation and Development, the European Economic Com- munity Commission, and the United Nations. On the domestic side, we believe the longer term effectiveness of the sanctions can be attributed to the intensive efforts of many U.S. Government agencies affected, and the high level of coopera- tion exhibited by the Federal Reserve System, and other bank su- pervisory and regulatory agencies, and the financial and export communities. The U.S. Customs Service was in a position to assist us by moni- toring all imports and exports and did so, completely and effective- ly. Many exports to Iraq or Kuwait, already on the high seas, were returned to the United States. Others were diverted to other desti- nations, either voluntarily or by direction of the Naval forces par- ticipating in the quickly assembled multinational blockade. Internationally, the unprecedented level of cooperation and una- nimity of purpose exhibited by the U.N. member states participat- ing in the sanctions program has been remarkably successful in preventing inadvertent leaks in any particular political jurisdiction from turning into a serious hemorrhaging of the embargo. On February 8, we issued regulations requiring that all U.S. per- sons holding blocked Iraqi property and all U.S. nationals with claims against Iraq file reports of such assets or claims. Since the reporting deadline of March 15, we have been reviewing, tabulat- ing, and evaluating these reports. They reveal the value of blocked Iraqi property in the United States exceeds $1.2 billion. This prop- erty consists principally of bank deposits, frozen on August 2; amounts subsequently paid into blocked accounts by purchasers of PAGENO="0364" 360 Iraqi oil en route to the United States on August 2; and a miscella- neous variety of Iraqi Government-owned tangible properties and credits. Approximately $420 million additional was reported as blocked in the offshore branches of U.S. banks, particularly in the United Kingdom. Almost 1,100 individuals, corporations, banks, and U.S. Government agencies have reported billions of dollars in claims against Iraq. These range from claims asserted by individuals for personal property looted in Kuwait, to losses of future business and concession rights. Inasmuch as these claims have not been submit- ted to a formal claims resolution body, much less adjudicated, it would be inappropriate to speculate as to their actual aggregate value. The process by which these claims will be adjudicated and settlements funded will be determined once the details of the UN reparations plan are worked out. The Iraq and Libya sanctions regulations provide the Secretary of the Treasury with the authority to include, within the definition of the target country Government, those individuals and entities which have been determined to be acting on behalf of, or controlled by, the foreign target Government. This authority greatly enhances the effectiveness of the sanctions programs by forestalling a potential avenue of sanctions evasion by specially designated nationals, that is, agents or front companies of Iraq or Libya. The effect of being designated as specially designated national is significant. The SDN is exposed internationally as a target Govern- ment agency instrumentality, or controlled entity acting either overtly or covertly as a front, and all of the SDN's property within the jurisdiction of the United States, including financial assets in U.S. bank branches overseas, is blocked. U.S. persons are prohibit- ed from engaging in any transaction involving property in which the SDN has an interest, which includes all financial and trade transactions, and all holders of this property must report their holdings. Through information obtained from a combination of investiga- tive sources, including other U.S. agencies, we have undertaken a major initiative to identify front companies and agents used to ac- quire technology, equipment and other resources for Iraq. On August 1, we formally identified 52 businesses and 37 individuals as Iraqi S1)Ns and 160 merchant ships as Iraqi owned or controlled, thus prohibiting their use by U.S. businesses and individuals. This action was the culmination of many months of domestic and international investigative effort coordinated with domestic and foreign intelligence resources. In practice, an Iraqi SDN is an Iraqi Government body, representative, intermediary, or front, whether overt or covert that is located outside Iraq and functions as an ex- tension of the Government. It may be a firm created by the Iraqi Government, or a third party company that otherwise becomes owned or controlled by the Iraqi Government, or that operates on its behalf. No criminal linkage is necessary for being placed on this list. Ownership or control by the Iraq Government, or acting on its behalf, would suffice to qualify a person for designation. For U.S. persons, dealing with an SDN is equivalent to doing business with PAGENO="0365" 361 the government of the target country, an activity which is prohibit- ed and subject to penalty. Yesterday, we named 48 entities, all located outside the United States, as Libyan specially designated nationals. Libya's policies and actions, including its continued refusal to disavow terrorism as a tool of international policy, makes such a listing particularly useful at this time in redirecting public attention to the compre- hensive sanctions program in place against Libya. Neither the Libyan or Iraq SDN list is intended as a static docu- ment, but will be continuously augmented as additional front com- panies and agents are identified. It was a pleasure, Mr. Chairman, appearing before this commit- tee this morning. I will be pleased to respond to any questions that you or the members might have. [The prepared statement follows:] PAGENO="0366" 362 PREPARED STATEMENT OF R. RICHARD NEWCOMB DIRECTOR, OFFICE OF FOREIGN ASSETS CONTROL DEPARTMENT OF THE TREASURY before the SUBCOMMITTEE ON OVERSIGHT COMMITTEE ON WAYS AND MEANS U.S. HOUSE OF REPRESENTATIVES May 1, 1991 Chairman Pickle and members of the subcommittee: Good morning. I am R. Richard Newcomb, the Director of the Office of Foreign Assets Control (FAC) at the United States Department of Treasury. I appear before the subcommittee today to discuss FAC's role in formulating, administering, and enforcing the economic sanctions programs imposed against Iraq, Kuwait, and Libya. FAC has primary responsibility within the Executive Branch for implementing the financial and trade sanctions currently in effect with respect to a number of countries. In addition to the Iraq, Kuwait, and Libyan sanctions, we administer comprehensive sanctions against Cuba, Vietnam, North Korea, and Cambodia. FAC also administers the import embargo currently in effect against Iran. We currently administer and interpret the import and new investment prohibitions imposed against South Africa by the Comprehensive Anti-Apartheid Act of 1986, and continue to exercise residual World War Il-origin assets controls affecting the Baltic Republics. In recent years, we administered successful economic sanctions programs against the Sandinista regime in Nicaragua and the Noriega regime in Panama. In view of your expressed interest in the programs affecting the Middle Eastern countries, my comments today will be directed to the Iraq, Kuwait, and Libyan programs, our assessment of the effectiveness of those programs, and specific strategies we have employed in fulfilling our mission, including a vigorous Specially Designated Nationals program. PAGENO="0367" 363 -2- Description and Regulatory Evolution of the Iraq, Kuwait, and Libyan Sanctions PrograiTi~ As you know, Iraq's invasion of Kuwait on August 2 resulted in the immediate declaration of a national emergency by the President under the International Emergency Economic Powers Act ("IEEPA") and the issuance of Executive Orders No. 12722 and No. 12723, freezing all Iraq and Kuwait government assets in the United States, or under the control of U.S. persons, and imposing a comprehensive trade embargo against Iraq similar in scope to the one imposed under IEEPA against Libya in 1986. Following the ~August 6 resolution of the United Nations Security Council calling on U.N. member states to impose sweeping economic sanctions against Iraq and occupied Kuwait, the President on August 9 issued Executive Order No. 12724 broadening the sanctions previously imposed against Iraq and Executive Order No. 12725 extending the same comprehensive sanctions program to Kuwait, then under Iraqi control. With respect to Iraq, the August 9 Executive order prohibited the following transactions, most of which had been prohibited under the August 2 order: (1) imports and exports between the United States and Iraq, including activity promoting such transactions; (2) dealing in property of Iraqi origin exported from Iraq after August 6; (3) transactions related to travel to Iraq (with limited exceptions); (4) transactions related to transportation to or from Iraq, including the use of Iraqi-registered vessels or aircraft; (5) the performance of contracts in support of projects in Iraq; and (6) the commitment or transfer of funds or other financial or economic resources to the Government of Iraq. The August 9 order also continued in effect the blocking of Iraqi government property. Since the liberation of Kuwait by the Allied Military Forces in Operation Desert Storm, the prohibitions of August 9 on most trade and financial transactions with respect to Kuwait have been removed by the issuance of general licenses authorizing such transactions. Except for seven Kuwaiti banks, the U.S. property of the Government of Kuwait has now been effectively unblocked by general license. The seven banks, while remaining blocked, have PAGENO="0368" &64 -3- been issued specific licenses to use their assets to settle pre- August 2 obligations. Also the seven banks have been licensed to engage in letter of credit and foreign exchange transactions. We anticipate that the banks will be unblocked and fully able to operate in the United States by the end of this month. A comprehensive econonic sanctions program similar to that against Iraq was imposed by the President against Libya in January 1986. Although these sanctions were also imposed under the authority of IEEPA, they were a deliberate response to Libya's longstanding support of international terrorism (including hostage-takings and bombings), rather than an immediate response to a particular act of aggression. As in the case of the Iraq and Kuwait sanctions, the Libyan sanctions were developed by Treasury with the assistance of the Departments of State and Justice, the White House staff, and the National Security Council. The Libyan sanctions block the U.S. property of the Govern- ment of Libya, prohibit imports to and exports from Libya, prohibit financial transactions with Libya (including extensions of credit), and prohibit travel transactions. As I will discuss in greater detail shortly, the Libyan Sanctions Regulations ("LSR") 31 C.F.R. Part 550, promulgated by FAC to implement the Libyan sanctions, include within the definition of the "Government of Libya" any organization or person designated by the Secretary of the Treasury as having been determined to be owned or controlled by, or acting on behalf of, the Government of Libya. The Iraqi Sanctions Regulations (`ISR"), 31 C.F.R. Part 575, provide the Director of FAC with similar authority in defining the "Government of Iraq." Effectiveness of Implementation of ~ragi Sanctions and Kuwaiti Asset Protections The objectives of the August 2 and 9 Executive orders were to deprive Iraq of any economic or financial benefit as a result of its illegal invasion and occupation of Kuwait, and to preserve and protect the substantial U.S. assets of the Government of Kuwait for the benefit of their rightful owner. Due to the swift and coordinated actions of the President, the National Security Council, and the Treasury and State Departments on the night of the Iraqi invasion, the legal authority to implement the sanctions was in place and the operational responsibility assigned before U.S. financial markets opened on August 2. We believe much of the initial success in implementing the sanctions after the decisive steps taken by the President can be attributed to the quick and rational application of the restrictions by the Treasury administrative apparatus to the complex commercial and financial relationship that existed PAGENO="0369" 365 -4- between the United States, Kuwait, and Iraq. In many cases, these actions set the pace or became the model for the sanctions programs administered by other countries. The most immediate and pressing problems we faced in the aftermath of the Executive orders were identifying which institutions were actually owned or controlled by the Governments of Kuwait and Iraq, winding down financial and commercial transactions entered into prior to the sanctions, and structuring a regulatory program that provided a reasonable degree of investment flexibility for the billions of dollars of blocked Kuwaiti property while ensuring that the property remained fully protected. The President's orders immediately and effectively immobilized tens of billions of dollars of Kuwaiti and Iraqi government-owned assets in the United States. These orders interfered with or halted altogether billions of dollars of capital flows. These included foreign exchange contracts, oil payments, repurchase agreements and currency swaps, payments to international banking syndicates, and a wide variety of overnight investment arrangements involving capital markets in different political jurisdictions. Resolving the problems resulting from the blocking orders was a complicated and difficult task, especially in today's sophisticated capital markets with their international scope and highly developed dependence on the execution of interlocking contractual obligations. We have had considerable experience over the years in freezing the assets of adversarial countries, but not since World War II have we been tasked with imposing and administering such a large scale protective asset freeze involving a country with such complex and extensive multinational investment holdings as Kuwait. In addition, most past asset freezes had not occurred suddenly, but after a period of escalating international tensions; this freeze was imposed literally overnight. Almost immediately, our blocking program developed into a two track approach. First, we had to identify and make known to the financial and export communities the Kuwaiti banks and other institutions frozen by the Executive orders and how pre-existing financial and other contractual arrangements could be completed, wound down, or continued without violating the freeze order. Second, we had to identify, license, and develop operational guidelines for the Kuwaiti government-owned institutions determined to be under the control of legitimate authorities so they could continue to function within the international framework established by the U.N. sanctions program. The day after the freeze, Friday, August 3, we issued guidance to U.S. persons concerning the completion of existing PAGENO="0370" 366 -5- contracts involving pre-invasion oil shipments en route to the U.S., securities transactions, foreign exchange contracts, and letter of credit payments to U.S. exporters for goods and services exported to Iraq or Kuwait prior to the effective date. That day we also began what became an extensive and ongoing cooperative consulting process with the Kuwaiti authorities, as well as with many of the companies and financial institutions affected by the freeze. Over the weekend of August 5, we developed and transmitted to the Federal Reserve Bank of New York ("FRBNY") the first in a series of determinations concerning the blocked status of certain prominent Middle Eastern, Pan-Arab, and Kuwaiti banks and financial institutions. We also met with U.S. and Kuwaiti representatives of various compnmies affected by the freeze order. Over the next couple of months we met daily with a wide variety of parties affected by the freeze. We issued numerous interpretative rulings involving a wide variety of transactions and additional blocking status determinations concerning various institutions. These complicated and fact-intensive determinations, especially those involving banks in which other countries had interests, had to be made under severe time constraints. These constraints arose because delays of just a day or two in determining the status of a bank could cause severe runs by concerned depositors who feared their funds might incidentally be caught in the freeze if the bank were determined to be owned or controlled by the Governments of Kuwait or Iraq. It also became apparent to us over this period that many other countries were taking blocking actions with respect to the individual institutions based upon our determinations. We also worked extensively with the Government of Kuwait during this period to ascertain which of the blocked Kuwaiti governmental institutions had sufficient senior officials and management personnel outside of Kuwait `to resume limited operations. We met with CEO's and other senior officials of the Kuwait controlled institutions to tailor specific FAC licenses `designed `to permit U.S. persons, including holders of blocked property belonging to the institutions, to engage in specified types of transactions involving the institutions. This licensing scheme was followed to ensure that transactions permitted by the licenses remained subject to U.S. jurisdiction and control while allowing `the institutions sufficient flexibility to resume operations. Most of these institutions were owned or controlled by the Kuwait Investment Office or the Kuwait Investment Authority. In addition to the regular meetings with the Kuwaitis and other affected parties since August 2, we have consulted regularly with the Federal Reserve Bank of New York and various U.S. Government'agencies, including the Departments of State, Commerce, and Defense, the Customs Service, the FBI, the NSC, and PAGENO="0371" 367 -6- members of the intelligence and law enforcement communities. We also established an ongoing program with foreign governments to meet regularly with their embassies to coordinate actions and ensure uniform application of all U.N. resolutions and partici- pated in coordination meetings with our allies in such forums as the Bank for International Settlements, the Organization for Economic Cooperation and Development, the European Economic Community Commission, and the United Nations. On the domestic side, we believe the longer term effectiveness of the sanctions can be attributed to the intensive efforts of the many U.S. Government agencies affected and the high level of cooperation exhibited by the Federal ~eserve System, the other bank supervisory and regulatory agencies, and the financial and export communities. The Customs Service was in a position to assist us by monitoring all imports and exports and did so completely and effectively. Many exports to Iraq or Kuwait already on the high seas were returned to the United States; others were diverted to other destinations, either voluntarily or by direction of the naval forces participating in the quickly-assembled multinational blockade. Internationally, the unprecedented level of cooperation and unanimity of purpose exhibited by the U.N. member states participating in the sanctions program has been remarkably successful in preventing inadvertent leaks in any particular political jurisdiction from turning into a serious hemorrhaging of the embargo. The same level of cooperation and unanimity of purpose was exhibited domestically as well. FAC's Enforcement Division conducts and coordinates investigations of substantive violations of the embargo and accordingly maintains daily operational liaison with the U.S. Customs Service and the Federal Bureau of Investigation. Similarly, FAC routinely coordinates its activities with the Departments of State, Defense, Commerce, and Justice, and the intelligence community. Census of Blocked Iraqi Assets and Claims Against Iraq On February 8, we issued regulations requiring that all United States persons holding blocked Iraqi property, and all United States nationals with claims against Iraq, file reports of such assets or claims with FAC. Since the reporting deadline of March 15, we have been reviewing, tabulating, and evaluating the reports filed. The reports filed reveal that the value of blocked Iraqi property in the United States exceeds $1.2 billion. This property consists principally of bank deposits frozen on August 2, amounts subsequently paid into blocked accounts by purchasers of Iraqi oil en route to the United States on PAGENO="0372" 368 -7- August 2, and a miscellaneous variety of Iraqi government-owned tangible properties and credits. Approximately $420 million additional was reported as blocked in the offshore branches of U.S. banks, primarily in the United Kingdom. Almost 1,100 individuals, corporations, banks, and U.S. Government agencies have reported billions of dollars in claims against Iraq. These range from claims asserted by individuals for personal property looted in Kuwait to losses of future business and concession rights. Inasmuch as these claims have not been submitted to a formal claims resolution body, much less adjudicated, it would be inappropriate to speculate as to their actual aggregate value. The process by which the claims will be adjudicated and settlements funded will be determined once the details of the U.N. reparations plan are worked out. - We have already held several meetings with the larger claimants who have raised issues we believe require examination in order to obtain a clearer and more complete picture of their losses. These meetings enable us to more effectively evaluate the various settlement options or scenarios likely to be put forth. Specially Designated Nationals As noted earlier, the ISR and LSR provide the Secretary of theTreasury with authority to include within the definition of the target country government those individuals and entities which have been determined to be acting on behalf of, or controlled by, the target government. This authority greatly enhances the effectiveness of these sanctions programs by forestalling a potential avenue of sanctions evasion by Specially Designated Nationals--agents and front companies of Iraq and Libya. The effect of being designated a Specially Designated National, or SDN, is significant. The 5DM is exposed inter- nationally as a target government agency, instrumentality, or controlled entity acting either overtly or covertly as a front, and all of the SDN's property within the jurisdiction of the United States (including financial assets in U.S. bank branches overseas) is blocked. U.S. persons are prohibited from engaging in any transaction involving property in which the SDN has an interest, which includes all financial and trade transactions, and all holders of SDN property must report those holdings to FAC. In the case of Iraq, which is subject to multinational sanctions, being identified as an Iraqi SDN by the United States provides a basis for other governments to take similar steps to include the specifically identified individuals and entities within their sanctions programs. PAGENO="0373" 369 -8- Through information obtained by FAC from a combination of investigative sources, including other U.S. agencies, we have undertaken a major initiative to identify front companies and agents used to acquire technology, equipment, and other resources for Iraq. On April 1, Treasury formally identified 52 businesses and 37 individuals as Iraqi SDN5 and 160 merchant ships as Iraqi- owned or controlled, thus prohibiting their use by U.S. businesses and individuals. This action was the culmination of many months of domestic and international investigative effort coordinated by Treasury with domestic and foreign investigative resources. Approximately half of the designated Iraqi SDN5 are part of the Iraqi military-industrial network. In practice, an Iraqi SDN is an Iraqi government body, representative, intermediary, or front (whether overt or covert) that is located outside Iraq and functions as an extension of the Government of Iraq. It may be a firm created by the Iraqi Government, or it may be a third-party company that otherwise becomes owned or controlled by the Iraqi government or that operates on behalf of the Government of Iraq. No criminal linkage is necessary for being placed on the SDN list. Ownership or control by the Iraqi government or acting on its behalf would suffice to qualify a person for designation. For U.S. persons, dealing with an SDN is equivalent to doing business with the government of the target country, an activity which is prohibited and subject to severe penalties. For example, under the Iraq Sanctions Act, civil penalties of up to $250,000 may be imposed administratively. Criminal fines of up to $1 million per violation may be imposed on both individuals and corporate entities, and prison sentences of up to 12 years are authorized for individuals, including officers, directors, or agents of a corporation who are knowingly involved in a corporate violation of the sanctions. U.S. persons may be designated as SDN5 and, as such, would have their assets blocked by FAC, effectively putting them out of business. It should also be noted that a U.S. firm in which Iraq holds a controlling interest was immediately blocked under terms of the August 2 Executive order. Among the entities identified as SDN5 were the Matrix- Churchill Corporation of Solon, Ohio, and Bay Industries, Inc., of Santa Monica, California, two U.S. corporations on which FAC had previously served blocking notices. Matrix-Churchill's role in Iraq's international arms and technology acquisition network, performed under cover of a seemingly innocuous machine tool sales and service business, has received widespread publicity in recent months. Yesterday, we named 48 entities, all located outside the United States, as Libyan SDN5. Libya's policies and actions, PAGENO="0374" 370 -9- including its continued refusal to disavow terrorism as a tool of international policy, make such a listing particularly useful at this time in redirecting public attention to the comprehensive sanctions program in place against Libya. Neither the Libyan nor the Iraqi SND list is intended as a static document, but will be continuously augmented as additional front companies and agents are identified. It was a pleasure appearing before this subcommittee this morning. I will be pleased to respond to any questions. ##### PAGENO="0375" 371 Chairman PICKLE. Mr. Newcomb, we thank you. I particularly appreciate the full reporting of the actions taken by our Govern- ment, particularly since the beginning of the invasion of the Kuwait nation. Mr. NEWCOMB. Thank you. Chairman PICKLE. And the steps that Treasury took to safeguard the properties, both in Kuwait, and the investment that our people had. This is a thorough recitation of the steps that Treasury has taken and it is good to have this on the record, and I appreciate that. I think our committee members have a lot of questions that we're going to ask you to respond to. These questions are of a gen- eral nature and they are not intended to be critical of either you or anyone in the Department, but we're trying to get some facts and to have a better understanding of where we are on some of these questions. I am going to go through a few of the questions and then yield to my other committee members for questions that they want to ask you. First, with respect to the reported wealth of Saddam Hussein. Can you tell me how rich Hussein actually is? Mr. NEWCOMB. No, Mr. Chairman, I cannot. I can tell you that I have seen many of the news reports and many of the TV documen- taries on this issue. I can state that the figures that have been sug- gested are theoretical figures, based on the belief that Saddam Hussein was engaged in an activity to skim oil revenues from oil purchases from Iraq. So these figures are based on the assumption that Saddam Hussein was skimming on every purchase, and the figure was what it would have amounted to had that been, in fact, the case. Chairman PICKLE. Are you telling me that you do not know whether Saddam Hussein is worth $10 billion, more or less? Mr. NEWCOMB. I certainly cannot give a net worth prediction. Chairman PICKLE. Can you tell me in what countries he has made his investment or transferred his wealth? Mr. NEWCOMB. Mr. Chairman, these are questions where we are currently working actively to investigate. We have a number of leads, but I think it would be unfair of me, at this time, to make suggestions based on mere allegations. However, we have worked cooperatively with the Government of Kuwait and with other gov- ernments to bilaterally and multilaterally to attempt to identify these assets. Chairman PICKLE. Can you tell me, to what extent has Jordan played a role in sheltering Saddam's wealth? Is it true that after the invasion Jordan's banks and businesses protected and facilitat- ed Iraq's transfer of money and other assets to safe haven? Can you comment on that? Mr. NEWCOMB. I think with regard to Jordan, I would have to ask you the time period. I know there has been considerable news reporting on transfers that might have taken place on August 3 and 4. Granted that was after the invasion, but it was prior to the imposition of the U.N. sanctions. So as a technical matter, any such transfers during that period of time were not violations. PAGENO="0376" 372 But there may be others. I can only stress to you, in the strong- est possible way, that these are very serious concerns that every al- legation of such activity has been, or is under investigation, is being looked into. I have met on many occasions with the senior banking officials and political representatives from Jordan to go into those questions. Chairman PICKLE. Mr. Newcomb, I asked you if you could tell me to what extent has Jordan played a role in sheltering Saddam's wealth? Can- you respond to that? Mr. NEWCOMB. I can't give you a definitive answer on that, Mr. Chairman. Chairman PICKLE. All right, now you have just published the list of specially designated nationals. And you are saying that that puts the world on notice that if any of these companies are doing busi- ness in Iraq, it is against the law. You have just published today the same kind of list with respect to Libya. [The Iraqi sanctions regulations follows:] PAGENO="0377" 373 13584 Federal Register I Vol 56, No. 64 / Wednesday April 3. 1991 I Rules and Regulations Office of Foreign Assets Control 31 CFR Part 575 Iraqi Sanctions Regulations AGENCY: Office of Foreign Assets Control, Department of the Treasury. SC'flOH: Final rule; List of specially designated nationals of the Gover.'tment of Iraq; List of vessels registered, owned or controlled by the Government of Iraq. SUMMARY: The Iraqi Sanctions Regulations (the `Regulations") are being amended to add a new appendix A and a new appendix B to the end thereof. Appendix A contains the list of Individuals and Organizations Determined to be Within the Term `Government of Iraq" (Specially Designated Nationals of Iraq). The list at Appendix A contains the names of companies and individuals which the Director of the Office of Foreign Assets Control has determined are acting or purporting to act directly or indirectly on behalf of the Government of Iraq. Appendix B contains the names of merchant vessels registered, owned, or controlled by the Government of iraq. These lists may be expanded or amended at any time. EFFECTIVE DATE April 3, 1991. ADDRESSES: Copies of these lists are available upon request at the following location: Office of Foreign Aoaets Control. U.S. Department of the Treasury. Annex, 1500 Pennsylvania Avenue NW., Washington, DC 20220. PAGENO="0378" 374 Federal Register I Vol. 56. No. -84 / Wednesday. April 3. 1991 / Roles and Regulations 13585 FOR FURThER INFORMATION CONTAC'r. per500s. or In properly.in whichthcy. Richard). Hollas. Chief, Enforcement have an interest, are prohibited. Section. Office of Foreign Assets The list of.speciallydeaigoated Control. Tel.: (202) 560-5021. nationals is a partial one. sioceFAC SUPPLEMENTARY tNFORMATiON:The Iraqi may notbe aware of alt the persons Sanctions Regulations. 31 CFR part 575 located outside Iraq that might be (56 FR 2112, Jan. 16, 1961, the owned or controlled by the Government `Regulations") were Issued by the of Iraq or acting as agents orlrnnt Treasury Deportment to implement organizations for'lraq. and which thus Ertecutive Orders No. 12722 and 12724 of qualify as specially designated nationals August 2 and Aogust 9, 1990. in which of the Government of Iraq. Therefore. - the President declared a national persons engaging in transactions may emergency with respect to Iraq, invoking not rely on the fact that any particular the authority. inter a/ic, of the person is not on the specially designotod International Emergency Economic nationals list as evidence that it is not Powers Act (50 USC. 1701 ci seq.) and owned orcontrolled by. or acting or the United Nations ParticipalionAct (22 purporting'to act directly orindireotly U.S.C. 2a7c). and ordered specific on behalf of. the Government of Iraq. measures against the Government of The Trcasu.ryDepartment regards it as Iraq. incumbent upon all U.S. persons to take Section 575.2.06 of the Regulations reasonable steps to ascertain for defines the term "Goveritroent of Iraq" themselves whether persons they enter to include: into transactions with are owned or al The state and the Government of contrcUed byihe Government-of Iraq or Iraq. as well as any political are acting or purporting to act on its subdivision, agency. Cr instrumentality behalf, or on behalf of other countries * thereof, including the Central Bank of subject to blocking lot presertt. Iraq: . Cambodia. Cuba, Libya. North Korea, (bl Any partnership, association, and Vietnam). corporation, or other organization This rule also ad&s.appendi.xBbo part oabstantially-owrted-or controlled by the 575 to'provide public.notice-of a listef foregoin; merchant vessels which the Director of (c)Any person to the extent that ouch the Office of Foreign Assets Control has person is, or has been, or to the extent determined lobe registered, owned, or~ that There is reasonable-cause 10 believe controlled by the Government of Iraq or that such person is, or has been, since by'persons acting or purporting to act the effective date, actingorpurporting to directly or indirectly on behalf of the act directly orindirectly on behalf of Government of Iraq, pursuant to any of theioregoing and §575.306 of the Regulations. The (dl Any other person or organization merchant vessels included in appendix determined by the Director of the Office B constitute blocked property in which of Foreign Assets Control lobe included the Government of Iraq has en interest. within thin section. end are subject to all the'prohibitiona Determinations Shot persons fall applicable to the Government of Iraq. ~ this definition are effective upon No U.S. person may engage in any the date of determination by the unlicensed transaction involving these Director. Office of'ForeignAssets vessels. Control l"FAC"l. Public notice is The list of Govcn',tuent oflrag' effective upon the date of publication or flagged, owned, or controlled vessels iv cpon actual notice, whichever is sooner. a partial one. since FAC may not be This rule adds appendix A to part 575 aware of all merchant ships registered. to provide public notice of a list of. owned. or cont.ro~ed by the Government persons. known as "specially designated of Iraq or by persons located outside nationals" of the Government of Iraq. Iraq that may be acting as agents or The list consisis of companies and front organizations for Iraq who fell isdtviduala whom-the Director of the within the definition of~Governmenl of Office of Foreign Assets Control has Iraq." Thereforo,persons engagin~in - determined to be owned orcontrolled transactions-rosy not rely on thefact by or to be acting or purporting to ad that any particular vessel is not on the directly or indirectly on behalf of the list as evidence that it is not owned or Government of Iraq. and thus fall within controlled by the Government of Iraq. the definition of the "Government-of The Treasury Department regards it as iraq" contained in § 575.306 of the incumbent upon all I,t.S. persons to Sake Regulations. The persons included in reasonable steps to ascertain for appendtx A ate subtect to alt themselves whether ouch vessels are prohibitions applicable to other registered. owned. or controlled by Iraq components of the Government of Iraq. or by other cottnn'ies subject to blocking All unlicensed transactions with ouch or o-ansportation.related restrictions lat present. Cambodia,Cuba, Libya, North Korea, and Vietnam). - Section 586E offhelraqSanctions Act sf1990, contained in the Foreign Operations Authorization and Appropriations Act of 1960. dated November 5, 1990, 104 StaL 1979, provides for civil penalties not to exceed S050.000Ior violations of the Regulations end fines of up toSi,000.000 and imprisonment for upio 12 years for wiflitil violations of the Regulatior.s. In addition, section 5(b)of the United Nations Participation Act of 19-15 102 USC. 287c(b)) provides for the - forfeiture of any property involved in a violation of the Regulations. List of Subjects in 31 CFR Part 573 Banks, Banking, Exports. Imports. Iraq. Kuwait. Loans, Penalties, Reporting and recordkeeping requirements. 1. The authority citation for part 573 continues to read as follows: Asthsrrity: 50 USC. 1701 cc sect aOl3S.C. 1601 et seq~ 02 U.9C,7,87~ PubticLawtOl- 013.104 StoLOO't7-13 lNov.5, 1990)'. 3 USC. 301: E.D.10222, 53 FR 31523 lAez3,1990)'. E.012724, 55FE:33001fAsg. 13,1990~ 2. Appendices A sndB to part 575 are added-to read as follows: Appendix A-Individuals and Organizations Determined To Be Specially Designated Nationals ci the Government of Iraq - Please note that ad dreaso.s sf companies and persons may aheege.The addresses listed below are the last ones koawo Is the 0111cc ofForeigoAssots Control. Where an address is rrstlistaf or someone wisheato check fortatest address information, the Office of Fareigo Assets Control will assist with aoysipbsted information in its Possessiots- Ccutnrmeo 0. Ad,'smstheek limited. I 0d Burlington Street, London. Ecg:st'.d, United Xingds.'n 2, Ads-ocred Eteotranica Des'etapmect.Ltd.. 3 Manidevitte Place. London, EagIaed, United IUn~dons 3. Al'Arabi Trading Campan~' Limited, Lace 11, Hal Babit Baghdad Dist.'iot 529. Iraq 4. Al.Ralidaln Shipping Cotrrpesy. Bombay, India 5. The ArstrPen-otenmEngloeering Coerpsnn-' LId,. Amman. Jordan a Arab Projects Coropsn;'S.A.Lt&P.O.Box 131o.Amrsan.lordao P.D.Box7939,Beirut,Lebanso PD. Baa 19rc. Riyadh. Saudi Arabia 7. ArabTeacaTrada Ca.S.A.Z.. 30. Kei', AbdruStreet.Rouubdy, Atexacd.'ia 460 ass. Egypt 0. Avchi Ceet,-elC.L Lio'ited, 3 l.tssdeville Place, London, Engtaed, ticitad Kingdom 0. Arsh:onntaul: Limited, 125 Bsckingbantr Place. London 0. England. United Kingdom PAGENO="0379" 375 13586 Federal Register I Vol. 56, No. 64 / Wednesday. April 3. 1991 I Rules and Regulations 10. Associated Engineers. England, United 28. Iraqi Allied Services Limited. England. P.O. Box 44. Alexandria. Egypt Kingdom United Kingdom 32. Whale Shipping Ltd.. do Government of I~. ATE. International Ltd.. f/k/a RWR 29. Iraqi Freight Services Limited, England. Iraq. State Organization of Ports, Maqal, Internattonal Commodittes. 3 Mandeville United Kingdom Basrah. Iraq Place. London. England. Untied Kingdom 30. iraqi Reinsonance Company. 31-30 Individuals 12. Atlas Air Condinoning Company Limited, Fenchurch Street. London EC3M 3D. United Abb Abd I H I 55 Roebuck House. Palace Street, London, Kingdom 2 Abbas Kassim lIt England. Untied Kingdom 31. ~ State Enterprise for Foodstuffs 3 Ab t' T ` F. I d U 13RAt~ kH ~ mti~ ~ ~ ~ ~in~ P0 B 1308 C I mb 3 5 )(~ gd g I England. United Kingdom p.s. Box 2839, Calcutta 700.001. India 4. Ahmad. Rosem. P.O. Box. 1318. Amman. 14. A.W.A. Eog:neertng Limited. 3 lulandeville . . . Jordan Place. London. England. United Kingdom . qi late terptuse or aritime 5. Ahmad. Watlid Issa. Iraq 55 Bonco Brasileirn.Iroquiann S.A.. Praca ~ Transport, Bnemen. Germany 6. Ai.Amiri. Adnan Talib Hassim, 43 Palace B;acit (Head oflice and city branch) ~ IraqiTnadeCenter. Dabai. United Arab Manvons.Hammersmith. London, England. Is. Bay Industries. inc.. 10100 Santa Monica t'ates 7. Al.Anawi, Dour, Iraq U d Stt I M vu C if rn 34~ ~l LIt1~ d n.Engl d, Unit d 8 ~3 1 L~e I N S P0 B 1318. 17. Dominion International. England. United Kingdom , g. Al.Dojaoi. Nadim S.. P.O. Box 1318. Kingdom 35. Matrix Churchill Corporation. 5903 Harper Am I rd leE Ii Cop `.1 EngI d 36R54 dd~ I d, ~ ~ ~lh~t ~ 10 Al 0 S d PD B 318 Am. is. 19. Eurornoc. Ltd.. 4 Bishops Avenue. Place. London. England. Untied Kingdom 11AH b b' ~ I H I 40 Northunood. Middlesex. England. United 37. Pandora Shipping Co.. S.A., Honduras ~` i~ n. Kingdom 38. Pes'u Naniga'ion 8 international Trading roey ou . aace a e. ensiogto... 20. Eunomac Earopean Manufacturer Center Co. Ltd.. White Star Building.. P.O. Box fan . so e in~ om SRL Via Ampere 5.20052 htonza, Italy 8382. Amman. Jordan 1... A i. A Muta i . E~ernnan~ II. Earomac Transporti International SRL Armoush Bldg., P.O. Box 485. Aqaba. Jordan 13. A er. Peter Francis. Grey Via Ampere 5.20052 Monza. Italy 18 Hoda Sharawi Street. Cairo. E63.pt Sioughlon Lane. Stooghton. Leiceslershirn. 22. Falcon Systems. England. United Kingdom Hai Al Wahda Mahalat ~, cc~ Zulak 50. England. United Kingdom 23. Geodesigns. England. United Kingdom House 14. Baghdad Iraq 14. Al.Ogsily. Abram H.. Pat 2., SLRonons 24. Investacast Precision Castings. Ltd.. 112 39. PMK/QUDOS (Lis'erpool Polytechnic). Court. 63 Putney Hill. London. England. City Road, London. England. United England United Kin dom United Kingdom Kingdom 45 Rafidain Bank. New Banks' Street. P0 15. Amaro. Joaquim Ferreira, Pzaca Pio X, 54- 25. I.P.C. International Limited. England. Box 11360. Messaril. Baghdad. Iraq )~7 10' Andar. CEP 20091. Rio de Janeiro. Lotted Kingdom branches in Iraq) Brazil 20. I.P.C. Marketing Lioxited. England. United p.o. Box 607, Manama, Bahrain 2 branches 15. Aroioush, Ahmad. "Ahite Star Bldg., P.O. Kinguom jt~ Bahr in Box 8362, Amman. Jordan 27. Iraqi Airways. Saddam International 114 Tatto'cur Sir. Eldukki, P.O. Box 239, Omran 17. Artuoush. Ali. White Star Bld&.. P.O. Box Airport. Baghdad. Iraq Gica. Cairo. Egypt 6282. Amman. Jordan Opernning 6. 1010 `i en. Vienna. Austria P.O. Box 1194 Cinema al.Hussein Street 18. Aria. Foxad Hamza. Pracia Pio X. 54-10' General Service Agent. Bangiadeshi.oovned A `d ` Andur, CEP 20091. Rio de Janeiro, Brazil Travel Agency, Dhaka. Eaogladesh P0 Box 685. Aqaba. Jordan 19. Daghir. Ali Ashour. 2 Western Road. Rio dv )aneino, Brazil P0. Box 815401, Jubal Amman. Jordan stem Gs'eer., Thames Dillon. Surrey, .arrgunmeno.ai Diplomatic Housing ?.tafraq. Jordan England. United Kingdom Apm 1480 g p pl 8 hi f 2 d Ft SdtT is POB 1691 B rut 20o~'m~ hJ t~ Abd 1 P0 B 1318 PTA P ` C h Sheikh Khalila Street. P.O. Box 2227. Abu 21. Hand, Michael Brian. England, United N k3~ usuxakia Dhabi.UniiedArabEmk'ates Kingdom C h 0 gue~. ccc os no a ia Itafidain Bank Building. 7-10 Leadenhull 22. Henderson. Paul. 4 Copt Oak Close, Tile `it E 6 P ,~j S I L d EC3\ INI.. U I d Ku. gd m 9.5 11 C tro Vi rs k Engi p POE 100..S ArbR b U dK "o Rn-re l'a}v 41. Rajhrook Limited. England. United 23. Jon, Hana Paul. 19 Tudor House. Windsor Tokyo. a~un Kingdom Way. Brook Green, London, England. Casablanca. Morocco 42. Reynolds and Wilson. England. United United Kingdom The Netnenlonds Kingdom 24. Jume'an. George. P.O. Box 1318, Amman, 27, Utica Crojecka. Central Warsaw, Poland 43. S.M.I. Sewing Machines Italy SPA.. Italy Jordan Tunis. Tunisia 44. Soltatek. England, United K:ndgnm 25. Kadhum. Dr. Fadel Juwad. do Alvaney Ankzra. Torkes' 45. Technology and Denelopment Grnup Ltd.. Court. 250 Fsschley Road. London. England. t.tnscuux, U.S.S.R. Centric House 390/391, Strand. London. United Kingdom Abs Dhabi. United Arab Emirates England. United Kingdom 26. Khoshaba, Robert Kambar, 15 Harelleld 4 Lacier Regent Street, London SWIY 4p, 46. T.E.G. Limited. 3 Mandeo'ille Place, Road. Maidenhead. Berkshire, England. United Kingdom London. England. United Kingdom United Kingdnm 5805 W. Sunset Blvd. n21B Los Angeles. 47. T.M.G. Engineering Limited. Castle Row, 27. Mohamed. Abdul Kader Ibrahim. California 90020. United States Horticultural Place. Chisna'ick, London. Jianguomenwai Diplomatic Houstng 23040 Snuthfieid Road. Sou:hfield. icLohigan England. United Kingdom Compound, Building 7-1, 5th Floor, 48805. United States 40. TN K Fabrics Limited. England. United Apartment 4, Beijing. People's Republic nf Building 60. J.F.K. International Airport. Kingdom China Jamaica. Neso York 11430. United States 49. Trading & Maritime Investments. San 20. Omran. Karim Dhaidas. Iraq 1211 Avenue of the Americas. New York. Lonerizo, Honduras 29. Ranuf, K'halid Mohammed. Praca Thu X. New York 10036, United Stairs 50. UI. internationaL England. United 54-10 Andar, CEP 20091, Rio de Janeirn, Sanaa. `lenten Kingdom Brazil Belgrade. Yugoslavia 51. L'NIMAS Shipping. 130 El Geish Road, 30. Ricks. Roy. 87 St. Mary's Price. BenflecL PAGENO="0380" a I C z £1 a Ca~ a ~ ~tj PAGENO="0381" -q I U I 929 PAGENO="0382" E > ~ ~ 0 ~ ~ *3 1 7' ftLftLLwJILLaJ_ - I ~~ii~- `~. 2~9~ PAGENO="0383" 379 Received In the Office ed~1 B~$~' IN ADVANCE OF PRINTED COPY DEPARTMENT OF THE TREASURY Office of Foreign Assets Control 31 C.F.R. Part 550 Libyan Sanctions Regulations AGENCY: Office of Foreign Assets Control, Department of the Treasury. ACTION: Final rule; List of specially designated nationals of Libya. SUMMARY: The Libyan Sanctions Regulations are being amended to add a new Appendix A, Organizations Determined To Be Within the Term "Government of Libya" (Specially Designated Nationals of Libya), to the end thereof. Part I of Appendix A contains the names of companies, banks, and other entities located outside of Libya which the Director of the Office of Foreign Assets Control has determined to be owned or controlled by, or acting or purporting to act directly or indirectly for, the Government of Libya. Part II of Appendix A (to be published at a later date) will contain the names of organizations located within Libya which the Director of the Office of Foreign Assets Control has determined to be Specially Designated Nationals of Libya. This list may be expanded or amended at any time. PAGENO="0384" 380 -2- EFFECTIVE DATE: [date of publication] ADDRESS: Copies of this list are available upon request at the following location: Office of Foreign Assets Control, U.S. Department of the Treasury, Annex, 1500 Pennsylvania Avenue, N.W., Washington, D.C. 20220. FOR FURTHER INFORMATION CONTACT: Richard J. Hollas, Chief, Enforcement Section, Office of Foreign Assets Control, Tel.: (202) 566-5021. SUPPLEMENTARY INFORMATION: The Libyan Sanctions Regulations, 31 C.F.R. Part 550 (the "Regulations'), were issued by the Treasury Department to implement Executive Orders No. 12543 (51 FR 875, Jan. 9, 1986) and 12544 (51 FR 1235, Jan. 10, 1986), in which the President declared a national emergency with respect to Libya, invoking the authority, inter alia, of the International Emergency Economic Powers Act (SD U.S.C. 1701 et ~g.), and ordering specific measures against the Government of Libya. The Regulations were amended by a final rule published in the Federal Register (53 FR 5571, Feb. 25, 1988), which clarified the term "Government of Libya." Section 550.304 of the Regulations, as amended, defines the term "Government of Libya" as follows: (a) The "Government of Libya" includes: (1) The state and the Government of Libya, as well as any political subdivision, agency, or instrumentality thereof, PAGENO="0385" 381 -3- including the Central Bank of Libya; (2) Any partnership, association, corporation, or other organization substantially owned or controlled by the foregoing; (3) Any person to the extent that such person is, or has been, or to the extent that there is reasonable cause to believe that such person is, or has been, since the effective date, acting or purporting to act directly or indirectly on behalf of any of the foregoing; (4) Any other person or organization determined by the Secretary of the Treasury to be included within paragraph (a) of this section. (b) A person specified in paragraph (a) (2) of this section shall not be deemed to fall within the definition of Government of Libya solely by reason of being located in, organized under the laws of, or having its principal place of business in, Libya. Section 550.805 of the Regulations states that: Any action which the Secretary of the Treasury is authorized to take pursuant to Executive Order 12543 may be taken by the Director of the Office of Foreign Assets Control, or by any other person to whom the Secretary of the Treasury has delegated authority to so act. Determinations that persons fall within the definition of the "Government of Libya" are effective upon the date of determination by the Director, Office of Foreign Assets Control 51-840 0 - 92 - 13 PAGENO="0386" 382 -4- ("FAC"). Public notice is effective upon the date of publication or upon actual notice, whichever is sooner. This rule adds Appendix A to Part 550 to provide public notice of a list of persons, known as `specially designated nationals" of the Government of Libya. Part I of Appendix A consists of organizations located outside of Libya which the Director of the Office of Foreign Assets Control has determined are owned or controlled by or are acting or purporting to act directly or indirectly on behalf of the Government of Libya, and which thus fall within the definition of the "Government of Libya" contained in section 550.304(a) of the Regulations. The persons included in Appendix A are subject to all prohibitions applicable to other components of the Government of Libya. All unlicensed transactions with such persons, or in property in which they have an interest, are prohibited. The list of specially designated nationals is a partial one, since FAC: may not be aware of all the agencies and officers of the Government of Libya or of all the persons located outside of Libya that might be owned or controlled by the Government of Libya or acting as agents or front organizations for Libya, and which thus qualify as specially designated nationals of the Government of Libya. Therefore, persons engaging in transactions may not rely on the fact that any particular person is not on the specially designated nationals list as evidence that it is not owned or controlled by, or acting or purporting to act directly or indirectly for, the Government of Libya. The Treasury PAGENO="0387" 383 -5- Department regards it as incumbent upon all U.S. persons to take reasonable steps to ascertain for themselves whether persons they enter into transactions with are owned or controlled by the Government of Libya or are acting or purporting to act on its behalf, or on behalf of other countries subject to blocking or transportation-related restrictions (at present, Cambodia, Cuba, Iraq, North Korea, and Vietnam). Section 206 of the International Emergency Economic Powers Act, 50 U.S.C. 1705, as amended by the Uniform Sentencing Act, 18 U.S.C. sections 3571 and 3581, provides for civil penalties not to exceed $10,000 per count for violations of the Regulations, fines of up to $250,000 and imprisonment for up to 12 years for willful violations of the Regulations by individuals, and fines of up to $500,000 for organizations. Because the Regulations involve a foreign affairs function, Executive Order 12291 and the provisions of the Administrative Procedure Act, 5 U.S.C. 553, requiring notice of proposed rulemaking, opportunity for public participation, and delay in effetive date, are inapplicable. Because no notice of proposed rulemaking is required for this rule, the Regulatory Flexibility Act, 5 U.S.C. 601 et ~g., does not apply. PAGENO="0388" 384 -6- PART 550 -- LIBYAN SANCTIONS REGULATIONS For the reasons set forth in the preamble, 31 C.F.R. Part 550 is amended as set forth below: 1. The authority citation for Part 550 is amended to read as follows: Authority: 50 U.S.C. 1701 et ~.; 22 U.S.C. 2349aa-8 & -9; 49 U.S.C. 1514; E.O. 12543, 51 FR 875 (Jan. 9, 1986); E.O. 12544, 51 FR 1235 (Jan. 10, 1986). 2. Appendix A to Part 550 is added to read as follows: PAGENO="0389" 385 -7- APPENDIX A ORGANIZATIONS DETERMINED TO BE WITHIN THE TERM `GOVERNMENT OF LIBYA" (SPECIALLY DESIGNATED NATIONALS OF LIBYA) Part I: Located Outside Libya 1. AL HAMBRA HOLDING COMPANY Madrid Spain 2. ARAB LIBYAN SYRIAN INDUSTRIAL & AGRICULTURAL INVESTMENT COMPANY Damascus Syria 3. ARAB REAL ESTATE COMPANY ("ARESCO") Beirut Lebanon 4. ARABIAN GULF OIL COMPANY ("AGOCO") Windsor House, 42-50 Victoria Street, London SW1H ONW United Kingdom 5. ASTERIS S.A. INDUSTRIAL & COMMERCIAL CORPORATION Athens Greece 6. BANQUE ARABE LIBYENNE BURKINABE POUR LE COMMERCE EXTERIEUR ET LE DEVELOPPEMENT 1336 Avenue Nelson Mandela, Ouagadougou Burkina Faso 7. BANQUE ARABE LIBYENNE MALIENNE POUR LE COMMERCE EXTERIEUR ET LE DEVELOPPEMENT ("BALIMA") P.O. Box 2372, Bainako Mali 8. BANQUE ARABE LIBYENNE MAURITANIENNE POUR LE COMMERCE EXTERIEUR ET LE DEVELOPPEMENT ("BALM") Jamal Abdulnasser Street, P.O. Box 262, Nouakchott Mauritania 9. BANQUE ARABE LIBYENNE NIGERIENNE POUR LE COMMERCE EXTERIEUR ET LE DEVELOPPEMENT P.O. Box 11363, Niamey Niger PAGENO="0390" 386 -8- 10~. BANQUE ARABE LIBYENNE TOGOLAISE DU CO~2~ERCE EXTERIEUR ("BALTEX') P.O. Box 4874, Lone Togo 11. BANQUE ARABE TUNISO-LIBYENNE DE DEVELOPPEMENT ET DE COMNERCE EXTERIEUR ("B.T.L.") 25 Avenue Kheireddine Pacha, P.O. Box 102 1002 Le Belvedere, Tunis Tunisia 12. BANQUE INTERCONTINENTALE ARABE 67, Avenue Franklin Roosevelt, 75008 Paris France 13. BANQUE TCHADO ARABE LIBYENNE P.O. Box 104, N'Djaxnena Chad 14. COMPAGNIE ALGERO-LIBYENNE DE TRANSPORT MARITIME ("CALTRAM") 21 Rue des Freres Bouadou, Birrnandreis, Algiers Algeria 15. GENERAL EST. FOR PUBLICATION DISTRIBUTION & ADVERTISING P.O. Box 113, Beirut Lebanon 16. INTERNATIONAL HOLDING COMPANY Luxembourg 17. THE JOINT TURKISH LIBYAN AGRICULTURAL LIVESTOCK COMPANY Ankara Turkey 18. KAEBLE & GMEINDER COMPANY Packnang Germany 19. LIBERIAN LIBYAN HOLDING COMPANY Monrovia Liberia 20. LIBYAN ARAB AIRLINES (Numerous branch offices and facilities abroad) PAGENO="0391" 387 -9- 21. LIBYAN ARAB FOREIGN INVESTMENT COMPANY (`LAFICO") Athens Greece Rome Italy Malta 22. THE LIBYAN ARAB MALTESE HOLDING CO. LTD. (`LAMHCO") St. Mark House, Cappuchan Street, Floriana Malta 23. THE LIBYAN ARAB UGANDA BANK FOR FOREIGN TRADE AND DEVELOPMENT P.O. Box 9485, Kampala Uganda 24. THE LIBYAN ARAB UGANDA HOLDING CO. LTD. (also known as UGANDA LIBYAN HOLDING CO. LTD.) Kampala Uganda 25. THE LIBYAN-GREEK INVESTMENT COMPANY Athens Greece 26. MEDISAN LIMITED Ri 6A, Qasam Industrial, Limiti tai Ricasch, Kalkara Malta 27. MEDITERRANEAN AVIATION COMPANY, LTD. Malta 28. MEDITERRANEAN SEA OIL SERVICES GxnbH (`MEDOIL') Dusseldorf Germany 29. HENIL ENSTALT COMPANY Vaduz Liechtenstein 30. METROVIA Switzerland 31. NATIONAL PETROCHEMICALS COMPANY (LIBYAN) Germany PAGENO="0392" 388 -10- 32. NORTH AFRICA COMNERCIAL BANK S.A.L. (formerly known as ARAB LIBYAN TUNISIAN BANK S.A.L.) P.O. Box 9575/11, 1st Floor, Piccadily Centre Hanra Street, Beirut Lebanon 33. PAK-LIBYAN HOLDING COMPANY LTD. Karachi Pakistan 34. SOCIETE AGRICOLE TOGOLAISE ARABE LIBYENNE Lone Togo 35. SOCIETE ARABE LIBYENNE-CENTRAFRICAINE D'IMPORT-EXPORT Bangui Central African Republic 36. SOCIETE ARABE LIBYENNE MALIENNE POUR L'AGRICULTURE ET L'ELEVAGE ("SOLIMA") Bainako Mali - 37. SOCIETE ARABE LIBYENNE MAURITANIENNE DES RESSOURCES MARITIMES ("SALIMAUREM") Nouadhibou Mauritania 38. SOCIETE ARABE LIBYO-GUINEENNE POUR LE DEVELOPPEMENT AGRICOLE ET AGRO-INDUSTRIEL ("SALGUIDIA") Conakry Guinea 39. SOCIETE ARABE LIBYO-NIGERE POUR LE DEVELOPPEMENT ET LA COMNERCIALISATION DES PRODUITS AGRICOLES Niamey Niger 40. SOCIETE ARABE LIBYO-TUNISIENNE DE TRANSPORT MARITIME Tunis Tunisia 41. SOCIETE D'ECONOMIE MIXTE CENTRE AFRICAINE LIBYENNE DES PRODUITS AGRICOLES Bangui Central African Republic 42. SOCIETE LIBYENNE CENTRE AFRICAINE DES MINES Bangui Central African Republic PAGENO="0393" 389 - 11 - 43. SOCIETE MIXTE RWANDO-ARABE LIBYENNE DE PROMOTION HOTELIERE ET TOURISTIQUE AU RWANDA Kigali Rwanda 44. SOCIETE MIXTE RWANDO ARABE LIBYENNE POUR LE DEVELOPPEMENT ET LA COMMERCIALISATION DES PRODUITS AGRICOLES ET D'ELEVAGE Kigali Rwanda 45. SOCIETE TOGOLAISE ARABE LIBYENNE DE PECHE Lome Togo 46. TAMOIL ITALIANA SpA Piazzetta Bossi 3, 1-20121 Milan Italy Cremona Refinery Italy 47. TURKISH-LIBYAN JOINT MARITIME TRANSPORT STOCK COMPANY ("TURLIB") Kemeralti Caddesi 99, 80020 Karakoy, Istanbul Turkey 48. UMN AL-JAWABY OIL SERVICE COMPANY, LTD. 33 Cavendish Square, London W1M 9HF United Kingdom Dated: April 3~5, 1991 R. Richard Newcomb Director Office of Foreign Assets Control Approved: April 1991 Peter K. Nunez Assistant Secretary (Enforcement) Filed: April 30, 1991 Publication date: TBP~ PAGENO="0394" 390 Chairman PICKLE. Now, you listed some 89 different firms in your original publication of the Iraqi SDNs, and now I don't know how many are on the Libya countries, but I want to ask you what cooperation are you getting now from other countries, other na- tions with respect to this list that you have just published? Mr. NEWCOMB. Let me clarify for the record one statement. The companies or individuals on this list are not alleged or believed to have violated the embargo, per se. The standard for being on the list is that they are acting for, or on behalf of, or owned, or con- trolled by, directly or indirectly, Iraq as an agent, either openly or covertly. So they may or may not have engaged in violations. There may be another whole category of individuals or companies that might have violated the embargo that would not go on this list, be- cause they are involved in criminal violations that would be pros- ecuted under local law in the respective jurisdiction. But to get more directly to the question that you have asked, we have re- ceived cooperation from foreign governments. We have received leads from foreign governments. We have taken them into account in developing this list. We have discussed our program in many forums, including the OECD, the European Community Commis- sion and the BIS. We anticipate having further sessions of these meetings and gaining further cooperation. It is our view that perhaps half of the names on the Iraq list are involved in the arms purchase and pro- curement network. We anticipate this list to grow. We're working on it, as we speak, and we will have more names in the future. Chairman PICKLE. Well, Mr. Newcomb, I want to repeat my un- derstanding. You have published your list, the SDN. And that is clear notice to me that any American business who does business with those companies specifically is in violation of the law? Mr. NEWCOMB. That is correct. Chairman PICKLE. Now, the list is not to say they are guilty of criminality, but they are an agent or a front of Iraq and therefore, you should not, you must not do business with them. Now, you published your list on April 1 with respect to Iraq and I am asking you, do other nations honor this listing? Are they giving us full authority? Specifically, is Great Britain and Germany giving us that authority? Mr. NEWCOMB. The authority with which our programs have been implemented can, in a case-by-case analysis, be different from other countries' cooperation. So they may not be as able to cooper- ate as easily as we would like, but as to your question, have the United Kingdom and Germany cooperated? Just last week, a dele- gation of senior officials from the United Kingdom Government and the British Embassy and the Bank of England came to talk to us about this list and the cooperation we might have. So to answer your question, yes, we are working closely with that government. We have other meetings planned. Through the entire embargo program we met in our offices in Washington with embas- sies of approximately 90 countries, as well as with the OECD coun- tries and the EC countries, what have you. We have briefed them. We have worked with them. They know about our program. A major elemeni of our program now is to go out and sell it to other PAGENO="0395" 391 countries so that these individuals listed are identified. We will seek their cooperation. Chairman PICKLE. I'm sure that you will seek their cooperation but our subcommittee has given us considerable evidence that trad- ing is going on between many of these companies in both Great Britain, and Germany and other countries, other nations. And that this list doesn't mean anything unless those countries cooperate with us in these kind of imposed sanctions. And you are saying that they are cooperating. We are going to submit to you evidence that these sales are going on as usual. I think that you must respond to us, and I hope that you will do that. Mr. NEWCOMB. I would be delighted to receive such information and if appropriate, in those instances, we will certainly follow up with those respective governments. Chairman PICKLE. Can you tell me how much assets Iraq has in the United States? Mr. NEWCOMB. Yes. Approximately $1.26 billion were blocked in the United States. Chairman PICKLE. What does that represent in banks or in stocks, or companies or what? Mr. NEWCOMB. Well, it is the full breadth of what you've just identified. However, let me say, most of these assets are in the money center banks. Approximately 40 to 50 percent represent de- posits at U.S. financial institutions for trade financing and other commercial transactions. The balance represents payments for oil shipments that were on the high seas, en route to the United States from Iraq. We allowed those oil shipments into the United States, provided payment from the U.S. company to Iraq was made into a blocked account. That represents approximately the addi- tional 50 percent. Chairman PICKLE. Well, I thank you, Mr. Newcomb. The Chair will yield to Mr. Anthony for any questions. Mr. ANTHONY. Thank you, Mr. Chairman. Just to follow, very quickly, Mr. Newcomb, on what Mr. Pickle was asking about-our foreign allies cooperating with us once the list of companies and individuals who are controlled, owned, et cetera, by these other countries have been identified, thereby making it, for a domestic company or individual, a penalty for doing business. When you ask the question, does Germany prohibit their compa- nies from trading with Iraq off of the list that has been provided by the United States, is the proper answer no? They do not prohibit them? Mr. NEWCOMB. The answer to that is, no. To my knowledge, at this point, I can tell you I do not know what the German Govern- ment is doing. I can tell you I will get that information for you. [The following was subsequently received:] PAGENO="0396" 392 DEPARTMENT OF THE TREASURY WASHINGTON July 9, 1991 The Honorable Beryl Anthony, Jr. House of Representatives Washington, D.C. 20515 Dear Mr. Anthony: At recent hearings of the Oversight Subcommittee of the House Ways and Means Committee, on the administration of U.S. export control programs, you asked for a list of items illegally shipped to Iraq since the embargo was imposed for which companies and individuals have been prosecuted. Iraq sanctions were imposed by the President August 2 and broadened August 9. Since that time, as a direct result of sanctions imposition, investigations have been initiated which have resulted in the prosecution of several individuals for attempts to broker Iraqi crude oil. Additional investigations are currently underway for export violations of the Iraqi sanctions regulations, but these cases have not reached the courts for prosecution. Since these and other cases are still under investigation we are constrained from discussing them, or the extent of our investigation and enforcement activity on other cases such as these. As you know, the investigation of Iraqi sanctions violations and the careful and complete preparation of a successful case requires much time and effort. We expect that in the near future many of these cases will be successfully prosecuted, and at that time the extent of sanctions violations will be indicated. We appreciate your support in this effort. If we can provide additional information please contact us. Sincerely, ~./ /1 R. Richard Newcomb Director Office of Foreign Assets Control PAGENO="0397" 393 Mr. ANTHONY. To the best of our knowledge right now, there is no specific prohibition by Germany or other countries to operate off of the list that has been provided by us to them? Mr. NEWCOMB. Not to my knowledge, and the distinction is that we are operating-and the authority for this list comes from a do- mestic statute-under the International Economic Emergency Powers Act. It would depend on a country-by-country basis, their authorizing, their underlying authority to take such actions, whether or not they could, indeed, follow suit. I can tell you we've been approached by many governments in- terested in the particular companies. Whether they have a blanket prohibition is very different from whether they are looking into it, as many of them are. Part of our program is going to foreign gov- ernments, telling them about our list, and asking them to take similar action. Mr. ANTHONY. Well, I agree with the practice and the theory. I congratulate you for identifying them. I encourage you to keep moving forward. And especially the fact that you said it is not a static list. That it is a list that can be changed. In that regard the subcommittee took some testimony at our previous hearing con- cerning Carlos Cardeon. Are you familiar with that name? Mr. NEWCOMB. Yes. Mr. ANTHONY. What can you tell us about Carlos Cardeon? Mr. NEWCOMB. I don't believe I can comment in any way, other than acknowledging that I know the name. Mr. ANTHONY. Can you confirm whether or not Cardeon has pro- vided Iraq with military weapons and technology? Mr. NEWCOMB. I don't believe I should comment on that, either, Mr. Anthony. Mr. ANTHONY. And your reluctance- Mr. NEWCOMB. My reluctance is because I believe that's a matter under investigation and I can't comment on such matters. Mr. ANTHONY. Can you comment on why he is not on your OFACISDN list? Mr. NEWCOMB. Well, first let me say, as you have pointed out, it is not a static list. There are many matters under investigation. That is not to say whether or not he is or not, I am not comment- ing on that in any way. We believe that people- Mr. ANTHONY. He is not on your list, is that correct? Mr. NEWCOMB. That is correct. Mr. ANTHONY. And he has not been placed on your list since the list was placed in the Federal Register? Mr. NEWCOMB. That is correct. Mr. ANTHONY. But you say there is an ongoing investigation? Or you are not saying there is an ongoing investigation? Mr. NEWCOMB. I am saying there is an ongoing investigation and I do not believe I should comment any further on that matter. Mr. ANTHONY. How many other investigations, similar to this one, if, in fact, there is one going on here, is your agency looking into? Mr. NEWCOMB. As far as specially designated nationals, I would say we are looking at in excess of 100 additional entities that might be involved in activities. I don't have an exact number, but I would PAGENO="0398" 394 additionally say that we coordinate closely on criminal violations which is a different question with other Federal agencies-the Cus- toms Service, the FBI, the Commerce Department and others. So there are a variety of investigations. The number 100 is merely what we are looking into as potential candidates for this list. Mr. ANTHONY. For the additional list. In the testimony that was taken last week, there were some transshipments of helicopters be- tween the United States and Chile and back for some modifica- tions. Commerce had not intervened. DOD had not intervened, but Customs, well, I use the word confiscate, but they used another word and I forget what it is. It is a more gentle word, I think, in their terminology. Mr. NEWCOMB. Seized? Mr. ANTHONY. They impounded, anyway they seized it. They took control of another person's piece of property, waiting on it to be adjudicated. Are you familiar with the conflict between those agencies over that particular piece of equipment? Mr. NEWCOMB. Not in any manner that I can respond to the com- mittee. I can say that Customs, in moving forward, and assisting us in enforcing and working within the Federal Government in en- forcing this embargo, has not left a stone unturned, has moved very swiftly to enforce potential violations, and has provided a great deal of assistance. Likewise, the Commerce Department has worked with us cooperatively, both in terms of their licensing func- tion and in their enforcement office. But as to a question between those two agencies, I think you should ask them. Mr. ANTHONY. Well, I did ask them. And I got about the same answer from them as I got from you. I guess the bottom line is since you are taking a look at it, it ap- pears to me that here is one case where there is an enormous amount of public testimony, concrete evidence of transactions back and forth. There was a stated conflict of opinion, or at least deci- sionmaking, within our own Government. That has been brought to their attention and they still have not resolved that, as I am aware today. Here is an individual that at first blush appears to be a major arms dealer with the end purchaser being Iraq. And I guess I am curious as to why this person didn't make the first draft. In order to determine that, we would have to go down case-by-case, and item-by-item, to examine why somebody got on there, and why somebody didn't. My bottom line to you is simply this: the committee heard an awful lot of powerful testimony in that regard, and our staff dug up an awful lot of information. I am pretty sure that you have all of it. Any of it that you don't have, we will be happy to give to you, but I wish you would take a close look at this particular individual and any companies that he may own or control in the United States that could also be listed. I specifically mentioned a Texas firm, Global Helicopter and a number of Swissco companies in the Miami area. I don't know whether or not it is true that he owns or controls them, but there is evidence out there for you to go and investigate. Since you are the proper agency to do it, I ask you to do it. When you can report PAGENO="0399" 395 back to us on your findings, I wish you would so that we could make it a part of this record. Mr. Chairman, I am going to yield to other members of the com- mittee at this point. Chairman PICKLE. Mr. Bunning. Mr. BUNNING. Thank you, Mr. Chairman. Let me follow up on some things that Mr. Anthony was trying to get at. We had testimony here last week specifically on a case in Baltimore, Md., the Alcolac case, and there were two people in- volved in purchasing chemicals for the Iraqi Government. And Franz Van Anraat and Charles Tanaka acted as principals for the Iraqi Government in this case. Why are they not on the SDN list? Mr. NEWCOMB. Congressman, there may be individuals that are under investigation on this list of individuals that I mentioned that were actively being looked at. They may well be. I cannot com- ment- Mr. BUNNING. They have been convicted in a court in the United States. Why are they not on the list if they have been convicted of a crime and they are on the run? Why wouldn't they be on the list that is supposed to list those people that have acted for a foreign government in direct violation of this control act? Mr. NEWCOMB. Well, let me say, the list that we put out April 1 was the first step in what we anticipate being a multistep process in identifying names. We may, indeed, have those names under in- vestigation right now. I can't tell you for certain. What I can tell you is if they do qualify, following this- Mr. BUNNING. Mr. Newcomb, these people have been convicted. They have been proven guilty under this Control Act, and you are telling me that they are under investigation. There is no need to be under investigation. We already convicted them. Mr. NEWCOMB. I'm told that the details of this particular case have not yet been provided to our office. We will certainly look at that question and proceed. Chairman PICKLE. Will the gentleman yield? Mr. BUNNING. Certainly, Mr. Chairman. Chairman PICKLE. I'm not satisfied with that response at all. Here's a case that has already had some confessions and some in- dictments. Two of these principals involved are fugitives, back in some other country. Our Department has made no steps to extra- dite them. This case has been before the public and has been openly admitted and they have confessed, and yet, they are not on this list. Now, why wouldn't you, if they qualify, put them on the list? This has been going on for months and months. Why would you now hesitate to say to Mr. Bunning, well, we will investigate and we will look into that further. That disturbs me, the obvious dodging of the question. Mr. NEWCOMB. Well, Mr. Chairman, I certainly don't intend to dodge any question, but let me say this is an ongoing investigation that we have in many quarters. We are investigating activities of an entire Government. I can assure you that if these individuals qualify they will be on the list. But I will repeat, a mere violation may not necessarily qualify them to go on the list. They would need to be acting in an agency capacity for the Government of PAGENO="0400" 396 Iraq, either directly or indirectly. Now, if, indeed they meet the qualifications- Mr. BUNNING. Mr. Newcomb, they have been convicted of that. Mr. NEWCOMB [continuing]. They will be. Mr. BUNNING. They have been convicted in a U.S. court of doing just what you said. That is a fact. That isn't a doubt. Agencies of the U.S. Government have prosecuted these people and they are convicted. Now, why wouldn't they be on your list? Mr. NEWCOMB. Congressman, as I indicated, this is an ongoing process. We are looking at what we believe to be those individuals acting abroad. We targeted it in specific areas. This is an ongoing exercise and we will certainly look at that, and if they qualify, they will be on the list. You have my absolute assurance of that. Mr. BUNNING. There's a movie called "Cool Hand Luke," and somehow there is an appropriate line in that movie, It said, "What we have here is a failure to communicate." And it looks to me like the agencies of the Federal Government are failing to communicate one to the other. Treasury ought to talk to Immigration, and Immi- gration ought to talk to Commerce, and we ought to get a full list that includes everybody that has either been prosecuted or is on the suspect list that you say. Mr. NEWCOMB. Let me say that I certainly agree the list should be completed. But as far as cooperation, I can tell you that in my experience, I don't know of a program that has been more fully co- ordinated, and where there has been greater cooperation than this particular program. I can tell you that there were daily meetings in my office, at the State Department, policy level and at the enforcement level. And the cooperation and the coordination are there. Mr. BUNNING. I'm not questioning that. All I am saying is that that's great and you have good cooperation. Those two people's names ought to be on your list because they have been convicted by the Federal Government of a crime. Now, they have fled the coun- try and we can't get at them. And if they are trying to do business on behalf of the Iraqis from another country they ought to be on the list. Mr. NEWCOMB. Well, let me just respond by saying there are probably many others that should be on the list. We are actively working on that, and we are pursuing every lead as well. The co- ordination is there. We have anticipated more lists coming out as early as next week. Beyond that- Mr. BUNNING. Would you do me a favor? Mr. Newcomb, would you do me this favor? Just talk to Commerce, and talk to the Immi- gration people and maybe we can update your list for you. Mr. NEWCOMB. I would be delighted to do that. Thank you. Mr. BUNNING. Thank you, Mr. Chairman. Chairman PICKLE. Well, Mr. Newcomb, I want to add, before I yield to Mr. Jenkins, that we are glad to see your SDN list pub- lished for both Iraq and Libya. We hope that you will insist on co- operation from other nations, and we doubt that they are giving the full cooperation that we intend and expect them to. We hope they will give that. PAGENO="0401" 397 We are disturbed though in this particular instance, not that we are just trying to single out one particular company, but we are disturbed that here's a company that sold Iraq and Iran 630 tons of the single ingredient for mustard gas, and when mixed with hydro- chloric acid, probably represents 700 to 800 tons. Now, that is enough poison gas to kill half of America. It would have been used, and might have been used, could have been used against our soldiers, and we have proven that these ship- ments were made. Now, I don't know what it would take to qualify to get on your list, but I would ask you, sir, to give our committee the information that you have, if it is something that you can't say publicly. But that company ought to be on the list on the face of the evidence. I am disturbed about that, and I think the same would probably be true about the Cardoen case. We insist that you give us further information about it. Mr. Jenkins. Mr. JENKINS. Thank you, Mr. Chairman. Mr. Newcomb, I'm not sure that I fully understand the nuts and bolts of how you obtain your information. You have a pipeline into all of the various agencies that might come upon information, for instance, about supplies going to a nation where we have an em- bargo. Or how do you obtain your information? Mr. NEWCOMB. Well, we use a variety of sources, both within the Government and without, open source information, querying data bases, querying information that might be within the public domain, as well as utilization of the resources, when appropriate, of the intelligence community and the investigative community. Mr. JENKINS. Are all the other Federal agencies required to supply you with information? Mr. NEWCOMB. The other Federal agencies are working closely with us. They know about the program. I cannot tell you that they are mandated to supply us with the information, but I can tell you that this is an issue discussed quite a bit. And that I believe we are getting very good and active cooperation from the entire Federal community. Mr. JENKINS. From all the investigative agencies, including CIA? Mr. NEWCOMB. Yes. Mr. JENKINS. All right. Once you get the information and you make your list, then how do you disseminate this information to the general public? Mr. NEwCOMB. Let me back up and say, to the extent that that coordination can occur within operational priorities, but as a gener- al policy matter, that cooperation, those links of communication were there and I anticipate they will be improving and growing over a period of time, as this becomes more public, and that tool becomes more effective. This is a multilateral embargo as opposed to a unilateral, United States only embargo. So we have great ex- pectations that this will continue. As far as dissemination to the public, we use a variety of meth- ods. First, we publish our notice in the Federal Register. We usual- ly accompany it with a press release. We also, so that the financial community especially is on specific, written notice, utilize the Fed- eral Reserve System that sends it to all member banks. So we write PAGENO="0402" 398 the presidents of the respective Federal Reserve banks within the United States and they send it to all member banks. We disseminate it to the financial regulatory and bank supervi- sory committee. We send it to Customs. We send it to the Com- merce Department. We send it to the bureaus. We send it to the intelligence community, and of course, the State Department, which disseminates it to the embassies worldwide. Mr. JENKINS. We had a witness last week, Ms. Hinkleman, I think was h~er name. How would she have known not to sell the chemicals that were involved? Mr. NEWCOMB. Well, we certainly attempt to disseminate this in- formation in the best method possible. There is no way that you can actually establish actual knowledge, but every avenue that we can utilize, we do. As a point of fact, our most recent list was pub- lished in its entirety in the Journal of Commerce, in the New York Times, in the Washington Times, and other national publications. I think it was publicized in some local papers, as well. If there is any individual that should ever inquire or inquired, or if we had ever any reason to try to put someone on specific written notice about any particular company, we have a very active program of dissemi- nating the program requirements. Mr. JENKINS. You have 89 businesses listed here. Specifically what does that mean? That it is illegal to do business with these people. Mr. NEWCOMB. In its most simple fashion, we have identified in- dividuals on our SDN list. Let me say with all of our programs we have perhaps 600 or 700 names worldwide-in our Cuba program, our Vietnam program, Libya program and so forth, Iraq. And to be on this list, it means that doing business with that entity is the same as doing business with that Government. You don't need to go, say, to the Island of Cuba, or the country of Vietnam, or to Libya or to Iraq to do it. But these people have been determined to be acting in an agent capacity or either overtly or covertly or acting for or on behalf of that government, so that they qualify to go on to this list. Mr. JENKINS. Have you seized the assets of these 89 businesses in the United States? Mr. NEWCOMB. We have notified through the Federal Reserve System, which notified member banks that all persons on this list are to be considered blocked. We found that to be a very effective system. Mr. JENKINS. Have you, in effect, seized their bank accounts, these 89? Mr. NEWCOMB. If they exist. I believe they do not. Mr. JENKINS. Do they exit? Mr. NEWCOMB. I think in some instances they do, but most of those, as you can see, are offshore. Where they are in the United States we provide specific, written notice to the parties, as well as to their known financial institutions that deposits in those institu- tions are blocked. Mr. JENKINS. To the parties, you mean the people listed here? Mr. NEWCOMB. If they are located in the United States. Mr. JENKINS. You tell them that if they deposit some money, you are going to seize it? PAGENO="0403" 399 Mr. NEWCOMB. No, but we are providing them specific written notice that we consider them to be a specially designated national, if, indeed, they are in the United States. But usually persons quali- fying on this list are located outside of the United States. Mr. JENKINS. In effect, have you seized any money at all from these 89 people? Mr. NEWCOMB. Yes. Mr. JENKINS. How much? Mr. NEWCOMB. I can't give you an accurate figure on it right now, because we haven't done a census on it. Mr. JENKINS. I mean very much or.-.-- Mr. NEWCOMB. I beg your pardon? Mr. JENKINS. Is it $10 million or in the $100 million range. Mr. NEWCOMB. It would be inappropriate for me to speculate, be- cause right now, I just don't know. Let me go back and say that we have blocked in our program tens of millions of dollars following this same programmatic meth- odology, and the assets, because of the cooperation we have from the financial community, remain blocked. Also, if these were goods at the ports, the Customs Service is on notice. They would take very swift action, I am sure, if we knew of property within the United States. As we did in the case of Matrix-Churchill in Solon, Ohio, we would go out and physically block the premises. Mr. JENKINS. So you have in that case seized assets in Ohio? Mr. NEWcOMB. Yes, and in other places, but that is correct. Mr. JENKINS. The ships that are named, have you seized them? Mr. NEWCOMB. If the ships were to land in the United States or become subject to jurisdiction, those would be blocked as well. The best example I can give you of such an activity was several years ago a Cuban ship landed in the United States, and it was seized. Mr. JENKINS. Have any of these ships named been seized? Mr. NEWCOMB. Not to my knowledge, no. Mr. JENKINS. Why are they on the list? Just in case they ever come? Mr. NEWCOMB. In case they ever come, to provide notice to the allies and to the cooperating governments in the U.N. that this is property of Iraq. Iraq during the embargo did not have many places to go. So most of its fleet was laid up. Mr. JENKINS. My time, I guess, is up. Mr. NEWCOMB. Thank you. Chairman PICKLE. Any more questions, Mr. Bunning? Mr. BUNNING. No. Chairman PICKLE. Mr. Moody. Mr. MOODY. Yes, thank you, Mr. Chairman. How did you come by the knowledge on Matrix-Churchill? How did you get their name to go on the list? What tipped you off about them? How did that come up? Mr. NEWCOMB. I believe that was brought to our attention through our routine coordination and consultation with other Fed- eral investigative agencies. Mr. MOODY. You don't know which one? Mr. NEWCOMB. It was either the Customs Service or the FBI or a combination of both. Mr. MOODY. Our information is it was Customs. PAGENO="0404" 400 Mr. NEWCOMB. That may very well be. Mr. MOODY. How many Customs-generated cases are on this list? Can you tell us? Mr. NEWCOMB. There are a number that are cases that are under or have been under some stage of the Federal process. I can't give you an exact number. Mr. MOODY. All right. You don't know, then. Mr. NEWCOMB. There is a good number. Mr. MOODY. We understand there are four very hard cases-that is, very substantial and significant cases from Customs, but there are many others that may not be so significant. But you don't have those numbers in your head at this time? Mr. NEWCOMB. I don't have the exact number. I can certainly give them to you. Mr. MOODY. Thank you. Why would something like SMI Sewing Machine Co. from Italy be on this list? What would put them on the list? Mr. NEWCOMB. We had reason to believe that that entity or that company was engaged in activities that qualified it to be acting for and on behalf of Iraq. I don't know the facts of every one of the companies. Mr. MOODY. All right. Now, a company doesn't have to be in- volved in arms shipment to be on this list. I mean, they could be- just as long as they are owned by or controlled by or are an agent for Iraq, is that correct? Mr. NEWCOMB. That is correct. There are banks on our list. There are private individuals on our list. Mr. MOODY. The sewing company just might be simply garments. It might be nothing more or less than what it looks like. But the fact that it is owned or controlled by Iraq puts it on the list. Mr. NEWCOMB. Owned or controlled or acting for or on behalf of. Mr. MOODY. How does a company or a person get on the list? What kind of evidentiary standard do you require? Mr. NEWCOMB. In each instance, we produce evidentiaries indi- cating sufficient reason to believe that the named individuals, or potentially named individuals, meet the standards of the programs. Mr. MOODY. Do they have a right of appeal? Can they offer coun- terevidence to show that this is not so? Mr. NEWCOMB. Oh, absolutely. Mr. MOODY. Then you have a process for adjudicating that? Mr. NEWCOMB. That is absolutely correct. Mr. MOODY. And that has happened in some of these instances? Mr. NEWCOMB. Yes. Mr. MOODY. Do they get put on the list pending the adjudication of their rebuttal, or do you just put them on and then wait for them to rebut it? Mr. NEWCOMB. In developing this list, we have reason to believe that every name that goes on the list qualifies. If they come back and later tell us that they do not qualify, we would then coordinate with the government involved to make a determination. Mr. MOODY. They go on the list, and they can try to get off the list, but you do not give them a chance to appeal before they appear en the list. Mr. NEWCOMB. We do not do a prior notification, no. PAGENO="0405" 401 Mr. MOODY. OK. They suddenly appear on the list. Now, once they appear on the list, they are subject to seizure if they have assets on U.S. territory, correct? Mr. NEWCOMB. Blocking of property. Mr. MOODY. Do they have anyone raise any due process, that they had no way of knowing they were going to get on the list or had any right to get off the list or not get on the list? I am just concerned about process for a moment here. It is not my main question, but I want to just quickly clear that up. I mean, under our Constitution, you can't seize property without some kind of process. I am wondering what their process is. Mr. NEWCOMB. Let me say that we are not seizing this property. Mr. MOODY. You are blocking it. Mr. NEWCOMB. We are blocking the property. Mr. MOODY. OK, blocking it. Considerable economic damage could occur, and I am just concerned. I just want to take a moment of your time to ask you, when they get on the list, they don't even know they are going to be on the list. Suddenly they are on the list. Their checks would bounce. All sorts of things would happen. I am just asking what is their process for avoiding getting on the list if, in fact, there is, let's say, a bureaucratic or informational error? Mr. NEWCOMB. Let's say that that is certainly possible. We do have coordination with foreign governments prior to putting indi- viduals on the list. In these instances if there has been an error, if there is reason to believe that a company no longer qualifies based on information that they present to us, we will move with all due speed to remedy the problem and take steps to remove them from the list. Mr. MOODY. Then all parties would be notified so that they wouldn't be suffering consequences. Mr. NEWCOMB. That is right. We would follow the same process. Mr. MOODY. I just want to get that in the record, that there is a process, and they have some-I mean, it isn't totally arbitrary, and they can have a way of providing counterevidence if there is such? Mr. NEWCOMB. Absolutely. Mr. MOODY. OK. Most of your testimony today has to do with control of foreign assets, in this case mostly Iraqi assets. Most of the focus of what we have been looking at, in a prior meeting and I think hereafter, will be arms sales. I don't know if you had a chance to listen to any of the points made by Congressman Stark and myself. We focused entirely on arms sales. Do you have any comments on the points we made about lack of coordination between intelligence and enforcement, lack of coordi- nation between licensing and enforcement, the fact that we simply rely on the word-right now of export licensing often has no more than the word of the seller or the purchaser as to the final end use, and the fact that there is some inherent conflicts of interest within lead agencies? Do you have any comments on any of those points? Mr. NEWCOMB. No, I really don't. Let me say, in terms of Iraq, the questions you are asking really relate to the licensing and en- forcement of the Export Administration Act. We administer an en- tirely different statute. Mr. MOODY. Right. PAGENO="0406" 402 Mr. NEWCOMB. We did not get involved in this program until the night of August 1. I can tell you our experience with the Commerce Department, their licensing office, and the Customs Services has been nothing but very great cooperation. I believe that both agen- cies are working with us very effectively in moving the embargo program forward. I believe we have done that. Also, let me say in terms of international enforcement, whenever there was an allegation of a potential violation that may have oc- curred, we worked with the State Department, which went through a process of demarching embassies worldwide to approach foreign governments. So literally every lead was followed up, both domesti- cally and internationally. Mr. MOODY. I have no question about that. That is not the focus. If you have any comments later on my testimony, that would be fine. I don't want to take the time now because our time is up. Mr. NEWCOMB. I don't really. That is not in my province. Mr. MOODY. Thank you. Thank you, Mr. Chairman. Chairman PICKLE. Mr. Anthony, any other questions? Mr. ANTHONY. Mr. Newcomb, in light of what Mr. Moody~ asked you about the process, and knowing that there is a sewing machine company from some foreign country that made the list, why would someone like Carlos Cardeon, the person that I mentioned a while ago, where there is so much evidence-he is being sued for $30 mil- lion in unpaid commissions on $467 million worth of weapons that were sold to Iraq. He has got a helicopter that he has been working on a prototype. Customs has the helicopter. We had our hearing over 2 weeks ago. I guess two questions come to mind. Why did you not put him on your list and let him come in and rebut off, like you just said to Mr. Moody others have? What is taking the Government so precious long to resolve this particular case? Either give the man's helicopter back to him or seize and get rid of the helicopter and put him on somebody's list because he is selling arms to Iraq. For me, I don't understand, and I must tell you it frustrates me when your only response is, well, it is being investigated. Investigated by whom? For what? When? How? And how long? I can tell you what it makes me think. It makes me think that somebody in the White House, at 0MB, and higher up in Treasury has called you and said to stonewall the committee. I am just not very happy with it. Mr. NEWCOMB. Well, first, let me comment on the last fear that you have expressed. I can tell you categorically that is not the case. Mr. ANTHONY. No one has told you not to come in here and talk about the case? Mr. NEWCOMB. Absolutely not. Mr. ANTHONY. You are not talking about the case on your own? Mr. NEWCOMB. I don't believe it would be proper at this time for me to comment on a case that is under investigation in cooperation between our agency- Mr. ANTHONY. Well, what is being investigated? Mr. NEWCOMB [continuing]. And another agency. Mr. ANTHONY. Well, what is being investigated? What is the man suspected of if he is being investigated? What is he being investi- gated for? What is the nature of the investigation? PAGENO="0407" 403 Mr. NEWCOMB. The nature of the investigation is a matter, I be- lieve, that the Customs Service has an active case on. We are co-, ordinating with the Customs Service on that matter. Whatever we do- Mr. ANTHONY. Is the helicopter- Mr. NEWCOMB. Whatever we do, we will do jointly. Beyond that, respectfully I must decline to comment any further. If we go back and review the file and consult with other Federal agencies, I can assure you I am not- Mr. ANTHONY. Just specifically tell me what the Federal Govern- ment is investigating. I assume it is the helicopter. I mean, I know the helicopter has been seized, so I assume that much of it is being investigated. Mr. NEWCOMB. I think that is certainly part of what is being in- vestigated, but I- Mr. ANTHONY. Logic stands that here is a man who has not been proven right or wrong, but the Government holds a piece of his property. Now, that property is either a civil aircraft or it is a mili- tary aircraft. And somebody in our Government won't make that decision. I think it is military; he thinks it is civilian. But when are you going to decide? Are another 2 weeks going to drag by before somebody can make that decision? Well, just let the record note that I think somebody is dragging their feet, and I think one of Mr. Moody's seven points about the differences between the licensing bureau and the investigation bureau is being proven out 100 percent by this particular case. So for all of the good positive things that you have done-and you have done a lot, and I would like to brag about those-there is one here that is very, very disturbing. I am sure Mr. Bunning would like to go into his case. In his case, the people were actually con- victed, and they are fugitives some place. And those people don't even make the list. It is a new list, as I understand it. This is the first year that that list is in operation? Mr. NEWCOMB. Well, the authority to issue such a list was not conferred until the President invoked the International Emergency Economics Powers Act, so we are about 7 months into the program. Mr. ANTHONY. Seven months into it. So I guess- Mr. NEWCOMB. Let me just reiterate that there are many other potential individuals or companies that might qualify for this list. We have many under investigation. We have many programs that we administer. We are moving quickly on it. I will certainly take Mr. Bunning's suggestion and review the facts of those particular individuals and see if they qualify. And if they do, indeed, we will take action. But on the question that you were raising, let me say I can only comment that I think proper investigative authorities within the respective agencies, including my own agency, are working on whatever is involved in the particular case you raised. And I don't think it would be appropriate for me to comment any further on it. Mr. ANTHONY. I am not pressing you to comment, and I want you to know that at no time during my questioning have I tried to get you to answer any of those questions. I mean, I keep asking a dif- PAGENO="0408" 404 ferent question, but I am not trying to force you to answer a ques- tion you don't feel like you should answer. But now that you have mentioned investigations, on January 27, 1991, the Washington Post reported that U.S. Customs Service was investigating 40 cases of arms smuggling to Iraq. We are talking about artillery from Austria, armored cars from Brazil, aircraft from France, helicopters from Chile and Italy. Are you working with Customs on any of those cases? Mr. NEWCOMB. Yes. I think perhaps Mrs. Hallett, the Commis- sioner of Customs, would comment more fully on that press release. But let me say it is my knowledge that perhaps one-fourth or one- third of those cases are cases relating to Iraq post-August 2, where a violation of the statute that we administer might become in- volved. Mr. ANTHONY. A third of them? Mr. NEWCOMB. Maybe a fourth, maybe 10, I don't know. But I think one point I would like to make is what those cases tell me-I believe that Customs has taken the approach where they are not leaving a stone unturned. They are investigating all potential vio- lations. When it relates to a particular violation that we adminis- ter, we coordinate actively. Our people, our investigators, accompa- ny the Customs investigators where appropriate, where we are able to do so. And, yes, the answer to your question is that we are work- ing together on those cases. I cannot right now give you the exact number, and the reason is that it is a number that changes. They get opened and they get closed. And so on a day-to-day basis it could conceivably change. But it is a very active program and one that we are working to- gether. Mr. ANTHONY. But a third to a fourth was the number that you mentioned, and some of these have occurred since the August 2, 1990, embargo. And you are saying that some of these involve sub- stantial violations. Mr. NEWCOMB. My estimate is that perhaps 10 to 15 of the 40 would be post-August 2 cases. I can't tell you how substantial they are. I can't comment on the quality of the alleged violation. What I can say is that it represents a substantial Federal effort to investigate any potential violation that may have occurred post- August 2. Mr. ANTHONY. So you are satisfied with your working relation- ship with Customs? Mr. NEWCOMB. Yes. And we are satisfied with how the Federal enforcement community and the administrative community have worked during this embargo to coordinate with us, at a policy level, administration level, enforcement level, and intelligence level. Mr. ANTHONY. I just have one final question, Mr. Chairman. I wish you would submit this to me in writing. Would you send me a list of items that the Government has prosecuted companies or in- dividuals for illegally sending goods into Iraq since the embargo was imposed? Mr. NEWCOMB. Yes. Mr. ANTHONY. Just those cases that you have successfully com- pleted, up to date. Mr. NEWCOMB. Yes. PAGENO="0409" 405 [The information requested follows:] Iraq sanctions were imposed by the President August 2 and broadened August 9. Since that time, as a direct result of sanctions imposition, investigations have been initiated which have resulted in the prosecution of several individuials for attempts to broker Iraqi crude oil Additional investigations are currently underway for export violations of the Iraqi sanctions regulations, but these cases have not reached the courts for prosecution. Since these and other cases are still under investigation we are constrained from discussing them, or the extent of our investigation and enforcement activity on the other cases such as these. As you know, the investigation of Iraqi sanctions violations and the careful and complete preparation of a successful case requires much time and effort. We expect that in the near future many of these cases will be successfully prosecuted, and at that time the extent of sanctions violations will be indicated. Chairman PICKLE. Mr. Sundquist. Mr. SUNDQUIST. Thank you, Mr. Chairman. I agree with the substance of our concern, but I think it is unfor- tunate that my colleague has given us a tinge of politics to this. I said to my good friend I think it is unfortunate there is a tinge of politics to this. It doesn't do our ongoing investigation any good, and I don't think you meant to make it a political issue. But I want to ask the question you posed so we have it on the record. There is no indication that 0MB has told you in any way or the administra- tion in any way not to proceed on anything for any political pur- poses? Mr. NEWCOMB. Absolutely not. Mr. SUNDQUIST. I just want to make sure that the record is clear on that, unless my colleague has something else he would like to enter on that. Mr. ANTHONY. Would the gentleman yield? Mr. SUNDQUIST. I would. Mr. ANTHONY. It was especially a question on my behalf Mr. Newcomb answered in the negative. I took it at that, and I dropped it. Mr. SUNDQUIST. I appreciate that because I want to make it clear. Mr. ANTHONY. That doesn't mean that this one individual doesn't have strong suspicions that maybe some other pressures were ap- plied, maybe not directly on Mr. Newcomb. I obviously have no proof of it, so I dropped it at that. Mr. SUNDQUIST. Thank you. Thank you, Mr. Chairman. Chairman PICKLE. Mr. Bunning, do you have questions? Mr. BUNNING. I just want to follow up on one thing. The Iraqi sanctions act has civil penalties of $250,000 and crimi- nal penalties of up to $1 million and imprisonment up to 12 years for willful violations of trading with Iraq after the sanctions. Is that a large enough penalty? I would like to get an opinion out of you on the penalties. And should we try to make them more or should we not? In other words, I don't know if we are deterring people by the penalties involved. Mr. NEWCOMB. Clearly we are proud of the very strong enforce- ment posture that we have always taken. So I would not want to in any way indicate that we aren't as aggressively interested in penal- izing knowing violators as we possibly can. PAGENO="0410" 406 Let me say the amounts provided for in the Iraq sanctions act were substantially larger than the amounts in our other statutes that we administer. When we received that penalty authority, we were quite pleased and quite satisfied. I am not aware of any particular case where that has proved in- adequate. But if that should, I would certainly want to propose that we enhance those. So the answer to your question is: It doesn't appear to be now, but certainly over time it may. Mr. BUNNING. One followup. Have any penalties been assessed under this law? Mr. NEWCOMB. Let me say, normally, unless something clearly qualifies merely for a civil penalty, we would allow the criminal side of the case to go forward first. So since we are working for- ward on the criminal side of the case, the actual civil money penal- ties might not come into play until some time later. But I can just assure you as a matter of principle, we are an aggressive enforce- ment office, and we will issue penalties to the maximum reasona- ble and allowable under the laws. Mr. BUNNING. In other words, none have been assessed yet. Mr. NEWCOMB. We have a number of penalty cases in process where-- Mr. BUNNING. But none have been assessed yet. Mr. NEWCOMB [continuing]. We have issued prepenalty notices which certain proposed assessments. But we have a procedure set up under the Administrative Procedures Act for processing penalty cases. We are processing for some of those. Mr. BUNNING. None of them have come to a final disposition? Mr. NEWC0MB. We haven't gotten paid yet, no. Mr. BUNNING. All right. Thank you, Mr. Chairman. Chairman PICKLE. Mr. Jenkins. Mr. JENKINS. Mr. Newcomb, I think maybe the tone of some of the questions might appear to be somewhat unfair because our policy was to encourage and favor trade with Iraq up until the middle of last year, was it not? Mr. NEWCOMB. That is correct. We had active trade relationships with Iraq until 5 a.m. on August 2. Mr. JENKINS. So until the middle of last year, you were not moni- toring any sales to Iraq because our policy up until that time was to encourage sales to Iraq; isn't that correct? Mr. NEWCOMB. That is correct, Congressman. We were not in- volved in the Iraq program in any way until the night of August 1. Mr. JENKINS. Thank you, Mr. Chairman. Chairman PICKLE. Mr. Moody. The Chair wants to move on, but Mr. Moody has one more question. Mr. MooDy. Just briefly. The people on this list are people who have done something since August 2, 1990, or people who- Mr. NEWCOMB. No, Congressman. In fact, I think it probably might work the other way more in that persons are on this list, where there is a reason to believe that these persons are acting for or on behalf of or are owned or controlled by Iraq. So if over the period of time there is information available to us that preceding August 1 they had an agency relationship or a particularly unique relationship with Iraq, then they would qualify. It is not post- August 2 that qualifies them. PAGENO="0411" 407 Mr. MOODY. All right. Thank you. Chairman PICKLE. Mr. Newcomb, let me ask you one other ques- tion. You have given us a list of special designated nationals for Iraq and for Libya. Do you anticipate publishing other lists for other countries, such as Syria? Mr. NEWCOMB. Syria is not a country currently embargoed under an act that we enforce, so we do not anticipate under Syria. I can say for Cuba- Chairman PICKLE. Do you anticipate publishing a list for any other nation? Mr. NEWCOMB. We currently have such lists for Cuba, Vietnam, North Korea, and Cambodia. Chairman PICKLE. But beyond those lists, you have no intention of publishing further ones at this point? Mr. NEWCOMB. Those are the only countries where we have spe- cific authority in the statute and the implementing regulations where we can take such steps. Chairman PICKLE. All right. Mr. Newcomb, you have indicated that Customs has given you excellent cooperation, and you have said they left no stone unturned. I assume by that you are satisfied with Customs performance and their authority. Should Customs be given additional authority in these kinds of cases? Mr. NEWCOMB. Well, under the International Emergency Eco- nomic Powers Act, the authority to administer, enforce, investi- gate, and implement the International Emergency Act is delegated to Foreign Assets Control. We have a cooperative, mutual assist- ance kind of program with the Customs Service where we work to- gether on cases of joint interest. They clearly have the resources available to them nationwide and throughout the world to assist us when we need investigative assistance. When we are aware of cases that we cannot handle ourselves-we have a small battery of our own investigators, but when we cannot do it ourselves, which is very often the case, especially relating to imports and exports, we have a very active referral program. We routinely meet with the Customs Service. We coordinate with them. The Customs has a liai- son with our office. We send people over there routinely. As far as their authority on the EAA, that is not within my prov- ince, so I am not the proper person to comment on that. Chairman PICKLE. Mr. Newcomb, I am not asking about your re- lations with Customs. We accept that as being a fact. I am trying to find out, does Customs need additional authority in these kinds of cases we are looking at. I am advised that Customs feels that they can do a better job in certain instances, and in these particular cases, a lot of the tips and information that resulted in indictments came through Customs. And I think Customs feels that they can do additional jobs or additional performance. Do you approve of that? Has Customs ever asked you for any improvements or additional authority? Mr. NEWCOMB. Not on the statutes that we administer. It is my belief that those statutes provide the adequate authority for inves- tigative responsibility. There may be other statutes that we are not involved in that they may be- PAGENO="0412" 408 Chairman PICKLE. Has Customs ever recommended to you that you endorse their automated manifest process, computer processing proposal? Are you familiar with that? Mr. NEWCOMB. I am familiar with it, but it would not be within my province to be commenting on their administrative operations. Chairman PICKLE. Whose province would that be in? Mr. NEWCOMB. That would be other people within the Treasury Department or the Customs Commissioner. Chairman PICKLE. You mean you are saying that you don't intend to comment about any proposal- Mr. NEWCOMB. I am not really in a position to comment on an automated manifest system. I know that Customs is constantly up- grading their ability to do their job. Chairman PICKLE. We will ask some of these other agencies. I want to say in conclusion that you have cooperated with the subcommittee, and we appreciate that. Some of the questions today have been questions of perplexity and frustration about why cer- tain lists have been added to and the process. I think it just further accentuates the fact that there is a lack of coordination between the various agencies. We are trying to pinpoint some of it. Our par- ticular jurisdiction is with respect to Customs. I am disappointed, in a way, that you cannot say that you and Customs are trying to work out additional processing, but as we go along, I hope we can concentrate on that. We are going to be hearing from the Commis- sioner of Customs now. In the meantime, I thank you very much for your testimony. Mr. NEWCOMB. Thank you, Mr. Chairman. [Additional questions for the record to Treasury and their re- sponses follow:] PAGENO="0413" 409 DEPARTMENT OF THE TREASURY WASHINGTON July 9, 1991 The Honorable J. J. Pickle Chairman Subcommittee on Oversight Committee on Ways and Means House of Representatives Washington, D.C. 20515 Dear Mr. Chairman: This responds to the questions in your May 9, 1991, letter following Oversight Subcommittee hearings on administration and enforcement of U.S. export controls. 1. Q: What evidence does the Office of Foreign Assets Control (OFAC) have with regard to Saddam's hidden wealth? Can you confirm the $10 billion estimate? Where is this money? What steps is the United States taking to locate the funds? When the money is located, what does OFAC intend to do with it? A: OFAC has both anecdotal and documentary evidence about the hidden wealth of Saddam Hussein and his associates. Although we are not able to confirm the $10 billion estimate, we understand that it is a hypothetical computation based upon source information that Hussein has "skimmed" a fixed percentage of the income from all Iraqi oil sales. We understand that the $10 billion amount was arrived at by calculating five percent of the total Iraqi oil sales over a ten-year period. As you may know, other persons formerly associated with the Iraqi regime have placed the amount of Saddam's hidden assets as high as $33 billion. OFAC does not yet have a comprehensive picture of the actual amounts, types and locations of the wealth acquired by Saddan Hussein and his associates. We are, however, trying to establish those facts; and investigations are ongoing. If such assets are located in U.S. jurisdiction, they will be blocked. If they are found in a foreign jurisdiction, we will seek the foreign government's cooperation in blocking or otherwise denying access to then. 2. Q: It has been reported in the press that OFAC investigators found foreign bank telexes, dated after August 2, 1990, detailing Iraqi requests to transfer tens of million of dollars into Jordanian accounts. To what extent has Jordan played a role in sheltering Saddam's wealth? Is it true that ater the invasion, Jordan banks and businesses protected and facilitated Iraq's transfer of money and other assets to safe havens? What other countries are not cooperating with the financial and trade sanctions imposed against Iraq? PAGENO="0414" 410 A: OFAC has met repeatedly with senior Jordanian diplomatic and banking officials to stress the urgency of strict adherence to the United Nations sanctions regime. The Jordanians have assured us of their support for the sanctions against Iraq. We continue to monitor Jordan's embargo compliance efforts. Due to Jordan's geographic proximity to Iraq, its economic interdependency with Iraq, and its close historical, cultural, and religious ties, Jordan represents a likely venue for sanctions evasion activity. OFAC continues its efforts to investigate all credible allegations that Jordanian banks and businesses have helped to shelter Saddam's purported wealth and have facilitated transfers of Iraqi assets to safe havens. OFAC is actively reviewing all available information concerning Iraqi and Jordanian banking transactions to determine whether parties in Jordan may have assisted Iraq in transferring Iraqi funds into Jordanian or other accounts after sanctions were imposed. We are aware of recent press allegations that Libya is working closely with Iraq to evade the U.N. embargo and OFAC is looking into those claims. OFAC also enforces a comprehensive embargo against Libya and has recently named 48 companies as Specially Designated Nationals of Libya. 3. Q: How certain are you that OFAC has completely identified Saddam's U.S. network? A: OFAC does not claim to have "completely identified' Saddam Hussein's U.S. network. Consequently, we will pursue any credible leads that may be presented to us concerning participants in any part of Iraq's network, whether in the United States or overseas. 4. Q: How did OFAC learn about Matrix Churchill, the small Ohio machine tool distributor that became a front for exporting weapons technology to Iraq? A: On the basis of public source information which demonstrated that the company was owned and controlled by Iraqi front companies in England. 5. Q: How effective is the Specially Designated Nationals (SDN) program in terms of denying access to U.S. merchants? How many violators does OFAC detect each year? How many penalties are imposed annually? How difficult is it to prove a violation of OFAC sanctions? What changes could be made to improve this program? A: OFAC believes that the SDN program has a major impact in denying access by Iraq and its agents to U.S. goods and services. This works in several ways: (a) U.S. businesses are placed on notice about many of the parties with whom they cannot. lawfully deal. Knowing the PAGENO="0415" 411 -3- identities of Iraqi fronts and agents will help prevent honest businesses from unwittingly dealing with Iraq, while those inclined to disregard the embargo will be on legal notice about the Iraqi fronts and will not have ignorance as a defense. (b) Exports to Iraqi SDN's are prohibited; they will be stopped when detected; and violators will be prosecuted (similarly, imports from Iraqi SDN's are prohibited and will be seized). (c) Banks cannot participate in financial transactions involving SDN's. Transfers to, from or otherwise involving SDN's may not be completed. Such transactions are prohibited, and SDN accounts and other property interests within U.S. jurisdiction are blocked. Overall, being placed upon the Iraqi Specially Designated Nationals list raises another barrier against Iraq's attempts to evade the embargo and to acquire the materials and technology to rearm itself and maintain Saddam Hussein's militarized state. Obviously, the number of potential violators of OFAC administered regulations who are detected by OFAC varies from year to year. This may be attributed to many factors; two of which are the number of regulations in effect during the course of a year and the number of personnel available for assignment to OFAC's enforcement effort. During the most recent twelve month period, for example, OFAC initiated investigations in over 75 incidents of activity involving possible violations of OFAC administered regulations. Many of these were and are being investigated internally by OFAC Enforcement, while other cases are being investigated in a joint effort between OFAC and U.S. Customs, and other agencies. At present there are several hundred cases in various stages of investigation throughout U.S. Customs which are being coordinated and monitored by OFAC. The OFAC criminal and civil penalty programs in 1990 resulted in collection by Customs for OFAC violations of $5,790,985 in civil penalties and forfeitures and $76,350 in criminal fines and forfeitures. An additional $55,000 was deposited into the OFAC civil penalty account. The total for all categories is $5,922,335, and involves 765 cases. It often is not difficult to prove that a violation of sanctions has occurred. However, since the laws enforced by OFAC (e.g., Trading with the Enemy Act and International Emergency Economic Powers Act) are specific intent statutes, it may be difficult at times to obtain evidence manifesting knowledge and willfulness on the part of the violator in order to sustain a criminal PAGENO="0416" 412 -4- prosecution. The ability to impose civil penalties under TWEA would improve enforcement capabilities. As with most federal regulatory and enforcement agencies, OFAC could always use additional investigative and analytical resources--investigators, analysts and clerical personnel. We are currently working to gain access to on-line data bases of publicly accessible information including local and state governmental records, and sophisticated link-analysis software. 6. Q: What will be the eventual disposition of the $1.2 billion in blocked Iraqi assets? How does your census of Iraqi claims relate to frozen assets? Will there be enough money to cover U.S. claims? Were U.S. exporters who shipped goods to Iraq or Kuwait before the invasion permitted to be paid from the blocked assets? To what extent are the Iraqis allowed to operate any accounts? A: The eventual disposition of the $1.2 billion in blocked Iraqi assets has yet to be determined. It is possible that the funds will be used to fund some type of claims settlement program. Until a settlement program is established, presumably in conjunction with or as a complement to the U.N. reparations program, the assets will remain blocked. The census of claims against Iraq was conducted by OFAC for U.S. government planning purposes to determine the magnitude of U.S. claims and what issues are likely to arise in a settlement program. Until the claims are formally adjudicated it will be impossible to determine precisely to what extent the blocked assets will cover U.S. claims. Based on our census, it appears that "hard" claims (i.e., claims likely to be judged valid under applicable international or commercial law) are about three to four times the blocked assets. OFAC licensed payments to U.S. exporters only where goods had been exported prior to the sanctions, the goods could not be returned or diverted, and the letters of credit were confirmed by a U.S. bank and fully collateralized. OFAC has licensed for operation only Iraqi accounts related to U.N. and diplomatic activities. 7. Q: What involvement will OFAC have with regard to war reparations? A: The nature of OFAC's role in a war reparations program depends on how that program is structured. 8. Q: On January 27, 1991, The Washington Post reported that the U.S. Customs Service was investigating 40 cases of arms-smuggling to Iraq. How many cases are being investigated by the Federal PAGENO="0417" 413 -5- Government today? How many of these cases are related to OFAC enforcement efforts? To what extent is OFAC involved in these enforcement cases? How many of those cases are for substantial violations? What evidence does OFAC have that U.S. commodities reached Iraq after the August 2, 1990, embargo? A: OFAC coordinates closely on criminal violations with a number of agencies including the Customs Service, the FBI, the Departments of State, Commerce and Defense. Preliminary investigations are handled independently until the appropriate stage of the investigation has been reached for dissemination of information to the agency which can best assist. Joint investigations are commonly worked between OFAC and the U.S. Customs Service. OFAC investigators accompany the Customs investigators in the field, when appropriate, and throughout the judicial process, when able to do so. The number of enforcement investigations changes from day to day in this very active program. The validity and significance of any allegations of violations can only be determined through continued investigation. Investigations for export violations to Iraq are underway and can be discussed upon final adjudication. 9. Q: Under the existing export control system, is the U.S. able to protect its technology and equipment from falling into the hands of potential adversaries? What steps can be taken to strengthen our export control system? Does OFAC have sufficient authority to implement its financial and trade sanctions? Do you have sufficient penalty authority? A: While OFAC plays a major role in preventing export after imposition of sanctions, other agencies are tasked with controlling the export of critical technology to enemies and potential adversaries. Those agencies are better prepared to discuss the effectiveness of the export control system. One change in OFAC's existing authority to implement financial and trade sanctions would be particularly helpful in facilitating the efficient functioning of sanctions. While the Office's civil penalty authority is adequate for sanctions programs imposed pursuant to the general sanctions authority in the International Emergency Economic Powers Act, 50 U.S.C. 1701-06, and specific legislation such as the Comprehensive Anti-Apartheid Act of 1986, 22 U.S.C. 5001-116, and the Iraq Sanctions Act of 1990, Pub. L. 101-513, OFAC has no present authority to levy civil penalties in aid of sanctions imposed on Cuba, Cambodia, Vietnam, or North Korea, which arise under the Trading with the Enemy Act, 50 U.S.C. App. 1-44 ("TWEA"). TWEA provides only for criminal penalty authority. Thus, with today's burden on the court system, and competing priorities facing the Department of Justice and U.S. Attorneys' Offices, only major violations of sanctions are realistic candidates for prosecution. Many infractions of sanctions imposed pursuant to TWEA would be more appropriately and efficiently addressed through an administrative civil penalty program established within OFAC. Therefore, legislation authorizing civil penalties as an enforcement tool would enhance OFAC's enforcement and deterrence authority. Thank you for this opport~nity to explain more about our programs. Sincerely, R. Richard Newcomb Director Office of Foreign Assets Control 51-840 0 - 92 - 14 PAGENO="0418" 414 Chairman PICKLE. Our next witness is the Honorable Carol Hal- lett, Commissioner for the U.S. Customs Service. Commissioner Hallett, if you will please take your place at the stand. Commissioner Hallett, we are glad to have you before us this morning, and we would be pleased to receive your testimony. STATEMENT OF HON. CAROL HALLETT, COMMISSIONER, U.S. CUS- TOMS SERVICE, U.S. DEPARTMENT OF THE TREASURY, ACCOM- PANIED BY JOHN C. KELLEY, DIRECTOR, STRATEGIC INVESTI- GATIONS DIVISION Ms. HALLETT. Thank you very much, Mr. Chairman. I am pleased to appear before you and the members of the committee today in order to discuss not only the roles and the goals of the U.S. Cus- toms Service in enforcing U.S. export control laws, but I also ap- preciate the opportunity to respond to your questions today. I would like to introduce Mr. John Kelley, who is here with me today. He is the Director of our Exodus program. The Customs Service has worked long and hard to develop an export enforcement program that is really capable of responding to the law enforcement needs, not only in the United States but those needs that affect our foreign policy and national security interests of the United States. Under the project name "Operation Exodus," the Customs Serv- ice has developed this program to the point where it has become a world model in the field of export enforcement. Today I would like to share some insights gained from our experience in export en- forcement that may, in fact, serve as reference points for your analysis of the U.S. export control system. As the principal U.S. border enforcement agency, the Customs Service has long faced the daunting challenge of enforcing both the import and export control laws of the United States, while at the same time serving to facilitate the movement of goods and people. In meeting this challenge, Customs officers have well earned the title "protectors of independence." The Operation Exodus program was developed in 1981 as a re- sponse to the national security challenge of stemming the flow of the illegal export of U.S. source arms and technology to the Soviet bloc and other prohibited destinations. The fall of the Berlin Wall caused many foreign policy, national security, and law enforcement analysts to call for both relaxation of U.S. export restrictions and a reduction in U.S. export enforcement efforts. The Customs Service weighed these calls for reduced export en- forcement against the law enforcement concerns dictated by ever changing U.S. foreign policy and national security interests and chose to maintain an aggressive enforcement posture. For our expe- rience has really told us that the next Iran, Nicaragua, or Panama may not be far off. This decision has proven wise in light of the events of August 2, 1990. The countries and commodities may change; but as long as the U.S. Government maintains the goals of promoting world peace, protecting national security, and promulgating foreign policy, there will be a continuing need for aggressive export en- forcement. PAGENO="0419" 415 In discussing the role of the Customs Service in the U.S. export control system, I want to make it very clear that we do not serve as an export licensing agency. This role is reserved for the Depart- ment of Commerce, the Department of State, the Department of Treasury's Office of Foreign Assets Control, and other U.S. export licensing agencies. The role of the U.S. Customs Service is to enforce the regulations set forth by these agencies under statutes such as the Export Ad- ministration Act, the Arms Export Control Act, and the Interna- tional Emergency Economic Powers Act. In addition to its authority to enforce both the Export Adminis- tration Act and the Arms Export Control Act, the Customs Service also enforces the outbound provisions of the Bank Secrecy Act, the Chemical Diversion and Trafficking Act, along with other statutes. This enforcement authority, coupled with Customs border search authority, makes the Customs Service the only U.S. agency capable of responding to all outbound enforcement problems at our ports and borders. Our export enforcement strategy has been developed upon a three-pronged approach of interdiction, investigation, and interna- tional cooperation. This strategy has been implemented by a force of 300 Customs special agents and 135 Customs inspectors that are dedicated exclusively to our export enforcement program. Their ef- forts may be augmented on a case-by-case basis throughout the in- vestigation of any case through the use of an additional 2,500 spe- cial agents and 5,000 Customs inspectors located at our 300 domes- tic and 20 foreign posts of duty. The expertise developed by these Customs officers has resulted in an increase of our seizure to detention ratio. Our increased efficien- cy in targeting and interdicting illegal exports has been of benefit both to the Customs Service and to the exporting public. The investigative focus of the Customs Service ranges from the referral of civil violations to the Departments of State and Com- merce to the conduct of complex investigations which may require undercover operations, electronic surveillance, or source develop- ment. Many of these investigations result in global settlements with assessment of both civil and criminal penalties upon convic- tion of the violators. One of our most important initiatives in the area of source devel- opment has been an industry awareness program known as Project Gemini. To date, Customs officers have made public awareness presentations to over 5,000 companies that are dealing in the area of defense as well as high-technology industries. The investigative leads provided by Gemini contacts have resulted in a number of significant seizures and arrests as well. The Customs Service works hard at developing tips. As part of our U.S. export control community, the Customs Serv- ice maintains strong links with the licensing agencies, the Depart- ment of Defense, other Federal enforcement agencies, and the in- telligence community. Our Exodus command center has direct links to both State and Commerce and is able to supply our field offices with both licensing as well as lookout information. The Customs Service maintains intelligence units both at head- quarters and in the field for the purpose of receiving, analyzing, PAGENO="0420" 416 and disseminating information obtained from the intelligence com- munity. Intelligence information, information received from other law enforcement agencies, and Department of Defense technical as- sessments provide part of the basis for our interdiction profiles. Successful interdiction techniques depend upon both strategic as well as tactical information. Recently, Mr. Chairman, we have expanded our cooperation with the Department of State to include the posting of a full-time Cus- toms agent at the Office of Defense Trade Controls to act as a spe- cial coordinator for law enforcement. It is the intent of the Cus- toms Service to assist the Department of State in screening export licensing applications for law enforcement concerns. Our coopera- tive efforts have also included a monthly exchange of case informa- tion with the Department of Commerce. Ever mindful of the fact that successful export enforcement re- quires foreign cooperation, the Customs Service has made export enforcement a priority for its foreign offices. The spirit of coopera- tion engendered by these foreign offices and our participation in COCOM has made the difference in a number of successful investi- gations. As acknowledged experts in the field of export enforcement, Cus- toms officers are often requested to provide training to foreign gov- ernments. Of particular, note in this area, is that we have been able to participate in recent export training programs in Eastern Europe. Hopefully these training programs will enable these newly risen democracies to develop their own export control regimes. On April 18 of this year, the Customs Service offered testimony on two investigations relating to illegal export of U.S.-source items to countries in the Middle East. I believe this testimony has provid- ed the committee with excellent examples of investigations that mirror our current enforcement efforts involving the Middle East. Our experience indicates that although the commodities, coun- tries, and routes of diversion may change, the basic methods of op- eration used by violators have not. In the Alcolac International and the Helmy investigations, we have provided examples of violators attempting to acquire controlled chemicals and missile technology for illegal export to destinations in the Middle East. I can assure you, Mr. Chairman, that the investigations relating to the illegal export of chemical/biological warfare agents and mis- sile technology to the Middle East continue to be a matter of top priority for the Customs Service. In response to the Iraqi invasion of Kuwait, the Customs Service activated a National Crisis Center as a clearinghouse for law en- forcement and intelligence information relating to Iraq. The Na- tional Crisis Center acted as a liaison with other U.S. agencies for channeling and substantiating information as well as intelligence relating to the conflict in the Persian Gulf. The National Crisis Center was supplemented by an Iraqi task force which tracked and analyzed all U.S. Customs investigations relating to Iraq. Since the imposition of the Iraqi embargo, the Customs Service has made more than 70 seizures destined for Iraq or Kuwait. The Customs Service has also provided continuing cooperation to the Office of Foreign Assets Control in the effort to identify specially PAGENO="0421" 417 designated nationals of Iraq and block Iraqi assets in the United States. To date, both the U.N. and Presidential embargoes remain in effect. Additional export restrictions resulting from the Secretary of State's designation of Iraq as a country that has repeatedly pro- vided support for acts of international terrorism also remain in place. The Customs Service will continue to closely monitor exports to Iraq as long as these restrictions continue. The Customs Service is constantly looking for ways to improve its ability to enforce U.S. export controls. One of our forward-look- ing initiatives is the development of the automated cargo export system. This system would allow for the automation of the Customs outbound manifest, the shippers export declaration, and other re- lated export documentation. This automation would permit the Customs Service to more effectively and efficiently target suspect export shipments for intensive examination. Mr. Chairman, members of the committee, we have, as you can see, brought with us today a number of exhibits which relate to some of our closed investigations. I would be more than happy to answer any questions about any of the materials we have brought here for display and respond to all of your other questions. Thank you very much, Mr. Chairman. [The prepared statement follows:] PAGENO="0422" 418 TESTIMONY OF CAROL HALLETT COMMISSIONER, U.S. CUSTOMS SERVICE BEFORE THE HOUSE OF REPRESENTATIVE COMMITTEE ON WAYS AND MEANS SUBCOMMITTEE ON OVERSIGHT MAY 1, 1991 MR. CHAIRMAN, I AM PLEASED TO APPEAR BEFORE YOU AND YOUR SUBCOMMITTEE TODAY TO DISCtJSS THE ROLES AND GOALS OF THE U. S. CUSTOMS SERVICE IN ENFORCING U.S. EXPORT CONTROL LAWS. THE CUSTOMS SERVICE HAS WORKED LONG AND HARD TO DEVELOP AN EXPORT ENFORCEMENT PROGRAM THAT IS CAPABLE OF RESPONDING TO THE LAW ENFORCEMENT, FOREIGN POLICY AND NATIONAL SECURITY INTERESTS OF THE UNITED STATES. UNDER THE PROJECT NAME, "OPERATION EXODUS", THE CUSTOMS SERVICE HAS DEVELOPED THIS PROGRAM TO THE POINT WHERE IT HAS BECOME A WORLD MODEL IN THE FIELD OF EXPORT ENFORCEMENT. TODAY, I WOULD LIKE TO SHARE SOME INSIGHTS GAINED FROM OUR EXPERIENCE IN EXPORT ENFORCEMENT THAT MAY SERVE AS REFERENCE POINTS FOR YOUR ANALYSIS OF THE U.S. EXPORT CONTROL SYSTEM, PARTICULARLY AS IT APPLIES TO THE MIDDLE EAST. THE CUSTOMS SERVICE HAS BEEN IN THE BUSINESS OF EXPORT ENFORCEMENT SINCE 1789. AS THE PRINCIPAL U. S. BORDER ENFORCEMENT AGENCY THE CUSTOMS SERVICE HAS LONG FACED THE DAUNTING CHALLENGE OF ENFORCING BOTH THE IMPORT AND EXPORT CONTROL LAWS OF THE UNITED STATES WHILE AT THE SANE TIME SERVING TO FACILITATE THE MOVEMENT OF GOODS AND PEOPLE. IN MEETING THIS PAGENO="0423" 419 CHALLENGE, CUSTOMS OFFICERS HAVE WELL EARNED THE TITLE "PROTECTORS OF INDEPENDENCE." THE "OPERATION EXODUS" PROGRAM WAS DEVELOPED IN 1981 AS A RESPONSE TO THE NATIONAL SECURITY CHALLENGE OF STEMMING THE FLOW OF THE ILLEGAL EXPORT OF U.S. SOURCE ARMS AND TECHNOLOGY TO THE SOVIET BLOC AND OTHER PROHIBITED DESTINATIONS. THE FALL OF THE BERLIN WALL CAUSED MANY FOREIGN POLICY, NATIONAL SECURITY, AND LAW ENFORCEMENT ANALYSTS TO CALL FOR BOTH RELAXATION OF U. S. EXPORT RESTRICTIONS AND A REDUCTION IN U. S. EXPORT ENFORCEMENT EFFORTS. THE CUSTOMS SERVICE WEIGHED THESE CALLS FOR REDUCED EXPORT ENFORCEMENT AGAINST THE LAW ENFORCEMENT CONCERNS DICTATED BY EVER CHANGING U.S. FOREIGN POLICY AND NATIONAL SECURITY INTERESTS AND CHOSE TO MAINTAIN AN AGGRESSIVE ENFORCEMENT POSTURE. FOR OUR EXPERIENCE TOLD US THAT THE NEXT IRAN, NICARAGUA, OR PANAMA MAY NOT BE FAR OFF. THIS DECISION HAS PROVEN WISE IN LIGHT OF THE EVENTS OF AUGUST 2, 1990. THE COUNTRIES AND COMMODITIES MAY CHANGE; BUT AS LONG AS THE U.S. GOVERNMENT MAINTAINS THE GOALS OF PROMOTING WORLD PEACE, PROTECTING NATIONAL SECURITY, AND PRONI1LOATING FOREIGN POLICY, THERE WILL BE A CONTINUED NEED FOR AGGRESSIVE EXPORT ENFORCEMENT. PAGENO="0424" 420 IN DISCUSSING THE ROLE OF THE CUSTOMS SERVICE IN THE U.S. EXPORT CONTROL SYSTEM, I FIRST WANT TO MAKE IT CLEAR THAT WE DO NOT SERVE AS AN EXPORT LICENSING AGENCY. THIS ROLE IS RESERVED FOR THE DEPARTMENT OF COMMERCE, THE DEPARTMENT OF STATE, THE DEPARTMENT OF THE TREASURY `S OFFICE OF FOREIGN ASSETS CONTROL, AND OTHER U.S. EXPORT LICENSING AGENCIES. THE ROLE OF THE CUSTOMS SERVICE IS TO ENFORCE THE REGULATIONS SET FORTH BY THESE AGENCIES UNDER STATUTES SUCH AS THE EXPORT ADMINISTRATION ACT, THE ARMS EXPORT CONTROL ACT, AND THE INTERNATIONAL EMERGENCY ECONOMIC POWERS ACT. WITHIN THE CUSTOMS SERVICE, WE FEEL THAT THE SEPARATION BETWEEN OUR ENFORCEMENT FUNCTION AND THE LICENSING FUNCTIONS OF STATE AND COMMERCE CREATES A HEALTHY SYSTEM OF CHECKS AND BALANCES. AS WE CONTINUE WITH OUR EXPORT ENFORCEMENT PROGRAM, ONE PROBLEM CONTINUES TO SURFACE. THAT IS THE CUSTOMS AND DEPARTMENT OF COMMERCE OFFICE OF EXPORT ENFORCEMENT DUAL ROLE WITH ENFORCING THE EXPORT ADMINISTRATION ACT. ACCORDING TO LEGISLATIVE HISTORY, THE INTENT OF THE SHARED EAA ENFORCEMENT ROLES WAS CLEARLY TO COMBINE THE RESOURCES AND SKILLS OF THE U.S. CUSTOMS SERVICE' S TRADITIONAL LAW ENFORCEMENT ORGANIZATION WITH THE DOC `S EXPORT LICENSING EXPERTISE. WHILE BOTH AGENCIES ARE CONTINUING TO COOPERATE, OPERATIONAL ISSUES EXIST WHICH HINDER EFFECTIVE EXPORT ENFORCEMENT. A PAGENO="0425" 421 WE WILL CONTINUE TO WORK TO RESOLVE THESE ISSUES. IF WE DETERMINE THAT ADDITIONAL LEGISLATION IS NECESSARY THE ADMINISTRATION WILL SUBMIT A PROPOSAL. IN ADDITION TO ITS AUTHORITY TO ENFORCE BOTH THE EXPORT ADMINISTRATION ACT AND THE ARMS EXPORT CONTROL ACT, THE CUSTOMS SERVICE AlSO ENFORCES THE OUTBOUND PROVISIONS OF THE BANK SECRECY ACT, THE CHEMICAL DIVERSION AND TRAFFICKING ACT, AND OTHER STATUTES. THIS ENFORCEMENT AUTHORITY COUPLED WITH CUSTOMS BORDER SEARCH AUTHORITY MAKES THE CUSTOMS SERVICE THE ONLY U. S. AGENCY CAPABLE OF RESPONDING TO ALL OUTBOUND ENFORCEMENT PROBLEMS AT OUR PORTS AND BORDERS. SINCE 1981, EXPORT ENFORCEMENT ACTIONS INITIATED UNDER "OPERATION EXODUS" HAVE RESULTED IN TILE ARREST OF MORE THAN 1600 VIOLATORS AND THE SEIZURE OF MORE THAN 10, 000 SHIPMENTS OF ARMS, TECHNOLOGY, AND EMBARGOED GOODS VALUED AT MORE THAN $786 MILLION. FROM OCTOBER 1985, TO JANUARY 1991, "OPERATION BUCKSTOP" HAS BEEN RESPONSIBLE FOR CURRENCY AND MONETARY INSTRUMENT OUTBOUND SEIZURES VALUED AT APPROXIMATELY $351.4 MILLION. FROM FY85 TO FY90, OUTBOUND ARRESTS FOR CURRENCY VIOLATIONS TOTALED 592. IN ADDITION, CUSTOMS HAS MADE 61 SEIZURES OF DRUG PRECURSOR CHEMICALS DESTINED FOR SHIPMENT FROM THE U.S. ALONG WITH 15 ARRESTS. PAGENO="0426" 422 ANOTHER CUSTOMS OUTBOUND ENFORCEMENT INITIATIVE AIMED AT THE ILLEGAL SHIPMENT OF STOLEN VEHICLES FROM THE U.S. HAS RESULTED IN THE RECOVERY OF 1864 STOLEN VEHICLES VALUED AT ABOUT $12.3 MILLION FOR FY89 AND FY90. CUSTOMS OUTBOUND ENFORCEMENT ACTIONS AGAINST HASARDOUS WASTE VIOLATORS HAS RESULTED IN EPA PENALTIES IN FY89 AND FY90 OF ABOUT $665, 000. OUR EXPORT ENFORCEMENT STRATEGY HAS BEEN DEVELOPED UPON A THREE PRONGED APPROACH OF INTERDICTION, INVESTIGATION, AND INTERNATIONAL COOPERATION. THIS STRATEGY HAS BEEN IMPLEMENTED BY A FORCE OF 300 CUSTOMS SPECIAL AGENTS AND 135 CUSTOMS INSPECTORS THAT ARE DEDICATED EXCLUSIVELY TO EXPORT ENFORCEMENT. THEIR EFFORTS MAY BE AUGMENTED ON A CASE BY CASE BASIS THROUGH THE USE OF AN ADDITIONAL 2500 SPECIAL AGENTS AND 5,000 CUSTOMS INSPECTORS LOCATED AT OUR 300 DOMESTIC AND 20 FOREIGN POSTS OF DUTY. THE EXPERTISE DEVELOPED BY THESE CUSTOMS OFFICERS HAS RESULTED IN AN INCREASE OF OUR SEIZURE TO DETENTION RATIO FROM 31% IN 1982 TO 94% IN 1990. THIS RATIO TELLS US THAT 94% OF THE DETENTIONS MADE BY CUSTOMS OFFICERS WILL RESULT IN SEIZURES FOR VIOLATIONS OF U.S. EXPORT LAWS AND REGULATIONS. OUR INCREASED EFFICIENCY IN TARGETING AND INTERDICTING ILLEGAL EXPORTS HAS BEEN OF BENEFIT BOTH TO THE CUSTOMS SERVICE AND THE EXPORTING PUBLIC. PAGENO="0427" 423 THE INVESTIGATIVE FOCUS OF THE CUSTOMS SERVICE RANGES FROM THE REFERRAL OF CIVIL VIOLATIONS TO THE DEPARTMENTS OF STATE AND COMMERCE TO THE CONDUCT OF COMPLEX INVESTIGATIONS WHICH MAY REQUIRE UNDERCOVER OPERATIONS, ELECTRONIC SURVEILLANCE, OR SOURCE DEVELOPMENT. MANY OF THESE INVESTIGATIONS RESULT IN "GLOBAL SETTLEMENTS" WITH ASSESSMENT OF BOTH CIVIL AND CRIMINAL PENALTIES UPON CONVICTION OF THE VIOLATORS. SINCE 1989, THE CUSTOMS SERVICE HAS MADE A CONSCIOUS EFFORT TO REFER POTENTIAL CIVIL VIOLATIONS TO COMMERCE. ONE OF OUR MOST IMPORTANT INITIATIVES IN THE AREA OF SOURCE DEVELOPMENT HAS BEEN AN INDUSTRY AWARENESS PROGRAM KNOWN AS "PROJECT GEMINI." TO DATE, CUSTOMS OFFICERS HAVE MADE PUBLIC AWARENESS PRESENTATIONS TO OVER 5,000 COMPANIES IN THE DEFENSE AND HIGH TECHNOLOGY INDUSTRIES. THE INVESTIGATIVE LEADS PROVIDED BY "GEMINI CONTACTS" HAVE RESULTED IN A NUMBER OF SIGNIFICANT SEIZURES AND ARRESTS. THE CUSTOMS SERVICE WORKS HARD AT DEVELOPING TIPS. AS PART OF THE U.S. EXPORT CONTROL COMMUNITY, THE CUSTOMS SERVICE MAINTAINS STRONG LINKS WITH THE LICENSING AGENCIES, THE DEPARTMENT OF DEFENSE, OTHER FEDERAL ENFORCEMENT AGENCIES, AND THE INTELLIGENCE COMMUNITY. OUR "EXODUS COMMAND CENTER" HAS DIRECT LINKS TO BOTH STATE AND COMMERCE AND IS ABLE TO SUPPLY OUR FIELD OFFICERS WITH BOTH LICENSING AND LOOKOUT INFORMATION. 6 PAGENO="0428" 424 THE CUSTOMS SERVICE MAINTAINS INTELLIGENCE UNITS BOTH AT HEADQUARTER5 AND IN FIELD OFFICES FOR THE PURPOSE OF RECEIVING, ANALYZING, AND DISSEMINATING INFORMATION OBTAINED FROM THE INTELLIGENCE COMMUNITY. INTELLIGENCE INFORMATION, INFORMATION RECEIVED FROM OTHER LAW ENFORCEMENT AGENCIES, AND DEPARTMENT OF DEFENSE TECHNICAL ASSESSMENTS PROVIDE PART OF THE BASIS FOR OUR INTERDICTION PROFILES. SUCCESSFUL INTERDICTION TECHNIQUES DEPEND UPON BOTH STRATEGIC AND TACTICAL INFORMATION. RECENTLY, WE HAVE EXPANDED OUR COOPERATION WITH THE DEPARTMENT OF STATE TO INCLUDE THE POSTING OF A FULL TINE CUSTOMS AGENT AT THE OFFICE OF DEFENSE TRADE CONTROLS TO ACT AS A SPECIAL COORDINATOR FOR LAW ENFORCEMENT. IT IS THE INTENT OF THE CUSTOMS SERVICE TO ASSIST THE DEPARTMENT OF STATE IN SCREENING EXPORT LICENSE APPLICATIONS FOR LAW ENFORCEMENT CONCERNS. OUR COOPERATIVE: EFFORTS HAVE AlSO INCLUDED A MONTHLY EXCHANGE OF CASE INFORMATION WITH THE DEPARTMENT OF COMMERCE. EVER MINDFUL OF THE FACT THAT SUCCESSFUL EXPORT ENFORCEMENT REQUIRES FOREIGN COOPERATION, THE CUSTOMS SERVICE HAS MADE EXPORT ENFORCEMENT A PRIORITY FOR ITS FOREIGN OFFICES. THE SPIRIT OF COOPERATION ENGENDERED BY THESE FOREIGN OFFICES AND OUR PARTICIPATION IN COCOM HAS MADE THE DIFFERENCE IN A NUMBER OF SUCCESSFUL INVESTIGATIONS. ~17 PAGENO="0429" 425 AS ACKNOWLEDGED EXPERTS IN THE FIELD OF EXPORT ENFORCEMENT, CUSTOMS OFFICERS ARE OFTEN REQUESTED TO PROVIDE TRAINING TO FOREIGN GOVERNMENTS. OF PARTICULAR NOTE IN THIS AREA HAS BEEN OUR PARTICIPATION IN RECENT EXPORT TRAINING PROGRAMS IN EASTERN EUROPE. HOPEFULLY, THESE TRAINING PROGRAMS WILL ENABLE THESE NEWLY RISEN DEMOCRACIES TO DEVELOP THEIR OWN EXPORT CONTROL REGIMES. ON 4/18/91, THE CUSTOMS SERVICE OFFERED TESTIMONY ON TWO INVESTIGATIONS RELATING TO THE ILLEGAL EXPORT OF U.S. SOURCE ITEMS TO COUNTRIES IN THE MIDDLE EAST. I BELIEVE THAT THIS TESTIMONY HAS PROVIDED THE COMMITTEE WITH EXCELLENT EXAMPLES OF INVESTIGATIONS THAT MIRROR OUR CURRENT ENFORCEMENT EFFORTS INVOLVING THE MIDDLE EAST. OUR EXPERIENCE INDICATES THAT ALTHOUGH THE COMMODITIES, COUNTRIES AND ROUTES OF DIVERSION MAY CHANGE THE B1~~SIC METHODS OF OPERATION USED BY VIOLATORS HAVE NOT. IN THE ALCOLAC INTERNATIONAL AND ABDELKAR HELMY INVESTIGATIONS, WE HAVE PROVIDED EXAMPLES OF VIOLATORS ATTEMPTING TO ACQUIRE CONTROLLED CHEMICALS AND MISSILE TECHNOLOGY FOR ILLEGAL EXPORT TO DESTINATIONS IN THE MIDDLE EAST. I CAN ASSURE YOU THAT INVESTIGATIONS RELATING TO THE ILLEGAL EXPORT OF CHEMICAL/BIOLOGICAL WARFARE AGENTS AND MISSILE TECHNOLOGY TO THE MIDDLE EAST CONTINUE TO BE A MATTER OF TOP PRIORITY FOR THE CUSTOMS SERVICE. 42 PAGENO="0430" 426 AS PART OF MY TESTIMONY TODAY, I WOULD ALSO LIER TO PROVIDE THE COMMITTEE WITH SHORT PROFILES OF TWO ADDITIONAL INVESTIGATIONS. THESE PROFILES PROVIDE EXAMPLES OF INVESTIGATIVE ACTIVITY FROM CASE INITIATION TO CONCLUSION AND ARE REPRESENTATIVE EXAMPLES OF THE TYPE OF INVESTIGATIONS CURRENTLY BEING CONDUCTED BY THE CUSTOMS SERVICE. THE FIRST CASE INVOLVES THE PROVISIONAL IRISH REPUBLICAN ARMY (PIRA) ATTEMPTS TO PROCURE A STINGER MISSILE, C-4 PLASTIC EXPLOSIVES, AND A NUMBER OF .50 CALIBER SNIPER RIFLES THAT WOULD BE SMUGGLED FROM THE U.S. INTO NORTHERN IRELAND FOR USE BY THE PIRA AGAINST BRITISH FORCES THERE. TEE CHART PROVIDED TO YOU GRAPHICALLY DEPICTS THIS CASE FROM START TO FINISH. AS YOU CAN SEE FROM THE CHART, CUSTOMS AND ATE SPECIAL AGENTS ACTED IN AN UNDERCOVER CAPACITY TO MONITOR THE ACQUISITION EFFORTS OF THREE IRISH NATIONALS AND ONE CANADIAN NATIONAL IN VIOLATION OF SEVERAL U.S. EXPORT AND MONEY LAUNDERING STATUTES. THIS CASE WAS THE RESULT OF A JOINT INVESTIGATION BY THE FBI, BUREAU OF ALCOHOL, TOBACCO AND FIREARMS AND CUSTOMS AND SERVES AS AN ILLUSTRATION OF INTERAGENCY COOPERATION. THE SECOND CASE I WOULD LIKE TO DISCUSS INVOLVES THE ATTEMPTS BY THREE VIOLATORS TO ACQUIRE COBRA HELICOPTERS AND OTHER MILITARY AIRCRAFT, AIRCRAFT PARTS, AND OTHER MILITARY USE ITEMS FOR THE COUNTRY OF IRAN. PAGENO="0431" 427 THE CHART ON THIS INVESTIGATION DEPICTS SOME OF THE INTERESTING ASPECTS OF THIS CASE. THIS CASE WAS DEVELOPED THROUGH A CUSTOMS UNDERCOVER STOREFRONT SET UP TO TARGET THE DRUG SMUGGLING COMMUNITY. YET, IRONICALLY, THE STOREFRONT CAUGHT THE INTEREST OF VIOLATORS CONSPIRING TO ACQUIRE MILITARY HARDWARE FOR IRAN. THIS INVESTIGATION ILLUSTRATES THE ABILITY OF THE CUSTOMS SERVICE TO RESPOND TO THE FULL SCOPE OF ENFORCEMENT PROBLEMS AT OUR BORDERS. ITEMS SEIZED BY CUSTOMS OFFICERS DURING OUTBOUND ENFORCEMENT OPERATIONS ALSO INCLUDE GUNS AND CURRENCY INTENDED FOR FOREIGN DRUG TRAFFICKERS, PRECURSOR CHEMICALS, AND STOLEN VEHICLES. IN RESPONSE TO THE IRAQI INVASION OF KUWAIT, THE CUSTOMS SERVICE ACTIVATED A NATIONAL CRISIS CENTER AS A CLEARINGHOUSE FOR LAW ENFORCEMENT AND INTELLIGENCE INFORMATION RELATING TO IRAQ. THE NATIONAL CRISIS CENTER ACTED AS A LIAISON WITH OTHER U.S. AGENCIES FOR CHANNELING AND SUBSTANTIATING INFORMATION AND INTELLIGENCE RELATING TO THE CONFLICT IN THE PERSIAN GULF. THE NATIONAL CRISIS CENTER WAS SUPPLEMENTED BY AN IRAQI TASK FORCE WHICH TRACKED AND ANALYZED ALL U. S. CUSTOMS INVESTIGATIONS RELATING TO IRAQ. SINCE THE IMPOSITION OF THE IRAQI EMBARGO, THE CUSTOMS SERVICE HAS MADE MORE THAN 70 SEIZURES OF GOODS DESTINED FOR IRAQ OR KUWAIT. y0 PAGENO="0432" 428 THESE SEIZURES ARE VALUED AT MORE THAN $10 MILLION. MANY OF THESE SEIZURES WERE MADE IN THE EARLY STAGES OF THE EMBARGO, AND WERE IN TRANSIT PRIOR TO THE IMPLEMENTATION OF THE EMBARGO - TEE CUSTOMS SERVICE HAS ALSO PROVIDED CONTINUING COOPERATION TO THE OFFICE OF FOREIGN ASSETS CONTROL IN THE EFFORT TO IDENTIFY SPECIALLY DESIGNATED NATIONALS OF IRAQ AND BLOCK IRAQI ASSETS IN THE U.S. TO DATE, BOTH THE UN AND PRESIDENTIAL EMBARGOES REMAIN IN EFFECT. ADDITIONAL EXPORT RESTRICTIONS RESULTING FROM THE SECRETARY OF STATE' S DESIGNATION OF IRAQ AS A COUNTRY THAT HAS REPEATEDLY PROVIDED SUPPORT FOR ACTS OF INTERNATIONAL TERRORISM ALSO REMAIN IN PLACE. THE CUSTOMS SERVICE WILL CONTINUE TO CLOSELY MONITOR EXPORTS TO IRAQ AS LONG AS THESE RESTRICTIONS CONTINUE. THE CUSTOMS SERVICE IS CONSTANTLY LOOKING FOR WAYS TO IMPROVE ITS ABILITY TO ENFORCE U.S. EXPORT CONTROLS. ONE OF OUR FORWARD-LOOKING INITIATIVES IS THE DEVELOPMENT OF THE AUTOMATED CARGO EXPORT SYSTEMS (ACES). THIS SYSTEM WOULD ALLOW FOR THE AUTOMATION OF THE CUSTOMS OUTBOUND MANIFEST, THE SHIPPERS EXPORT DECLARATION AND OTHER RELATED EXPORT DOCUMENTATION. THIS AUTOMATION WOULD PERMIT THE CUSTOMS SERVICE TO MORE EFFECTIVELY AND EFFICIENTLY TARGET SUSPECT EXPORT SHIPMENTS FOR INTENSIVE EXAMINATIONS. THIS CONCLUDES MY COMMENTS I WOUI.D BE HAPPY TO ANSWER ANY QUESTIONS AT THIS TIME. PAGENO="0433" 429 Chairman PICKLE. Commissioner, I think all the members would be interested in you pointing out and walking through some of these instruments you have before us for display. Would you be willing to do that? Ms. HALLETT. I would be more than happy to, Mr. Chairman. Would you like me to go up here and point them out? Chairman PICKLE. Yes, if you would. Come around and take any position you would like. Ms. HALLETT. This happens to be a Venturi heater, and the Ven- turi heater is part of a powerful assist system that is used in the F-4 fighter aircraft. These are among the seizures that we made throughout investigations that we have had ongoing over the last several years. In addition to that, this is a box of handgrenades that we also seized in other cases. I have here on my left a light tank weapon. It is an antitank weapon that can be attached not only to a tank, but can be at- tached to a jeep or another vehicle like that. We have here a- Chairman PICKLE. Let me interrupt you. Are these items manu- factured now within our country and were being shipped across and were interdicted by Customs? Ms. HALLETT. That is correct. These are items that were manu- factured in the United States along with this Stinger missile. This is a case that was completed in February of last year in which members of the PIRA were attempting to acquire Stinger missiles to be used in Ireland. This was another very successful case that we concluded last year. Chairman PICKLE. Can you tell me, this Stinger missile, where was it manufactured? Ms. HALLETT. This also was manufactured here in the United States. I am sorry I can't tell you- Chairman PICKLE. The company? Ms. HALLETT [continuing]. The company, but I may be able to refer to that when I look at my notes. Chairman PICKLE. Were any of the Stingers actually exported, or did you catch the shipment? Ms. HALLETT. We were, based on our undercover operation, able to not only make a successful sale to the individuals who were trying to acquire the Stingers, but we actually transmitted in person the Stinger missiles to the individuals, and they paid us the money. We seized everything at that time. This is one of many gas masks that were being purchased for Iraq and Iran during the investigations that we carried out with those countries. This is an example of a 30-gallon chemical container among sei- zures that we also made, and that relates to the Alcolac case. This vest, this was another very important item that was ordered in significant quantities in a case in which we were able to seize all of these bulletproof vests, and they too were manufactured in the United States. The weapon that I have here is an assault rifle. That is another case in which this is merchandise that was made and manufac- tured here in the United States. That is an AR-15 assault rifle. PAGENO="0434" 430 Chairman PICKLE. Of what danger is the vest, and why was it interdicted and stopped? Ms. HALLETT. Because there was not a license that was acquired for these goods to ship them to the countries that were trying to acquire them. The licensing-as an example, these were all seized prior to August 2, and these were not items that would have been on the embargo list, but instead the individuals trying to acquire them were trying to evade the licensing lists and/or were violating the Export Administration or Arms Export Control Acts. This is a TOW missile. This is a missile that was in an attempt to acquire for Iran, Iraq, and Libya. This is a case in which this last year, in March or April of this last year, we came close to the conclusion of this case. The case was completed in early summer or prior to early summer, in which we had individuals attempting to not only acquire the TOW missiles, but also other goods as well. And we did, in fact, at the time of the transmission of the money to us and the TOW missile to the individuals who were agents, one from Spain and one from Germany, we were able to make the sei- zure that time as well as the arrest. Chairman PICKLE. WhO manufactures this, do you know? Ms. HALLETT. This again is a missile that is manufactured in the United States, and I don't have the-this is a Hughes-manufac- tured TOW missile. Chairman PICKLE. Wasn't that missile confiscated? Ms. HALLETT. That is correct. When we actually met with the representatives who were trying to acquire these TOW missiles in Florida, it was at that time that they handed us the money, and we handed them the TOW missile, and immediately following we were able to initiate the arrest and the seizure. Chairman PICKLE. How was the package labeled? Ms. HALLETT. Well, in this particular case, we were not worried about labeling because we were making a transfer of the exact mis- sile. So they were not in this case trying to camouflage it. However, I might point out that during the ongoing case, the in- dividuals did request that we refer to the missile as oil- or well- drilling equipment. And that was the way in which to try to cam- ouflage this particular item which would have been obviously needed to have a license as a missile but not have a license if it were drilling equipment. Chairman PICKLE. Did most of these instances result from tips you received from some source? Or did they come about by virtue of your computer operations or your investigations at the docks or in what way? Primarily tips? Ms. HALLETT. Mr. Chairman, it was a number of different meth- ods in all of these seizures. In fact, I might point out that close to 85 percent of all of our seizures-that is drugs, guns, and money- have been based on tips. But I want to also emphasize that under our Gemini program which we have developed, which I mentioned, we have visited with over 5,000 companies telling them of not only their responsibility but what the law is. Many of the cases have been because companies have called us under their legal responsi- bility and told us that they have been approached by agents of other countries to acquire these goods illegally. PAGENO="0435" 431 Chairman PICKLE. Now, your Gemini program was a matter of both education and information, but it also resulted in your receiv- ing additional tips from these different companies. Ms. HALLETT. That is correct. We received information not only from the intelligence community, from the licensing agencies, and a host of other ways in which that information leads us to an in- vestigation.~ If I may proceed to the microphone, this does, I think, cover the various goods that we brought to display to you. Chairman PICKLE. We thank you. That is very interesting. The members may have some questions. Ms. HALLETT. I am sorry. Might I just point out that it would be difficult at that distance for you to see all of our charts, but I would hope that following the hearing you and the members would look at some of these because they show some of our cases from beginning to end. For instance, this is the Stinger missile case over here. It shows the initiation of the case. In fact, this was an undercover store- front. Maybe I could just go through this one quickly and hold it up here. Maybe we should stand in front of the Stinger missile since that is the item involved. It started with a storefront operation that we had actually devel- oped for other undercover purposes. And once we advertised our storefront and that we were looking, we were able to sell weapons, we were contacted by the individuals who were trying to acquire Stinger missiles for the PIRA. That went forward and we actually were contacted at our storefront from individuals who wanted to acquire helicopters, helicopter parts, munitions and so forth. We, at that time, when we were contacted-and this was by fax machine, that we were contacted-we faxed prices back to the individuals. And from our storefront account, we told them, in fact, we advised them that we would need $25,000 credited to our account in order to start the process of selling these goods. That all started in June of 1987. By the time we got to November of 1988, we were travelling to Canada and Texas to meet with these individuals. They came to our storefront to meet with us to discuss the potential acquisition of the Stinger missile and this went all the way through a process that took all the way up until 1989, in May of 1989, when we were actually able to arrest the individuals at the time that they were presented with the Stinger missile. So that shows that a case started in June of 1987 was not com- pleted until May of 1989. I will be happy to respond to more ques- tions. It is pretty lengthy to go through it all, but it gives you a little something of an outline. Mr. KELLEY. Mr. Chairman, if I may? Chairman PICKLE. Mr. Kelley. Mr. KELLEY. We have provided for you, also, on this chart to my right, it is headed Means of Developing Investigations. The one box that we didn't include there that we might make mention of is the manner that the Commissioner just described on the Venturi case, which is undercover approaches to gathering information and evi- dence needed to prosecute these individuals. But in addition to the undercover use, you can see those are the types of sources of information which are quite varied. PAGENO="0436" 432 Chairman PICKLE. Now, Commissioner, have you finished with your statement? Ms. HALLETT. I have, Mr. Chairman, thank you. Chairman PICKLE. I am impressed with the shipments that you have stopped and have actually prevented from export. It appears to me that most of this was done by virtue of either undercover or tip information you received, rather than the examination of our export laws. We must strengthen both aspects, but most of these things are coming aI)out through tips and your Gemini program apparently has been very effective. Now, I want to ask you some questions about some of the four cases we looked at. I am impressed with your testimony and thank you, very much, for your statement. Ms. HALLETT. Thank you. Chairman PICKLE. Now, regarding the Helmy case, the Helmy case where Dr. Helmy, who was a rocket scientist, participated in a scheme to illegally ship ballistic technology to Egypt. And it has been established that this technology was later used to help modify Iraq's SCUD-B missiles. Now, Dr. Helmy, himself, testified that he engaged in this underground procurement net- work at the request of high-level Egyptian officials, including the Defense Minister, and apparently President Mubarak, himself. Were you, Customs, aware, prior to our hearing on April 18 that the Egyptian Government had been consulting with Dr. Helmy on this Condor II program, since its inception in 1984? Ms. HALLETT. Yes, Mr. Chairman, we were aware that there were ongoing discussions during the case between diplomats, here in Washington, and other representatives of the Egyptian Govern- ment, we were aware of that, right. Chairman PICKLE. At that time, was there anything illegal about Helmy offering technical advice to Egypt about their missile pro- gram? Ms. HALLETT. Well, Mr. Chairman, it's my understanding that during that ongoing case, Mr. Helmy, of course, was working for Aero Jet General and was releasing classified information to a for- eign country which is illegal. Chairman PICKLE. How did you know that? Ms. HALLETT. That was part of our investigation. Of course, we were made aware of that information with our discussions with the Aero Jet General Corp. Chairman PICKLE. Well, now, you are talking about 1988. I am talking about when this thing started in 1984. Can you comment about it from that timing standpoint? Ms. HALLETT. Mr. Chairman, maybe I should refer you to Mr. Kelley, but I am aware that as this case commenced and we became involved in the undercover investigation, that, of course, it was at that time-and we were advised, in fact, by some of our in- spectors here, in the United States, that an individual who was under surveillance was coming into the United States and was going to go on board an aircraft going to California. We advised our agents in California at that time that this was someone we were looking for. It was because of our following that ii~thvidual that it PAGENO="0437" 433 led us to Mr. Helmy. I am sorry that I can't tell you the exact year that that occurred. Chairman PICKLE. Mr. Kelley. Mr. KELLEY. If I understand the question, in the 18th of this past month there was testimony indicating that there was a 1984 in- quiry, but I believe that dealt with the Alcolac case and it was a suspicion, a tip that had been provided to the Customs Service. As Mr. Bass indicated, during his testimony, that was investigated and determined not to be a violation at that time. And the investiga- tion in 1987 subsequently developed the information that there was. Ms. HALLETT. But I believe that all of the Helmy case, at least our involvement, was initiated in March of 1988. Chairman PICKLE. Can you think of any way then, from 1984 on, other than by receiving a tip that Customs would have detected Dr. Helmy's smuggling operations? Ms. HALLETT. I would have to say, Mr. Chairman, based on the facts and information available to me, that he was, indeed smug- gling between 1984 and 1988, and particularly if the goods and items, as well as, of course, the plans he may have smuggling were being sent out of the country through diplomatic pouches and oth- erwise, it would have been very difficult for us to be knowledgeable about that, other than through licensing laws. But I believe every- thing was listed in a way in which it would not have caused us to question the licensing laws. Chairman PICKLE. Well, why didn't Customs, at the time, that some of these shipments were taking place, particularly the pack- aging, why didn't Customs charge anyone at D&N Packaging with conspiracy, or some other crime for their part in repackaging and mislabeling the controlled commodities before they were shipped? Ms. HALLETT. Mr. Chairman, that is not the Helmy case; that's the Alcolac case. Chairman PICKLE. All right. Ms. HALLETT. Helmy had nothing to do with that case. Chairman PICKLE. All right, let's jump `to the Alcolac case and that again, I would like to get into a little detail there, because I think it is a very important case. I am extremely proud of the work our agents did, and particularly, the work that was pulled together in this particular case, because it was in April of 1988 that our spe- cial agent in Baltimore actually initiated this investigation into this illegal export and diversion of the thiodiglycol. And as a result of the investigation, which did center around Alcolac, we, of course, did go forward and the investigation revealed that there were, in fact, ongoing efforts later on which did result in our seizure, as well as- Mr. ANTHONY. Commissioner- Mr. KELLEY. If I may correct- Mr. ANTHONY. I think before your staff absolutely has a heart attack, I think we would like to have you slow down and let them have a chat with you. Mr. KELLEY. If I may, I would appreciate that. Yes, I got the Commissioner off on the wrong track on that. I thought you were discussing the situation with Alcolac which had been reported in 1984, but what I see you referring to now, Mr. Chairman, is the PAGENO="0438" 434 D&N packing that occurred for the packaging on the Relmy case. I apologize, Mr. Chairman. In that situation what you have is a company that was unwitting and could be unwitting in those circumstances and would do this process as part of their normal business and may not know what the items are, and where they are going. So unwittingly, in this particular case, they participated at the direction of an individual who was causing this to occur. Chairman PICKLE. Did the State Department or the Commerce Department have any call on this situation as far as licenses are concerned? Ms. HALLETT. Mr. Chairman, I believe it would have been in that particular case a licensing question for both the Department of State and/or the Department of Commerce. Chairman PICKLE. I am going to yield my time. I want to come back to some additional questions, particularly about the Alcolac case. But I am going to yield now to Mr. Anthony. Mr. ANTHONY. Thank you, Mr. Chairman. Welcome, Commissioner Hallett and Mr. Kelley. I am going to go back and ask some questions about my favorite case, the Global Helicopter case. Carlos Cardeon. Just to refresh everybody's memory, this case involved the attempt by Carlos Cardeon to obtain an FAA certification of a modified Bell Helicopter. It ap- pears that he was developing a poor man's attack helicopter. He calls it the Cardeonian 206-L-3, publicized back as far as 1988 in publications. Neither Commerce nor Customs was aware that Cardeon had shipped his prototype helicopter to Dallas until the FAA wrote to them. Initially Customs did not investigate, Commerce did. Later Customs seized the helicopter for a technical import violation. That is my first question right there. What was that technical import violation and what was the authority that you specifically used to seize the helicopter in March? Ms. HALLETT. Mr. Anthony, the seizure was actually based on a sealed affidavit that allowed us to seize the helicopter and because this is an ongoing investigation I won't be able to comment further. But it was, in fact, a sealed affidavit, sealed by the court which pro- hibits us from disclosing any further information on that open case, but that was the authority under which we actually seized the helicopter. Mr. ANTHONY. All right, and you are presently holding that prop- erty under the authority of that sealed affidavit? Ms. HALLETT. Under that court order, that is correct. Mr. ANTHONY. Is that a civil or a criminal division? Ms. HALLETT. Mr. Kelley, are you- Mr. KELLEY. Criminal. Ms. HALLETT. It is criminal. Mr. ANTHONY. It is a criminal division and that is an ongoing case. So when that investigation has been completed then you would be able to be in a better position to more fully answer some of our inquiries? Ms. HALLETT. Certainly. Mr~ ANTHONY. So you have got the same problem that Mr. New- comb had prior? PAGENO="0439" 435 Ms. HALLETT. Yes. I might just point out that this is a complicat- ed and many faceted investigation and so it will be a case that we will look forward to sharing with you once it has been concluded. Mr. ANTHONY. Let me ask a more generic question that this case brings to mind, though. I think you will be able to answer this par- ticular inquiry. Let's set aside, for a moment, our embargo with Iraq. Is it illegal for Cardeon or any other person to procure compo- nents or know-how for any of his weapons systems from the United States? Let's just take a hypothetical case of somebody out of the country. Does that limit part of it, is there any legal activity that just centers around that part of it? Ms. HALLETT. Hypothetically, as long as-if goods are on the li- censing list and they are acquired legally by applying for a license and the license is, in fact, approved by the State Department or Commerce, then there is obviously nothing illegal about that. However, if the individual tries to acquire, as was the case with this TOW missile, tries to acquire a TOW missile, but camouflages the name or the, in fact, item, itself, by referring to it as well-drill- ing equipment, and therefore, a license is not required, rather than listing it as a TOW missile, which would require a license, that is where you, obviously, run into the legal problems. And that is what has been a favorite trick that many individuals have used. Mr. ANTHONY. Mr. Chairman, and Commissioner, I have got just some general questions I would like to ask in terms of how Cus- toms, how you think Customs is presently operating, especially in conjunction and cooperation with others. It has been my impression that Customs has encountered grow- ing problems with the Department of Commerce's Office of Export Enforcement and you may even want to comment at that point as to whether that is a correct impression. Ms. HALLETT. May I hear the rest of the question? Mr. ANTHONY. And for other agencies that have a role in either re- stricting or expediting the exports of merchandise from the United States, I have a two-part question. Can you tell us about the prob- lems you have encountered and identify how you feel these prob- lems can best be corrected? To what extent are these problems jeopardizing our export control enforcement efforts? Ms. HALLETT. Well, Mr. Chairman, we are working closely with all of the licensing agencies along with the intelligence community, which this list would include not only DOD, but it would include State Department, it would include Commerce, of course, OFAC, all of those agencies, in addition to the intelligence community, in an effort to make sure that we do have access to all of their informa- tion. I would say, that just as an example, the intelligence community tells us that they are sharing with us a full 90 percent of all of their information and we feel that that is something that is work- ing well. At the same time in working with the Commerce Depart- ment, we have just, I have just had some very important meetings with the Commerce Department-meeting with both the Secretary and the new Deputy Secretary, Mr. Schnabel to work out ways in which if we do have differences, we will hopefully be able to re- solve them. PAGENO="0440" 436 I have met, as recently as this week, with again, the licensing people to discuss a new pilot that we will be able to carry out on the licensing information being made available to us. I would like to just point out that previously within the last two years we car- ried out a pilot in the San Francisco Bay area, based on the use of information from licensing. And while we have not firmed up the actual way in which that pilot will be carried out, again this is an attempt by our agency and by the Commerce Department to try and resolve problems that have existed. Mr. ANTHONY. Well, I like the way you phrased it. If we do have problems, we are meeting and we are going to resolve them. I accept that and I think that is a very delicate way to do it. Ms. HALLETT. Thank you. Mr. ANTHONY. I encourage you to keep talking and working with them. Do your inspectors have access to Commerce and State De- partment licensees at the port? Ms. HALLETT. At some ports, but not all of the ports. However, we do now have the licensing list from the Commerce Department. We have ready access also to the license from the State Depart- ment and that is based on during this Iraqi situation that resulted aft~r August 2, we were given access to the State Department list. All of that was at our command center which I referred to in my opening statement. So that any time there was a questiOn or a problem that any of our inspectors had they were able to immedi- ately call the command center and get the information from us or get direction from us, as well. Mr. ANTHONY. Do you have link-up capabilities to Commerce li- censing information? Ms. HALLETT. In part we do, and that is one of the things that we are discussing, not only with the pilot, but also, of course, what we already have established with them, we are hoping to be able to expand on. Mr. ANTHONY. Mr. Chairman, I don't know where my time stands, but I have several other questions that are basically aimed in that same general direction, in terms of Customs and their co- ordinated activities with the Department of Commerce. Maybe it would be better if I submit some of those to the record. Ms. HALLETT. We would be happy to do that. Mr. ANTHONY. And then you could answer those and we could discuss them later on. I would just like to close with this question. Mr. Moody, in one of his seven points, indicated that he thought there was a legitimate reason for separation of licensing and en- forcement functions. I wondered what your view was on that par- ticular item? Ms. HALLETT. Well, Mr. Anthony, I guess that the best way to re- spond to that would be to say that if this were a perfect world, and the Congress were to decide that rather than having two licensing agencies, or two agencies that carry out enforcement responsibility, there was to be only one, naturally I think the Customs Service does an outstanding job and should be the only one. This is not necessarily a perfect world, but that is a decision that the Congress will have to make and not ourselves. We are, of course, oniy an enforcement agency and not a policymaking agency. PAGENO="0441" 437 Mr. ANTHONY. I think Commerce witnesses have made it pretty clear that they think that it works better having both within their agency and then cooperating with Customs. I don't know which is best. I just asked the question. At least one member of the full committee has indicated, in his own viewpoint, that he thinks there may be an inherent conflict of interest. I personally don't know and that is the reason I asked the question to kind of get a feel from you. Ms. HALLETT. Well, just as there are checks and balances be- tween the administrative and the legislative branches, there are checks and balances between agencies. Again, I would refer back to the perfect world which we do not live in. I do believe that Customs does an outstanding job and we are certainly capable of doing it all, but on the other hand, we are not the ones that will make that de- cision. Mr. ANTHONY. Would it be fair for me to characterize the fact that Commerce, Customs and State are in a battle with each other for jurisdiction of export enforcement duties and investigations, or is that too strong? Ms. HALLETT. I think that's too strong, Mr. Anthony. I really feel that not only have we had an excellent working relationship with the State Department, but I want to really emphasize that with the Commerce Department, we are working really hard to try and re- solve differences that we have. I think the fact that we have agreed that we are going to work out a way in which to carry out a test to make sure that information is made available to us for cases. Let me emphasize, also, that on all of our investigations we, on a monthly basis, Mr. Kelley gives to the State Department, the De- partment of Defense, as well as the Commerce Department an update on every single investigation that we have ongoing. If there are new names added, if there are changes in that case, that update is given to those agencies, so that they, at all times, know what cases we have ongoing. And when we have that kind of give and take, I think it is very beneficial for everyone. Mr. ANTHONY. All right, and again, I like the way you phrase it. It's not a battle. That may be a little too strong a word, but you do acknowledge that there is some dialog going on to try and work out some internal differences in terms of policy and procedure. In that regard, Mr. Chairman, if you would permit me one final question? Chairman PICKLE. All right, Mr. Anthony. Mr. ANTHONY. It is my understanding that Customs is opposed to the Department of Commerce investigators traveling overseas. I have got a two-part question in that regard. Why does Customs oppose the Department of Commerce investigators traveling over- seas, if that is a correct statement? And in the C-TEK computer case, Commerce Department special agents traveled overseas at the direction of the Assistant U.S. At- torney and their overseas investigation led to the arrest and con- viction of the entire computer equipment smuggling ring. Accord- ing to the assistant U.S. attorney, it was Customs' efforts to seize the 8700 computer which almost jeopardized the investigation. How would you characterize Commerce handling of the C-TEK investi- gation? PAGENO="0442" 438 Ms. HALLETT. Well, Mr. Chairman, on the C-TEK investigation, or Mr. Anthony, I would like to refer that one to Mr. Kelley. I was not involved and not with the Customs Service at that time, and it was a case that he was well involved with, and I would like to refer that to him. Mr. ANTHONY. But first, was that a correct statement, that Cus- toms was opposed to the Department of Commerce investigators traveling overseas? Is that categorical statement true or false? Ms. HALLETT. No, that is not a correct analysis of our position. I would say, however, that- Mr. ANTHONY. Then state it for me so I won't misstate it again. Ms. HALLETT. I think this is really a coordination issue that again, we are working on, and it does refer also to the legislation that is currently in the House, where there has been reference to investigations, particularly foreign investigations. But I would have to say that the most important thing that we can work on together, between our two agencies is coordination and we have made that commitment on both sides to do that. Mr. ANTHONY. I'm glad to hear that because there appears not to have been much coordination in the C-TEK case, so if you could, Mr. Kelley, just explain what happened. Ms. HALLETT. Yes, I would like to have Mr. Kelley respond to that. Mr. KELLEY. There are three items. First, the items which you describe and the alleged battles that take place, in all the contacts that I have had with all the individuals in the export enforcement field, I have never heard a comment from anybody, from any agency that was attempting to do anything that would detract from export enforcement. Their efforts would be to improve those ef- forts, no matter what agency they came from. Mr. ANTHONY. Well, I'm glad to hear that. Mr. KELLEY. Second of all, in regard to our position for agents from the Commerce Department traveling overseas, we do not object. Our policy is not to take that position. However, we can refer you to the law, as passed by the Congress, that indicated that Commerce was a domestic investigative agency and the responsibil- ity for the foreign investigation lies with the Customs Service. To further that, we participate in investigations with the Commerce Department when necessary and we have, on numerous occasions, assisted them and their agents in investigations overseas. With regard to the case in C-TEK, I would like to introduce, for the record, if I may, in response to statements made by the former U.S. attorney, Ms. Moore, a letter which we had received yesterday from the U.S. Attorney's Office in Seattle, Wash. If I can quote just one section of this letter, it states, that: * * * nothing in our knowledge, however, indicates any serious lack of coopera- tion or bad faith on the part of Customs, either here, in Seattle, or overseas. We would disagree with any statements to the contrary or any interpretations of state- ments which might lead to that contrary conclusion. I would submit that that letter is from the U.S. Attorney's Office in Seattle and I would be happy to provide that letter to the com- mittee. It is signed- Mr. ANTHONY. We would like to have a copy of it and you can ask the chairman if he will make it a part of the record. PAGENO="0443" 439 But let me say, her testimony did not go toward any bad faith. Her testimony simply went toward the differences between the two agencies and how best to fully conduct an investigation. I think the evidence is very clear that Customs wanted to seize and take con- trol of the computer and Commerce wanted the computer to contin- ue along so that they could make a full and final criminal case. In this case, Commerce's opinion won out. So the reason I brought it up is to highlight the differences and the fact that you do need some cooperation. Here was a case where, at least at the outset, the lack of cooperation was about to blow a case that Com- merce was working very hard on. Again, Commissioner Hallett, we were shown a chart about how this particular case, and how many countries were involved and how difficult it was. I just bring that case up for illustrative pur- poses in terms of trying to better define the scope of any problems that exist. Mr. KELLEY. Mr. Anthony, I think in this letter you will see that the two U.S. attorneys, the assistant U.S. attorneys that took over the case, subsequent to Ms. Moore's involvement, will indicate to you the contrary that that information-that there was coopera- tion and that the reason for- Mr. ANTHONY. There was ultimate cooperation, I agree 100 per- cent. And the case was eventually successfully concluded. Here was a case, though, where that particular piece of equipment was down- graded in terms of national security risk and it basically took away the U.S. attorney's case. The courts ended up plea bargaining for a much lesser offense, I think, than they would have if they had gone to trial. I agree and maybe I am nit-picking you a little bit here, but there was a case where the initial impression was that Customs wanted to rush in and grab it and Commerce had this other scheme that they wanted to pursue. Eventually Commerce was able to sit and talk with the agents and everybody worked it out. It was just that that initial fear that the case was going to be dam- aged. Mr. KELLEY. Well, had the information been passed by Ms. Moore to the Customs Service, we would have taken the appropriate action and it was not in the early stages. This case, we could sit here and dissect and- Mr. ANTHONY. Yes, I don't want to do that. Mr. KELLEY [continuing.] There were all kinds of accusations that things were not properly coordinated. I mean it was a successful investigation. Mr. ANTHONY. She, by the way, for the record, was extremely complimentary to the Customs personnel. So she was not derogato- ry in any way to your personnel. We bring that case up more to try to illustrate how much coordination is required when there is a separation and when each has its own authority and has its own ability to investigate. I guess what I will do, Mr. Chairman, is close by just repeating what Commissioner Hallett said: "If we do have problems, we are in a dialog and we are attempting to resolve them." PAGENO="0444" 440 I would just say, Mr. Kelley, that if anything can be learned from that case, then I assume you all will be discussing it and im- proving it. That's the bottom point I was trying to make. Ms. HALLETT. Thank you, Mr. Anthony. Mr. ANTHONY. Thank you. Chairman PICKLE. The Chair recognizes Mr. Sundquist. Mr. SUNDQUIST. Thank you, Mr. Chairman. Commissioner, and Mr. Kelley, thank you, very much. I notice that there has been a change in the referring of civil cases from Commerce to Customs. And see if these figures are right. How many were referred to Commerce for civil sanctions in 1989, do you know, offhand? Ms. HALLETT. Mr. Sundquist, I would like to submit that for the record. I can't tell you the exact amount for 1989 but I would be happy to submit those figures for the record. Mr. SUNDQUIST. Thank you, Commissioner. My numbers indicate that there were none in 1989 and in 1990 there were 12 and in 1991 there is 89 or 90, according to Customs. It just seems to me that that is moving in the right direction. Would you like to comment on that? Ms. HALLETT. There's no question about it. That is exactly the way we think it should be going and we are definitely moving in the right direction. Mr. SUNDQUIST. In the Alcolac case there were unusually large shipments of controlled chemicals that went undetected for a long period of time, and does that indicate that we need a better way of tracking these outbound shipments? Ms. HALLETT. Well, I would like to just answer that in a couple of different ways, at this point, Mr. Sundquist, because I think this is a very key case, particularly in this investigation. We did come into this case, which I started to tell you about previously, Mr. Chairman, we initially were unable to identify that there were any violations. So that also was a case that commenced, I believe, in 1984, and it was not until about 3 years later that we were actually able to identify that, in fact, there were some specific and clear vio- lations occurring. Again, it is, I think, a good example of how working not only with the officials of the company but also being able to identify ways in which information was changed, that we did have to inves- tigate that there are many ways that people can camouflage what they are doing. This is a case, however, in which a. lot of informa- tion has come out and there is, in particular-while this doesn't re- spond exactly to your question- Mr. SUNDQUIST. Yes, I have a reason to ask the question and there is a followup question. If you want to say something else, go ahead, bUt- Ms. HALLETT. No, I will go ahead. Mr. SUNDQUIST. Because Agent Burns, when former Customs Agent Burns was here he suggested that we establish a watch list much like what is required for drug precursors, or companies that purchase sensitive dual-use commodities, like rocket fuel would have to be listed by the manufacturer. I don't want to give manu- facturers a lot more paperwork. But it seemed to have worked, the watch list, in keeping relative to the antidrug program it seems to PAGENO="0445" 441 have worked there. And maybe you have some evidence with how it is working with the drug chemicals and then I have got a couple of other questions along those lines. Ms. HALLETT. Good. Well, first of all, I think that it does indicate that there is much that we need to be doing, particularly in not only identifying and targeting suspect sales of chemicals but we work very closely with DEA in following not only those precursor chemicals but other chemicals that are leaving this country and that, of course, is something that is a licensing question, as well as a question with respect to how we go about seizing and working with DEA to seize precursor chemicals. One of the things that we have also found is that working with the Office of Defense Trade Controls that with the U.S. munitions list there are items that are registered and we believe that prob- ably one of the things that would help is to find a way in which more of our domestic companies would have to register the sales of those items that they are selling to other countries. I think there is an opportunity here for possibly a strengthening of the law. It is important for manufacturers to keep records of all domestic sales and to have those available so that on demand we would be able to inspect those particular records that were being kept so that we could identify companies that are illegally dealing in precursor chemicals. Mr. SUNDQUIST. So you think it would be a good idea for us, legis- latively, to consider extending that program into controlled com- modities domestically? Ms. HALLETT. Certainly if it relates to chemicals, specifically pre- cursor chemicals. Mr. SUNDQUIST. That's what I'm referring to, precursor chemi- cals. When we had those cases here a couple of weeks ago, in the Alco- lac case, the product description, end-country clause, and the trans- shipping clause were all altered or falsified and it seemed like it was very easy to do. How can we prevent that from happening- the ease of diverting controlled goods by altering shipping docu- ments and product marking? Ms. HALLETT. Well, really, Mr. Sundquist, I think that more than anything else depends on the integrity or an individual. It is a very difficult thing for us to legislate. It is, however, something that we have pushed very hard, through our Gemini program and that is educating companies what to look for. If you find an individual, such as was the case here, who was working with others to change figures or change information as to a diversion, it is very difficult to do anything about that unless you have a company that is com- mitted to stop it from happening. Mr. SUNDQUIST. I think in one of the testimonies that I recall the person said, if I had known how serious it was, I would not have done it. So my next question is, wouldn't it help if we had a warn- ing statement, like falsifying this document carries a penalty of $50,000 fine or 5 years imprisonment? Because it is impossible to educate clerks and people who are not at the top, who are not fa- miliar with these kinds of things. Should we have that kind of warning statement, wouldn't that help? Also should exporters and PAGENO="0446" 442 freight forwarders be required to sign an end-use statement on all shipper's export declarations? Ms. HALLETT. Well, first of all, Mr. Sundquist, I believe that the information is already there that requires, in fact, that that infor- mation be disclosed, and that, in fact, penalties significant penal- ties- Mr. SUNDQUIST. It's on the document? Ms. HALLETT [continuing]. Go with that, on the document. Mr. SUNDQUIST. Could you furnish the committee with a copy of that document? Ms. HALLETT. I think it is $1,000. Mr. SUNDQUIST. How much? That's going to scare them? Mr. KELLEY. No, making. false statements. Ms. HALLETT. It is a penalty. Mr. SUNDQUIST. I don't imagine that anybody who sees $1,000 on there that is $1,000 is going to be scared. But isn't it a fact that-.- Ms. HALLETT. It is a criminal conviction, Mr. Sundquist, so that should scare someone. It is a felony. Mr. SUNDQUIST. Well, I would like to see a copy of the documents to see if it is sufficient, because I don't think it is based on the tes- timony we received here earlier. Ms. HALLETT. We would be happy to submit that for the record. And I would also- Mr. SUNDQUIST. Submit it for the record, and send a copy to my office, also, please? Ms. HALLETT. We would be very happy to. Mr. Sundquist I might just also offer to the committee, because I think it is very impor- tant, a letter that has come to our attention from the two assistant U.S. attorneys who, in fact, were responsible for the prosecution of the Alcolac case. It is a very important letter from those two AUSAs in which they are concerned about some of the questions, and particularly, some of the suggestions that our Customs agents did not carry this case forward far enough to be able to bring con- victions of the upper level management of that Alcolac company. I am very proud of the work that our individuals have done in this case, our individual agents, and I think that that is certainly supported by the AUSAs who did, in fact, prosecute the case. So I would like to submit that for the record, as well. Mr. SUNDQUIST. That's up to the Chairman, and I assume that is OK. I would like to ask some questions, because I had the feeling when they testified that you caught one person but the higher-ups got off virtually unscathed and they are still out there in business. Let me ask you to clarify one question that I don't think you an- swered and that is, should exporters and freight forwarders be re- quired to sign an end-use statement on all shipment export declara- tion, the SEDs? Mr. KELLEY. That is certainly something that can be considered. Mr. SUNDQUIST. Would you give us an answer for the record to the committee on that question? Ms. HALLETT. We will. Mr. SUNDQUIST. Mr. Chairman, I have some other questions re- garding the Alcolaë ê~&~UtIV~ and ~l~o ~omc of ~ that PAGENO="0447" 443 former Assistant U.S. Attorney Moore made. I would be glad to ask those questions on a second round if my time has expired. Ms. HALLETT. And Mr. Sundquist, I would like to be able to re- spond to one of the comments that you just made at that time, as well. Mr. SUNDQUIST. Thank you, very much, I will give you that op- portunity. Chairman PICKLE. The chair will recognize you again, Mr. Sund- quist. Meantime, Mr. Moody, we are glad you are with us today, and would you care to ask any further questions? Mr. MOODY. Thank you, Mr. Chairman, yes. Ms. Hallett, I entered some testimony earlier, I don't know if you were present or not. Ms. HALLETT. Yes. Mr. MOODY. I would very much appreciate any written response or commentary you might provide to the points I made. I had seven points, about three of which refer directly to giving Customs more tools. I don't think anything I said was critical of Customs. In fact, the thrust of my comments was that you may need more help in some areas. So maybe I overstated it or maybe I understated it, but I would appreciate your thoughtful commentary about my points, and that would be most helpful. Ms. HALLETT. We would be happy to, Mr. Moody. And would you like me to just identify a few of the things that we think would be beneficial? Mr. MOODY. Sure, go ahead. Ms. HALLETT. Because I mentioned in my opening comments, that our automated outbound export manifest system, that is some- thing that I think is absolutely critical for us to really get the job done. It would give us information not only on chemicals that are outbound, currency that is outbound, and a number of different items that are outbound. This is something that over a 5-year period, we estimate will be expensive, but we are going to find the money for that one way or the other, even if we have to move it from other programs, because we think it will have such a beneficial impact on the future and our ability to get the job done. Mr. MOODY. And just the knowledge that you will have will in- hibit a lot of illegal activity. Ms. HALLETT. Yes, absolutely. Something else- Mr. MOODY. So that's something that you do need to bring on- line, that would be a universal information system? Ms. HALLETT. That is right, and that would, also I think, enable us to really become even more successful in all of our investigative techniques. I might also say that certainly we want to be able to share as much information with the committee on things like this as we can. I think with this automated program, the manifest system, that it will really be very helpful in the future. I also want to point out that we are doing some extensive train- ing. We are training not only in the area of chemicals and chemi- cal use, we are also training our export people, we are working with our foreign counterparts because we think this is critical to have our foreign counterparts aware of our problems and ways in PAGENO="0448" 444 which to help us. I might emphasize that we are working very closely with not only customs services around the world, but other law enforcement agencies as well. Mr. MOODY. Ms. Rallett, I have only got a minute of time. Let me ask you to put those things in writing that you are doing and I know you are doing a lot. Ms. HALLETT. We would be happy to. Mr. MOODY. I just wanted to get some reaction. We asked you in our letter, the chairman did in our letter of March 28, to bring out the administrative, legal, and practical obstacles that you face in some illustrative cases. So I just wanted to focus not on what you are doing, we know you are doing a lot and we commend you, but on some of the things that you might, some of the obstacles you might still face. I mentioned several, as you know, in my state- ment. The general destination loophole-where Customs fortunately saw the word, chemical, on the labeling and it was able to see something that was headed for the Defense Ministry of Iran? We had that brought up last time. That loophole and the Canadian loophole, is that a problem for you? Ms. HALLETT. Well, Mr. Moody, I would say that in terms of that having been a problem, again we are working closely with Canada to try and eliminate any problems like that. We have an excellent working relationship with Canadian customs and the RCMP and I am most hopeful that we will be able to deal with that issue. But I would ce:rtainly emphasize that our working relationship, particu- larly under the Canadian free trade agreement, has been excep- tionally good. Mr. MOODY. But it's true that something could be sent to Canada and reexported and you would never be informed? Ms. HALLETT. That is true, that could happen and that is what we are working with the Canadians on at this time through bilater- als. Mr. MOODY. Do we need a legal change, or can you think that is something that can be totally handled administratively? Ms. HALLETT. Well, it is something that certainly can be handled through COCOM negotiations, and, of course, both Canada and the United States are COCOM members. Mr. MOODY. But does COCOM apply to the Middle East? Ms. HALLETT. Well, it certainly applies to this particular issue of the resale of an item that is built in the United States, sold in Canada and sold to a third party. That is where COCOM has direct impact on that. Mr. MOODY. OK, because my understanding that that avenue has been extensively used in the past with or without COCOM. Ms. HALLETT. That is true. Mr. MOODY. COCOM has been around a long time. We also were told that CIA, of course, in its tracking the develop- ment of nuclear and other mass instruments of death does pass this information up the chain of command in the CIA, but they are not required to inform you as to what is going on in country X in terms of a nuclear program. Is that not right? That is my under- standing from talking to working-level people in these agencies. PAGENO="0449" 445 Ms. HALLETT. I think that maybe-and I would like to be able to submit something in writing, as well- Mr. MOODY. Sure. Ms. HALLETT [continuing]. On that, but certainly since the initial onset of our Operation Exodus the intelligence community has par- ticipated with Customs directly as well as indirectly. I think we are both taking a more active role in this area. Part of it, I think, is based on the evolution of the program and the way that we are able to share information. I am certainly hopeful that that will continue. Mr. MOODY. Let me know your formal response later, and let me ask you briefly my information led me to say in my statement that it would be helpful for Customs if all licenses that had been ap- proved by Commerce having any military potential at all, you were told of, particularly those going to countries that were previously on a terrorist list. Would that be helpful? Ms. HALLETT. Oh, absolutely, that is essential information for us to carry out investigations. Mr. MOODY. Now, finally and my time is up, accepting the word of the seller or the purchaser, as we have seen cases where in Eng- land in a case I am following, that is now in trial in England where one of your agents participated in a sting operation and they caught people trying to sell nuclear triggers. They were called elec- tric switching devices. Ms. HALLETT. Correct. Mr. MOODY. And just because we had a patriotic citizen in the company, running the company in question that we were able to set up the sting. And I commend you for all of that, but I am just saying the generic issue is how do we get around this problem of accepting the word of the purchaser? And let me couple that with a question, also implicit in my testi- mony, about the fact that the State Department has "kaboshed" several attempts, I understand, by your people to followup on site, in a country by not wanting to issue them passports under as- sumed names which would be required for them to be successful in that sting. Ms. HALLETT. Let me answer the last part of that question first, because that really was not an accurate assessment of what hap- pened with that passport question. That was done by the individual agent, without going through the Customs Service, and he was un- aware of what was required. I don't believe there would have been any problem had we gone through normal channels. Mr. MOODY. So you are able to send, followup, in country, over- seas when you think it is necessary? Ms. HALLETT. Yes, we are. Mr. MOODY. With the cooperation of the State Department. Mr. KELLEY. Mr. Moody, if I could point out the fact that the case that you are indicating, in fact, with the United Kingdom au- thorities there was an undercover meet with that particular agent, demonstrates that we can and do have that process. Mr. MOODY. Right, and I commend you, as I say. I am talking about sending people into a country like Iraq or Iran to make sure the end-use is as they stated, and it is coupled with the generic 51-840 0 - 92 - 15 PAGENO="0450" 446 problem of accepting the word of the purchaser that they are going to be used for the purpose so stated. How do we get to the bottom of this problem of people saying these are electrical switches and we find out later that they can be used for nuclear triggering devices? Ms. HALLETT. Well, let me go back to that, because that was the first part of your question and part of it is simply a matter of in- tegrity and I know that is a very difficult issue to deal with when we have people out there who are more determined to make money than to do things legally. So we must work with that. We believe our Project Gemini has had a very big impact and, in fact, in that nuclear trigger device case that was because of Project Gemini and the way that we had been able to educate that company. But we, I think, have to look at our laws to see if we are actually being strict enough with individuals who do violate. If they throw integrity away and they are dishonest, how are we going to deal with them? Mr. MOODY~ That's why I suggest that possibly moving the civil penalties, rather than criminal because there is a much higher. threshold of proof for criminal, obviously, and civil penalties would be possible. I suggested, if it is, in fact, the end-use turned out to be military that would put the burden on the selling U.S. company to make sure that they were really getting straight answers, and if necessary, send their agents over there to followup. Any reaction? Ms. RALLETT. That's a good point. I think it is certainly some- thing that we would not disagree with. I think it is important, many times, to have both the investigation ongoing where you will be able to end up with both a civil and a criminal conviction at the end of the case. Mr. MOODY. All right, thank you, very much. Chairman PICKLE. Mr. Kelley, before we go on to other questions, I want to back up a little bit on a question I had asked you earlier. I had posed the question to you of why didn't Customs charge anyone at D&N Packing-I am talking about now the Helmy case-with conspiracy or some other crime for their part in repack- aging and mislabeling the controlled commodity. And as I under- stood your response to me, it was that you had said that D&N was unwitting and did not know what was in the contents. Now, I am advised that D&N did know what was in the crates. They had shipping documents, and that was clearly understood by D&N. Is that correct? Ms. HALLETT. Mr. Chairman, since I already led you astray once before on the Helmy case, may I refer this one back to Mr. Kelley since he is more familiar with it. Chairman PIcKLE. I am asking Mr. Kelley. Mr. KELLEY. The U.S. attorney's office did not feel there was suf- ficient evidence to pursue them for a violation. That is something we are required to do. Chairman PICKLE. I don't know that that should be any question or misunderstanding, and I don't know whether you are in a posi- tion to know. But we know from documents that have been re- leased that D&N did know what was in those crates, and the Jus- tice Department knew that. PAGENO="0451" 447 Now, they might have not known where the shipments were going to go, but they actually participated in misguiding the con- tents. Mr. KELLEY. Mr. Chairman, if I may, when they were repacking these items, they may not have known, as you stated, where the destination was. And that is part of the law. It is a requirement of the law. They must have specific knowledge that it is going to be exported. As you have just described, they didn't have that knowl- edge. Chairman PICKLE. That is a technicality. They did know what was in those crates. They did know for a fact. Just because they didn't know where it was going wouldn't say that you would let the shipment go. Mr. KELLEY. There has to be a violation there. If they didn't know it was going to be exported, you can't charge them with an export violation. Chairman PICKLE. Well, I would just say to you that the record ought to show that if they didn't know, they should have known. And I think they did know and they didn't do anything about it. The record ought to show that. To indicate a technicality here and just let people get loose and not be prosecuted for it, I personally want the record to show that there is sharp disagreement on our part of it. Now, in the case of Alcolac situation, I don't understand why Customs didn't catch Alcolac until it was 1988 when they had been tipped off earlier about these illegal shipments. Why wasn't Alco- lac monitored more closely after Customs received a tip from the Dutch embassy in 1985? Ms. HALLETT. Mr. Chairman, maybe I could refer at this point again to the letter from the assistant U.S. attorneys, because they have addressed that issue; not that we need to have someone else respond for us, but I- Chairman PICKLE. Well, we will ask that department when we come to them this afternoon. Ms. HALLETT. I will say just very quickly that the investigation simply failed in those early years to provide sufficient evidence that would actually show that there was corporate knowledge of anything being done that was illegal or that these goods were being shipped out of the country illegally. Chairman PICKLE. I can't understand why- Ms. HALLETT. Well, Mr. Chairman, from the investigation, it is very clear to us as well as the U.S. attorneys that until 1987, there were not illegal shipments going out of the country. Chairman PICKLE. Well, I guess the facts will have to show. But if you knew it from 1984 and 1985 on, why wasn't it stopped then? Ms. HALLETT. Because we did not know and we do not believe, based on all of the evidence available that there were illegal ship- ments until 1987. Prior to that, the shipments were legal, and there was nothing that we could have done even through an inves- tigation. Chairman PICKLE. Now, we are talking about the same case. Are we talking about the Alcolac case? Ms. HALLETT. We are talking about Alcolac. PAGENO="0452" 448 Chairman PICKLE. All right. Now, they were shipping tons and tons, hundreds of tons, in the early years of this commodity. It can't be used but for one or two things. Any scientist and anybody in your agency ought to have known there would be serious ques- tions raised about that. They didn't have to be run over by a truck to know that this was mustard gas that was going to be produced. Now, why wouldn't that be exported illegally, and why wouldn't you stop something that almost exclusively is going to be used, say, for mustard gas? And you know it, and I know it, and anybody in the scientific world would know it. Ms. HALLETT. But, in fact, the investigation that was carried out by our agents-and, of course, this was based on a tip-it deter- mined that the shipping of thiodiglycol to any country that was not a destination that was authorized was not occurring then. That did not occur until 1987. Chairman PICKLE. Well, I would say to you that it seems to me that we openly allowed shipments of a commodity, the ingredient of which we knew was going to be used for mustard gas. And thought there might not have been a law against it, it was morally wrong and we should have known. When did they actually catch the shipment? Ms. HALLETT. Well, in 1987 is the first time that it actually became known to us that there were ifiegal shipments that were taking place. And, in fact, I think it is very important to point out that once we did discover that, in fact, illegal shipments were taking place, we did something about it. And I think that again shows the success of our agents, and they should be congratulated for that. Chairman PICKLE. Yes. Once you knew or at least from that date on, you did take action and it has led to these shipments. But in the meantime, with all this caution that was exercised, we know that over 630 tons of this thiodiglycol was actually shipped across the seas, and it was ready to and still may be used. Do you know for a* fact, Commissioner, whether the chemicals in the stockpile of Iraq has been destroyed? Ms. HALLETT. No, I do not know that, Mr. Chairman. Chairman PICKLE. I asked that question two weeks ago, and nobody seemed to know. They are supposed to have been destroyed, I think, by the first. We don't know whether that has actually been done or not. Do you know whether our State Department is satis- fied that it has been destroyed? Ms. HALLETT. I could not respond for the State Department, Mr. Chairman. Chairman PICKLE. Well, we will ask the State Department. Be- cause we are bothered that they would not have acted on this or that we don't know that information, because if we don't know it, for a fact, then we have actually shipped mustard gas, we have ac- tually been a party in shipping mustard gas to Iraq to be used against us and still could be used against us or the Middle East. Ms. HALLETT. Well, we are making every effort to make sure that that does not happen. And that is one of the reasons why we be- lieve that our investigations are so important. Chairman PICKLE. Well, Mr. Sundquist. Mr. SUNDQUIST. Thank you, Mr. Chairman, PAGENO="0453" 449 I would like to follow up on what the Chairman said in terms of large shipments of controlled chemicals and in this case they went undetected for a long period of time. Doesn't that show that we need a better way of tracking outbound shipments? Ms. HALLETT. No question about it, Mr. Sundquist and that is one of the reasons why we feel that one of the things that we have pro- duced this past year is the biological/chemical book. It is some- thing that I would like to make not only a part of the record, but I would like ~to just mention that this is something that we have pro- duced because in terms of chemical and biological warfare that it is an investigative guide. It tells people what to look for, how they can make a difference and I think we are on the right track on this and I would appreciate being able to share that with the commit- tee. Mr. SUNDQUIST. I so move that it be included as a part of the record, Mr. Chairman. [The publication, "Chemical and Biological Warfare" was re- ceived and has been retained in the committee files.] Mr. SUNDQUIST. Agent Bass said that an automated export system would be helpful to track suspicious shipping patterns. You also said that in your statement. That would allow Customs to flag suspicious export shipments, would it not? Ms. HALLETT. Yes, and it would help industry, as well, because they, too, would be able to flag that information for us, so that this is a really critical tool that we need to move forward with. Mr. SUNDQUIST. Now, getting back to the Alcolac executives, and the failure to prosecute them, why were they not prosecuted, in just a short answer? Ms. HALLETT. Well, Mr. Sundquist, it is hard to be quick on this, but I would like to read to you from the letter from the assistant U.S. attorney- Mr. SUNDQUIST. I would rather not have that, I would rather have an answer and you can include that for the record, if you would, Commissioner, because I would like to have your opinion. Ms. HALLETT. OK, well, the investigation simply failed to provide sufficient evidence that would show that those corporate officials had the knowledge that the final destination was Iran or Iraq and- Mr. SUNDQUIST. Well, who was specifically responsible for decid- ing not to prosecute the Alcolac executives? Ms. HALLETT. That was the assistant U.S. attorneys. We did not have that responsibility. Mr. SUNDQUIST. That was U.S. Attorney Wilcox? Ms. HALLETT. No, in fact, it was two assistant U.S. attorneys, and that would have been Assistant U.S. Attorneys Bernstein and Hi- meles. Chairman PICKLE. Mr. Sundquist, the Justice Department had been asked to testify here today and they could not. They are in a process of gaining information and answers to the questions that we had submitted to them. They will be available for questions of the subcommittee at a later date. Mr. SUNDQUIST. Thank you, Mr. Chairman. It seemed to me that Ms. Hinkleman testified that her bosses knew the activities, and even approved of them, so that I look for- PAGENO="0454" 450 ward to getting that information from the Justice Department. Now, former U.S. Assistant Attorney Moore testified that sentences under the EAA are woefully inadequate. Is the maximum 10-year sentence an adequate deterrent or punishment? Ms. HALLETT. In my personal opinion, it is not. And I think the tougher we make the laws, sentencing and otherwise the more suc- cess we will have not only as a deterrent but making sure that these individuals are not back out on the street 1 or 2 years after they have been sentenced. Mr. SUNDQUIST. What should the sentence be, do you think? Ms. HALLETT. I think this is something that we need to work on and we would be happy to work with you. Of course that would be a Justice Department recommendation as the enforcing agency, however, we certainly would be pleased to be involved and asked for our opinion on this, and it is something that I would want to work with our enforcement people in the Customs Service to get their opinions on. Mr. SUNDQUIST. We found that many export cases use the money laundering statutes to obtain criminal forfeiture of illegal export proceeds, does EAA provide sufficient forfeiture authority? Ms. HALLETT. Well, I think there is always need for having more authority, particularly with respect to forfeiture and that is some- thing that we are working on separately. We would like to have more authority, let me put it that way. Mr. SUNDQUJST. Do either EAA or money laundering statutes cover money transferred within the USA? Ms. HALLETT. I think they do, yes. Mr. SUNDQUIST. Are you certain? Ms. HALLETT. I have an emphatic yes, Mr. Sundquist. Mr. SUNDQUIST. EAA or money laundering statutes do cover money transferred within the United States? Ms. HALLETT. Yes, and in fact, it is because of that that we have been able to seize a significant amount of money under the Export Administration Act. Let me just give you an example. Last year, under our Operation Out-Bound at the Customs Service, we seized $52 million from passengers who were departing airports in the United States for foreign countries without reporting that they were carrying $10,000 or more and that was seized under the EAA. Mr. SUNDQUIST. Ms. Moore said it does not cover domestic trans- actions. You are talking about money that crosses the border. And we are talking about domestic money that is moved around inside the country. Ms. HALLETT. Moved within the United States, I am sorry. Mr. SUNDQUIST. Let me repeat my question. Do either the EAA or money laundering statutes cover money that is transferred within the United States? Ms. HALLETT. I believe that we have full authority within the United States, as well as outside the United States for those sei- zures as long as it can be directly pointed to being drug proceeds or illegal proceeds. I think that is absolutely the case. Mr. SUNDQUIST. Would you respond for the record on that, be- cause it is in conflict with Ms. Moore's testimony? Ms. HALLETT. And in fact7 it is section 981 of title 18. PAGENO="0455" 451 Mr. SUNDQUIST. Would you favor the creation of a Justice De- partment task force specializing in export crimes as described by Ms. Moore in her testimony? Ms. HALLETT. May I submit that to you in writing because I don't recall her exact statement. Mr. SUNDQUIST. And would you also answer in that same letter, would it enhance the chances of your cases going to trial? Ms. HALLETT. I would be happy to discuss that in writing. Mr. SUNDQUIST. Thank you. Thank you, Mr. Chairman. Ms. HALLETT. Thank you, Mr. Sundquist. Chairman PICKLE. Commissioner, I appreciate very much your testimony and I appreciate very much the job that Customs is doing in this area. In my letter to you originally and again last week, I asked you to come and testify and I asked you at the time to be specific and identify any of the problems that we have in this area, in the export control laws and any loopholes that exist that we need to close and to improve. I asked you to specifically list those so that we would know what, in your views, were the prob- lems and how we attack them. Now, I must say to you that you have not identified any of the problems and you have not been very specific at all about what you request. You just said a minute ago that you do need and you would like to have more authority. That is as near as I have heard you say that we ought to make some changes. Now, I think that all of the agencies, whether it is State, or Justice, or Commerce, or Treasury, all would say that we have problems and we all know that our export laws are almost in disarray. I have asked you spe- cifically to list to me one, two, three, four, five, and you have not listed to me those answers. I need to know specifically what are those solutions to those questions. I would want you to be specific about it, if you think that you ought to have more authority and what ways are the problems. So I would like for you to respond. Ms. HALLETT. I would be happy to, Mr. Chairman, and I think that if this were a perfect world and if Congress were to decide that rather than having two agencies that were authorized to carry out enforcement investigations that there would only be one, then of course, we would hope that it would be the Customs Service. Chairman PICKLE. Commissioner, you, two or three times earlier said, if in the wisdom of Congress you think in this perfect world- I want to know specifically you are in the field, what do you recom- mend or what can you say are the problems and what are the solu- tions? Not about this perfect world, tell us now publicly, what should be done about it? Ms. HALLETT. All right, well that is one of the reasons that I have had ongoing meetings with the Commerce Department, so where we do have differences or where we have been unable to work out some of our problems, we are making a commitment to do that. I think because of that we now have their license informa- tion and I would agree while that did not happen initially when we wanted it, the reason it did was because we sat down and talked with one another about it. I think that is our responsibility be- tween agencies and we are making a commitment to make that work. PAGENO="0456" 452 Chairman PICKLE. Well you observed in the wisdom of Congress if we would order these procedures to be changed, you would accept them and do it. Obviously you would if that is the law, if that is what we said. Ms. HALLETT. Of course. Chairman PICKLE. But in order for us to make any changes we need to have the recommendations and suggestions from the De- partment. You are the heart of this. You may even be the one agency, the customs, that can do something about it,. but as long as you just scuttle along here, we are not getting anything specific. Now, if you want authority you had better tell us what is the prob- lem and what you think is the solution. If you want to talk with the agencies, I can understand that you have to do that, and that you are not in a position to tell them exactly what we ought to do. But somewhere in order for the Congress to have the facts to make these decisions, we need to get information and recommendations from the agencies involved, and that includes Customs. Ms. HALLErr. Well, Mr. Chairman, I think I have mentioned some of the things we do believe should be done. I have mentioned that the automated export manifest system that we should have. I would also point out that we think that we should be able to expand the missile technology control regime and the Australia group. That would give the U.S. Government much more positive steps in which we could increase, particularly, the degree of inter- national cooperation that is so important to all of us. That's some- thing, again, if we had that legislative authority that would make it much more successful for us. Chairman PICKLE. Have you made those recommendations to Treasury? Ms. HALLETT. We have discussed this with Treasury, we have not made a specific recommendation but we will. Let me also point out that we have some other recommendations I would like to discuss with you in a closed door session. I think that there are two, in particular, that would be very valuable to us, that if we were to discuss it here, it would jeopardize some of the potential for the future, and I would, like to request that we have that opportunity. Chairman PICKLE. All right, well, we are commending you for your actions and we are asking now for suggestions, and as long as we just kind of fence around the bush about it, we are not getting down to the harder questions. We will be glad to meet with you and we want also, in addition to what you have just said, we want any written specific recommendations and suggestions that you have. Ms. HALLETT. Thank you. Chairman PICKLE. I thank you and we have been able to look at only four cases, specifically, but obviously from this a great deal of improvement must be made. And we do solicit your cooperation. Ms. HALLETT. Mr. Chairman, if I might just close by saying that we do appreciate very much having this opportunity to appear before you and the committee, and I would like to specifically re- quest that we be able to submit for the record, the letter from the two U.S. attorneys in Baltimore on the Alcolac case, and the letter from the U.S. attorney in Seattle on the C-TEK case, and the De- partment of Justice's directive on administrative, their administra- PAGENO="0457" 453 tive position with respect to the discussion of open cases, and final- ly, the Department of Treasury's directive on their administrative position and the administration's position with regard to the dis- cussion of open cases. I feel that is very important for the record, and would appreciate being able to submit it. Chairman PICKLE. We will be glad to receive those documents and we also may have an additional hearing to try and get some- thing specific from you and others. [The material referred to above was received and has l)een re- tained in the committee files.] Mr. ANTHONY. Mr. Chairman, would you yield to me for a moment? Chairman PICKLE. Certainly. Mr. ANTHONY. Commissioner, I will bring this to your attention and also for the Department of Commerce and the Department of State since they will be testifying after you. We have gone through the transcript which has been available to you and your staff, as well as to the staff of Commerce and State. By page and by case we have identified a bunch of statements that indicate that those are problem areas. Then at the last, we have, by page, through that prior transcript identified potential solu- tions. I think that specifically is what Chairman Pickle is attempt- ing to get to and I think you are just now beginning to see his frus- tration beginning to come out. I know I have expressed a litl;le bit of my frustration and then I backed off. I am about to get mine back up here again, too, but we are going to have to go and vote here. What I would like to do is to make this available to you. Ms. HALLETT. I would appreciate that very much. Mr. ANTHONY. Let you look it over and see if you agree or dis- agree that these are problem areas and then look at the solutions. Whether you do it in public or whether we go back there in execu- tive session so that nobody can see us, eventually we are going to have to make some recommendations. And that is that everything is honky-dory or we are going to have to make some recommenda- tions that there are some problems and there are some rational so- lutions to it. That is really where we are. I just say to Commerce and State, if you want to take a look at these before you testify, you are welcome. Thank you, Mr. Chairman. Ms. HALLETT. Thank you, Mr. Anthony. I appreciate your gener- osity on that. Thank you, Mr. Chairman. Chairman PICKLE. Now, the Chair is going to call a 15-minute recess. We have a vote on the floor. [Recess.] [The following was subsequently received:] PAGENO="0458" 4M T1EI~ SSIøi~1±n~ ~F cE~US'l'©~IS WA~mNGTøN, D.C. June 27, 1991 i-' r~CEIVED JUN 2 8 1997 Ways and Meant Subcommittee on Oversig~~ Dear Chairman Pickle: Please find enclosed the Customs responses to questions raised during the May 1, 1991 hearing. In addition, enclosed are the answers to the questions contained in your May 14, 1991 letter. Mr. John C. Kelley, Jr., and I were pleased to appear before your Subcommittee regarding the U.S. Customs Service export enforcement program. Should your Subcommittee need any additional information, please do not hesitate to contact me. Sincerely, Carol Hallett Commissioner The Honorable J. J. Pickle Chairman Subcommittee on Oversight Committee on Ways and Means House of Representatives Washington, D.C. 20515-6144 Enclosure REPORT SMUGGLING TO UNITED STATES CUSTOMS SERVICE I-EON3E-AL~RT PAGENO="0459" 455 UNITED STATES CUSTOMS SERVICE RESPONSE TO THE MAY 14, 1991 LETTER FROM THE HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, SUBCOMMITTEE ON OVERSIGHT 1. On March 28, 1991, I requested your appearance as a witness at the Nay 1, 1991 hearing to discuss the following: (1) Customs overall role and goals in enforcing U.S. export control laws: (2) specific Customs cases in the area, including both recently closed and currently open cases (to the greatest extent possible); (3) administrative, legal, and practical obstacles or difficulties encountered by Customs generally, and in the NELMY missile and ALCOLAC chemical cases specifically; and (4) recommendations on how to improve Customs ability to effectively and efficiently enforce U.S. export controls. On April 22, 1991, I again asked that your statement focus on the specific issues raised during the Subcommittee's April 18, 1991 hearing and your recommendations for what can be done to resolve such problems in the future. Despite the Subcommittee's repeated requests for answers, the following basic enforcement questions remain essentially unanswered: a. With regard to U.S. export enforcement, what administrative, legal, and practical obstacles or difficulties does Customs encounter? On Nay 1, 1991, the Commissioner indicated that there were two recommendations to discuss in a closed door session which if discussed at the hearing or herein would advise criminals about the legal infirmities of the export laws. We again want to request a closed door meeting with your Subcommittee. Customs believes these recommendations would address some of the obstacles Customs faces in enforcing the export laws. Customs has encountered some other difficulties that will be briefly mentioned here yet further detailed in answers to other relevant Subcommittee questions. Customs has had some difficulties with Commerce on coordinating overseas investigations. In addition, Customs has also experienced some difficulties with Commerce's interpretation of the confidentiality statute thus preventing Customs unrestricted access to Commerce's licensing information. Customs and Commerce have been trying to resolve these issues through various mediums and discussions. The practical obstacles or difficulties encountered by the Customs Service result primarily from the sheer enormity of the task at hand. For example, there are approximately six million containers exported from the U.S. each year by vessel alone. The number of exports is increased by bulk cargo, air, truck, rail, courier service, car, mail, and passenger shipments. From a license review standpoint, the Department of State receives approximately 55,000 license applications for the export of U.S. Munitions List Items each year and the Department of Commerce receives approximately 85,000 license applications. The Customs Service must constantly look for more effective ways to target suspect companies and shipments for enforcement action. b. What are your recommendations on how to improve Customs ability to effectively and efficiently enforce U.S. export control laws? As the Commissioner stated at the hearing on May 1, 1991, PAGENO="0460" 456 the Customs Service has three recommendations that will improve its ability to enforce U.S. export control laws. 1.) Automated Export Manifest System The automation of the outbound Customs Manifest and the Department of Commerce Shippers Export Declarations would be a major step forward in developing trade efficiency, accurate and timely recording of trade statistics and as a means of targeting and tracking shipments. 2.) Expansion of the Missile Tech Control Regime, Australia Group and other Multi-lateral Controls The U.S. Government should take positive steps to increase the degree of international cooperation in export control and enforcement. An increase in the number of effective multi-lateral controls will decrease the number of potential diversion countries. 3.) Complete field access to the Department of Ccrmnerce's licensing data base. Complete on-line access to Commerce's database containing licensing information would allow Customs field inspectors to help shut the door on illegal exporters. Currently, Customs Headquarters has restricted access to Commerce's Export Control Automated Support System )ECASS). Export shipments have time-sensitive export schedules and Customs inspectors must quickly decide if the export shipment being examined is a valid export. 2. On September 27, 1990, John C. Kelley, Jr., Director, Strategic Investigations Division, U.S. Customs Service, testified before the House Government Operations Committee. In responding to questions, Mr. Kelley stated that "there is a controversy between U.S. Customs and the Department of Commerce over the enforcement of the Export Administration Act EAR). The Department of Commerce Office of Export Enforcement is seeking additional authority while Customs and Treasury believe the only real solution is legislating sole authority for all export enforcement matters, including the SAn, to Customs." On the May 1, 1991, you did not identify any problems that Customs is experiencing with Commerce and failed to recommend sole enforcement authority for Customs. a. What problems has Customs experienced with Commerce in the area of the export enforcement? What steps is Customs taking to address these problems? The U.S. Customs Service has experienced three major problem areas with Commerce which are: 1) Illegal searches and seizures; 2) Uncoordinated overseas travel and investigations; and, 3) Limited access to Commerce licensing information. Customs and Commerce have constantly had discussions over the above issues. As the Commissioner stated at the hearing on May 1, 1991, recent discussions between Commerce and Customs on some of our differences were held. As a result, a Memorandum of Understanding (MOU) was recently submitted PAGENO="0461" 457 to Treasury for forwarding to Commerce. If the MOU is agreed to by Commerce, these problem areas should be resolved. b. Why was Customs less than forthcoming in discussing export administration and enforcement problems during the Way 1, 1991 hearing? The Customs Service believes it was forthcoming during the Way 1, 1991 hearing. c. What has transpired between September 27, 1990, and Way 1, 1991, to cause Customs to back away from its position ofsole enforcement authority? Curing the Commissioner's testimony on May 1, 1991, she said that if Congress decided that there should be one export enforcement agency, she declared that naturally it would be the Customs Service because it does an outstanding job. 3. During the September 27, 1990, Government Operations Committee hearing, Mr. Kelley stated that "we [Customs] believe that there is no need for the DOC [Department of Commerce] investigators to travel overseas. Commerce investigators often do not follow protocols established by the Department of State, the U.S. embassies or the host governments." On May 1, 1991, Mr. Kelley testified that "in regards to our position for agents from the Commerce Department travelling overseas, we do not object." a. What is Customs position with regard to Commerce agents travelling overseas? The Notice of Procedures issued jointly by Commerce and Treasury in accordance with 50 USC App. 2411(a)(7) states that... "Customs shall be responsible for EAA investigations outside the United States. Commerce may assist Customs in foreign investigations with Customs concurrence and subject to coordination by Customs 50 Fed. Reg. 41545 (1985). The Federal Register notice also states that if during a pre-license check, post shipment verification or an investigation for antiboycott violations... "Commerce receives or discovers an allegation or evidence of wrongdoing, Commerce shall promptly inform Customs. Customs shall then be responsible for pursuing the foreign aspects of the investigations.. ." Id. Customs fully supports the responsibilities of Customs under the Export Administration Act. Customs still believes that there is no need for Commerce agents to travel overseas. However, we do not object to Commerce agents traveling overseas to conduct investigations if they comply with the Export Administration Act. That is, that Commerce obtains Customs concurrence and they coordinate with Customs. Sensitive and long-established protocol relating to overseas activities are effected when the overseas investigations are not coordinated. As the Commissioner stated at the hearing on May 1, 1991, this is a coordination issue that we have discussed with Commerce on numerous occasions. Customs currently honors all of Commerce's requests for foreign investigations and has offered to fulfill all of Commerce's investigative needs for both criminal and administrative actions. U.S. Customs has spent more than 40 years developing rapport with foreign governments and PAGENO="0462" 458 foreign law enforcement agencies that enables us to carry out our enforcement mission. We do no want to jeopardize these valued relationships by confusing our counterparts as to who to deal with on export enforcement investigative matters. The U.S. Customs Service has conducted many complex investigations over the years and regardless of the details, has in most instances, referred the foreign leads to the Customs Attaches or Representatives rather than sending the domestic case agent. The Customs investigators overseas have a much greater knowledge of the procedures which must be implemented in order to conduct the appropriate investigation abroad. b. Why would Customs provide two different Congressional Committees with two different answers to the same question? Customs did not provide two different answers. Mr. Kelley stated on September 27, 1990 that `.. .Notwithstanding the additional travel costs to the U.S. Government caused by DCC investigators traveling overseas, the EAA clearly establishes that U.S. Customs is responsible for EAA investigations outside of the United States.' Mr. Kelley testified on May 1, 1990 ".. .We [Customs) do not object... However, we can refer you to the law, as passed by the Congress. that indicated that Commerce was a domestic investigative agency and the responsibilities for the foreign investigations lies with the Customs Service." c. What problems has Customs experienced with Commerce investigators travelling overseas? Commerce investigators have traveled overseas without country clearance or coordination with the appropriate embassies and Customs. Customs has received formal and informal complaints about Commerce agents conduct overseas from U.S. embassies, from Her Majesty's Customs and Excise in England, the Department of Justice, and even from U.S. industry. Commerce investigators have solicited private industry to intervene when the host government specifically denied Commerce's request for travel to that country. Additionally, lack of coordination with Customs has resulted in Commerce agents telephoning directly the subjects of Customs foreign investigations. The U.S. Government should speak with one voice overseas with respect to enforcement and investigations of export violations, U.S. Customs has spent more than 40 years developing rapport with foreign governments and foreign law enforcement agencies. Unauthorized activities overseas do not just affect Customs and the U.S. export enforcement efforts, but affect all U.S. enforcement agencies. Additionally, host government investigations can be jeopardized by unlawful or unauthorized and uncoordinated activities. 4. Customs recently seized a shipment of specially designed pumps destined for Iran's Defense Ministry that had been cleared for export by the Commerce Department. Dr. Stephen Bryan testified before the Oversight Subcommittee on April 18, 1991, that Customs had intercepted eight crates of special nickel-plated pumps that can be used in the manufacture of gunpowder, propellants for rocket motors, or plastic explosives of the type used to blow up Pan Am Flight 103 over Lockerbie, Scotland. According to Dr. Bryan, the PAGENO="0463" 459 State Oepartment classifies Iran as a `terrorist country" for which export licenses are required for the shipment of high-technology goods. Commerce did not classify the pumps as high-tech items. a. Please provide the Subcommittee with information on this case. b. In The Washington Times, dated April 27, 1991, a company official stated that the company did not tell Commerce that the pumps were destined for the Iranian Oefense Ministry and was not legally required to give such information. Is the company official correct? c. Should these pumps be classified as high-tech items? Oid the company know where these pumps were going? Is the company cooperating with your investigation? d. Or. Sryen testified that Commerce is "trying to figure out how to reverse its previous decision (to license to pumps)." Is this true? What can you tell us about this? e. Or. Sryen's testimony indicates that two other shipments were made in the 1980's, possibly with Commerce export licenses. Is Customs aware of the other shipments? If so, explain. The detention of these pumps is related to an open Customs investigation. As the Commissioner stated at the hearing on May 1, 1991, it is the policy of the Oepartment of Treasury and this agency that information from open cases cannot be discussed or disclosed prior to their resolution or the information being made public during ludicial proceedings. Accordingly, the Customs Service is unable to make further comment. Enclosed is a Oepartment of Justice memorandum dated March 24, 1989 outlining the established executive branch policy. (Enclosure #1) 5. In terms of strengthening the U.S. export control system by targeting few commodities, what assurances are there that the "higher fences around a fewer number of goods" will work? To what extent does the move toward "higher fences around a fewer number of goods" assume that there are adequate resources to keep the "higher fences" from developing "holes?" Ooes Customs have adequate resources and tools to effectively enforce this new concept? While the relaxation of export controls of some dual use commodities may slightly reduce the number of investigations, the overall impact to the EXODUS program will be negligible. With the special emphasis on nuclear and missile technology and chemical and biological warfare agents, there will be increased demands upon the U.S. Customs Service within the next decade. Less industrialized nations and terrorist groups will continue to attempt to increase their status among the world powers by acquiring this "way of the future" technology. Even as export controls are relaxed on some of the dual use commodities, new technologies on the leading edge of industry will continue to be developed. As the Commissioner stated at the hearing on May 1, 1991, and as mentioned in other portions of this response, an export manifest system and complete field access to the Commerce licensing data PAGENO="0464" 460 bases would most certainly improve our outstanding track record with regard to export enforcement. The Customs Service will continue, as always, to request additional resources as necessary through the Administration's budget process. 6. The following questions relate to the HELMY missile case investigated by the Subcommittee. a. Were you aware, prior to our hearing on April 18, 1991, that the Egyptian Government had been consulting with HELMY on the Condor II program since its inception in 1984? Was there anything illegal about HELMY offering technical advice to Egypt for their missile program? As the Commissioner stated at the hearing on May 1, 1991, Customs was aware, prior to April 18, 1991, that the Egyptian Government had been consulting with Helmy on the Condor II program. Our knowledge of this was limited to information uncovered during the course of our investigation of Helmy into the illegal transfer of technical data and equipment in violation of U.S. export laws. Disclosing or transferring licensable technical data to a foreign person, whether in the United States or abroad is considered a violation under the International Traffic in Arms Regulations (ITAR). b. Why didn't Customs charge anyone at 08W Packing with conspiracy, or some other crime not necessarily related to export laws, for their part in repackaging and mislabeling the controlled commodities before they were shipped to Baltimore? Provide all documentation relating to the U.S. Attorney's prosecution of this case. As Mr. Kelley testified, the U.S. Attorney's office did not feel there was sufficient evidence to pursue them for an export violation. O&N Packing was responsible for repacking and shipping goods domestically from Ohio to Baltimore. They were not involved in any direct exports nor was there any evidence to show that 08W knew such goods were to be exported. All of the material that was sent to 085 Packing was sent under the instructions given by Mr. Huffman. The activities that took place at 085 Packing which included repacking, relabeling, and shipping were managed and supervised by Mr. Huffman. The removing of the `HAZARDOUS MATERIAL" warning labels was done by Mr. Huffman and his son. However, 085 Packing did have knowledge of this and may have been culpable of violating laws prohibiting transportation of hazardous material without the proper labeling since they were involved in the transfer of these hazardous materials. A 08W Packing representative advised Customs Officers later that Mr. Huffman requested to have the hazardous material warning labels removed. When 085 Packing refused to remcve the warning labels, Mr. Huffman and his son did so. PAGENO="0465" 461 Documentation related to this prosecution which includes: the reports of investigation; the plea agreement; memorandum of sentencing; and licensing information, have been submitted to the Subcommittee by Senior Special Agent Robert Stiriti. c. After reviewing the transcript of the Subcommittee's April 18, 1991, hearing, are you aware of any situations where Customs has evidence that contradicts any statements made by HELMY before the Subcommittee? If so, explain those situations or provide the evidence. As the Commissioner testified on May 1, 1991, the Customs Service is not aware of any evidence that contradicts statements made by Helmy during the April 18, 1991 hearing. 7. The following questions relate to the ALCOLAC chemical cases investigated by the Subcommittee, a. Do you believe that Commerce, which had responsibility for issuing licenses in the ALCOLAC case, should have detected these illegal shipments through the licensing process? Did the fact the Commerce gave ALCOLAC inaccurate licensing advice ever cause Customs a problem? The DOC licensing process should have detected at least the shipment to Singapore. This was the shipment substituted by Customs. It was learned through information discovered during the search warrant at ALCOLAC that the Commerce licensing branch advised ALCOLAC that a license was not required for Singapore. This determination by Commerce was based on information provided by ALCOLAC which included the wrong commodity control list (CCL) number. However, ALCOLAC did provide the proper commodity name and usage of the chemical. It is hindsight at this point to suggest that Commerce should have requested additional information from ALCOLAC based on the quantity of the shipment and the end use. The inaccurate licensing advice allowed Customs the opportunity to substitute the shipment. Customs was aware that thiodiglycol did require a license to Singapore, its stated ultimate destination. b. If someone wanted to smuggle precursor chemicals by mislabeling the drums and doctoring the shipping documents, as in the ALCOLAC case, does anyone at the docks have the ability to uncover the scheme before the commodities are exported? With more than 200 years experience, the U.S. Customs Service has detected many illegal export methods and diversion schemes. However, new innovative and more complex methods and schemes evolve constantly. Special Agents, Inspectors, Auditors, and Intelligence Analysts have developed indicators and profiles to assist field operations in the detection of potential violations. These indicators and profiles are constantly being refined to address new trends. c. How many proliferation cases have been initiated as a PAGENO="0466" 462 direct result of Customs inspections at the docks? There is no record of any proliferation cases initiated as a direct result of a Customs inspection at a port of exit. As stated by Commissioner Hallett during her testimony on May 1, 1991, about 85% of all seizures are based on tips through various sources while 15% of all seizures result from cold hits by inspectors. d. Why weren't senior officials of ALCOLAC prosecuted for their involvement in the illegal exports of thicdiglycol to Iran and Iraq? Did Customs recommend prosecution to the U.S. Attorney's office? Did the U.S. Attorney's office decline to prosecute or recommend against prosecution of any ALCOLAC official other than Ms. HINKLEMAM? Provide all communication between Customs and the U.S. Attorney's office regarding the prosecution of this case. As the Commissioner testified on May 1, 1991, the decision not to prosecute officials of ALCDLAC was made by the United States Attorney's Office. A letter, dated April 22, 1991, from the former AUSA's who prosecuted the case is enclosed. (Enclosure #2) During the course of the ALCOLAC investigation, there was never sufficient evidence uncovered to determine that ALCOLAC officials knowingly and willfully violated any export laws. Customs did not recommend prosecution of senior officials of ALCOLAC to the U.S. Attorney's office. The U.S. Attorney's office did not decline to prosecute or recommend against prosecution of any ALCOLAC official other than Ms. HINKLEMAN. 8. The following questions relate to the GLOBAL HELICOPTER case investigated by the Subcommittee. a. Why didn't Customs open an investigation on Carlos CARDOEN's helicopter as soon as it arrived in Dallas last year? b. Under what authorities did Customs seize CARDOEN's helicopter? Provide the subcommittee with all documentation relating to the ownership and seizure of the helicopter. c. If CARDOEN's modified bell helicopter is determined by State to be a civil aircraft will cARDOEN be permitted to export it to Chile? If not, why not? d. When was Customs brought into this helicopter case by Commerce? e. What other Customs investigations target CARDOEN or any of his various companies? Describe those investigations. At a press conference in Dallas, Texas on March 27, 1991, the Customs Service announced the seizure of a 206L-III attack helicopter prototype and the execution of a search warrant at GLOBAL HELICOPTER TECHNOLOGIES, INC. The seizure was made as part of an investigation into violations of U.S. import and export laws. As you are aware from the Commissioner's testimony on PAGENO="0467" 463 May 1, 1991, this particular matter and other matters concerning Carlos CARDOEN are under investigation by the Customs Service. It is the policy of the Department of Treasury and this agency that information from open cases cannot be discussed or disclosed prior to their resolution or the information being made public during judicial proceedings. Accordingly, the Customs Service is unable to make further comment. (See Enclosure #1) 9. The following questions related to the C-TEK computer case investigated by the Subcommittee. a. When did Customs first become aware that C-TEK was illegally exporting computer equipment? The U.S. Customs Service first became aware of the C-TEK investigation when on March 13, 1989, Special Agent Jerry Hobbs, Commerce's Office of Export Enforcement contacted the Customs Special Agent in Charge, Seattle, Washington, and requested assistance in the examination of computer equipment due to be exported from Seattle-Tacoma International Airport, Seattle, Washington, to Singapore. Customs Special Agent Steven Bond assisted DOC Special Agent Jerry Hobbs, in examining documents and the suspect cargo. b. Why did Customs release the DEC VAX 8700 for shipment from Seattle to Singapore? The DEC VAX 8700 was released at the direction of the Commerce Special Agent. On March 15, 1989, Special Agents Bond and Hobbs, and Customs Group Supervisor Meisenheimer met at Seatac Airport to discuss the case. Hobbs stated that a determination had been made by Commerce Headquarters, that the computer was not a licensable commodity in its current configuration. Hobbs also stated that there was a possibility of executing search warrants on two business locations in the Kukland, Washington area. Meisenheimer, believing Hobbs was conducting the investigation in the Seattle area by himself, offered tactical support in the form of surveillance personnel and equipment in an effort to help establish probable cause in support of the warrants. Hobbs stated he appreciated the offer and would let Meisenheimer know when that was needed. c. To what extent was Customs involved in retrieving the 8700 from Singapore? Why did Cqstoms seize the 8700 while Commerce was developing their undercover operation to identify the co-conspirators in the case? The Office of Customs Attache, Singapore, conducted an intensive investigation on Commerce's behalf. Coordination between the Customs Attache and the Singapore trade authorities resulted in unprecedented action in the return of the computer equipment to the United States. The DEC VAX 8700, which was prematurely released at the direction of the Commerce agents, was returned to the United States and seized at the direction of Commerce. In fact, in a document entitled "Synopsis of the C-TEK Computer Case, PAGENO="0468" 464 Case Summary - EQ 0389009 A2," which was furnished to Customs by Commerce near the conclusion of -the C-TEK investigation, on page 5, para. 2, the document states, "The DEC VAX 8700 was returned from Singapore and seized by the U.S. Customs Service, at the direction of the Office of Export Enforcement." Special Agent Hobbs never informed Customs personnel of any ongoing undercover activity with regard to the C-TEK investigation. Additionally, if Custcms had not seized the equipment upon its return to the U.S., that in itself would have looked suspect and not routine. Customs was not advised by Assistant U.S. Attorney Moore or Commerce of their intention to attempt an undercover operation in order to lure the co-defendants to the United States. Had Assistant U.S. Attorney Moore or Commerce shared that information with Customs, notification requirements could have -been addressed at the pre-seizure stage versus post-seizure. This type of incident, although not singular in nature, was a reflection of the lack of information provided to Customs by Commerce. d. Did Customs ever have a problem with Ccmmerce conducting the overseas aspects of this investigation? Why? Customs generally did not have a problan with a Commerce agent and Assistant U.S. Attorney Moore traveling to Singapore and Australia to conduct an investigation. The Customs Attache cabled Assistant U.S. Attorney Moore on September 8, 1989 (Enclosure #3), and outlined the feasibility of the travel and investigation. This was done in order for Assistant U.S. Attorney Moore and Commerce to determine if the trip would add any significant improvement to the investigation and if it was cost effective. In the cable, the Customs Attache states. . . "The following information is provided concerning the feasibility of Department of Justice and Department of Commerce officials conducting interviews in this region, and to assist in making determination of whether subject travel by both Assistant U.S. Attorneys and Department of Commerce officials is necessary..." The cable also states... "We do not anticipate any problems in Assistant U.S. Attorney Moore and the Commerce agent accompanying Assistant Customs Attache Meisner on the subj ect interviews.. Enclosed are case outlines prepared by the Customs Attache, Singapore, Customs Attache, Ottawa and the Special Agent in Charge, Seattle, regarding their participation in the C-TEK investigation. (Enclosures #4, 5, and 6 respectively) 10. Desert Storm has emphasized the need for special vigilance with respect to illegal exportation of U.S. commodities. - a. Do you anticipate any changed procedures or enhanced activities as a result of Operation Desert Storm? We do not antlcipate any changes or enhanced activities as a result of Operation Desert Storm. Under "Operation EXODUS," the Customs Service has developed an export enforcement program that is capable of responding to sudden shifts in foreign policy and national security- emergencies such as Desert Storm. Because of-our broad enforcement authority and organization, the Customs export PAGENO="0469" 465 enforcement strategy can be tailored to include increased levels of enforcement activity when the need arises. An example of the willingness and capability of the Customs Service to respond to a national emergency was the establishment of a National Crisis Center and an Iraqi Task Force. The Customs Service currently participates in a number of interagency working groups that monitor U.S. exports to sensitive areas of the world. Two of the most prominent groups are the Chemical/Biological working group and the Missile Technology Control Regime working group. These groups serve as interagency sounding boards for licensing and enforcement matters. The Customs Service is committed to continued participation in these groups and anticipates increased efforts to enhance the groups effectiveness. The Customs Service currently has twenty foreign offices which serve in part to conduct investigations of illegal exports in cooperation with their foreign counterparts. In general, the levels of cooperation exhibited by foreign law enforcement agencies showed significant increases after the initiation of the U.N. Embargo. It will be necessary to maintain these levels of cooperation in order to successfully implement sanctions against Iraq and create an international enforcement atmosphere that will deter arms proliferation. Under Public Law 100-204, applications for the export of U.S. Munitions List items are reviewed for foreign policy, national security and law enforcement concerns. In cooperation with the Department of State, Office of Defense Trade Controls, the Customs Service has developed a program to review license applications for law enforcement concerns with tangible results. The Customs Service believes that these efforts will result in an enhancement of the U.S. Government's ability to deny the export of U.S. Munitions List items to unauthorized end-users. It will be necessary to increase the levels of cooperation between Customs, State, Commerce, and Defense, to ensure that foreign policy, national security and law enforcement concerns are adequately addressed in U.S. export control policy. b. Other than Iraq, which prohibited foreign destinations is Customs giving special attention to? It is the policy of the Customs Service to give attention to all prohibited destinations specified in Part 126.1 of the International Traffic in Arms Regulations (ITAR). The Customs Service has also given special attention to those countries that have repeatedly provided support for acts of international terrorism. These countries are listed in Part 126.1(d) of the ITAR and Section 6(J) of the Export Administration Act. The countries currently listed in this category are Cuba, Iran, Libya, Syria, North Korea, and Iraq. Under "Operation EXODUS," the Customs Service has developed an export enforcement program that is adaptable to the needs of U.S. foreign policy, national security and law enforcement concerns. Our program has enable us to deny illegal exports to both countries and groups, such as foreign drug traffickers and terrorists, that pose a threat to the U.S., its allies and world peace. c. Since Jordan appears to be the major diversion point, is particular attention being given to that country? During the Persian Gulf crisis, the Customs Service placed PAGENO="0470" 466 special emphasis on the examination of outbound cargo destined for Jordan. The Customs Service also assisted the Office of Defense Trade Controls, Department of State in conducting intensive reviews of all export license applications for the shipment of U.S. Munitions List items to Jordan. 11. Under the EXODUS Program, Customs has sought to intercept the illegal export of sensitive technologies, arms, munitions, weapons systems, etc. a. What was your level of activity under this program with respect to Iraq in the two years prior to Desert Storm? In the two years prior to Desert Storm, the Customs Service detected a marked increase in the activity levels of Iraqi procurement networks. These increased levels of activity were particularly noticeable in the areas of missile technology, chemical/biological warfare and fuse technology. The active participation by Iraq in the Condor II Missile Program became one of the catalysts for this activity. As early as September of 1988, the Customs Service initiated an investigation into the efforts of a U.K. based Iraqi procurement network to acquire nuclear detonation capacitors for illegal export to Iraq. These detonation capacitors are licensable for export from the U.S. under the U.S. Munitions List and are designed to provide electrical energy to a triggering device in a large conventional or nuclear warhead. This Iraqi network was disrupted after a March 1990 controlled delivery of "dummy" capacitors to an Iraqi front company in the U.K. The controlled delivery was a joint U.S/U.K. Customs effort that resulted in the arrest of several persons. Since the initiation of the U.N. sanctions, the investigative case load of the Customs Service relating to illegal exports to Iraq has more than doubled. Much of the increased activity has been due to the embargo of previously non-licensable commodities such as foodstuffs and our efforts to assist other countries with sanction investigations, In addition to these sanction investigations, the Customs Service is conducting a number of significant investigations relating to licensable items. b. How many cases, aside from ALCOLAC, did Customs investigate prior to the invasion involving the illegal exportation of goods to Iraq? Approximately 21 investigations involving Iraq were opened prior to the invasion. c. Did Customs ever raise any concerns to Commerce or State regarding the increased activities of the Iraqi procurement network prior to the August invasion of Kuwait? If not, why not? If yes, where were the concerns raised and what was the response? The U.S. Customs Service, on a monthly basis, furnishes Commerce and State a list of open investigations. Additionally, Commerce is furnished a monthly list of all Customs seizures in support of their administrative/civil penalties function. The increased levels of activity, particularly noticeable in the area of missile/nuclear technology, chemical and biological warfare, and fuse technology were discussed with various interagency working groups. Customs, Commerce and State are all participants in these groups. The working groups include the Australian Group, the Missile Technology Control Regime and the Nuclear Violations Working Group. PAGENO="0471" 467 12. If goods which were important to Iraq's chemical, biological and nuclear weapons programs are decontrolled by COCOM, how will it affect Customs ability to prevent countries like Iraq from obtaining such goods? To what extent will decontrol make enforcement more difficult? Won't enforcement have to rely more on intelligence? How can Customs rely more on intelligence when 80 to 90 percent of all cases are initiated from tips and intelligence already? Although the Export Administration Act requires permission to re-export u.s. origin goods, it will be more difficult to enforce such laws because of some foreign government views that such attempts are extraterritorial in nature. Customs will rely more on enforcement intelligence from various agencies in order to stop the shipments and apprehend the violators before the shipments leave the United States. Customs will also have to depend more on our established informal counterpart contacts to assist us in preventing the diversion of such shipments even though the shipments will no longer be controlled by their countries. It should be pointed out however, that as a member of COCOM, the U.S. would most likely also decontrol the same nuclear and chemical/biological related goods. If that is the case Customs would have no authority to enforce or prevent the exports. 13. To the extent that such goods remain subject to unilateral U.S. control, how will the fact that such controls are unilateral affect Customs' ability to enforce them? What are the most important differences from an enforcement perspective in enforcing unilateral versus multilateral controls? Customs has the ability to effectively enforce controls whether unilaterally or multilaterally imposed. However, a problem can exist with items unilaterally controlled that are re-exported from another country. If the country does not impose controls on items to the final destination and has not been notified by the United States that a problem exists, the re-export will be allowed. Fortunately, through the efforts of our Customs Attache Offices, we have been able to sensitize these countries to concerns of the U.S. Government. If these foreign customs services discover an item that may be exported contrary to U.S. law, they will often contact U.S. Customs so that action can be taken to prevent the exportation from occurring. As previously mentioned, our established informal overseas contacts have assisted in obtaining cooperation in these circumstances. 14. Customs personnel in the field have complained that they are hampered in several areas such as the lack of automation of the export area. The imports to the U.S. are largely automated, and that system has a "lookout" feature to help identify high risk commodities. a. Does Customs have a recommendation or proposal for automating export manifests? b. How will this help in controlling exports and related enforcement? ~84C 11~S PAGENO="0472" 468 c. What data bases will be included? d. How much will it cost the Government? The private sector? a. Will industry benefit? How? The Customs Service has designated the Automated Export System' (ASS) as an approved project in its master automated data processing plan. The ASS will be a joint project involving the Customs Service, the Department of State and the Census Bureau. Preliminary work is being done to structure the administrative, technical and logistical aspects of developing this system. ASS will be a phased project with a projected five year development cycle. During the first phase a pilot project will be developed, using cooperating sea carriers and their exporters. After the pilot is completed, later phases will expand AES into the other shipping modes. AES has the potential to offer significant enhancement to the Customs Service export enforcement responsibility in several ways. First, AES will improve the Customs Service ability to identify the scope of the export universe on a timely basis. Analysis of on-line export transactions will enable Customs managers to anticipate export trends, identify potential problem areas, adjust resources and facilitate the flow of legal exports. Data incorporated into AES will include Shippers Export Declarations, manifests and licenses. The projected costs for the Customs Service, through FY-97, are $jl,750,000. The Census Bureau is expected to reouest approximately $975,000 per year in their budget to cover the Census Bureau's proportion of system costs. The private sector should experience a cost savings due to increased productivity, elimination of paperwork and a reduction in fines and penalties and will benefit from expeditious handling of export shipments. Because the current autcmated import system will be considered in developing ASS, the import users will not have to purchase additional ecuirment to use ASS. 15. Commerce wants to have sore export enforcement related duties overseas. a. What is the role of the Customs Attache? Do they conduct investigations overseas? A Customs Attache is the officer in charge of an office located in a capital city of a foreign country. The office: in charge is accountable for directing all office activities in those countries which have been assigned as correspondin: areas of responsibility. In the performance of their duties, Customs officers abroad deal directly with high ranking officials of the host country and with high officials of the U.S., including U.S. Ambassadors, principal State Department officers and high ranking military personnel. Included in their duties is the development of sources of information able to furnish evidence of violations of laws enforced by the U.S. Customs Service and other Treasury agencies. They conduct investigations involving the full range of Customs investigative activities such as smuggling, fraud, money laundering, technology and munitions diversions, etc. In connection with these investigative activities, they must maintain close liaison with representatives of law enforcement agencies of the host governments as well as representatives of other U.S. law enforcement agencies stationed overseas. b. Is it important that only Customs perform the liaison role overseas? If so, why? The United States Customs Service is an enforcement agency PAGENO="0473" 469 with an enforcement strategy based upon investigations, inspections and international cooperation. Customs is the front line defense in intercepting most illegal exports. Our objective is to apprehend violators and seize and prevent illegal exports. We do not make license determinations. However, our efforts affect licensing decisions. Customs already has the authority to enforce all U.S. export laws, and plays a vital role in determining United States policy positions on export enforcement in the international arena. Customs had an instrumental role in establishing the elements of the Common Standard Level of Effective Enforcement among our COCOM partners. Customs has representation on a u.s. delegation which is presently discussing this issue with our COCOM partners. Our counterparts throughout the world regard Customs as the lead U.S. export enforcement entity worldwide. In most foreign countries, the Customs authorities are also the agency responsible for export enforcement. Customs is the only U.S. enforcement agency with a natural counterpart in every country in the world. We also have the broadest warrantless outbound search authority of any U.S. agency. The Customs Service has a major role in the overseas investigation of export violations. Pursuant to the Export Administration Act, as amended in 1985, Customs is responsible for Export Administration Act investigations outside the United States. Commerce may assist Customs in foreign investigations with Customs concurrence and subject to coordination by Customs. Except for Customs responsibility for Export Administration Act investigations outside the United States, Commerce, subject to the role assigned by law to the Department of State with respect to negotiations with foreign governments, is responsible for * dealing with foreign authorities on Export Administration Act policy and operation matters relating to licensing or * administrative sanctions. Commerce's Export Administration Act enforcement responsibilities outside the United States consist solely of (1) pre-license checks and post-shipment verifications and (2) investigations of suspected antiboycott violations. c. Should Commerce be permitted to perform the liaison role overseas? Customs believes that there is no need for Commerce to perform the liaison role overseas. The Department of Commerce is represented overseas through their Foreign Commercial Services (FC5). FCS provides support to foreign commercial concerns by promoting trade between the U.S. and host countries. FCS provides Commerce's Office of Export Enforcement with background information of foreign commercial entities concerning potential recipients of U.S. origin controlled commodities. In many instances, the FCS is called upon by the Office of Export Enforcement to conduct pre-license and post-shipment checks. With regard to the law enforcement liaison, we do not want to jeopardize these valued relationships by confusing, our counterparts as to who to deal with on export enforcement investigative matters. d. Does Customs conduct pre-licensing and end-user verifications for State or Commerce? How many requests does Customs receive annually? How many checks or verifications are performed annually? Customs conducts pre-licensing and end-user verifications for both State and Commerce when called upon to do so in countries as required by local government and U.S. Embassies. Customs however does not maintain records as to the number of requests received and the number performed in any given period. Requests are sent directly to the Customs foreign offices worldwide. Customs domestic field offices usually deal directly with the Customs foreign PAGENO="0474" 470 office and Commerce's Office of Export Enforcement field offices. e. Where do you have Attaches posted? Customs officers are located in 20 locations in 16 different countries. These offices have investigative oversight for all countries around the world. The enclosed list identifies the offices and regional responsibilities. (Enclosure #7) f. What kind of agreesents does Customs have regarding the conduct of overseas investigations? What countries do you have agreements with? To what extent do these countries cooperate with is, export investigations? Why would other countries be reluctant to enter into such agreements? Customs presently has Mutual Assistant Agreements with 19 countries and is in the process of negotiating an additional 13. These agreements are based upon mutual assistance in Customs matters primarily concerning the exchange of information, investigative assistance and law enforcement cooperation. The enclosed list identifies the countries with agreements and the countries to which negotiations are underway. (Enclosure #8) All countries for which agreements are in place exhibit admirable enforcement cooperation with regard to exchanging information and investigative assistance. Customs has not experienced any reluctance to enter into an agreement from any country thus far. 16. 00 you believe that there is a legitimate reason for separation of licensing and enforcement functions? If yes, why? Customs currently enforces all export laws. As a criminal investigation proceeds, it is not uncommon to discover that more than one export law has been violated. In scme situations an investigation is initiated for what are believed to be violations of the Export Administration Act when it is later determined that there are also violations of the Arms Export Control Act or other export laws. Customs, because of its broad investigative authority, can continue the investigation without the disruption which would be caused by referring the matter to another agency. For example, Commerce has had to refer cases to Customs because their investigation disclosed Arms Export Control Act violations and not an Export Administration Act violation. The separation of enforcement from licensing does not detract from the technical expertise of the criminal investigator. The U.S. Customs Service has a 200 year old enforcement/investigative history. The Customs Special Agents utilize their investigative expertise in coordination with, and by drawing upon the technical expertise of the licensing agencies. The licensing officer rules as to the licensability of a particular commodity. The Customs Special Agents utilize their criminal investigative expertise to prove a violation of the export laws. The licensing officer is the technical expert required by the Department of Justice to testify in court. It is he who must testify as to the technical application and export licensability of a commodity, not the investigator. This excellent coordination effort is one of PAGENO="0475" 471 the reasons Customs is so successful in export violation investigations. a. Are you aware of any instances in which the commercial concerns of Commerce have overruled the enforcement concerns with the result that Commerce authorized a questionable export? The Customs Service is not in a position to comment on the basis for policy decisions by another agency. b. To what extent does trade promotion take precedence over export enforcement? Give examples. Customs does not know to what extent trade promotion may take precedence over enforcement as this involves policy decisions of other agencies. 17. How does Customs coordinate enforcement activities with Commerce? a. In the last five years, how many criminal cases has Customs referred to Commerce for civil sanctions? From 1987 through Hay 1991, Customs has referred 110 criminal cases to Commerce for civil sanctions. As shown below, Customs has been trying to increase the number of referrals. 1987 - 3 1988 - 1 1989 - 4 1990 - 85 1991 - 17 (as of May( b. How many referrals has Commerce made to Customs? Commerce does not make referrals of its criminal cases to Customs for civil sanctions. c. Do the two agencies have a mechanism set-up whereby licensing and enforcement information is freely exchanged? If no, why not? A mechanism has been set-up whereby specific licensing and enforcement information is exchanged. However, non- specific, but nonetheless necessary, licensing information is not shared by Commerce with Customs due to their confidentiality concerns of Section 12(c( of the Export Administration Act of 1979, as amended. (50 U.S.C. App. 2411(c((3((. Even though the law states that "The Secretary and the Commissioner of Customs, upon request, shall exchange any licensing and enforcement information with each other which is necessary to facilitate enforcement efforts and effective license decisions." Furthermore, the process by which Customs must request and receive specific licensing information from Commerce is not timely. Customs coordinates its activities with Commerce in a number of ways. On a monthly basis, Customs furnishes a listing of all individuals and companies under investigation by Customs to Commerce's Office of Export Enforcement (OEE( and Office of Export Licensing (OEL(. Commerce furnishes Customs with a similar list. The purpose of the list is to prevent Customs and GEE from opening investigations on the same subject. GEL matches the list against license applications to identify potential violators who apply for export licenses. PAGENO="0476" 472 Customs has a senior special agent assigned as a liaison between Customs and Commerce. The Customs Service refers all investigations to Commerce for administrative action. These referrals include notification of Customs arrests, indictments and seizures. In January 1982, Customs established the Operation EXOOUS Command Center which is a communication link for licensing and enforcement information between Customs field personnel and all U.S. licensing agencies, including Commerce. d. To what extent does Commerce use section 12(c) of the Export Administration Act to limit access to information and prevent Customs from knowing what is moving internationally? Upon specific request, Commerce does furnish Customs with license-specific information that relates to an ongoing Customs investigation. However, over the last eight years, Commerce has refused to furnish Customs with any generic licensing information, such as a list of denied licenses for exports to countries such as Iraq. This list has subsequently been furnished to Customs. The reasons Commerce has always given for not providing the requested information are that the information is protected by 12(c), and might be `leaked by Customs to the public, that 12(c) prevents Commerce from releasing the requested information because Commerce believes the information requested has no law enforcement value. Customs believes licensing information, such as export licenses denied to specific countries, would be invaluable for export enforcement intelligence and in identifying potential targets of investigation. In addition to requests for generic licensing information, Customs, over the last eight years, has been refused direct and complete access to the Commerce-controlled data base called the Export Control Automated Support System (ECASS). Such access would assist Customs Inspectors in making quick, intelligent decisions about the legality of an imminent export. 18. How effective are Commerce's administrative penalties? a. How effective is placing a company on the "denial list?" To what extent do companies denied export privileges change their identities? b. To what extent do foreign countries recognize Commerce's denial list? Customs believes that administrative sanctions, including the denial of export privileges, is one of the mechanisms to punish exporters or consignees involved in illegal exmort activity. Certainly, legitimate exmorters cannot legally conduct export business with those whose name is placed on the Oenial Orders. Placing a company or an individual name (foreign or domestic) on the Oenial Orders, however, does * not guarantee that their illegal export activity will stop. Our enforcement experience has shown that smaller companies and individuals can change identities with relative ease, * enabling them to circumvent the Oenial Orders. One example of such an individual is Richard MUELLER, whom Commerce placed on theOenial Orders in August of 1981. Information has been received that MUELLER is still active in illegal technology exports and operates from Europe, utilizing various company names. Additionally, certain foreign governments do not recognize the Oenial Orders, thus parties in foreign countries can obtain similar foreign technology that is available outside of the U.S. and utilize the items for purposes that the Oenial Orders are trying to prevent. PAGENO="0477" 473 19. When enforcing the re-export of sensitive U.S.-origin goods from countries, such as Great Britain and West Germany to third-World countries like Iraq, how would you describe the level of cooperation Customs has been receiving from these re-exporting countries? The level of cooperation received from foreign counterparts and other foreign enforcement authorities regarding the re- export of sensitive U.S. origin goods has been exceptional, including investigations involving Iraq. This cooperation extends to investigations of foreign individuals and firms violating U.S. export laws. a. What is the attitude of most enforcement agencies in friendly countries regarding the export or re-export of advanced and/or sensitive technologies to countries like Iraq? Customs over the years has developed an excellent rapport with its counterparts throughout the world. As one of 108 members of the Customs Cooperation Council (CCC). enforcement cooperation between member countries is facilitated. Customs can solicit enforcement cooperation from our counterparts formally through the Mutual Assistance Agreement and Mutual Legal Assistance Treaties, or informally through either the CCC or the contacts developed over the years by our Attaches in U.S. embassies abroad. The United States along with its multilateral control partners view Iraq as a "proscribed destination." b. How cooperative is the Canadian Government? As a member of COCOM, the Government of Canada is very cooperative in intercepting U.S. origin goods to proscribed nations, providing that the goods are licensable per the Commodity Control List. The Canadian Import Export Permits Act is consistent with the U.S. Export Administration Act. Where our national policies differ are in the enforcement of U.S. sanctions pursuant to such U.S. laws as the International Emergency Economic Powers Act, Trading With the Enemy Act, and the International Security and oevelopment Cooperation Act. The Government of Canada considers U.S. origin goods, entered (duty-paid) into Canada as "Products of Canada" and will permit the re-export of such goods to sanctioned nations provided the exportation does not violate Canadian law. Except the case of Iraq, Canada does not, however, restrict the exportation of non- strategic goods to most other U.S. embargoed nations. U.S. origin goods moving "Inbound" through Canada will be detained and referred to U.S. Customs for investigation. In extraordinary cases (i.e. export of a large shipment of U.S. origin scuba gear to Iran, for which no license was required by either Government) the Government of Canada exhibited extraordinary assistance and detained the shipment until appropriate U.S. regulatory amendments could be enacted. In Canada, enforcement of the Import/Export Permit Act and Criminal Code violations, rests with the Royal Canadian Mounted Police and to a lesser extent with Canada Customs. The licensing body in Canada is the Oepartment of External Affairs (U.S. equivalent of the oepartments of State and Commerce, combined). Canadian law enforcement agencies will "react" to known violations of their laws. Canadian law enforcement agencies have been very supportive of U.S. investigations of Canadian individuals or firms violating U.S. export laws. A number of those U.S-led PAGENO="0478" 474 joint investigations have resulted in the arrests, convictions and sentencing of Canadians, in U.S. courts. Canada Customs frequently advises the U.S. Customs Attache office in Ottawa of U.S. origin gcods being legally (per Canadian law) shipped to U.S. esbargoed nations by Canadian firms. However, in order to support a criminal prosecution under U.S. law, we must be able to prove that the U.S. exporter knew the goods would be re-exported from Canada to an embargoed nation. Goods purchased in Canada, even though of 100% u.s. origin, may be licensed by External Affairs for export to U.S. embargoed nations. 20. What are your recommendations on specific administrative or legislative reforms that would enhance the ability of Customs both to obtain the information it needs to perform its statutory duties and to improve the nation's ability to enforce export controls? As mentioned in the Commissioner's testimony of May 1, 1991, the U.S. Customs Service needs unrestricted access to Commerce licensing information; an automated export manifest system and; increased and expanded membership of the Australia Group. Customs also supports the proposed Comprehensive Violent Crime Control Act of 1991, Senate Bill 635 and House Bill 1400, which includes several provisions relating to export enforcement. (Sections 737, Enhanced Penalties For Certain Offenses; Section 745, Authorization for Interceptions of Communications; Sections 746, Participation of Foreign and State Government Personnel in Interceptions of Communications; and Section 747, Disclosure of Intercepted Communications to Foreign Law Enforcement Agencies). a. Do you think Customs should be the agency with sole statutory authority for criminal and civil investigation of violations of the Export Administration Act instead of Commerce having that jurisdiction? Why? b. What is the strongest argument that you can make for concentrating this country's export enforcement efforts in a single agency? What are the benefits? What are the disadvantages? aand b. During the Commissioner's testimony on May 1, 1991, she indicated that if the Congress were to decide that one export enforcement agency is more efficient and effective than two, the one agency naturally should be U.S. Customs as the agency does an outstanding job. Listed below are a number of reasons which support Custcms as the U.S. Government's export enforcement' agency. Given Customs successful working relationship with other licensing agencies, Customs thinks there would be no disadvantage to a single export enforcement agency. o Customs has been involved in export enforcement since 1789. This authority was expanded in 1917 with passage of the Trading With the Enemy Act. Also, the export enforcement functions of the Department of Commerce regarding licenses have been performed by the Customs Service since at least 1917 when regulations authorized and directed Customs to PAGENO="0479" 475 enforce the Commerce Department end Export Administration Board export licensing requirements during World War I. Increased emphasis was placed on export enforcement in 1981 as a result of assessments by the Reagan Administration. Customs has been the lead agency in informing the public, establishing liaisons, developing information and investigating violations of all export laws and regulations. o Except for shared domestic enforcement of the Export Administration Act with Commerce, Customs enforces all other export laws for the U.S. Government. These laws enforced by Customs involve the United States Munitions List, Missile Technology, nuclear weapons and research, Foreign Assets Control, CHEMCON II (drug manufacturing precursors), stolen vehicles under the Motor Vehicles Theft Law Enforcement Act of 1984, currency, chemical and biological weapons to name a few. o As a criminal investigation proceeds, it is not uncommon to discover that more than one export law has been violated. In some situations an investigation is initiated for what are believed to be violations of the Export Administration Act when it is later determined that there are violations of the Arms Export Control Act or other export laws. Customs, because of its broad investigative authority, can continue the investigation without disruption which would be caused by referring the matter to another agency. o Customs has unquestionable, court tested, warrantless export border search authority. This authority provides for efficient and effective enforcement and prosecution. Commerce, by law, must have a Customs Officer present in order to take enforcement action at ports and borders. This redundant use of personnel is not cost effective or efficient. o Customs has established foreign offices in 20 locations, and has long, well established relationships with not only foreign Customs officers, but also with most foreign enforcement and intelligence agencies. These 20 offices have investigative oversight for all countries around the world. Customs officers are the primary enforcement authorities for import/export violations in most foreign countries, especially COCOM countries. This natural counterpart relationship allows for the most expeditious handling of matters through already existing channels. Customs has established formal Bilateral Customs-to-Customs Mutual Assistance Agreements under which investigations can be requested and a mutual exchange of information takes place. o Customs is authorized by law to conduct overseas investigations for all violations of U.S. export laws to include those investigated by Commerce for violations of the Export Administration Act. Customs currently honors all Commerce requests for foreign investigations and has offered to fulfill all of Commerce's investigative needs for both criminal and administrative actions. o The U.S. Customs Service is successful in export enforcement because it has designated export enforcement as a major priority and has invested a considerable amount of manpower, training, and money into this effort. U.S. Customs has a well-trained, experienced cadre of 300 special agents and 135 inspectors who are dedicated solely to export enforcement. Customs has an additional 2500 special agents, PAGENO="0480" 476 5000 inspectors and auditors to call upon for assistance as needed. U.S. Customs is also located at core than 300 domestic locations in the United States and its territories. o Because of its flexibility and broad enforcement authority, the U.S. Customs Service is able to shift export enforcement resources based upon U.S. policy and therefore utilize Customs resources in the most cost efficient manner to the U.S. Government. Custom enforcement authority is not subject to renewal of the Export Administration Act but has full authority granted under 19 USC l589a. o The U.S. Customs Service possesses the traditional law enforcement resources and personnel to effect multiple enforcement operations (simultaneous search warrants, electronic interceptions, 24 hours multi-location surveillances, etc. (. o The U.S. Customs Service, over the years, has obtained extensive experience in the establish,ment of businesses for use in undercover operations to detect and successfully investigate violations of U.S. export laws, to include the Export Administration Act. Additionally, Customs has in * place the Justice Department mandated infrastructure and training to support these successful operations. o Although the Department of Justice has an established policy that criminal investigations have priority over civil investigations, Customs does not believe that Commerce's ability to deny export privileges and issue civil penalties would be hampered by Customs assumption of sole enforcement authority of the Export Administration Act. Customs Special Agents have historically conducted import civil fraud investigations and have developed an expertise in the area of fraudulent shipping documents, for both imports and exports, unsurpassed by any other federal law enforcement agency. In FY-90, Custcms collected more than 929.8 million dollars in penalties as a result ot civtl import fraud investigations. Investigations by two different agencies for the same violation, one criminal and cne civil, is not cost effective for the U.S. Government. o As is currently done with Customs import fraud investigations, Customs can investigate and obtain all information necessary for both the criminal and civil violations of the Export Administration Act under established U.S. guidelines for the collection of evidence, and refer the results to Commerce's administrative law judges and counsel for administrative action and fines. This procedure is presently in place with the Department of State for Arms Export Control Act violations, and the Department of Treasury for other export violations. o Customs has well established relationships with dcrestic transportation companies, freight torwarders, brokers, and the entire import/export coc~un±ty at large in the United States. That community looks to ~ustccs as the enforcerent experts. o A merger of Commerce enforcement personnel with Customs would only strengthen export enforcement and greatly improve career opportunities and geographic mobility for the Commerce employees. o Economies of scale may be realized through consolidation of Commerce's export enforcement office with Customs. The U.S. Government could save all current attendant costs of supporting Commerce investigative offices in the U.S. and abroad, all of which are located in the same cities as U.S. Customs. PAGENO="0481" 477 21. How good is the relationship between the intelligence community end Customs? Go you receive edequate end timely intelligence on the ettempts by other countries to ecguire U.S. technology to enable you to defend egeinst eny attempted exports? By and large the relationship is one that has proven beneficial to the Customs Service and the country. Interaction between Customs and the Community occurs routinely through electronic and telephonic contacts on issues in areas of mutual concern. Through these contacts, this agency has established a good working rapport with individual Community members, establishing what each can and cannot provide with respect to their areas of concern and expertise. As such, Customs has been able to elicit significant esport enforcement data from both highly specific and general Community reporting, as well as via telephone calls, which assist in both tactical operations and strategic trend analysis. Customs personnel are members of various interagency panels with Intelligence Community representatives with the aim of eschanging information at the working level. These interagency panels discuss matters in a wide range of strategic trade areas including missile technology, nuclear technology, weapons and munitions, and other high technology components end finished products. Participating in these panels affords Customs the opportunity to meet face to face with members of the Community and engage in a personal dialogue with members of agencies whose primary mission and focus is not law enforcement. These meetings thereby provide a forum for both the Community and Customs to better understand the policy perspectives, operational methods, and informational needs each has in striving to fulfill its role in achieving the common U.S. Government goals. Such understanding increases the efficiency of Customs export enforcement and interdiction efforts and provides an atmosphere for maximum cooperation between the Service and the Community. while Customs does obtain valuable information for export enforcement purposes from Community members, this agency reciprocates that assistance. Providing specific feedback to Community members assists them in assessing the value of the information they collect, and in determining what types of reporting is beneficial to this agency. Giving this feedback has the benefit of letting the Community know in concrete terms the contribution it has made in protecting U.S. interests and safeguarding the national security. However, a second equally important form of "feedback" or benefit, albeit less recognised, is also deri~.çed by the Community from the relationship. Customs investigative actions sometimes uncover information/data which is of particular value to Community members for further research or future collection purposes. Customs attempts to provide this type of information to desirous members where appropriate, occasionally through the dissemination of Reports of Investigation (ROTs). The relationship has proven beneficial to both parties in the past and seems fairly solid. It should be noted that some feel that certain Community members do not share enough of their law enforcement related intelligence. However, when considering the vast amount of raw and finished intelligence which is collected, analysed, and reported 51-840 0 - 92 - 16 PAGENO="0482" 478 daily, it is extremely difficult to assess whether or not this is indeed the case. In general, data provided by the Community has proven to be both adequate and timely in the pursuit of export fraud. As a matter of daily routine, information in the form of cable traffic is received from the Community and screened to see if it is usable for Operation EXODUS. If it is deemed to be pertinent, the information is subsequently analyzed and tailored to fit Customs law enforcement needs. Most often the information is provided with enough lead time to enable Customs personnel to put the information out to the appropriate enforcement field office for its action. The information provided is usually complete enough that Customs personnel do not have to go back to the Cornunity for further elaboration or explanation. When those occasions arise where additional information is needed, the Community acts to cooperate to the extent that it can to satisfy Customs request. If the request is not very routine" in nature or if there exists a policy conflict over the inquiry, however, the Community response may sometimes be delayed beyond what most would consider a reasonable waiting period. It sh&ild be added that even when Customs does not receive "timely" information from the Community, this agency still may be able to put the intelligence to good use. In large part, this is because Customs has the ability to bring criminal charges against violators even if the illegal shipment has reached its intended destination without being interdicted. Obviously, Customs walks a fine line when using Connunity information. A balance must be struck between the Cocunity need for anonymity and Customs need to distribute information that can be used to protect the national security. That this has been successfully maintained for such a long period of time attests to the cooperation and understanding between Customs and the Community. THE FOLLOWING ANSWERS ARE IN RESPONSE TO QUESTIONS FROM CONGRESSMAN SUNDQUIST ON MAY 1, 1991 i. Would you favor the creation of a Justice Department task force specializing in export crimes as described by Ms. MOORE in her testimony? The Customs Service coordinates the prosecution of all export investigations with the Internal Security Section, Criminal Division, U.S. Department of Justice (OOJ). Within the Internal Security Section, DOJ in the early 1980's, established an Export Control Enforcement Unit. This unit is responsible for establishing DOJ's policy with regard to export enforcement and monitoring export enforcement prosecutions by U.S. Attorneys. The attorneys assigned to the Export Control Enforcement Unit are OOJs resident experts on export enforcement. The Export Control Enforcement Unit provides many valuable services to investigating agencies and U.S. Attorney's offices. Among these services are assistance in drafting legal documents, such as indictments and affidavits, legal research, and serving as the OOJ interface for contact with the legal staffs of other U.S. agencies and the intelligence community. Attorneys assigned to the Export Control Enforcement Unit have traveled to a number of U.S. Attorney's offices throughout the U.S. to offer advice and PAGENO="0483" 479 assistance on specific prosecutions. On a number of occasions, Export Control Enforcement Unit Attorneys have even served as members of the prosecution team at lengthy trials. Over the years, the Strategic Investigations Division of the Customs Service has developed a close working relationship with the Export Control Enforcement Unit. We believe that this relationship has fostered both better investigations and prosecutions. The Customs Service views the Export Control Enforcement Unit as DOJ's ad hoc "national task force to coordinate the prosecution of export violations." 2. Should exporters and freight forwarders be required to sign an end-use statement on all shipment export declarations? On the Shipper's Export Declaration (SED) form, it is required that the country of ultimate destination be identified. The SED must be signed by the exporter or his agent. The country of ultimate destination serves as an end use statement on the SED. 3. Wouldn't it help if we had a warning statement, like falsifying this document carries a penalty of $50,000 fine or five years imprisonment? The Shipper's Export Declaration form (7525-V) does contain a warning statement that criminal and civil penalties may be imposed for making false or fraudulent statements (SED sample, Enclosure #9). On all license applications. Commerce does ask "the seller and purchaser what their intentions are?" Upon filing an Application for Export License (Enclosure #10), the application certifies that "to the best of my knowledge, information and belief all statements in this application including the description of the commodities or technical data and their end-uses, and any documents submitted in support of this application are correct and complete and that they fully and accurately disclose all terms of the order and other facts of the export transaction." The Application for Export License also contains the following warning "Waking any false statement or concealing any material fact in connection with this application or altering in any way the validated license is punishable by imprisonment or fine, or both, and by denial of export privileges under the Export Administration Act of 1979, and any other applicable Federal statues." Similarly State export license applications (DSP-5, Enclosure #11) require the applicant to "Warrant the truth of all statements made herein, and acknowledge, understand, and will comply with the provisions of Title 22 CFR 120-130 and any conditions and limitations imposed." Title 22 CFR 123.9 states in part... "The country designated as the country of ultimate destination on an application for an export license, or on a shipper's export declaration where an exemption is claimed under this subchapter, must be the country of ultimate end-user... Exporters must ascertain the specific end-user and end-use prior to submitting an application to the Office of Munitions Control or claiming an exemption under this subchapter. End-use must be confirmed and should not be assumed.. 4. Do either the EAA or money laundering statutes cover money that is transferred within the United States? On April 18. 1991. Ms. Portia Moore testified that "one thing the money-laundering statute did not allow us to get was money that had been transferred wholly inside the United States." (Hearing on the Administration of U.S. Export Control Programs Before the Subcommittee on Oversight of the House Committee on Ways and Means, 102 Cong., 1st sess. 248). On May 1, 1991. the Commissioner of Customs was asked whether that opinion comported with the agency's understanding regarding the scope of the money laundering laws. As the Customs Service disagreed with Ms. Moore's PAGENO="0484" 480 statement, the following explanation was prepared at the Subcommittee s request. The Money Laundering Control Act of 1986, as amended, (`the Act"), established a comprehensive statutory framework addressing money laundering offenses involving financial transactions and international transportation of funds. 18 U.S.C. 1956 and 1957. Set forth in 18 U.S.C. 1956 are four offenses pertaining to financial transactions; three pertaining to the international transportation of funds or monetary instruments; and three pertaining to financial transactions involving property represented by a law enforcement officer to be proceeds of specified unlawful activity. Both the Arms Export Control Act, 22 U.S.C. 2778, and the Export Administration Act, 50 U.S.C. 2401 at sea., are predicate offenses of the Money Laundering Control Act of 1986, as amended. The civil forfeiture component of the Act, 18 U.S.C. 981, authorizes the forfeiture of any property, real or perscnal, involved in a transaction or attempted transaction in violation of 18 U.S.C. 1956 or 1957 or 31 U.S.C. 5313(a) or 5324 (currency transaction reporting and structuring provisions), or any property traceable to such property. Not only does this provision allow for the forfeiture of property actually laundered and the commissions derived therefrom, but any property traceable to or with a substantial connection to the property involved in the illegal activity in violation of 18 U.S.C. 1956 and 1957 and 31 U.S.C. 5313(a) or 5324 may be seized and forfeited. The term "involved" is broad enough to reach property used to facilitate money laundering violations. See United States v. All Monies ($477,048.62) in Account 90-3617-3, 754 F. Supp. 1467 (0. Hawaii 1991)(Court held that the balance of money from legitimate sources in an account which helped to conceal the tainted money was subject to forfeiture under 18 U.S.C. 981 as property used to facilitate money laundering offenses). The position that 18 U.S.C. 981 authorizes the forfeiture of any property used to facilitate a money laundering offense is supported by the legislative history from the Money Laundering Prosecution Improvements Act of 1988, P.L. 100- 690. As explained in the section-by-section analysis: [TJhe term "property involved" is intended to include the money or other property being laundered (the corpus), any commissions or fees paid to the launderer, and any property used to facilitate the laundering offenses. 134 Cong. Rec. S17365 (daily ed. Nov. 10, 1988). Thus, 18 U.S.C. 981 permits the seizure and forfeiture of any property laundered, traceable to the property laundered, or used to facilitate the offense. The statute contains no restriction pertaining to transactions conducted entirely within the United States. To the contrary, no international element is required in the majority Of money laundering offenses to obtain forfeiture of property involved in a violation. By way of example, if an individual exports arms from the United States in violation of 22 U.S.C. 2778 (the Arms Export Control Act), receives $1,000,000 for his services and then deposits $100,000 in a Federal bank intending to use these proceeds to acquire and export more arms in the future, an offense under 18 U.S.C. 1956)a)(1)(A)(i) has been committed. Consequently, 18 PAGENO="0485" 481 U.s.c. 981 would permit the seizure and forfeiture of any portion of the $1,000,000, any property traceable to the funds, and any other property involved in the violation. Finally, we note that upon the criminal conviction of any person for a violation of the Export Administration Act, 50 U.S.C. App. 2410(g) provides for the forfeiture of any property involved or used in a violation of the Export Administration Act as well as any proceeds from the illegal act. see also 18 U.S.C. 982. THE FOLLOWING ANSWERS ARE IN RESPONSE TO QUESTIONS FROM CONGRESSMAN MOODY ON MAY 1, 1991 1. Is there a conflict of interest within lead U.S. agencies when the primary function is to promote and facilitate U.S. exports, not to curtail them? customs does not know to what extent there may be a conflict of interest as this involves policy decisions of other agencies. 2. Today, criminal penalties apply to U.S. companies only if they willfully and knowingly misrepresent the end use of an exported product. The U.S. Government must, therefore, prove that the firm had prior knowledge, which is no easy task. There is, therefore, a clear incentive under the present structure for U.S. firms not to ask too many questions, much less follow up on the end use to verify what that end use would be. Congressman Moody's suggestion is to amend Federal law to impose civil penalties on U.S. parties that export dual-use articles subsequently found to have been used for military purposes contrary to representations in the license application. The type of violation described in Mr. Moody's scenario might subject the parties to civil penalties under 50 U.S.C. App. 2410(c) and/or 22 U.S.C. 2778(e) if, for example, the evidence showed that the exporter knowingly made the false statement on the application. The Customs Service, however, would support any amendment to the export laws designed to require greater vigilance on the part of U.S. exporters and to penalize breaches thereof. Under the customs laws, similar provisions make carriers liable for the importation of unmanifested controlled substances. See 19 U.S.C. 1484. While 19 U.S.C. 1484 imposes civil penalties on an almost strict liability basis, the law provides by way of an affirmative defense that if carriers can prove that they did not know and could not have known by the exercise of the highest degree of care and diligence that such drugs were on board, no penalties shall be imposed. 19 U.S.C. 1548)a))2). When this provision was amended in 1986, Congress indicated that the changes were designed to encourage greater vigilance by, and to increase the accountability of, carriers. N.E. Rep. No. 99-794, 99th Cong. 2d. Sess., 14-15 (1986). Accordingly, the customs Service believes a similar provision could be enacted to address the export of dual-use items and their unauthorized military use. 3. There is a loophole in the so-called general destination )G-DEST) classification allowing a commodity to go anywhere. The G-DEST license requirement does notprevent customs from detaining the shipment, examining documents and questioning persons in order to determine if the export is legal or falls within the G-DEST requirement. 4. Is there a Canadian Loophole? As a member of COCOM, the Government of Canada is very cooperative in intercepting U.S. origin goods to proscribed PAGENO="0486" 482 nations, providing that the goods are licensable per the Commodity Control List. The Canadian Import Export Permits Act is consistent with the U.S. Export Administration Act. where our National policies differ are in the enforcement of U.S. sanctions pursuant to such U.S. laws as the International Emergency Economic Powers Act, Trading With the Enemy Act, and the International Security and Development Cooperation Act. The Government of Canada considers U.S. origin goods, entered (duty-paid) into Canada as "Products of Canada" and will permit the re-export of such goods to sanctioned nations provided the exportation does not violate Canadian law. In the case of Iraq, Canada passed legislation, consistent with the U.N. sanctions. Canada does not, however, restrict the exportation of non- strategic goods to most other U.S. embargoed nations. 5. Is there a lack of cooperation between intelligence and enforcement? The relationship between the CIA and this agency has generally been a good one. The flow of information between the two agencies is not only continuous but also reciprocal. Each agency continues to benefit from the other's information and feedback, but, on the whole, it is Customs who is the greater beneficiary of the information flow. Indeed, more of the intelligence that this agency receives from CIA involves trend analysis and long-range reporting as opposed to tactically-oriented information. However, this seems merely a consequence of the nature of their operations and mission, and the tactical intelligence that they do identify as pertinent to Customs concerns, especially concerning possible U.S. export violations, is normally brought to the attention of this agency in a very timely and complete manner. Finally, it should be noted that the CIA, like all Intelligence Community Members, is authorized, while not mandated, under Executive Order 12333 (Section 2.6) to assist law enforcement authorities through "cooperation," and participation in certain `law enforcement activities' (e.g., referring law enforcement intelligence to these authorities). 6. There is a lack of cooperation between licensing and enforcement agencies. The Customs Service agrees that to be even more effective we need more cooperation from Commerce with regard to obtaining licensing information. Also, any requests for licensing information should be released to a law enforcement agency that is mandated to enforce U.S. export laws. The Customs Service believes the language of the Export Administration Act is cuite clear regarding the exchange of any licensing and enforcement information (See 50 U.S.C. App. 2411(c)(3). If conflicting interpretations of the confidentiality provision cannot be resolved, legislative clarification might be desirable. 7. Customs resources concentrate on imports rather than exports. As indicated in the Commissioner's testimony of May 1, 1991, the Customs Service implements its export enforcement strategy with a force of 300 Customs special agents and 135 Customs inspectors. Their efforts may be augmented on a case-by-case basis through the use of an additional 2500 special agents and 5000 Customs inspectors located at over 300 domestic and 20 foreign posts of duty. There is no question that the Customs Service deploys most of its resources on imports. The Customs Service is, however, constantly adjusting its export enforcement program to meet the foreign policy, national security, and law enforcement concerns of the U.S. These adjustments include reprogramming positions and the development of new systems. For example, during the Persian Gulf crisis Customs reprogrammed enforcement positions to augment existing export enforcement efforts focused on the Middle East. It is extremely difficult to estimate the percentage of illegally exported related items interdicted by the Customs Service. Since 1981, the Customs Service has made more than 10,000 seizures valued at more than $786 million that were destined for illegal export. Because many of the illegitimate end-users are foreign Governments, it is highly unlikely that the U.S. Government will ever receive enough international cooperation to make an- accurate accounting of the "ones that got away.' This is particularly true when certain diversions do not take place until years after the initial export from the U.S. PAGENO="0487" 483 Mr. ANTHONY [presiding]. Our next speaker will be the Honora- ble Kenneth Cutshaw, the Deputy Assistant Secretary for Export Enforcement of the U.S. Department of Commerce, and Mr. Cut- shaw, for the record, will you identify any personnel that you have with you? STATEMENT OF HON. KENNETH A. CUTSHAW, DEPUTY ASSISTANT SECRETARY FOR EXPORT ENFORCEMENT, BUREAU OF EXPORT ENFORCEMENT, U.S. DEPARTMENT OF COMMERCE, ACCOMPA- NIED BY lAIN BAIRD, DIRECTOR, OFFICE OF EXPORT LICENS- ING Mr. CUTSHAW. I will, Mr. Chairman. On my left is Mr. lain Baird and he is the Director of our Office of Export Licensing at the De- partment of Commerce. Mr. ANTHONY. Will Mr. Baird be giving testimony or is he just there to assist you? Mr. CUTSHAW. No, sir, he is here to assist me in responding to questions. Mr. ANTHONY. You are now recognized for your testimony and the committee will be happy to take your full statement and intro- duce it in the record, and you can read it or summarize, as you wish. You are recognized. Mr. CUTSHAW. Thank you, Mr. Chairman. I will attempt to sum- marize my testimony and submit the full statement for the record. I would like to begin by saying that the Commerce export en- forcement mission is very straight-forward, it is to prevent the vio- lations of the Export Administration Act, and to bring to justice anyone who does violate the Act and its regulations. The profes- sionals we have at Commerce's Office of Export Enforcement are dedicated to stopping the diversion of U.S. goods and technology and, thereby, supporting the critical national security and foreign policy interests that the act seeks to protect. We are a modern Fed- eral law enforcement agency with up-to-date equipment and train- ing. In addition to the traditional law enforcement training that we have, our agents receive in-depth training concerning the export control system and certain investigative techniques that are useful for uncovering export control violations. We have 80 criminal in- vestigators, as well as additional support staff and we have them in eight field offices and headquarters here in Washington and we have an intelligence division to carry out the functions. Export enforcement officers have a single mission and that is to enforce the Export Administration Act. We devote 100 percent of our resources in focusing on this one particular law. We seek to prevent violations in three important ways: First, through our Project Outreach, OEE agents contact exporters and alert them to the export control laws and the need for compliance. OEE has found that most business people are conscientious, and the care ex- ercised by these exporters promotes good export control compli- ance. Further the business community has been very helpful in alerting our investigators to potential problems, which, in turn, has prevented violations and helped bring violators of the law to jus- tice. PAGENO="0488" 484 Second, our Office of Export Enforcement reviews the export li- cense applications to ensure that each proposed export does not present an unacceptable risk of diversion to an unauthorized end user. OEE performs this important function in cooperation with another office in Commerce, the Office of Export Licensing, which Mr. Baird is the director of. This particular office analyzes and makes decisions on all license applications under the Export Ad- ministration Act. When the Office of Export Enforcement and the Office of En- forcement Support review export license applications, they rely on information developed in the course of our investigations at Com- merce, information supplied by Customs from Customs investiga- tions, and information from the intelligence community. Finally, our mission entails that we investigate violations of the Export Ad- ministration Act and pursue criminal and/or administrative sanc- tions against violators. * Here, the Office of Export Enforcement works in the fashion of other Federal law enforcement agencies in pursuing criminal viola- tions. Besides the traditional sanctions of criminal fines and im- prisonment, Commerce can seek administrative sanctions of fines and the denial of export privileges. Administrative cases are han- dled in Commerce for the Office of Export Enforcement by the Office of Chief Counsel for Export Administration. These adminis- trative sanctions provide a unique tool to use against foreign per- sons or firms that violate our laws, but are located overseas, beyond the reach of U.S. jurisdiction for criminal prosecution. These sanctions can be imposed in administrative proceedings that parallel criminal prosecution, or they can be imposed follow- ing completion of criminal cases. OEE seeks administrative sanc- tions, especially because the denial of export privileges comple- ments the traditional criminal sanctions and provides a deterrent for potential violators of the export control laws. Some of the issues I believe that were discussed and encountered by Commerce in enforcing the export control laws were discussed in your hearing on April 18. I would like to identify several points from those issues. One, it is essential that we have cooperation from law enforcement officials of other countries, as we conduct our investigations into possible export or reexport violations. For example, the mechanisms for enforcement cooperation are develop- ing in two groups-COCOM for national security controls and the Australia Group for controls on chemical weapons precursors. In COCOM, we have developed the common standard for effective en- forcement, which represents the undertaking by the member gov- ernments to maintain export control systems that have certain minimum regulatory and enforcement components. Included in the common standard is an undertaking to cooperate with other gov- ernments on enforcement matters. In the Australia Group, which is the group that looks at controls over chemical weapons precursors, the enforcement officials from the participating countries have met to discuss the harmonization of their export controls, to look at common enforcement problems and to conceive practical ways of cooperating on these enforcement matters. PAGENO="0489" 485 Today, many violations of the Export Administration Act do occur overseas rather than in the United States, as diverters have learned that they can be arrested here and prosecuted quite vigor- ously for criminal violations. Consequently, I believe that interna- tional cooperation is vital for the future enforcement efforts. Let me clarify what U.S. export officials, whether they are Com- merce or Customs or other U.S. agents, can and cannot do in for- eign countries. There are legal limits on the operations of U.S. law enforcement agencies abroad. For example, for any documents we may obtain overseas we must be sure to follow the applicable for- eign and U.S. rules pertaining to proving that the documents are authentic, and therefore, admissible as evidence in U.S. courts. Thus, the cooperation of our foreign enforcement counterparts is necessary and critical to accomplishing our mission. Second, it is essential, in my view, that Commerce enforcement personnel conduct their own prelicense and postshipment checks overseas, especially under the initiatives that we have taken in Poland, Hungary, and Czechoslovakia, because it is the responsibil- ity of the Commerce enforcement people, under the Export Admin- istration Act, to determine whether to issue licenses for exports to those countries. As Commerce officials are held accountable to Congress for ap- proving licenses to these emerging democracies, and as Commerce is authorized by the Export Administration Act to conduct these checks, Commerce should do them and we will continue to do them. Commerce is well-suited to conduct these checks in a manner that is timely and accurate and to conduct them using personnel who are accountable to those who have the licensing authority and responsibility. Because of our special training of the agents on dual-use export controls, these~ agents know what to look for when they are doing these prelicense and postshipment checks. The same principle applies with respect to other countries, where the primary concern of the United States is the proliferation of nu- clear, biological, and chemical weapons and their missile delivery systems. Third, we should reflect carefully on the enforcement policy issues that underlie the decision of whether to prosecute a violator in the criminal justice system, which can lead to criminal fines and imprisonment, or within the administrative system, which can lead to civil penalties and export denials, or whether to prosecute through both the criminal justice system and the administrative system. The choice to proceed down which path or another can have sig- nificant legal, policy, and diplomatic consequences. Currently, the Customs Service enforces only the criminal penalties under the Export Administration Act, while at Commerce we enforce both the criminal penalties and the administrative sanctions. The decision whether to seek criminal or administrative sanc- tions, or both, should be based on the merits of each case, not on which agency happened to have uncovered the violation. At a mini- mum, I believe, and I think the Customs Service agrees and the Commissioner said as much, that every criminal case that Customs investigates should, when that part of the case is over, and wheth- PAGENO="0490" 486 er the case concludes with the imprisonment of the violator or with the Justice Department declining to prosecute, be referred to Com- merce for possible administrative sanctions. In that way, we can impose sanctions on the violators, thereby protecting the U.S. na- tional security and foreign policy interests. In the cases where par- ties are denied export privileges, we can also alert the law-abiding business community not to deal with those parties. You have asked in your letter to Commerce what we need, to do our job better? I think in response I would say that the administra- tion is continuing its efforts to develop better international and bi- lateral agreements to obtain admissible evidence. As I mentioned, these efforts are taking place in COCOM for na- tional security controls and the Australia Group for chemical weapons precursors. On a practical level, we are also attempting to develop direct contacts among all U.S. law enforcement agencies charged with enforcing the Export Administration Act and their counterparts in other countries so that we can cut down on the time required to obtain admissible legal evidence through the proper legal channels and so that we can obtain sufficient informa- tion during our prelicense and postshipment checks, in time to pre- vent diversions from occurring overseas. However, Congress, in supporting our efforts, must be mindful that, as with many international initiatives, it can take a good deal of time to reach effective agreements among countries having di- verse governmental and legal systems, even when those countries agree on basic principles to control dangerous technologies. Export enforcement is a challenge and a responsibility and our export control laws are very complex here in the United States and other countries. International business transactions are also quite sophisticated. The United States has worked closely with its allies over the years to develop international arrangements for control- ling sensitive technology effectively, and this administration is ac- tively working today to develop these arrangements with others. We, in Commerce Export Enforcement, appreciate the opportuni- ty to play, I believe, a very important and significant role in pro- tecting the country's national security and foreign policy interests and we certainly look forward to continuing to participate in this process. Mr. Chairman, that concludes my testimony and I will be happy to answer any questions. [The prepared statement follows:] PAGENO="0491" 487 Statement of Kenneth A. Cutshaw Deputy Assistant Secretary for Export Enforcement Bureau of Export Administration Before the Subcommittee on Oversight House Committee on Ways and Means May 1, 1991 Commerce's export enforcement mission is simple--it is to prevent violations of the Export Administration Act and to bring to justice anyone who does violate the Act and its implementing regulations. The professionals of Commerce's Office of Export Enforcement (OEE) are dedicated to stopping diversions of U.S. controlled goods and technology and, thereby, supporting the critical national security and foreign policy interests the Act seeks to protect. OEE is a modern federal law enforcement agency with up-to-date equipment and professional training. In addition to traditional law enforcement training, OEE special agents receive in-depth training concerning the export control system and investigative techniques most useful for uncovering EAA violations. OEE has 80 criminal investigators, as well as additional support staff, in eight field offices and an Intelligence Division. Export Enforcement officers have a single mission--to enforce the Export Administration Act. Their resources focus on this one area. OEE seeks to prevent violations in three important ways. First, through its Project Outreach, OEE contacts exporters and alerts them to the export control laws and the need for compliance. OEE has found that most business people are conscientious. The care exercised by these exporters promotes good export control compliance. Further, the business community has been very helpful in alerting OEE investigators to potential problems which, in turn, has prevented violations and helped bring perpetrators to justice. Second, OEE reviews export license applications to ensure that each proposed export does not present an unacceptable risk of diversion to an unauthorized end-use. OEE performs this important function in concert with its sister office, the Office of Export Licensing, the Commerce Department office that analyzes and makes decisions on all license applications under the Export Administration Act. When OEE and another sister office, the Office of Enforcement Support, review export license applications, they rely on information developed in the course of OEE investigations, information supplied by Customs from Customs investigations, and information from the intelligence community. Finally, OEE investigates violations of the Export Administration Act and pursues criminal and administrative (civil) sanctions against violators. Here, OEE works in a fashion similar to other federal law enforcement agencies. Besides the traditional sanctions of criminal fines and imprisonment, OEE can seek administrative sanctions of fines and the denial of export privileges. Administrative cases are handled in Commerce for OEE by the Department's Office of Chief Counsel for Export Administration. Administrative sanctions provide a unique tool to use against foreign persons or firms that violate our laws but are located overseas, beyond the reach of U.S. criminal prosecution. These sanctions can be imposed in administrative proceedings that parallel criminal prosecution, or they can be imposed following completion of criminal cases. OEE seeks administrative sanctions, especially the denial of export privileges, to complement traditional criminal sanctions in an effort to deter violations of our nation's export control laws. PAGENO="0492" 488 Some of the difficulties encountered by Commerce in enforcing the export control laws were discussed in your hearing on April 18. 1 would like to highlight for you several points that apply generally to our enforcement efforts. First, it is essential that we have cooperation from law enforcement officials of other countries as we conduct our investigations into possible export or reexport violations. For example, mechanisms for enforcement cooperation are developing in two groups, CoCom for national security controls and the Australia Group for controls on chemical weapon precursors. In CoCom, we have the Common Standard for Effective Enforcement, which represents an undertaldng by the member governments to maintain export control systems that have certain minimum regulatory and enforcement components. Included in the Common Standard is an undertaking to cooperate with other governments on enforcement matters. In the Australia Group, enforcement officials from the participating countries are meeting to discuss the harmonization of their export controls, common enforcement problems and practical ways of cooperating on enforcement matters. Today, many violations of the EAA occur overseas rather than in the United States, as diverters have learned that they can be arrested here and prosecuted for criminal violations. Consequently, I believe international cooperation is vital for our future enforcement efforts. Let inc clarify what U.S. export enforcement officials, whether they are Commerce or U.S. Customs agents, can and cannot do in foreign countries. There are legal limits on the operations of U.S. law enforcement agencies abroad. For example, for any documents we may obtain overseas, we must be sure to follow the applicable foreign and U.S. rules pertaining to proving that the documents are authentic and, therefore, admissible as evidence in U.S. courts. Thus, the cooperation of our foreign enforcement counterparts is necessary to accomplish our mission. Second, it is essential, in my view, that Commerce enforcement personnel conduct their own pre-license and post-shipment checks overseas, especially in Poland, Hungary, and the Czech and Slovak Federative Republics, because it is the responsibility of Commerce, under the EAA, to determine whether to issue licenses for exports to those countries. As Commerce officials are held accountable to Congress for approving licenses to these emerging democracies, and as Commerce is authorized by the EAA to Oonduct these checks, Commerce should do them. Commerce is well-suited to conduct these checks in a manner that is timely and accurate, and conduct them using personnel who are accountable to the Under Secretary who has the licensing authority and responsibility. Because of our special training on dual use export controls, we know what to look for. The same principle applies with respect to other countries where the primary concern of the U.S. is the proliferation of nuclear, biological and chensical weapons, and their missile delivery systems. Third, we should reflect carefully on the enforcement policy issues that underlie the decision whether to prosecute a violator within the criminal justice system, which can lead to criminal fines and imprisonment, or within the administrative or civil system, which can lead to civil penalties and export denials, or whether to prosecute through both the criminal justice system and the administrative system. The choice to proceed down one path or another can have significant legal, policy and even diplomatic consequences. Currently, the Customs Service enforces only criminal penalties under the EAA, while Commerce enforces both criminal and administrative sanctions. The decision whether to seek criminal or administrative sanctions, or both, should be based on the merits of each case, not on which agency happened to uncover the violation first. At a minimum, I believe, and I think the Customs Service agrees, that every criminal case that Customs investigates should, when its part of the case is over and whether the case concludes with imprisonment of the violator or with the Justice Department declining to prosecute, be referred to Commerce for possible administrative sanctions. In that way, we can impose sanctions on the violators, thereby protecting U.S. national security and foreign policy interests and, in the cases where parties are denied export privileges, we can also alert the law-abiding business community not to deal with those parties. PAGENO="0493" 489 You have asked what is needed so we can do our job better. In response, I would say that the Administration is continuing its efforts to develop better international and bilateral agreements to obtain admissible evidence. As I have mentioned, these efforts are taldng place in CoCom for national security controls and the Australia droup for chemical weapon precursors. On a practical level, we also are attempting to develop direct contacts among all U.S. law enforcement agencies charged with enforcing the EAA and their counterparts in other countries, so we can cut down on the time required to obtain admissible evidence through the proper legal channels, and so that we can obtain sufficient information during our pre-license and post-shipment checks in time to prevent diversions from occurring overseas. However, Congress, in supporting our efforts, must also be mindful that, as with many international initiatives, it can take a good deal of time to reach effective agreements among countries having diverse governmental and legal systems, even when those countries agree on basic principles to control dangerous technologies. Export enforcement is a challenging responsibility. Our export control laws are very complex. International business transactions are quite sophisticated. The United States has worked closely with its allies over the years to develop international arrangements for controlling sensitive technology effectively, and this Administration is actively working today to develop these arrangements further. We in Commerce export enforcement appreciate the opportunity to play an important role in protecting our country's national security and foreign policy interests. PAGENO="0494" 490 Mr. ANTHONY. Thank you, Mr. Cutshaw. By letter of April 22, 1991, to the Under Secretary, there is a sen- tence that says, a copy of the hearing transcript and testimony re- ceived by the subcommittee has been made available to your office. It says for this purpose and the purpose was to try to identify prob- lems that had been illustrated by four specific cases. Have either you or Mr. Baird or one of the people behind you reviewed that transcript to identify those problem areas? Mr. CUTSHAW. Mr. Chairman, I believe that Mr. Pickle has indi- cated the same thing, I have not reviewed that transcript for those purposes but will certainly look at it. Mr. ANTHONY. Have you reviewed the transcript for any pur- pose? Mr. CUTSHAW. Frankly, Mr. Chairman, I have not personally re- viewed it. Mr. ANTHONY. I understand. I just asked if you or some of your support staff reviewed it? Mr. CUTSHAW. Mr. Chairman, I will have to claim a little bit of- I just got married and I have been on my honeymoon and- Mr. ANTHONY. You are forgiven. [Laughter.] Mr. CUTSHAW. And I actually would like to still be on my honey- moon. The transcript was reviewed extensively by staff and I just returned the first of the week and will pursue that. Mr. ANTHONY. And you have not had a chance to converse with them about the review? Mr. CUTSHAW. No, sir. Mr. ANTHONY. Well, let me clarify for the record: I waved around a transcript, prior to the committee's casting a vote, of the previous witness stating what we had gone through-we, being our staff- and had identified several problem areas. I made the decision not to release that, in as much as that was our personal work product and we were not being precise by the language of the testimony and we were paraphrasing sometimes. So rather than create more of a controversy, what we would ask you to do is read it and make your recommendations from the identification of those problem areas. Then we can compare what we think we saw in the tran- script compared to what you think you saw in the transcript and then come forward with some recommendations. The problem with getting a "no" answer to my first question is that it prohibits me from going into the second question which is what are some of the solutions? To some extent our hearing today is handicapped by the nature in which we catch ourselves. But love and marriage wins out a lot of times over government procedure but we will continue to work with you on that. [The following was subsequently received:] In response to the request that we review the transcript of the April 18, 1991, hearing and make recommendations, I would like to insert in the record at this point an appendix which provides a menu of items for discussion which could be considered in the context of enhancing the enforcement of U.S. export laws and an appendix which addresses the export enforcement issues raised in the April 18 hear- ing. PAGENO="0495" 491 APPENDIX A ists of a menu t be considered by the Departr :he Administrati .ed by the Subc ~u of items for ieration in the )rcement of U.~ STRENGTHENING EXPORT ENFORCEMENT Ideas for consideration which might result in better cooperation between agencies and more effective tools for government-wide export enforcement. Objectives: ~ Establish a working mechanism to share information and coordinate activities between the U .S. Customs Service and the Bureau of Export Administration. ~ Improve routine information sharing and provide the same tools to those agencies responsible for enforcing the EAA. ~ Enhance judicial remedies for export enforcement. PAGENO="0496" 492 -2- U. N G: ~1 1NATU NE 1~ LAGENCES * Have both Commerce and Customs copy each other on all cables relating to the enforcement of the Export AdminIstration Act. * In order to provide more information and better coordination of enforcement operations, Commerce and Customs could copy each other on all EAA related cables. * Develop) a pilot project to help Customs inspectors at the ports. * In order to assist Customs in their inspection of cargo at the ports, Commerce could develop a pilot project to provide selected Customs offices in ports with terminals to allow them to check whether a license has been issued, and whether the information agrees with what has been provided in the shipping documents. * Hold regular meetings between Commerce Export Enforcement and the U.S. Customs Service. * These two offices could meet on a regular basis to discuss current operations, to provide better coordination between the two agencies, and to provide a mechanism for resolving problems and disputes. * Coordinate criminal and administrative cases through interagency meetings involving the U.S. Attorney's office, Customs and Commerce. * Customs and the Justice Department could coordinate their criminal cases with Commerce to ensure that (1) Commerce receives all available information on indicted parties for use in making proper licensing decisions, and (2) the statute of limitations doesn't expire before Commerce can bring administrative sanctions to bear against violators. In addition, Customs should refer to Commerce all completed EAA criminal cases, EAA cases where Justice has declined to prosecute, and those EAA cases which Customs decides not to refer to the Justice Department because they fail to meet the minimum evidentiary criteria for criminal prosecution. * The Department of State and the Customs Service could refer all completed Arms Export Control Act cases to Commerce for possible administrative actions under section 11(h) of the EAA. * Under Section 11(h) of the EAA, Commerce has the authority to deny dual use export privileges to any party who has been convicted of violating either the EAA or the AECA (among other statutes). This denial can be for up to 10 years from the date of conviction. Referral of these cases to Commerce would result in additional preventative enforcement actions against violators. PAGENO="0497" 493 -3- ~ ~ Permanent "police powers" authority for Commerce special agents * Commerce special agents have police power authorities under the Export Administration Act (EAA). However, in those instances when the Act lapses, it is not clear whether the Commerce police powers continue under the International Emergency Economic Powers Act (IEEPA). * Forfeiture Authority * Currently, when Commerce searches and seizes shipments being exported in violation of the EAA, it must rely on sister enforcement agencies, such as the U.S. Marshals Service and the U.S. Customs Service, to "adopt" the seizure, failing which it may be required to return the goods to the violator. * Authority to Waive Certain Restrictions on Undercover Operations * Currently, the Department of Commerce has the authority to conduct undercover operations. However, unlike its sister enforcement agencies [e.g., the FBI, DEA, and Customs] it is not exempt from certain existing statutes which contain limitations or have requirements that hinder such operations. * Authority for Commerce to complete investigations it initiates [both domestic and overseas aspects] * Providing this authority might reduce delays in Commerce enforcement cases when investigations are otherwise conducted by others on its behalf. * Penalties could be increased * Penalties could be increased for all EAA violations, both criminal and administrative. ~ The running of the statute of limitations for administrative sanctions could be "tolled" in instances where a foreign national has been indicted for possible export control violations. In addition, the authority to temporarily deny export privileges could be extended so that foreign nationals could be denied solely on the basis of such criminal indictments. * These might enhance the reach of U.S. export enforcement efforts and provide an additional incentive for indicted foreign parties to voluntarily face criminal prosecution. ~ Guidelines could be considered for pretrial detention, allowing defendants who are foreign nationals to be held without bail. PAGENO="0498" 494 APPENDIX B As you requested, my staff and I have reviewed the April 18, 1991, testimony before your Subcommittee. We believe the cases which the Subcommittee examined illustrate several important issues concerning export control enforcement. I would like to discuss the following issues which arose during the testimony. Extradition: Extradition of foreign violators of U.S. export laws has long been a concern.1 Thus, it is not surprising there are still fugitives at large in the Alcolac case. Although some countries cooperate with the U.S. on export control matters, we need to continue to pursue the goal of modifying extradition treaties to include these violations. Further, extradition illustrates the importance of multilateral controls. A country is unlikely to extradite for an offense which would not be a violation of its own law. In fact, some CoCom member countries have `blocking statutes" that are designed to prohibit certain cooperative law enforcement activities unless the offense violates their own statutes. This has particular importance when the offense is a violation of a unilateral U.S. foreign policy export control imposed under section 6 of the Export Administration Act (EAA). AutomatedExport Reporting: Former Customs special agent Bass noted the desirability of having a more efficient means to track exports from the United States. My office has been working with our sister agency, the Census Bureau, to review Shipper's Export Declarations (SEDs) electronically. This project is a major step toward automated review of exports. We look forward to working A reportprepared by the Congressional Research Serviceof the Library of Congress for Senator Nunn in 1982 notes the seeming inability to extradite foreign violators of U.S. export laws. [Transfer of United States Hizh Technolozy to the Soviet Union and Soviet Bloc Nations; Hearings before the Permanent Subcommittee on Investigations, Committee en Governmental Affairs, United States Senate, 97th Congress, 2d Seas., May 4,5, 6, 11, and 12, 1982, at 75-78.] PAGENO="0499" 495 -2- further with Census, the Customs Service, and the Congress to develop a fully automated system which will protect our security interests while reducing paperwork for the exporter. Knowing the Customer: For several years Commerce's Office of Export Enforcement has had a public awareness program with the theme "Know Your Customer". The Alcolac case illustrates the danger of firms being unfamiliar with the "end-user" of its exports. Greater attention should be devoted to this issue. Mistakes in the Paperwork: The Alcolac case demonstrated the importance of careful review of documents and other paperwork relating to the shipment in the export control process. The case also illustrates that many mistakes can be made on the paperwork for "innocent" reasons. The review of export and shipping documents is important when there is intelligence or other information to indicate that a review is warranted. The burden is on the exporter to ensure accuracy. Inspector's Need for Licensing Information: One of the most difficult challenges in export control enforcement is to maintain a cadre of knowledgeable and trained professionals who keep up-to-date on the highly technical and frequently changing export regulations. BXA is fortunate to have a dedicated cadre of well trained personnel with adequate technical expertise to assess export shipments. Commerce is helping the Customs Service by providing technical assistance. Commerce has already provided a Customs liaison representative direct access to Commerce licensing officers and the Commerce data base since January 1982, so that these important questions can be answered quickly. Further, in May 1986, Commerce provided Customs headquarters direct, on-line computer access to our licensing data base so they could verify a purported export license number and the names of the parties to the transaction. Once the resource, hardware and software problems related to expanded access to our data base can be resolved, Commerce intends to start a pilot project to give Customs inspectors at selected ports the same direct on-line access to the export control data base as they currently have at their headquarters in Washington, D.C. PAGENO="0500" 496 -3- Penalties: As mentioned in testimony on the C-TEK case, there is a need to increase the penalties for violations of the EAA. Often people view white collar crimes as less important than other felonies. However, let me put this into perspective for you. In the 1980s, Toshiba/Kongsberg illegally sold the Soviets a 9-axis machine tool. The Defense Technology Security Administration (DTSA) estimates that it cost the U.S. taxpayers $3-4 billion dollars to transform our country's antisubmarine warfare program to meet the new threat of quieter Soviet submarines.2 National security violations under section 5 of the EAA should be dealt with as severely as capital crimes. I would favor significantly increasing the maximum criminal and administrative penalties for all EAA violations. Oufreach - A Key Asset for Export Enforcement: The Export Administration Act controls only exports. We have no jurisdiction, nor do we seek it, over domestic sales, regardless of the level of technology or the possible end-use. This means that sensitive materials can be sold within the country by a legitimate and law- abiding conscientious business person to a nefarious person. It also means that our enforcement officers must watch a large number of potential exporters. To address this concern, the Office of Export Enforcement has enlisted the aid of legitimate business people. They include manufacturers of high technology products, trading companies and freight forwarders who are urged to keep their eyes open for indications of suspicious export activities. These indications, or "red flags", are not foolproof, but they have alerted us to many potential violations. Most of our significant cases are based on tips from business people or similar sources. Many of these people have attended one of the BXA export licensing seminars or come in contact with one of our special agents. The need to spread the word about the importance of vigilance in the business community is one of the reasons why our special agents are dispersed around the country. The large U.S. economy produces a limitless supply of potentially sensitive exports. As a result, export enforcement is a big, and often expensive, activity. Licensing Determinations and Commodity Jurisdiction: During the hearing, several Subcommittee members noted what they termed the "long" delay in getting a licensing determination as to whether the modified Bell Long Ranger helicopter needed a munitions license. It is essential that licensing authorities respond quickly to enforcement inquiries for licensing determinations, both to assist in the prosecution of violators and to ensure that legitimate sales are not held up on the dock. Having the export licensing and enforcement functions within the same regulatory agency has worked very well at Commerce and has helped reduce this problem. In the Bell Long Ranger matter for example, BXA's Office of Technology and Policy Analysis responded to OEE's request for a licensing determination Within three working days. This good working 2 The Defense Technology Security Administration (DTSA) estimated that during the 1910s the cost of diversions, including the ToshibalKongsberg export, cost the Defense Department over $10 billion to counter new threats from Soviet submarines. PAGENO="0501" 497 -4- relationship is one of the reasons that Commerce feels that licensing and enforcement should continue to be located together. We have experienced first hand the impact when licensing and enforcement are responsive to one another. In those few instances where there are problems, we have the advantage of being able to escalate the issue to managers who oversee both parts of our regulatory agency to get a quick remedy to the situation. The question of commodity jurisdiction becomes important from an enforcement standpoint because it determines who has the investigative authority. The Customs Service investigates criminal violations of the Arms Export Control Act (AECA) for the Department of State, which administers that Act. Violations of the EAA fall within the jurisdiction of both the Commerce Department and the Customs Service, Commerce having the authority to investigate for the imposition of both criminal and administrative sanctions, while Customs investigates for criminal sanctions exclusively. As pointed out by the Global Helicopter case, there are a number of instances where Commerce investigations uncover violations of the AECA. In those instances, Commerce special agents refer those aspects of the case to the Customs Service for further investigation or work the case jointly with them. Enforcement Need for Export Licensing Information: There was some confusion during the hearing over the question of what export information is useful in detecting export control violations. It is correct to say that export information from export licenses and SEDs is helpful in providing substantiating evidence, proving knowledge of export regulations by exporters, and other evidence needed for trial. It is also correct, and an important function, that our enforcement personnel review export license applications in order to prevent exports to questionable end users and to provide information useful in making decisions on whether to approve individual licenses. However, providing enforcement personnel with lists of approved export licenses is not very useful in terms of discovering or uncovering major export violations, while targeted inquiries for licensing information on specific companies or specific types transactions can be helpful in investigative work. As a practical matter it has been our experience that the vast majority of our significant cases, both criminal and administrative, are the result of tips. We believe this experience is similar to most white collar crime enforcement activities. As we see a reduction of license applications, BXA is looking to augment the information in its data base. One such activity is the SED program where BXA is working with its sister agency, the U.S. Census Bureau, to help develop an automated SED system which will provide a broad spectrum of export information. It would be extremely useful to both Commerce and Customs enforcement to have automated SED information available to their agents provided these agents can make "targeted" inquiries. Again, very seldom are major cases uncovered by scroffing through licensing or SED information. The ability to make targeted inquiries for selected information is the key to successful investigations. You should note, again, that in January 1982 Commerce provided Customs with access to licensing information through a Customs liaison officer housed within BXA. In addition, in May of 1986, Customs was provided a computer terminal with on-line access at its headquarters in Washington, D.C. Since installation, the Customs Service usage of this PAGENO="0502" 498 -5- terminal has averaged about one inquiry every two days. We have been and continue to be committed to providing appropriate export licensing information to Customs in support of its EAA investigative activities. Is There a "Conflict" Between Commerce's Trade Promotion and Enforcement? The Commerce Department has many functions. The International Trade Administration (ITA), whose duties include the promotion of U.S. products overseas, and the Bureau of Export Administration (BXA), whose duties include export control policy, licensing and enforcement, are each led by a separate Under Secretary who administers very different programs which have different responsibilities. So, the short answer to the question "Is there a conflict between Commerce's g~p~ enforcement and export promotion functions" is n~, there is absolutely no conifict between these functions. More importantly, there is no conflict between the regulatory, or export licensing, responsibilities of the Department and its export promotion activIties. I am not aware of any instances in which Commerce's export enforcement activities have ever been in conflict with the trade promotion activities of our sister agency, ITA. ITA has no mandate to promote illegal exports, BXA's licensing operation has no mandate to stop legal ones, and our enforcement arm enforces the Act and the regulations. Finally, the record speaks for itself. Perhaps the best evidence that there is no conflict is that, each year, BXA is responsible [through its joint OEL/OEE review of export license applications] for the refusal to license the export of hundreds of millions of dollars worth of goods. Commerce is proud of this record. Lack of Jury Appeal: When looked at as a general matter, export control violations which go to the heart of our national security should have good "jury appeal." Despite this, all too often they do not. Experience shows that cases can involve naive actors, benign appearing products, subsequent decontrols, and other similar factors. Jury appeal can be undermined by any of a number of factors. Export control cases often address very complex issues. Investigators and prosecutors must address these problems. The business community and the public need to be made aware of the impact of illegal exports on our national security. Need to Improve Interagency Coordination: The C-TEK case illustrated the difficulty an already overworked prosecutor had as a result of poor interagency coordination, specifically in the failure to assist the Assistant U.S. Attorney in the overseas aspects of the case. It is important that we work cooperatively with each other, supporting increased tools and resources for our export enforcement operations, while respecting each other's activities. We must work together for the national good. Commerce and the Admininstration are committed to working cooperatively to resolve disputes as they arise. PAGENO="0503" 499 -6- Resources: Export control cases are very expensive. Had the C-TEK case gone to trial, its cost to Commerce would have been even greater than the $600,000 it did cost. The Justice Department also had significant costs, which would have been multiplied had the case gone before a jury. These costs cannot be avoided if the goal is having an effective export enforcement activity. Without an effective enforcement activity, the regulatory mandate would be severely undermined. Canada: The Canadians are among our closest export control allies. We have worked very well with them over the years. Our system has long recognized the importance of the North American industrial base by eliminating the need for export licenses for most items crossing the border for consumption in either country. We have met often with the Canadian officials to share our export control concerns and coordinate our activities. Additionally, a great deal of informal cooperation occurs along the borders among the four law enforcement agencies involved in export control (Canadian Customs, the Royal Canadian Mounted Police, U.S. Customs and Commerce's Office of Export Enforcement). We will continue to work with the Canadian government to see that our special relationship prospers and supports the common security interests of our two great friendly nations. PAGENO="0504" 500 Mr. ANTHONY. I have got some speciflä questions that maybe you can respond to. ~I worked on two of the cases, and one was the Global Helicopter and the other was C-TEK, so I would like to ask you some questions concerning that. If Cardeon's modified Bell Helicopter is determined to be a civil aircraft, can Cardeon export it to Chile now, under current export law? Mr. CUTSHAW. Now in response to your question about the Bell Helicopter, if it is a civilian aircraft it can be exported to Chile under the general destination license. Mr. ANTHONY. It could be? Mr. CUTSHAW. Yes, sir, it can be. Mr. ANTHONY. If the helicopter is determined to be a military aircraft, can Commerce prevent its export to Chile? Mr. CUTSHAW. Mr. Chairman, if it is determined to be a military helicopter then it falls under another control regime-the Arms Export Control Act-which is administered by the State Depart- ment. And that takes it out of the jurisdiction of Commerce. Mr. ANTHONY. That would take it over to- Mr. CUTSHAW. To the State Department, under its authority. Mr. ANTHONY. I take it that that determination has not been made as of today? Who actually makes the determination? Mr. CUTSHAW. The State Department would make the determina- tion if it falls on the munitions list. Mr. ANTHONY. They would do that in cooperation with, in consul- tation with Commerce? Mr. CUTSHAW. Normally a decision is made by the State Depart- ment. On issues relating to the specifics on the licensing procedure I will defer to Mr. Baird. Mr. ANTHONY. But this is a case though where you had a piece of property that was detained by Commerce, seized by Customs, and the ultimate decision has to be made by State. Is that a correct in- terpretation of the situation that we find ourselves in, in the Global Helicopter case? Mr. BAIRD. When we looked at the helicopter initially, we be- lieved that it was likely to be a commercial item. In an unmodified form it was definitely a commercial item. If it were, it could move to Chile under a general license, the G-Dest license. Mr. ANTHONY. Which it, in fact, did? Mr. BAIRD. Yes, initially, that is right, before it came back. Mr. ANTHONY. Then it was sent back to Dallas? Mr. BAIRD. That's correct. In looking at it a second time, when it was sent back to Dallas, we suspended the general license authori- zation because we had information- Mr. ANTHONY. Based on the modification request? Mr. BAIRD. No, based upon the information that Mr. Cardeon was going to reexport that helicopter to Iraq. That would have been a violation of the Export Administration Act and the Presi- dentially imposed sanctions, and accordingly we suspended the gen- eral license authorization at that time. At the same time, because modifications were being made to that helicopter, we did refer the case to the State Department to determine whether or not it was a munitions item-which would mean any export license, even to Chile, would be reviewed by State. PAGENO="0505" 501 Mr. ANTHONY. At what point was Customs brought into this transaction? Mr. CUTSHAW. If I could ask Len Patak to respond to that. He was the special agent-in-charge of our Dallas export enforcement office. Mr. PATAK. If I could respond, Mr. Chairman? Mr. ANTHONY. Surely. Mr. PATAK. We initially looked at this in July and we detained it under the authority of the Export Administration Act to see if it did require license. Then, after the imposition of the embargo on August 2, we continued our detention, and contacted Customs soon thereafter regarding the detention of this helicopter. Mr. ANTHONY. So Customs detained it? Mr. PATAK. No, we initially detained it under the Export Admin- istration regulations. Mr. ANTHONY. So who actually is holding the helicopter now, Customs? Mr. PATAK. The helicopter has been seized by Customs for an import violation. Mr. ANTHONY. Who is in physical control of it right now? State, who has got to make the ultimate decision, or Customs who seized it, or Commerce who requested that Customs seize it? Mr. PATAK. Commerce does not have the helicopter any longer. Mr. ANTHONY. Does Customs have the helicopter? Mr. PATAK. Yes, sir, they do. Mr. ANTHONY. Has State seen it? Mr. PATAK. I am not personally aware if they have or not, sir. Mr. ANTHONY. You have got to be kidding me. [The following was subsequently received:] Mr. Anthony, I would like to insert in the record at this point a chronology of events relating to our handling of the Global Helicopter case. The Subcommittee may find it helpful in understanding the sequence of events. July 26, 1990-Commerce's Office of Export Enforcement (OEE) requested that the Office of Technology and Policy Analysis (OPTA), within Commerce, make a li- censing determination as to whether the helicopter needed a Commerce license as a "dual use" item. July 27, 1990-Commerce OEE case agent contacted the Aviation Section of the Department of State, providing them with a copy of the specifications needed to de- termine if the helicopter needed a State Department "munitions" license. July 31, 1990.-OEE Dallas received a licensing determination from OTPA indi- cating that if the helicopter was a commercial item it could be exported to Chile or Iraq under a general license; but that the Department of State might be able to claim jurisdiction under the Arms Export Control Act. Aug. 2, 1990.-OEE Dallas contacted the Aviation Section at the Department of State to follow up on the July 27th contact and was told that the Department of State was in the process of making a licensing determination. - Aug. 6, 1990.-OEE Dallas detained the helicopter based on information that Mr. Cardeon was going to re-export prototypes of it to Iraq, which would have been a violation of the August 2, 1990, Presidentially-imposed sanctions against Iraq. OEE sent a memorandum to Commerce's Office of Export Licensing (OEL) recommending that the general license authorization be revoked. Aug. 7, 1990.-OEE Dallas contacted USCS Dallas, notifying them of the case and suggesting they might wish to get involved because it might end up being a muni- tions case. OEE Dallas was told USCS would assign an agent to the case. Aug. 31, 1990.-OEL notified Global Helicopter and Swissco Management Group, by letter, that the general license authorization was revoked for the Bell Long Ranger Helicopter. Oct. 16, 1990.-Supervisors from OEE and USCS in Dallas met. OEE Dallas ex- pressed concern that the USCS agent assigned to the case had not yet contacted the PAGENO="0506" 502 OEE case agent. Shortly after the meeting, the USCS case agent met with OEE Dallas and was briefed on the case. A joint investigation was subsequently conduct- ed. Mar. 27, 1991.-Customs seized the helicopter based on an import violation. May 20, 1~92.-Representatives of the Department of State and the Defense Tech- nology Security Administration (DOD) physically inspected the Bell Long Ranger Helicopter in Dallas. As of that time, no licensing determination has been made by the Department of State. Mr. ANTHONY. What about you, Mr. Cutshaw, are you aware of whether or not State has seen the helicopter? Mr. CUTSHAW. No, Mr. Anthony, I am not aware of whether State has actually seen the helicopter. Mr. ANTHONY. What kind of cooperation and coordination have you got going with each other? You have got the officer in charge, you have got the Under Secretary, and this case has been going on and it has been aired in public before this subcommittee and no one can say whether State has seen the aircraft to determine whether it is a modified civilian aircraft for military purposes for you to make a decision and everybody has been testifying that there is no problem between agencies and cooperation and coordi- nation? That's not what I am getting from this. What I am getting is that you all don't talk to one another. State is going to be up here next and I hope that State will go and make a few phone calls and be able to answer that question as to whether or not anybody within the State Department has actually physically gone out and looked at this helicopter to make a determination as to whether or not it is a civilian aircraft or it is in the process of being modified to a military aircraft and, according to Mr. Baird's testimony, I assume from some type of intelligence, was going to be exported back to Chile and from Chile to Iraq. That was the authority under which Commerce detained it and I still don't know, although I asked Commissioner Hallett under what specific legal authority Customs actually seized the helicopter. Are you the agent who seized it? Mr. PATAK. No, sir, my office is the office that detained the heli- copter. Customs actually seized the helicopter. Mr. ANTHONY. Who seized it? Mr. PATAK. The U.S. Customs Service. We detained the helicop- ter pending receipt of a licensing determination. We have been in contact with Customs throughout the entire investigation and we have given them our support and information which enabled them to secure an affidavit for the seizure warrant for the helicopter. Mr. ANTHONY. No, I understand all of that. I got Commerce's fin- gerprints all over that helicopter. I got Customs' fingerprints all over that helicopter. But the one agency that has to make the final determination to tell Commerce what to do with it, so that Com- merce can tell Customs what to do with it, you cannot tell me as to whether anybody in your two agencies have communicated with State. I find that very appalling. Now, I can forgive you for not having read the transcript, Mr. Cutshaw, because of getting married but this was going on while you were in courtship. You could have had time to talk to State over this. We will go on and we will ask State if they have seen this heli- copter and if they have not, I hope they send somebody out before PAGENO="0507" 503 they come and testify so that they can say, yes, we have seen it but we only saw it 20 minutes ago. I hope they can at least say they have seen it. Now the C-TEK computer case. The one positive thing that you have said is that you are seeking international and bilateral coop- eration so that you can obtain admissible evidence and that is a goal that should be pursued. I encourage you to continue it. But under that case, we had testimony by the former assistant U.S. at- torney in the case that testified that the Canadian Government failed to execute search warrants in support of the C-TEK investi- gation. The question is, to what extent is Canada required to assist U.S. investigations involving export control violations as we under- stand it today or as it was in that case? Mr. CUTSHAW. Mr. Anthony, we have encountered very good co- operation with Canada over the years. They are a very active member of COCOM and they have an export control system that is similar to ours. In regard to investigations, we cooperate with them on a regular basis and on a very active basis and in the C-TEK case, they cooperated as well. Mr. ANTHONY. But you have got the prosecutor saying they failed to execute the search warrant. You have the prosecutor who is in charge of the investigation saying that she had trouble pursuing the case because of the Canadian Government not doing something and you testify that you have got great cooperation. I am hearing conflicting statements. I don't know which is correct. Are the Cana- dians required to inquire whether a reexport license was obtained from the United States before they issued their export licenses for U.S.-origin commodities? Is that a requirement in Canada? Mr. CUTSHAW. No, sir, the responsibility for that lies with the ex- porter and he is the one who has to seek the reexport authoriza- tion. If he seeks to reexport something from Canada, he has to come back to the U.S. authorities to seek that authorization. Mr. ANTHONY. So if he just exports it to Canada and lies to the Canadian Government it appears to me that that is a loophole wide enough to run not only C-TEK computers through but maybe this Global Helicopter through too and a multitude of other things. How are you going to stop that? Mr. CUTSHAW. Well, Mr. Anthony, we have- Mr. ANTHONY. Other than through a tip? Mr. CUTSHAW. Our systems are very comparable. We have both established export control systems and we have reexport authoriza- tion requirements. The reason we allow goods to go to Canada without export licensing is that their system is similar to ours. Now, the exporter is under the obligation to seek reexport authori- zation and he would be in violation of our law if he seeks to export from Canada without it. Mr. ANTHONY. I understand the regulations and the statutes, but when you have a guy named Casperson who testifies and says, what I would do again, now having learned all of this stuff, is just ship it to a legal entity in Canada and just let them ship it on out of Canada and nobody would ever know about it, if there was not a tip. PAGENO="0508" 504 Now, Customs testified that 85 percent of their cases were devel- oped by tipsters, and what is the percent of cases that Commerce gets involved in based on tipsters? Mr. CUTSHAW. Mr. Anthony I would say the overwhelming ma- jority of the cases are created through business cooperation and business tips which result from our Project Outreach. It is a result of the good relationships we have with the business community be- cause we work with them on a daily basis. Mr. ANTHONY. Mr. Cutshaw, I have actually been told by some of your staff that the figure is as high as 95 percent, not below 85 per- cent. I can understand our having a voluntary income tax program and relying on volunteerism. I guess what is troubling me is that the more we continue to discuss this, that there is no problem be- tween State, Commerce, and Customs, even when you lay out some cases where problem areas just jumped out at you, there just seems to be a hesitancy to publicly acknowledge that those were problem areas. It looks like to me that you are saying, yes, that was a prob- lem but that was the only case you can find to say that we had a problem with. What you are saying is that there are just no prob- lems whatsoever. I am getting real frustrated by it. Then to find that most of the cases are actually discovered by tipsters. I guess the key question would be how much of our intelli- gence is involved in that particular determination of tipsters versus a mad business competitor who is trying to stop the sale because they would not violate the law and suspect somebody else, and the problem is we will never get that answer because intelligence is always going to remain a secret because of national security pur- poses. You can see my frustration too, I guess. Mr. CUTSHAW. Mr. Anthony, if I could interject, I do see the frus- tration and I do not mean to leave the impression that there are no problems in the system in the United States or Canada. Mr. ANTHONY. Stop right there. For the next 3 minutes just list out some of the problems, and then take another 3 minutes and list some of the solutions. I yield back my time to you for those 6 min- utes. Mr. CUTSHAW~ Well, Mr. Anthony, like any system you have to work to get to the perfect model. Frankly, we. have been working on that over a number of years. The enforcement of export viola- tions is a difficult thing to accomplish. You have some very sophis- ticated criminals, white-collar criminals that do use the most so- phisticated methods and various points of diversion. We are work- ing, both within the Department of Commerce and with other agencies, to identify the diversion points and the methods used by EAA violators. This includes information sharing. I think that it is critical to the process to share pertinent information among the agencies. We share information with Customs, sometimes on a daily basis, but at least periodically. We exchange our case lists, we exchange the names of those people we suspect may be in the proc- ess of violating the export control laws. [The following was subsequently received:] Since January of 1981, we have had a Customs Liaison Officer assigned to Corn- merce to assist in the free flow of investigative information between our two agen- cies. In addition, in May of 1986, we provided the Customs Service headquarters PAGENO="0509" 505 here in Washington with a computer terminal to allow them direct access to our licensing data base. Mr. CUTSHAW. We also have problems with regard to working internationally. Each country has its own governmental interest and certain diplomatic interests that are involved in dealing with export violations. By their very nature, export violations involve an overseas transaction. And that brings into play the individual country's nationalities and sovereignties as well as ours in the United States. We have tried to tackle those problems by working through the Coordinating Committee known as COCOM and trying to coordi- nate the transfer of technologies among Western countries. I be- lieve that we are looking at that very significantly in the sense that in COCOM we are attempting to establish a common standard of enforcement that will be adopted by all the COCOM countries. There are 17 countries that are involved in COCOM. I was privi- leged to chair a conference in April of 1990 where representatives from all 17 countries met to share views and to determine where we could cooperate better. Multilateral cooperation is essential be- cause by their very nature, these violations involve more than one country. I think you saw that very well in the C-TEK case. Also, in the proliferation arena, very difficult enforcement chal- lenges are posed in the sense that tracking the sales of these items, like the chemical precursors, the biological agents and missile tech- nology, can be very difficult. I know this administration has under- taken a very strong initiative to address the problems we have had in the past by establishing the Enhanced Proliferation Control mi- tiative-EPCI. My Department has been a major player in this ini- tiative. What EPIC has done is to try to increase the controls on the chemical precursors, making them worldwide controls, and ex- panding controls on chemical and biological production equipment. We are, right now, undergoing a review of the controls over missile technology, working very closely under the Missile Technology Control Regime-MTCR---to try to create better multilateral coop- eration and more systematic and harmonized controls over the technology that deals with the production of missiles. In addition, under EPCI, we are in the process of developing a regulation that would allow us to prohibit the export of any type of commodity, whether a toothbrush or a licensable computer, that is destined for a missile, chemical-, or biological-weapons facility in certain countries. That regulation was put out for public comment 6 weeks ago. We expect to have a final regulation adopted soon. That will go a long way toward correcting any problems we may have seen in the past where items are exported and may be used in weapons against us. [The following was subsequently received:] We are also reviewing the menu of discussion items, mentioned earlier, and in- serted in this transcript as Appendix A, to see which can be implemented in order to enhance the enforcement of U.S. export laws. Mr. CUTSHAW. Those are some reforms that we are addressing and we are trying to implement very aggressively. Mr. ANTHONY. Thank you, that was a nice summary. PAGENO="0510" 506 It appears to me that that is very manpower intensive and de- mands significant manpower to do an adequate job, is that correct? Mr. CUTSHAW. We are continuing to review our manpower re- sources, but at this point we have adequate resources within Com- merce; the current resources are adequate. Mr. ANTHONY. It is my understanding that in 1986 the Congress approved 197 positions for Commerce's export enforcement pro- gram, is that correct? Mr. CUTSHAW. I believe that is correct, sir. Mr. ANTHONY. It is also my information that at any given time, the maximum number of special agents assigned to the task of en- forcing export controls was 90. Mr. CUTSHAW. That is correct. However, let me elaborate a little bit on that. Those 197 positions are more than just agents. Within Export Enforcement we have an Office of Enforcement Support that looks at the export licensing process and works very closely with Mr. Baird's operation in reviewing the license applications. We also look at the antiboycott laws. We have a full staff that han- dles violations of the antiboycott statute. And so our mandate is broader than just hiring agents. The maximum number of people we have had on board was 172, in July 1989. Mr. ANTHONY. I understand, and maybe you can submit a break- down of each category so that I will make sure my comments and my impression will be correct. [The following was subsequently received:] PAGENO="0511" CHART #1 Export Enforcement Manpower Figures [As of March 1991] Category FTE On Board Assistant Secretary's Office 21 11 Export Enforcement Support 26 23 Office of Export Enforcement 109 89* [* Includes special agents and clerical support in the field (75), special agents and clerical support in the Director's Office and special agents, analysts and clerical support in the Intelligence Division (14)] Office of Antiboycott Compliance 30 23 186 I I L~ ~ - NA N/1CI~! I 1OA~DO~/2CI~& 9DOWDOD/2 CNTIo~I 7~N~2C1~DO1 I I * I I U III I I U I I U I I -~----, 5A~WN~/1 Cs- I~ I DOWN 5/ A - ~7~-~-----~ 3AgWDON/1C5~ I /2 AWN 5AusDON/2C15/ICN I/I 507 Total 146 COMMERCE/OEE MANPOWER FOR THE 19905 FTE verses On Board Strength ++ AUTHORIZED FTE ON BOARD COUNT WAFO ____________________ LAFO CHFO M FO __________ BOFO _______________ DAFO ___________ I NTEL ______________________ HO DOs,t, AWtNC,-125d CIs/ ICNI MODe 2Nd ~AAWNIysNNANCNW,IDOd [OEE on board count as of May 15, 1991] PAGENO="0512" 508 Mr. ANTHONY. The President's budget request for fiscal year 1992 shows a reduction of 30 authorized positions for Commerce's export enforcement program and so I guess what I need to get from you is a breakdown by policy groups under your department so that I can specifically see where your personnel level has been and where it is proposed to go under next year's budget. Could you do that for me? Mr. CUTSHAW. Yes, sir, I could. [The following was subsequently received:] PAGENO="0513" 509 ChART #2 FTE, ON BOARD COUNT, AND FUNDING FOR TilE BUREAU OF EXPORT ADMINISTRATION'S EXPORT ENFORCEMENT OPERATIONS [Fiscal Years 1989 - 19921 [Excluding administrative support and centrally funded items] FY Assist. Export Office of Office of Secretary's Enforcement Export Antiboycott Office Support Enforcement Compliance [Dollar Figures Shown in Thousands] 1989 FTE 16 FTE 29 FTE 111 FTE 30 0/B 13 0/B 29 0/B 108 0/B 22 $ 1,098 $ 1,202 $ 6,135 $ 1,185 1990 FTh 20 FTE 24 FTE 112 FTE 30 0/B 11 0/B 27 0/B 99 0/B 23 $ 902 $ 1,011 $ 6,720 $ 1,721 1991 FTh 21 FTE 26 FTE 109 FTE 30 * 0/B 11 0/B 23 0/B 89 0/B 23 $ 1,197 $ 943 $ 5,973 $ 1,324 1992 FTE 19 FTE 26 FTh 79 FTE 30 ** $ 1,245 $ 1,002 $ 6,304 $ 1,391 * Note: The on board [0/B] count noted for FY 1991 is as of March 1991. ** Note: The on board [0/B] count has been omitted for FY 1992 and the FTE indicates the figures contained in the President's FY 1992 budget proposals. 51-840 0 - 92 - 17 PAGENO="0514" Mr. ANTHONY. At first blush, it looks like Congress has asked you to hire a lot more people and you have only hired a certain number and the administration is even asking that 30 of those people be reduced for next year. Before I make a misinterpretation of those numbers, if you could, just for the record, break them out for us by groups within your department? Mr CUTSF~W I ~. oudo be ~enn to ~ e I a~e a u~o ware 75 to 90 agents au any g o a' e a SU~~DLL stafi of a~ot~ e 20 on top of that which support those agents. That would represent about 95 to 110. We have an Office of Enforcement Support which works with the licensing office to make sure that we catch any unauthorized end users from receiving controlled technology that consists of around 20 people. The Office of Antiboycott Compliance, which enforces the antiboycott provisions of the Export Administration Act has a staff of approximately 25 as well, and that brings it up to about 140 to 155. Then my staff and the Assistant Secretary's staff and the policy staff consists of around 10 people. So we are upwards of 150 to 165 people that we try to fund. Now, the President's 1992 budget request did ask for a reduction of 30 positions in export enforce- ment positions that have never been funded by the Congress. Due to a lack of funding, we have not been able to fill those positions. Our FTE under the President's budget would be 186. Mr. ANTHONY. I thank you for that explanation. If you would break that down for me. Mr. CUTSHAW. I would be happy to put that in writing. Mr. ANTHONY. Thank you, Mr. Chairman. Chairman PICKLE [presiding]. Mr. Sundquist. Mr. SUNDQUIST. Thank you, Mr. Chairman. Mr. Cutshaw, I want to ask a question in terms of the tools that are needed to strengthen export enforcement and specifically where a foreign national has been indicted, that person is at large and that individual is beyond the immediate reach of our criminal justice system, would it be helpful to lengthen the statute of limita- tions for bringing the administrative charges in those instances? Mr. CUTSHAW. Yes, I think it would be very helpful if we could toll, or extend, the statute of limitations in cases where there is a criminal indictment, so that we do not lose the ability to impose administrative sanctions. Also, if we have a fugitive at large, if we could also have additional authority to impose a temporary denial order based solely on an outstanding criminal indictment, it would be helpful. This would allow us to immediately notify the law-abid- ing business community that they are not to deal with the fugitive prior to bringing him to justice. Mr. SUNDQUIST. This would involve some people who have still remained in business somewhere, right? Mr. CUTSHAW. That's correct. They can remain in business in a foreign country and this is not an extraditable offense, so that it is hard to get them back to this country. Mr. SUNDQUIST. The second question in regard to the permanent police powers that lapsed in September, the Export Administration Act when it lapsed, the authority of your special agents to exercise police powers under section 12 of that Act came into question. Would it be helpful to make that police power permanent so that it PAGENO="0515" 511 would be available when regulations are extended under the Inter- national Emergency Economic Powers Act? Mr. CUTSHAW. It would be very helpful. When the Export Admin- istration Act expired there was some uncertainty as to whether the police powers that were granted in 1985 to the Department of Com- merce under the EAA were still in effect. To ensure that we had these police powers and out of abundance of caution, we chose to seek to have our agents deputized as special deputy U.S. marshals so that there would be no question that they could continue to ex- ercise their police powers. It would be extremely beneficial to have permanent police powers just like most other law enforcement agencies already have. Permanent police powers should be provided by statute so that they do not expire in the event that the Export Administration Act does expire again. Mr. SUNDQUIST. Has that been harmful to your operation, that expiration, and are you losing any people? Mr. CUTSHAW. I think it has been harmful in terms of our en- forcement effort. However, during the 4 months when our agents were unsure of their police power authority-October 1990-Janu- ary 1991-there was low morale because our criminal investigators were trying to do their job, but doing so without the necessary tools. This doesn't do much to help the morale of the special agents responsible for enforcing the EAA. I think we stepped in and cor- rected it as quickly as we could and we got the cooperation from the Justice Department to deputize our agents. Mr. SUNDQUIST. Have you had to bring in some Customs Agents to serve warrants and make seizures? Mr. CUTSHAW. There have been a few instances where assistant U.S. attorneys were unsure of our police powers and asked that the Customs Service accompany our agents in serving warrants and making seizures. In other instances, we have acted independently with no adverse impact on our cases. Mr. SUNDQUIST. You are not losing any Commerce agents be- cause of that who are going to work for the FBI, DEA, or Customs? I have been told that as many as 40 percent could leave. Mr. CUTSHAW. I don't think that is a completely correct charac- terization. We may have lost a few agents but I don't think it was totally as a result of losing the police powers. We did attempt to quickly put those back in place although it took several months. As you know, there was some uncertainty about the possible passage of the EAA in the last Congress. As soon as we determined that there was some uncertainty, we chose to go the path of seeking the cooperation of the Justice Department to have and deputizing our agents deputized. Mr. SUNDQUIST. But the police powers are not back yet? Mr. CUTSHAW. No, we do not have police powers under the IEPPA. They are exercising police powers under deputization from the U.S. Marshals service. Mr. SUNDQUIST. Will Justice accept your cases if they don't in- volve Customs officials in those acts? Mr. CUTSHAW. The answer is generally yes, they have accepted most of these cases. There has been some concern by certain AUSAs, but we have been able to work it out to make sure that our cases are handled properly within the Justice Department. PAGENO="0516" 512 Mr. SUNDQUIST. I want to talk about the things I asked the Com- missioner in terms of sentencing and penalties. Former Assistant U.S. Attorney Portia Moore, when she was here, identified several barriers to successful export investigations. She talked about low sentences provided for in the EAA and civil penalties also were considered too low. I believe the civil fine for foreign policy controls is $10,000 per count and for national security controls it is S100,000 per count. And she also cited legal obstacles that prevented forfeit- ure of illegal proceeds from export crimes. Is the maximum 10-year sentence an adequate deterrent or punishment for sentencing under the EAA? Mr. CUTSHAW. .Mr. Sundquist, I think it would be appropriate to have stiffer penalties. I believe it is apparent to Congress and to people who enforce the laws that stiffer penalties would provide a greater deterrent and I believe that this administration supports stronger penalties. As to what level it would be raised to, I think it is still subject to discussion, but stiffer penalties in terms of longer imprisonment and higher fines are certainly appropriate. Mr. SUNDQUIST. How about a 10-year minimum and 20-year max- imum? Mr. CUTSHAW. In my personal opinion I think that sounds very reasonable, but I cannot speak for the administration in the sense that it has not been studied in terms of what level of penalties we would like to see. Mr. SUNDQUIST. In many export cases we found that money laun- dering statutes were used for forfeiture. Does EAA provide suffi- cient forfeiture authority? Mr. CUTSHAW. The EAA does not really address the money laun- dering issue but to the extent there is an export violation that does have cash transactions involved, we do have the authority to seize the cash involved in that transaction. The Commerce Department does have the authority to detain and seize goods. We do not have the authority to forfeit the goods and in those cases we have to go to other agencies and rely on their cooperation. Mr. SUNDQUIST. Would it be helpful if you all had that? Mr. CUTSHAW. I think it would be helpful to have that and we are currently seeking that authority within the administration. Mr. SUNDQUIST. Now, do the EAA or money laundering statutes cover money that is transferred within the United States? Mr. CUTSHAW. The EAA has no oversight over domestic transac- tions. It has to involve an export transaction, so in that case it would not. Mr. SUNDQUIST. So there may be a window there that somebody involved with exporting, laundering money within the United States, transferred within the United States, there may be a fluke in the system there? Mr. CUTSHAW. I have very little knowledge about the money laundering act. Mr. SUNDQUIST. Maybe you can respond for the record. Mr. CUTSHAW. I will be happy to look at that. [The following was subsequently received:] Mr. Sundquist, in the April 18th hearing, former Assistant U.S. Attorney Portia Moore, expressed concern that funds transferred within the United States for the purposes of violating the EAA were not caught by the money laundering statute. PAGENO="0517" 513 She suggested that the law be changed to allow the U.S. Government to have legal recourse against these funds in the context of export control violations. What Ms. Moore is suggesting is applicable to more than just the EAA. It could equally apply to other "white collar" crimes. Consequently, I would reserve judgment and ask that you refer this issue to the Department of Justice, which has a broader jurisdiction that we do at Commerce. Mr. SUNDQUIST. In the Alcolac case, the company did not have a list of prohibited chemicals on hand and the export manager had no training in export controls. Would you comment on whose fault that was? Who bears the responsibility? Mr. CUTSHAW. As far as the export controls, it's the obligation of the company to become aware of the export controls. Now, we un- dertake strong initiatives, not only on the enforcement side, but I know that Mr. Baird's operation on the licensing side has extensive seminars. They have them once a month throughout the country and we try to do the same with Project Outreach to reach all these companies and explain the export controls and advise them of the regulations and the list that are involved for those controlled items. Mr. SUNDQUIST. Should that be mandatory, this training in the more sensitive industries like chemicals or aerospace? Mr. CUTSHAW. I think it is appropriate to say that exporting firms should attend one of these seminars but I would not favor making this training mandatory. I think those industries that have technologies or sensitive goods are very familiar with the export control system. They have the associations that represent them here in Washington, and we have extensive contact with those as- sociations and industries. Mr. SUNDQUIST. Should we make it mandatory? Mr. CUTSHAW. I think it would be difficult to make it mandatory given the amount of international trade and number of U.S. ex- porters. I think it is pertinent for the individual as an exporter to be aware of the laws. In a sense, it is mandatory that U.S. export- ers know the law and the controlled items or they could be found guilty of violation of the Act. Mr. SUNDQUIST. Let me talk about the effectiveness of denial orders again in the Alcolac case. I believe that Commerce believes that denial orders are effective, do you? Mr. CUTSHAW. We certainly do. Mr. SUNDQUIST. Now, Defense and Customs have said that they think they are ineffective. And that raises questions about whether we can help strengthen these enforcement tools. In the Alcolac case, do you have the authority to put a firm out of business in that instance? Mr. CUTSHAW. In the Alcolac case we did deny the export privi- leges of Peter Walaschek, who was an individual involved in that particular export, and two of his affiliated companies. The denial order imposed on that individual and those two companies prohib- its them from engaging in the export of any U.S. technology and prohibits any other U.S. firms from selling or exporting to them. We feel that this type of deterrent is very effective. I just would submit that most of the major corporations that deal in exporting controlled technologies have very elaborate systems within their PAGENO="0518" 514 organization and they check the denied party list regardless of the transaction. Mr. SUNDQUIST. Would it be helpful to give you the authority to put a firm out of business totally and entirely? Mr. CUTSHAW. Well, in effect, when we remove their export privi- leges they are out of the international business entirely and, as far as domestic transactions, the Export Administration Act does not reach domestic transactions. Mr. SUNDQUIST. Do you have authority to prevent firms from re- ceiving Defense or other Government contracts? I think you may have answered that. Mr. CUTSHAW. No, sir. Mr. SUNDQUIST. Would that be helpful? Mr. CUTSHAW. That's an issue that I would like to give you an answer-- Mr. SUNDQUIST. Maybe you can comment on all of those ques- tions in more detail. Mr. CUTSHAW. I would be happy to. [The following was subsequently recieved:] Mr. Sundquist, we deal with export control and export enforcement issues. The area of procurement is pretty much out of our realm of responsibility. I would say that the export denial tool that we currently have is a very powerful deterrent against violations. Most firms are very careful to obey the export regulations, espe- cially those firms which are involved in extensive international business dealings. On the issue of linking violations of the EAA to a prohibition against domestic pro- curement, I would defer to the Department of Defense, which has extensive procure- ment actions, and to the General Services Administration (GSA). Chairman PICKLE. Mr. Cutshaw, I have a few questions. Let me follow through with two questions. In the press last fall there were stories that pointed out that Americans had sales to Iraq totaling about $1.5 billion. That was verified this morning by one of the wit- nesses. And we have enjoyed very brisk sales to Iraq. And this was a sale of equipment, computers, electronic equipment and other items that was sent to their Defense Ministry and obviously being used for that purpose. Sometime last year, apparently the Commerce Department thought that we ought to cut down in the licensing of sales to Iraq and recommended that we slow down and pull back on it. We were advised, according to the press that the State Department balked on that, that they said, no, we don't want to right up to the time of the invasion. So my question to you-Did the Commerce Department slow down the issuance of sales to Iraq last year? Mr. CUTSHAW. Mr. Chairman, after it came to our knowledge that the Iraqis did launch some missiles, we did begin to look at the licensing on a case-by-case basis consistent with the ädministra- tion's policy. Chairman PICKLE. What information did you, Commerce have that recommended that you slow down these sales and the State Department said, no? Mr. CUTSHAW. Well, Mr. Chairman, we did operate within the administration position to look on a case-by-case basis and, of course, after August 2, when the embargo was imposed then we- PAGENO="0519" 515 Chairman PICKLE. My question to you is what information did you have that you recommended that you ought to slow down the sales at this time? Mr. CUTSHAW. Mr. Chairman, the Director of the licensing office can answer that. I would defer to him for that answer. Mr. BAIRD. Mr. Chairman, in my capacity as the Director of the licensing office, we were concerned about the bellicose action of Iraq in its threats towards Israel and we were also concerned about their successful launches of ballistic missiles. As a result, the Under Secretary directed that, before any Iraqi license be issued, it be reviewed at the most senior levels in BXA to make sure that its issuance would be in conformity with what was then an evolving administration policy. At the same time, there were discussions with other agencies, the State Department, the Defense Department, as to what should be the policy toward Iraq and whether any modifications should be undertaken. During the course of those discussions, the Commerce Department did impose these additional management reviews of Iraqi licenses. Chairman PICKLE. Well, I could understand why you would want to do that based on your statement and yet, the State Department said, no, we ought to go ahead with these sales. It seems like there was a direct conflict between the two. Mr. BAIRD. I think both agencies were in discussions as to what that policy should be and I think that policy was evolving all during the spring up until the time when Iraq did invade Kuwait. Chairman PICKLE. Well, why is it, if you were cutting back on sales, that you were also recommending cutting positions out in the enforcement area of your division. You were going to cut out the enforcement positions, is that correct? Mr. CUTSHAW. Mr. Chairman, we have a small enforcement agency of approximately 80 or 90 agents and the recommendation of the fiscal year 1992 budget is only consistent with the fact that 30 FT slots had never been filled because of lack of congressionally approved resources or lack of funding. But we do continue to per- form our job with the agents that we have and we have a stable, consistent enforcement agency and we have been consistent at this level for a period of time. Chairman PICKLE. You are saying you really didn't need them and therefore, you just cut them back? Mr. CUTSHAW. No, sir, what I'm saying is that those positions were never filled due to a lack in congressionally approved funding and we are trying to make do with the resources that we have. We feel like we are doing an effective job with the resources that we have. Chairman PICKLE. I want to ask you a question about some of the sales to Iran. The press ran a story that you sold some pumps to Iran and they were sent to Iran Defense Ministries and the custom- ers intercepted them. And these pumps could be used for military purposes, at least that was Customs contention and they seized them. It has been quite a controversy. One of the people who testi- fied at our hearing last time, on April 18, pointed out that these shipments of goods to Iran was very questionable and shouldn't have been done. I quote now his statement, Dr. Stephen Bryen. He PAGENO="0520" 516 said, that these near shipments of the pumps to Iran illustrates quite clearly that the export licensing system that we have does not work. Now he is the director of the Defense Department Invest- ment area. And he said, there is little or no oversight in the export control system. I see no evidence, he says, of quality control as a reàsona- ble person would understand it. And he points out that the goods were shipped directly to the Defense Agency of Iran. Now, here is your top man in the Defense agency saying we really have no control. Is that true? Mr. CUTSHAW. Mr. Chairman, if I could kind of paraphrase your question, I think you are trying to determine if the licensing system is working within the U.S. Government and, frankly, I be- lieve it is working. There is significant cooperation. I believe one of the earlier witnesses indicated that the Defense Department does review a large number of licenses that Commerce has the final au- thority to issue. I would defer to Mr. Baird to respond further on this cooperation between Defense and Commerce. [The following was subsequently received:] I would point out that we at Commerce must follow the laws as passed by the Congress and the regulations as published in the Federal Register. We have a trans- parent export licensing system and we cannot deny an export license unless there is the legal authority to do so. That is one of the reasons the new EPCI proposal is so important. It will give us the authority we need to stop some of the exports which previously we could not stop. Chairman PICKLE. You would say it is working nicely but after two hearings, at length, we have been told over and over again through the examples of these four instances that it is not working as smoothly as it should and a lot needs to be done. I have the feel- ing that you and the other agencies agree with that, but I think you are having some difficulty how you are going to get together and how you are going to handle that. Admittedly it is a complex question, but I think that most people feel that the Commerce De- partment will issue a license for almost anything. They would sell their mother-in-law if you let them. They want to sell anything and they give a license for almost anything. Perhaps you are right that we pride ourselves on making ex- ports, making sales, and the State Department on the other hand, wants to encourage the favorable cooperation of all the nations and they hesitate to cut off sales of anything until the very last, almost up until the time in the Iraq case when we dropped the bombs on them. Until at least they invaded Kuwait. Now, that is a tendency that is inherent in both of your depart- ments. Customs is just an enforcement agency and you both kind of pull them back at different times so that they won't get too tough to cut off or curtail sales. Now, these are opinions and I think that many people feel them. To the extent that this correct, I would think it is high time that these various agencies get together-al- ready today we have been after some closed sessions, and we will be glad to meet with the various agencies, but we are going to talk with other committees, and I hope in the public we can reach a conclusion on how we can do this thing better. PAGENO="0521" 517 Your department is the very base of our problems. You give the license, you start it more than anyone. I just simply say there is lots of ground for improvement and I would hope that we could get our parties together. We are going to make our recommendations and we would like to have your cooperation too. Mr. CUTSHAW. Mr. Pickle, I can agree with you that we do have some concerns to look at, but I would like to ask Mr. Baird to com- ment on his licensing operation at Commerce, if you would allow it? Chairman PICKLE. Fine. Mr. BAIRD. Thank you, Mr. Pickle, I will be brief. Obviously there is always room for improvement and we will look forward to your recommendations for improving our system. But I would like to state quite emphatically that the process is not broke. It actually works extremely well. The Iraqi cases, for which we have gotten a good deal of bad press and concern from people like Dr. Bryen, ac- tually demonstrate that an extremely high degree of coordination that takes place in licensing. Of all the licenses that were issued to Iraq during the past 5 years, virtually 70 percent of them were re- viewed by other agencies and their comments considered. In no case was a license issued by the Department of Commerce over the objection of another agency without that agency having full oppor- tunity to escalate the matter to the policy level. I just disagree em- phatically with Dr. Bryen's characterization that the system is in disarray. Chairman PICKLE. I accept your statement that you believe the process is not broke, and I hope that that is correct, but it sure is in need of repair. There is too much frustration and confusion going on out in the world about which agency does what and I be- lieve there is clear ground for improvement. We took four cases and examined them, they were cases of record and many cases where convictions have been made. And we have pointed out over and over and over, dozens of instances where one agency did not know what the other agency was doing. Now, overall perhaps we are doing better than most people think. I would hope that is correct, but I have serious reservations about accepting that as a fact. We are going to pursue this by talking to other agencies. Right now we are going to talk to the State Department. I thank you, very much for your testimony. Mr. BAIRD. Thank you, Mr. Chairman. Mr. CUTSHAW. Thank you, Mr. Chairman. [The following was subsequently received:] PAGENO="0522" 518 UN~mmD ETATEP ~TVmN7 C~ Durccu o~ Expmrc Ac ii trct~on WaCmngton. D.C. 2023C August 2, 1991 jqo~ The Honorable J.J. Pickle Chairman Subcommittee on Oversight Committee on Ways and Ileans House of Representatives Washington, D.C. 20515 Dear Hr. Pickle: Thank you for your letter of May 14, 1991. I was pleased to testify before your Subcommittee on Oversight concerning the enforcement of U.S. export controls. The following are my answers to the questions posed in your letter. I understand that these follow up questions and answers will be included in the public record. To the extent I have been able to answer your questions, those answers may be made part of the public record either because the section 12(c) confidentiality provisions do not apply or because they fall within the scope of the national interest determination made pursuant to section 12(c) for your April 18 and May 1 hearings. We do not believe an additional determination is necessary. Please understand that I cannot provide you any information concerning our ongoing investigations. I thank the committee for providing the opportunity for BXA to respond to these issues in a thorough and comprehensive manner. Sincerely, nneth A. utshaw Deputy Assistant Secretary for Export Enforcement PAGENO="0523" 519 1. The Customs Service recently seized a shipment of specially designed pumps destined for Iran's Defense Ministry that had been cleared for export by the Commerce Department. Dr. Stephen Bryen testified before the Oversight Subcommittee on, April 18, 1991 that Customs had intercepted eight crates of special nickel-plated pumps that can be used in the manufacture of gunpowder, propellants for rocket motors, or plastic explosives of the type used to blow up Pan Am Flight 103 over Lockerbie, Scotland. According to Dr. Bryen, the State Department classifies Iran as a "terrorist country" for which export licenses are required for the shipment of high-technology goods. The Commerce Department did not classify the pumps as high-tech items. a. Why did Commerce issue a license for specially designed pumps destined for the Iranian Defense Ministry? Why aren't these pumps classified as high-tech items? b. In The Washington Times dated April 27, 1991, a company official stated that the company did not tell the Commerce Department that the pumps were destined for the Iranian Defense Ministry because it was not legally required to give such information. Is the company official correct? Did the company ever ask the Commerce Department whether a license was needed to ship the goods to Iran? c. Did Commerce ever inquire about the Iranian end-user? Did the company know where these pumps were going? d. Dr. Bryen testified that Commerce is "trying to figure out how to reverse its previous decision (to license to [sic] pumps)." Is this true? What can you tell us about this? e. Dr. Bryen's testimony indicates that two other shipments were made in the 1980's, possibly with Commerce export licenses. Did the Commerce Department issue licenses for previous shipments of pumps to Iran? Answer These questions concern a matter which is the subject of an ongoing investigation. Once the case has been closed, we will be happy to revisit the issue with you. I would point out, however, that these questions contain several assumptions of fact which, while they may or may not be true, give the appearance of implying that Commerce is somehow at fault. In coordination with representatives of the Department of Defense, I have determined that Commerce PAGENO="0524" 520 licensing and enforcement officials have made no errors in assessing the licensability of the pumps. 2. The Subcommittee on Oversight is aware of another case being investigated by the Department of Commerce involving a Texas company that shipped oil drilling equipment and spare parts illegally to Libya after the U.S. trade embargo. Provide the Subcommittee with a complete report on this investigation, including the detailed description of the illegal shipping scheme, the parties involved, the evidence gathered, and the disposition of the case. Also, provide the Subcommittee with relevant documentary evidence collected during the investigation and used to prosecute the culpable parties. Answer This matter is still an ongoing case and I cannot comment on it or provide the information requested. Once the case has been closed, we will be happy to revisit the issue with you. 3. In terms of strengthening the U.S. export control system by targeting few commodities, what assurances are there that the "higher fences around a fewer number of goods" will work? To what extent does the move toward "higher fences around a fewer number of goods" assume that there are adequate resources to keep the "higher fences" from developing holes?" Does the Commerce Department have adequate enforcement resources? To what extent is Commerce export enforcement being asked to give up positions? Answer The theory of higher fences around fewer goods makes good sense. It can work in practice, provided the CoCom members develop appropriate systems for controlling exports and commit sufficient resources to enforcing those controls. Currently, CoCom members are in various stages of fulfilling their commitment to attain the agreed upon Common Standard for Effective Enforcement. We need to see how these export control systems are defined and implemented before we can determine whether there are likely "holes" in our fences. Concerning whether Commerce has adequate enforcement resources, I would like to explain our enforcement budget. The Fl 1992 congressional budget request for export enforcement is for 177 positions and $16,151,000. This amount includes the Offices of Export Enforcement, Enforcement Support, and Antiboycott Compliance, as well as 3 PAGENO="0525" 521 the offices of the Assistant Secretary and the Deputy Assistant Secretary for Export Enforcement. This amount includes a pro rata share of BXA administrative support positions and centrally funded items such as space rental, phones, etc. With respect to your question concerning whether Commerce enforcement is giving up positions, I would like to clarify the situation. The FY 1992 budget request does reflect a reduction of 30 positions below FY 1991 levels. These positions were approved in FY 1986, but were never fully funded by Congress. Since BXA cannot afford to fill these positions, the Administration proposed that they be eliminated from our authorized staffing levels. The export enforcement program is currently facing the need to expand program activities to deal with a number of issues. Among the most pressing are the newly emerging control regimes related to chemical and biological warfare, nuclear nonproliferation, missile technology, and supercomputers. The need for additional resources beyond those contained in the FY 1992 budget request will be addressed as BXA develops the FY 1993 budget. 4. With regard to the Helmy missile case investigated by the Subcommittee, it seems that most of the commodities, if not all of them, that Helmy procured for Egypt were "dual use" items. Did any of them require a Commerce Department license? If not, why not? Would Commerce have had jurisdiction to investigate this case? Answer In response to your last question, Commerce has jurisdiction to enforce the Export Administration Act, but not the Arms Export Control Act. If an item is controlled under the AECA, we would not have jurisdiction to license it or to investigate any violations for the purpose of imposing criminal or administrative penalties. The Helmy case was investigated by Customs. We are not in possession of the list of commodities that you refer to. If provided, we would be happy to furnish you with a license determination of the commodities in question. 5. With regard to the Alcolac chemical case investigated by the Subcommittee, over 630 tons of "thiodiglycol", a mustard gas ingredient, was illegally shipped to Iran and Iraq over a 14-month period. During this time, Alcolac's export manager asked Commerce officials whether she needed a license to ship thiodiglycol to Singapore, one for (sic) the diversion points, and was told that she did not. 4 PAGENO="0526" 522 a. Why did Commerce tell Alcolac that they did not need a license to ship thiodiglycol to Singapore? Answer We are familiar with the assertion that Alcolac's export manager was told by Commerce officials that a license was not needed to export thiodiglycol to Singapore. We have investigated this assertion, but have been unable to confirm it. At the tine the shipment was nade a license would have been needed to ship thiodiglycol to Singapore. A license would have been required as of July 29, 1987. Currently, it is an Australia Group List chemical controlled in category 47983, and a validated license is required for all destinations except Australia Group members. b. Under current procedures, can Commerce recognize the brand name, Kromfax, or the alternate chemical name, thiodiethalene glycol, as a controlled chemical? Answer Under the current procedures Commerce cannot recognize the trade name, Kromfax, as a controlled chemical. Trade names are never entered into the licensing system. Chemicals are identified by their C.A.S. number. The alternate chemical thiodiethylene glycol is recognized as a controlled chemical; thiodiethylene glycol is listed in the Export Administration Regulations Part 799.2 Interpretation 23 as an alternate name for thiodiglycol (C.A.S. 111-48-8). All applications to export chemicals must now include the relevant C.A.S. number. c. How many chemicals are controlled by Commerce? Answer Until March 13, 1991, 11 precursor chemicals were controlled to all destinations except to the Australia Group countries and an additional 39 chemicals were controlled to Iran, Iraq, Syria, Libya, North Korea, Vietnam, Cambodia, Cuba and to military and police entities in South Africa. After March 13, 1991, all 50 precursor chemicals are controlled to all destinations except the Australia Group countries. Two intermediate chemicals useful to chemical warfare are also controlled. d. Did Customs ever refer the Alcolac case to Commerce for civil sanctions? If not, why not? 5 PAGENO="0527" 523 Answer Customs did not directly refer the Alcolac case to Commerce for civil sanctions. Customs and Commerce share their lists of active investigations on a monthly basis in order to coordinate enforcement activities, but Alcolac did not appear on the Customs list. Commerce first learned of the case through the newspapers. We understand that the attorneys for Alcolac were the first to raise the issue of a "global settlement" -- resolving any administrative case to be brought at the same time that the criminal case was concluded and they brought the matter to the attention of the U.S. Attorney's office. The Assistant U.S. Attorney handling the matter contacted Commerce. In return for what we understand to be a criminal plea and penalty that was acceptable to the U.S. Attorney's Of f ice and to Customs, Commerce did not pursue administrative charges against Alcolac. We did, however, deny the export privileges of Peter Walaschek, the West German businessman who purchased the chemicals from Alcolac and diverted them through Singapore to Iran and Iraq. 6. With regard to the Global Helicopter case investigated by the Subcommittee, neither Commerce nor Customs was aware that Carlos Cardoen had shipped his prototype helicopter to Dallas until the FAA wrote to them. a. If Cardoen's modified Bell helicopter is determined by the State Department to be a civil aircraft, can Cardoen export it to Chile now? If not, why not? Answer If the U.S. determines that the Bell helicopter modified by Cardoen is a civil helicopter, the Department of Commerce will still require an export license, and we have notified Global to that effect. This is because there is evidence that Mr. Cardoen intends or intended to reexport the helicopter to Iraq. b. If the helicopter is determined to be a military aircraft, can Commerce prevent its export to Chile? How? Answer Commerce is not authorized to enforce the Arms Export Control Act. If the helicopter is determined to be a military helicopter, then the sole licensing authority rests with the Department of State. 6 PAGENO="0528" 524 C. What is Commerce's procedure for referring Arms Export Control Act cases to Customs? Answer Our procedure is to refer such matters to Customs whenever it is determined that an item is controlled under the Arms Export Control Act or the International Trafficking in Arms Regulations. In such a situation, the Commerce Special Agent-in-Charge refers the case to the appropriate Customs Special Agent-in-Charge or Resident Agent-in-Charge. If a case involves some goods controlled under the ITAR and some under the EAR, Customs will be brought in to handle the investigation with respect to the former items. d. When was Customs brought into this helicopter case by Commerce? Answer On July 24, 1990, the Dallas Field Office received its initial information about the prototype helicopter from the OEE Intelligence Division. OEE Dallas checked the Customs list of active investigations and found no case that appeared to involve Global or Cardoen. The OEE Dallas office first contacted the Dallas office of U.S. Customs on August 7, 1990. U.s. Customs subsequently decided to enter into the case jointly with our agents. e. Under what authority did Commerce revoke Cardoen's general license to export his modified Bell helicopter? Answer Section 771.2(c) of the regulations provides: (c) Prohibited shipments. No general license may be used to effect an export to any destination if: (1) The general license has been suspended, revoked, or is otherwise not applicable to the intended destination. (General licenses and other authorizations to export may, at any time without prior notice, be revised, suspended, or revoked by the Export Administration as set forth in section 770.3(b) of this subchapter, whenever there is reason to believe that the export regulations have been, or will be violated.) f. Under what authority did Commerce detain the helicopter? 7 PAGENO="0529" 525 Answer Commerce is authorized by Section 786.8(b) (6) of the Export Administration Regulations to hold or detain goods in order to, among other things, obtain a licensing determination from Commerce's Office of Technology and Policy Analysis. g. Is Commerce aware of any other attempts by Cardoen, or any of his companies, to procure weapons system components or technology in the United States? h. Has Commerce issued an export license to Cardoen or any of his companies? If so, to whom, when, and for what commodities? Answer I cannot comment on whether other investigations are being conducted. Any information specific to export licensing is subject to the confidentiality provisions of Section 12(c) and cannot be disclosed without a national interest determination. i. Has the State Department ever issued any export licenses to Cardoen or any of his companies? If so, to whom, when, and for what commodities? Answer I would refer you to the State Department for the answer to this question. 7. The C-TEK case involved shipping computer goods to Canada without benefit of a U.S. export license and then, utilizing a Canadian export license, shipping the goods from Canada to Singapore and India. a. How hard is it to get a license from Canada to re- export U.S.-original computer technology? What is the average length of time to get a U.S. export license? What is the average length of time to get a Canadian export license? To what extent `is the Canadian export licensing process similar to the Commerce Department's? To what extent are there differences? Answer We consider Canada to be a stalwart ally in export control matters. Canada participates actively and constructively in CoCom, the Australia Group, the Missile Technology Control Regime and the Nuclear Suppliers Group. Moreover, we 8 PAGENO="0530" 526 believe Canada has a fully effective export control system and works closely with us on export enforcement matters. In the U.S. it now takes on average about three weeks to obtain an export license. I cannot say "how hard" it is to get a Canadian export license. The answer depends on the nature of the technology and the destination. b. Are the Canadians required to inquire whether a re- export license was obtained from the U.S. before they issue their licenses? Answer No. The responsibility for complying with U.S. export control law, including the need to obtain any required reexport authorization, lies with the U.S. exporter and the reexporter. c. Can the Canadian diversion scheme be applied to other countries as well? What impact will a U.S.- Mexico free trade agreement have on export control enforcement? Answer A scheme such as what occurred in the C-Tek case could be attempted and might succeed whenever trade takes place. Whether diversion subsequently occurs depends in large measure on the export control system of the particular country and the degree of cooperation with the U.S. The cooperation that exists between the U.S. and Canada is exemplary. In a U.S.-Mexico free trade agreement, as I understand it, the U.S. would be negotiating tariff, trade barrier, investment and market access issues. The U.S. would not be negotiating export control issues. I expect, however, that we will be talking with Mexico on these issues soon. d. Shiv Mohan Mukkar still maintains that he has `done no crime at all. Everything [he] was buying was within the law. What we wanted to import was under legal license by the Canadian government for export to India." How extensive was Mohan's involvement in the procurement of U.S. computer technology? Did Mohan have other operatives in this country besides Casperson? Has Mohan's procurement operation been completely shut down? 9 PAGENO="0531" 527 Answer Mohan was very involved in procuring U.S. computer technology. He identified the needs of his customers, initiated contacts to make the deals, fronted the funds to acquire the equipment and followed the progress of the deals at each stage. We believe Mohan did have other operatives in this country besides Casperson. I cannot comment on whether other investigations are being conducted. We believe that Mohan's procurement operation has not been completely shut down. e. Where did Mohan get his money to purchase U.S. computer equipment? Answer We do not know all of the details of these financial transactions. What we do know and can tell you is the following. Mohan told his associate in New York, Sham Malhotra, that Mohan would transfer $3 million US from the Union Bank in Switzerland to an account in the New York branch of the Bank of Credit and Commerce International (BCCI). Mohan directed Malhotra to wire transfer this money to an account in BCCI-Bonbay, India, where it could draw 10% interest for three years. Malhotra was to use the interest from that money to obtain a line of credit from BCCI-New York for $1.5 million US, to be used for various deals by Mohan and Malhotra, including a restaurant, real estate, and illegal technology transfers. We also know that some of Mohan's financial resources were secured at BCCI-London, using a bank account in the name of Perfect Technologies. Mohan also used funds from accounts located in the American Habib Bank in Dubai, UAE. f. Mohan submitted end-user statements to government authorities from Virtual Computers to obtain export licenses. The Commerce Department maintains that these were false. During the hearing on April 18, 1991, Mohan submitted for the record a document (copy enclosed) retracting statements made by Mr. K.R. Naik to U.S. authorities relating to these end-use statements. What does the enclosed statement mean? What is Mohan's relationship to Virtual Computers? Was Virtual Computers a valid end-user for Mohan's U.S. computers? Answer Mohan had a business relationship with Virtual Computers, which included a loan he made to Virtual at one time. If 10 PAGENO="0532" 528 the case had gone to trial the U.S. Government was prepared to produce evidence which would have demonstrated that Virtual Computers was not a valid end user for any of the products as Nohan claimed, and, in fact, did not specifically order any of the products Nohan claimed it did. Agents Sike and Hobbs have not reviewed the document submitted by Nohan. It should be noted that Mohan did not submit this document retracting the statement by Naik during any of the court proceedings prior to his guilty plea, nor was it available during the discovery proceedings. g. What did Mohan say during the meeting in Buffalo that established his culpability in the Tektronix diversion scheme? Provide a copy of the transcript of this meeting. Answer Nohan's mere attendance at this meeting, which was set up by Townsend and Casperson to deal with the problems that had been created by the illegal attempt to export the VAX 8700, as well as the planned diversion of the Tektronix workstations, demonstrates his culpability. Mohan's culpability was further established through several of his actions and statements during the Buffalo meeting. Mohan asked David Whyte, the Canadian, about the licensing for the workstations - which he knew to be U.S.-origin. Mohan discussed the terms of a GLV license (how to export commodities from the United States with a value of less than $5,000); he discussed exporting computer connecting cables under the provisions of G-DEST, and said that he could have it shipped myself. I can take it up to declaration at Customs, in the United States of America, and I am taking this cable with me. Mohan demonstrated a working knowledge of U.S. export laws and regulations. h. In terms of dollars, manpower, and other resources, how much did it cost the Commerce Department to investigate this case? How many agents and support staff were assigned to the investigation? How much travel was involved? Answer Three agents were assigned almost full time to the case: the supervising agent, the case agent and another agent to assist, The investigation and preparation for trial lasted almost 17 months and used as many as 32 Commerce special agents at particular times, depending on the needs of the case. The official travel was extensive. The three agents assigned primary responsibility for the case were 11 PAGENO="0533" 529 essentially on travel status for the entire 17 months. There was critical overseas travel to Australia, Singapore, India and the United Kingdom. There was also travel to Buffalo to effect the arrests; travel to Washington, D.C. on two occasions to consult with other agencies; and travel to Denver and Boston to interview prospective witnesses. The total Commerce travel costs for the investigation were approximately $150,000. The total cost associated with the investigation was in excess of $500,000. i. Is the Commerce Department still investigating any companies related to the C-TEK case? If so, explain. Answer I cannot comment on whether other investigations are being conducted. j. The former Assistant U.S. Attorney in the case testified that the Canadian government failed to execute search warrants in support of the C-TEK investigation. To what extent is Canada required to assist U.S. investigations involving export control violations? Answer I would refer you to our Justice Department to determine the extent that there are mutual legal assistance agreements or other arrangements that require Canada to assist us in our investigations. k. Was the $1.5 million fine levied against Mohan ever collected? If not, why not? Answer The fine has not been collected. I would refer you to the Justice Department for further information. 1. Does the Commerce Department have any evidence that Mohan lied or misled the Subcommittee during his testimony on April 18, 1991 regarding his role in the illegal export of U.S. computers? If so, explain and provide the Subcommittee with any documentation which contradicts Mohan's statements. Answer We are reviewing the transcript of the April 18 hearing and comparing Mohan's statements with the evidence we have 12 PAGENO="0534" 530 * developed in this case. We will notify the Subcommittee as soon as we complete this review. 8. Press reports, including The Washington Post dated November 1991, indicate that last spring the Commerce Department unofficially began to slow down the process of issuing export licenses to Iraq. In late July, Secretary Baker asked Commerce Secretary Mosbacher to impose more rigid controls on sales to Iraq. A few months earlier, Administration sources stated that the State Department had balkeclat imposing tighter controls. a. Did the Commerce Department slow down the issuance of licenses for Iraq last year? If so, what information did Commerce have that required this policy? Answer As Mr. Baird testified before this committee on May 1, there was concern about Iraq's missile activities and threats toward Israel. Our policies evolved over time based on what we perceived as a generally deteriorating situation. While discussions were going on with the State Department and Defense Department about whether our policy toward Iraq should be modified, the Under Secretary directed that license applications for Iraq should undergo additional management review. No license was issued without receiving review at senior levels in BXA to assure that issuance would be in conformity with the evolving administration policy. b. To what extent was the State Department eager to see that trade continued and improved with Iraq? Answer Export control policy toward Iraq is defined in Part 776 (special commodity policies) and Part 785 (special country policies) of the Export Administration Regulations. The State Department is routinely consulted on export license applications for Iraq that involve foreign policy considerations. For views on State Department policies or opinions, please contact that department. c. Why did the State Department balk at imposing tighter controls earlier with regard to Iraq? Answer 13 PAGENO="0535" 531 Questions regarding the position of the Department of State on export control policies tovard individual counties should be directed t; that Department. 9. What are your recomniendat ions on specific administrative or legislative reforms that would enhance the ability of the Commerce Department to obtain the in~rmation it needs to perform its statutory duties and to improve the nations ability to enforce export controls? Answer No further statutory authority is needed to allow us to `obtain information" needed to perform our statutory duties. However, I can identify three important legislative reforms that would enhance Commerce's ability to perform its Congressionally mandated enforcement duties. These are reforms that we have been coc~f:rring, and do not necessarily reflect administ'~ation cleared positions. First, Commerce currently lacks the necessary statutory forfeiture authority. The Export Administration Act authorizes Commerce to seize and detain goods but not to cause them to be forfeited. If we have to turn the goods over to ~nother agency, such as Customs in the C-Tek case, they have to comply with their own statutory and policy guidelines, which can compel then to proceed with a forfeiture regardless of the consequences for a Commerce investigation. This obviously complicates the process. Second, while Commerce does have the authority to conduct undercover investigative activities, we lack exceptions from various banking and other statutes. Because we do not have these exceptions we cannot use some of the standard law enforcement undercover techniques, such as store front operations. In other words, we cannot rent a store without identifying the Commerce Department as the lessee, and we cannot open a bank account under an assumed name. Other law enforcement agencies, such as the FBI, the DEA and Customs, have these exceptions, and we need them. These are standard tools that any law enforcement agency needs. Third, we believe the statutory penalties for violating the export control laws should be much higher. We believe these are extremely serious crimes, crimes that can truly threaten our country's security. Diversions of sensitive dual use technology to unfriendly countries can require us to spend huge amounts of money in defense research and development to maintain a technological edge. 14 PAGENO="0536" 532 E.TEXAS. CHASMAN DAN ESS1EN~0WSKT. LURSS. CA.&JRM.&N COMMITTEE ON WAYS AND MEANS "~ ~ U.S. HOUSE OF REPRESENTATIVES WASHINGTON 0020515 SUBCOMMITTEE ON OVERSIGHT May 14, 1991 The Monorable Kenneth A. Cutshaw Deputy Assistant Secretary for Export Enforcement U.S. t)epartment of Commerce Washington, D~C. 20230 Dear Secretary Cutshaw: I want to thank you for your testimony at the Subcommittee on Oversight's May 1, 1991 hearing on the administration and enforcement of U.S. export controls. To complete our hearing record, I would appreciate receiving your answers to the questions asked at the hearing for inclusion in the body of the hearing transcript, and, in addition, a separate response to the following questions by the close of business, Friday, May 31, 1991. It is intended that these follow-up questions will be included in the public record. Therefore, I am requesting that you provide complete answers to the questions and make a determination under section 12(c) of the Export Administration Act that it is in the national interest for this information to be publicly disclosed. 1. The Customs Service recently seized a shipment of specially designed pumps destined for Iran's Defense Ministry that had been cleared for export by the Commerce Department. Dr. Stephen Bryen testified before the Oversight Subcommittee on April 18, 1991 that Customs had intercepted eight crates of special nickel-plated pumps that can be used in the manufacture of gunpowder, propellants for rocket niotors, or plastic explosives of the type used to blow up Pan Am Flight 103 over Lockerbie, Scotland. According to Dr. Bryan, the State Department classifies Iran as a "terrorist country" for which export licenses are required for the shipment of high-technology goods. The Commerce Department did not classify the pumps as high-tech items. a. Why did Commerce issue a license for specially designed pumps destined for the Iranian Defense Ministry? Why aren't these pumps classified as high-tech items? b. In The Washington Times dated April 27, 1991, a company official stated that the company did not tell the Commerce Department that the pumps were destined for the PAGENO="0537" 533 The Honorable Kenneth A. Cutshaw May 14, 1991 Page Two Iranian Defense Ministry because it was not legally required to give such information. Is the company official correct? Did the company ever ask the Commerce Department whether a license was needed to ship the goods to Iran? c. Did Commerce ever inquire about the Iranian end-user? Did the company know where these pumps were going? d. Dr. Bryen testified that Commerce is `trying to figure out how to reverse its previous decision (to license to pumps)." Is this true? What can you tell us about this? e. Dr. Bryan's testimony indicates that two other shipments were made in the 1980's, possibly with Commerce export licenses. Did the Commerce Department issue licenses for previous shipments of pumps to Iran? 2. The Subcommittee on Oversight is aware of another case being investigated by the Department of Commerce involving a Texas company that shipped oil drilling equipment and spare parts illegally to Libya after the U.S. trade embargo. Provide the Subcommittee with a complete report on this investigation, including a detailed description of the illegal shipping scheme, the parties involved, the evidence gathered, and the disposition of the case. Also, provide the Subcommittee with relevant documentary evidence collected during the investigation and used to prosecute the culpable parties. 3. In terms of strengthening the U.S. export control system by targeting few commodities, what assurances are there that the "higher fences around a fewer number of goods" will work? To what extent does the move toward "higher fences around a fewer number of goods" assume that there are adequate resources to keep the "higher fences" from developing "holes?" Does the Commerce Department have adequate enforcement resources? To what extent is Commerce export enforcement being asked to give up positions? 4. With regard to the Helmy missile case investigated by the Subcommittee, it seems that most of the commodities, if not all of them, that Helmy procured for Egypt were "dual use" items. Did any of them require a Commerce Department license? If not, why not? Would Commerce have had jurisdiction to investigate this case? PAGENO="0538" 534 The Honorable Kenneth A. Cutshaw May 14, 1991 Page Three 5. With regard to the Alcolac chemical case investigated by the Subcommittee, over 630 tons of "thiodiglycol', a mustard gas ingredient, was illegally shipped to Iran and Iraq over a 14-month period. During this time, Alcolac's export manager asked Commerce officials whether she needed a license to ship thiodiglycol to Singapore, one for the diversion points, and was told that she did not. a. Why did Commerce tell Alcolac that they did not need a license to ship thiodiglycol to Singapore? b. Under current procedures, can Commerce recognize the brand name, Kromfax, or the alternate chemical name, thiodiethalene glycol, as a controlled chemical? c. How many chemicals are controlled by Commerce? d. Did Customs ever refer the Alcolac case to Commerce for civil sanctions? If not, why not? 6. With regard to the Global Helicopter case investigatedby the Subcommittee, neither Commerce nor Customs was aware that Carlos Cardoen had shipped his prototype helicopter to Dallas until the FAA wrote to them. a. If Cardoen's modified Bell helicopter is determined by the State Department to be a civil aircraft, can Cardoen export it to Chile now? If not, why not? b. If the helicopter is determined to be a military aircraft, can Commerce prevent its export to Chile? How? c. What is Commerce's procedure for referring Arms Export Control Act cases to Customs? d. When was Customs brought into this helicopter case by Commerce? e. Under what authority did COmmerce revoke Cardoen's general license to export his modified Bell helicopter? f. Under what authority did Commerce detain the helicopter? g. Is Commerce aware of any other attempts by Cardoen, or any of his companies, to procure weapons system components or technology in the United States? PAGENO="0539" 535 The Honorable Kenneth A. Cutshaw May 14, 1991 Page Four h. Has Commerce ever issued an export license to Cardoen or any of his companies? If so, to whom, when, and for what commodities? i. Has the State Department ever issued any export licenses to Cardoen or any of his companies? If so, to whoa, when, and for what commodities? 7. The C-TEK case involved shipping computer goods to Canada without benefit of a U.S. export license and then, utilizing a Canadian export license, shipping the goods from Canada to Singapore and India. a. How hard it is to get a license from Canada to re-export U.S-original computer technology? What is the average length of time to get a u.s. export license? What is average length of time to get a Canadian export license? To what extent is the Canadian export licensing process similar to the Commerce Department's? To what extent are there differences? b. Are the Canadians required to inquire whether a re-export license was obtained from the U.S. before they issue their licenses? c. Can the Canadian diversion scheme be applied to other countries as well? What impact will a U.S.-Mexico free trade agreement have on export control enforcement? d. Shiv Mohan Mukkar still maintains that he has "done no crime at all. Everything [he] was buying was within the law. What we wanted to import was under legal license by the Canadian government for export to India." How extensive was Mohan's involvement in the procurement of U.S. computer technology? Did Mohan have other operatives in this country besides Casperson? Has Mohan's procurement operation been completely shut down? e. Where did Mohan get his money to purchase U.S. computer equipment? f. Mohan submitted end-user statements to government authorities from virtual Computers to obtain export licenses. The Commerce Department maintains that these were false. During the hearing on April 18, 1991 Mohan submitted for the record a document (copy enclosed) retracting statements made by Mr. K.R. Naik to U.S. authorities relating to these end-use statements. What does the enclosed statement mean? What is Mohan's relationship to Virtual Computers? Was Virtual Computers a valid end-user for Mohan's U.S. computers? 51--840 1265 PAGENO="0540" 536 The Honorable Kenneth A. Cutshaw May 13, 1991 Page Five g. What did Mohan say during the casting in Buffalo that established his culpability in the Tektronix diversion scheme? Provide a copy of the transcript of this meeting. h. In terms of dollars, manpower, and other resources, how much did it cost the Commerce Department to investigate this case? How many agents and support staff were assigned to the investigation? How much travel was involved? i. Is the Commerce Department still investigating any companies related to the C-TEK case? If so, explain. j. The former Assistant u.s. Attorney in the case testified that the Canadian government failed to execute search warrants in support of the C-TEK investigation. To what extent is Canada required to assist U.S. investigations involving export control violations? k. Was the $1.5 million fine levied against Mohan ever collected? If not, why not? 1. Does the Commerce Department have any evidence that Mohan lied or mislead the Subcommittee during his testimony on April 18, 1991 regarding his role in the illegal export of U.S. computers? If so, explain and provide the subcommittee with any documentation which contradicts Hohan's statements. 8. Press reports, including The Washington Post dated Novethar 1991, indicate that last spring the Commerce Department unofficially began to slow down the process of issuing export licenses to Iraq. In late July, Secretary Baker asked Commerce Secretary Mosbacher to impose more rigid controls on sales to Iraq. A few months earlier, Administration sources stated that the State Department had balked at imposing tighter controls. a. Did the Commerce Department slow down the issuance of licenses for Iraq last year? If so, what information did Commerce have that required this policy? b. To what extent was the State Department eager to see that trade continued and improved with Iraq? c. Why did the State Department balk at imposing tighter controls earlier with regard to Iraq? PAGENO="0541" 537 The Honorable Kenneth A. Cutshaw May 13, 1991 Page Six 9. What are your reconunendations on specific administrative or legislative reforms that would enhance the ability of the Commerce Department to obtain the information it needs to perform its statutory duties and to improve the nation's ability to enforce export controls? Your attention to this matter is greatly appreciated. If you have any questions, please contact Patrick Heck, Assistant Counsel, at (202) 225-5522. Sincerely, C~Lu~. fr. ~J.J Prcfkle, Chairman 9~u~cominittee on Oversight JJP/phl Enclosure PAGENO="0542" 538. REPUBLIC cF INDIA CITY OF NEW DELHI ) ss* EMBASSY OF THE UNITED STATES OF AMERICA I certify that the official named below, whose true signature and official seal are, respectively, subscribed and affixed to the annexed document, was, on this day, empowered to act in the official capacity ~esignated in the annexed document, to which faith and credit are due. J.L. Piole, Section Officer, ~A (Typed Name of Official) (Signature1pf Consular Officer) Rennv T. Smith (Typed Name of Consular Officer) Consul of the United States of America (Title of Consular Officer) July 25, 1990 (Date) Seal PAGENO="0543" I~ K.R. Naik, Director of N/s. Virtual computers Pvt. Ltd. having my office at C-121./l22 Ansa md, EstateS, Said- Vihar Road, Bombay-400 072 do hereby solemnly affirm and state as follows. 1. I repeat, reiterate and confirm the statement made by me before CEI authorities (Delhi) on 2nd January, 1990 and deny and retract all other stat~ments made by me which are contrary to or inconsistent with the said statement made before the csm authorities (Delhi) on 2nd January, 1990, say that the statements made by me before Ms. Dorothy er, a u.s. foreign cozrmercial Consul stationed in were made under duress and due to the fact that Lutter threatened me stating that my Companies would be black-listed and debarred from importing any u.s. equipments. Without prejudice to the aforesaid I say that the said state- ments made by me before Ms. Lutter have been misunderstood PAGENO="0544" 540 ~ - -,. ,. - - Th s - `.~r. ~ ~f ~ - ~ 4-~~.rce ~ ~ :2: and thisinterpreted. I therefore hereby retra~ the said statements made by rue before Ms. Lutter on 19th June, 1990 and 25th June, 1990. Solemnly affirmed at Bombay Before me, ~ S. K. SHETTYJ L*U.M. I I ~ I ~ NOThRY.U~IONOFINDrA Sr. M.rt.IDi. S~crttz~7 :-~D :~Ew ~1.~-iL this i~cdayof PAGENO="0545" 541 APPThAVIT OP MR. ICJ. NAIK Dated thia day of 51-840 0 - 92 - 18 PAGENO="0546" 542 Chairman PIcKu~. Our next speaker will be Mr. Duelfer, Deputy for the Defense Trade to the Assistant Secretary in the Depart- ment of State. STATEMENT OF CHARLES A. DUELFER, DEPUTY FOR DEFENSE TRADE TO THE ASSISTANT SECRETARY, AND DIRECTOR, CENTER FOR DEFENSE TRADE, BUREAU OF POLITICO-MILI- TARY AFFAIRS, U.S. DEPARTMENT OF STATE Mr. DUELFER. Thank you, Mr. Chairman. I will he very brief. I was warned ahead of time that this commit- tee had a lot of endurance, and I did not realize that that was actu- ally an understatement. I think my statement basically says that the organization and the improvements which we have made in the State Department over the past year and a half in what we call the Defense Trade function, as I understand the purpose of your work here to be mostly on the enforcement side, let me just emphasize a few aspects of our role in that area, and in particular our close re- lationship with Customs. From my perspective, Customs and State are two sides of the same coin. The regulatory body of law that State has the responsi- bility for is managed under my jurisdiction, however the enforce- ment is strictly Customs. So to the extent that there is confusion in other areas, at least in my area it is very simple. If something is under the U.S. munitions list the Customs Service is the sole agency to enforce our laws. We have tried to integrate Customs people and requirements into our organization as much as possible. I have Customs personnel who live and breathe within my office, and they work hand in glove with our officers. They are, in fact, detailed to our office. They have access to all of our material, all of our licenses. We are in the process of establishing a computer link between the two of- fices. We are working very hard to make them an integral part of our operation. We are, however, the policy side of the equation and policy side of the coin and Customs takes, as has been stated, its lead from what our decisions are in terms of the control of items on the U.S. munitions list. Let me just stop there and the rest is in my written text, and if you have any questions I will be happy to try to answer them. [The prepared statement follows:] PAGENO="0547" 543 TESTIMONY OF CHARLES A. DUELFER DIRECTOR, CENTER FOR DEFENSE TRADE BUREAU OF pOLITICO-MILITARY AFFAIRS U.S. DEPARTMENT OF STATE Thank you for the opportunity to appear here today to discuss the defense trade compliance function at the Department of State. I will be speaking today primarily of export control or enforcement in the context of exports produced, designed, or modified for military use. I would differentiate here those articles and services covered by the United States Munitions List (USML) from those exports that, under the Export Administration Act, are also subject to certain controls to ensure consister~cy with our foreign policy (e.g., controls on terrorism equipment, crime equipment, chemical/biological precursors and nuclear controls). State's Role On the eve of World War II, the Congress enacted the Neutrality Act of 1939. By terms of this statute "every person who engages in the business of manufacturing, exporting or importing any arms, ammunition or implements of war" was required to register with the Secretary of State and obtain a license, which in turn required notification to the Department of State of the purchaser and terms in each sale. Export or attempt to export without a license was made unlawful. Under this statute, the Department of State began to administer a comprehensive arms licensing program. The legal basis for State's current authority to control munitions is the Arms Export Control Act (AECA) and its implementing regulations, the International Traffic in Arms Regulations or ITAR. The latter specifies, in the form of the USML, articles and services that are under State's jurisdiction as well as the requirements for licensing. The State Department's involvement in export control of defense articles and services -- including enforcement -- however, is fundamentally a question of foreign policy and national security. State's Defense Trade Function As a result of a dramatic increase in the volume of munitions export license applications, defense trade staffing in the State Department was found to be inadequate and system enhancements were needed to keep pace with the growing and increasingly complex workload. In order to address these needs the old Office of Munitions Control was revamped and the t~enter for Defense Trade was established on January 8, 1990. The reorganization of the State defense trade function also included the injection of substantial new resources and the undertaking of a thorough workload reduction initiative. Creation of the position I now hold, the Director of the Center for Defense Trade and Deputy to the Politico-Military Assistant Secretary for Defense Trade was designed to provide full-time, senior level leadership on commercial defense trade issues. In addition to an early emphasis on making the licensing process more effective and efficient, we were also cognizant of the fact that the ability to control the destination and ultimate use of U.S. defense goods is critical to the conduct of our foreign relations and the safeguarding of our national security interests. Therefore, in addition to revamping our licensing mechanism, we have been working to reinforce our compliance efforts. I should note that these two activities go hand-in-hand and are mutually supportive. For example, we have installed a new computer and system for licensing. This now allows us to manipulate our database in ways which are very helpful in our compliance activities. PAGENO="0548" 544 State-Customs Cooperation During the last year, the State Department has expanded its' working relationship with the U.S. Customs Service in the area of enforcement and compliance. The relationship has grown dramatically in terms of case referrals, overall information exchanges, criminal investigations initiated, and a better integration of U.S. Customs officers in day-to-day DTC operations. Currently, Customs has two full-time employees on detail to the compliance division of the Defense Trade Controls office (and a third will be provided shortly). One position, a Special Coordinator for Law Enforcement, provides senior level interaction on policy and investigative enforcement matters as well as oversight in the screening of export license applications for law enforcement concerns. The second position, a program analyst, is the main link between the Customs EXODUS Command Center and the State Department. This individual is responsible for coordinating all communications from the Customs operational field offices involving detentions, seizures, license certifications and determinations with the two agencies' headquarters. Also, State and Customs are working on the development of a database interface which will enable frontline personnel in both organizations to communicate rapidly about several aspects of enforcement, including the registration of persons in the defense trade business, the status of ongoing investigations, the disposition of requests for export licenses, and the shipment of articles licensed by State. The Compliance Work Program Areas of particular scrutiny in State's compliance function include current and actual registration information, review (particularly in terms of indictments or convictions) of officials empowered by firms to conduct defense trade business, proper licensing to stem illegal exports, and the bona f ides of stated destinations and end use of U.S. defense trade articles and services. Our work program reflects these concerns: -- The initial and renewed registration of the over 4,000 persons in the defense trade business. -- End-use checks of which over 150 cases have been conducted under a program initiated in September 1990. Pre- and post-shipment checks on articles and services covered by the USML are conducted by personnel assigned to U.S. diplomatic posts abroad, including Customs where available. This program has becomne a focal point for review/analysis by the intelligence community and Customs as well as a discussion point with friendly governments. - --Assistance rendered to U.S. attorneys inplea bargain, cases, in indictment procedures, and trial preparations. -- Records investigations to assist-other goventment agencies in documentation of controlled items and verification concerning controlled items. -- Suspensions and debarments of suspected or known violators of the AECA and ITAR. Industry's Role Finally, I must note that we have been successful in raising the awareness of industry to compliance issues and concerns. I find most firms I have dealt with have taken extensive internal measures to assure their activities are consistent with munitions export regulations. I was heartened to see the following quote in a trade journal by a defense industry giant last October: `...selling armaments should be done as an instrument of government policy. . . . the world we are going to see is going to be less and less stable so I would believe that it is appropriate for governments to play a major hand in deciding where exports should be made," We believe there is an industry role in compliance and are making every effort to encourage private sector interest, emphasizing vigilance, compliance, and cooperation." PAGENO="0549" 545 Chairman PICKLE. Well, let me run through a few individual questions about the cases that we have looked and you could re- spond quickly and if you would like to submit additional answers, that would be all right. With respect to the Helmy missile case, what does the State De- partment know about Dr. Helmy and his connection with the Egyp- tian Government? Mr. DUELFER. It is not the State Department's role to investigate these cases. What we know is what has been determined through the investigation. We do know that there was a connection between Helmy in some fashion and the Government of Egypt. Chairman PICKLE. But did the State Department have any knowledge of the Condor II missile program prior to the arrest of Dr. Helmy? Mr. DUELFER. I can't tell you for certain. I will have to get an answer for you for the record. [The following was subsequently received:] Yes, the State Department was aware of the Condor missile program before Helmy's June 1988 arrest. By that time we had raised our concerns about the Condor program with other MTCR partners, in order to restrict further develop- ment of the missile. Chairman PICKLE. Well, you started to say you believe they did something, what? Mr. DUELFER. I believe that we were aware of a Condor missile program. Chairman PICKLE. Well, you knew something. If you did not you had blinders on for years down there. But if you did and that was the case, did the State Department know that the U.S. origin goods and technology were being used to support Egypt's missile pro- gram? Mr. DUELFER. Not that I am aware of, sir. Chairman PICKLE. You did not know that at all? Mr. DUELFER. I will have to check for the record, sir, but it is my understanding that before the Helmy case we did not know that U.S. materials and technology were involved in that particular pro- gram. [The following was subsequently received:] The Department was aware that U.S. origin goods and technology were being sought for use in Egypt's missile program, and that some U.S. origin items had in fact been put to use in that missile program. It was precisely these reports which led to the investigation that resulted in the arrest of Dr. Helmy. Chairman PICKLE. Well, it is generally understood now that Dr. Helmy was sending this information to the Egyptian defense de- partment purportedly with the knowledge of President Mubarek, is that correct? Mr. DUELFER. I am not sure what the transcript of the trial shows, but it is my understanding that, yes, Helmy his activities were known to the Government of Egypt. Chairman PICKLE. Well, were any of the Egyptian officials ever brought to justice in Egypt for their role in this case? Obviously Helmy has pled guilty that he was working in collu- sion with the Egyptian Government and now, were any of the Egyptian officials ever brought to justice, to trial on this case? PAGENO="0550" 546 Mr. DUELFER. Not that I am aware of but I will have to check on that. [The following was subsequently received:] To the best of our knowledge, there have been no prosecutions of Egyptian offi- cials relating to the Hemly case. Chairman PICKLE. Well, are there any outstanding arrest war- rants in the United States for any Egyptian officials involved in this case? Mr. DUELFER. No, not that I am aware of. Chairman PICKLE. Why didn't the United States pursue extradi- tion in this instance? Mr. DUELFER. I think that is actually a question that the Justice Department will have to answer. But I believe that what they will say is that for every individual for whom they had adequate evi- dence to bring to trial, that they, in fact, pursued that case. Chairman PICKLE. In the Alcolac case, we have the top officials who are under indictment here and they have fled the United States. One has gone to the Netherlands and one to Germany and have we asked the German Government to return those individuals for trial? Or the Netherlands Government? Mr. DUELFER. We have raised this with the German Government but the German Government like ours, faces a quandary because the Federal Government does not control local prosecutors in local jurisdictions. So the Federal Government is well aware of the United States concerns. But it is not necessarily within their own power to- Chairman PICKLE. In other words, we cannot expect any help from the Netherlands or the German Government to return either of these individuals for trial? Mr. DUELFER. I think that is correct at this point. Chairman PICKLE. We are not getting any cooperation in an ex- tradition sense, just none? Mr. DUELFER. Well, I think we have to understand how the German system works. We have raised it with the Federal Govern- ment. With their own internal laws, they are constrained about what they can and cannot do. Chairman PICKLE. You are going to have cooperation from the German Government or Syria or any of these other countries in- volved with respect to this new special defense category, the SDN category that the Commerce Department said that these people are doing business with Iraq and Libya and therefore it is against the law. What good is that going to do in other areas if those countries will allow business to crop up and operate and circumvent what we have issued? Are they cooperating with us enough? Mr. DUELFER. To the extent that we can get cooperation to inves- tigate activities in our own country, that is one set of problems. But when someone does it in another country that is a very differ- ent set of problems. Chairman PICKLE. I would ask you what leverage does the United States have to enlist the help of European allies, and you hope they will give us some cooperation but we can't depend on it. Mr. DUELFER. Well, sir, when we are pursuing a U.S. citizen in another country that is one type of problem. When you are asking PAGENO="0551" 547 another country to pursue its own citizen, that is another set of problems. Chairman PICKLE. I understand that, but it frustrates us that in a case of a security matter, particularly in the area of mustard gas, we can't get the cooperation of these other countries. We don't know for sure, now that we have published these businesses that are doing business with Iraq that these other countries are going to abide to that. We are advised the German Government is doing a considerable amount of trading now with other countries, even Libya to help them build up some of their nuclear powers. I don't know whether that is a fact or not, but I am very disturbed if it is so. Do you know whether that is so? Mr. DUELFER. I don't know if that is so. I know we have raised our concerns about export controls at very senior levels with the German Government. It continues to be a matter of discussion be- tween our two Governments. It is a very high priority for us. Chairman PICKLE. In the broadest sense, with respect to other nations generally, is it true that Egypt, Iraq and Argentina still maintain very active ballistic missile development programs? Mr. DUELFER. To the best of our knowledge, the Condor missile program is terminated in Egypt. We typically point to that as- Chairman PICKLE. Beyond that, you don't know? Mr. DUELFER. Well- Chairman PICKLE. The Condor has been terminated, but beyond that one program you are not certain. Mr. DUELFER. I am unaware of any other activities. Chairman PICKLE. Mr. Sundquist, do you have any questions at this point? Mr. SUNDQUIST. I do, thank you, Mr. Chairman. Mr. Duelfer, let me go back to the Global case. Has anyone at State seen the helicopter in question, and has State made a deter- mination as of yet? Mr. DUELFER. In point of fact, we don't need to physically see the helicopter. The way we make decisions on what we call commodity jurisdiction is based upon technical data provided to us and we have had technical data provided to us on the case you are refer- ring to. We are in the process of evaluating that. Mr. SUNDQUIST. Does that include pictures? Mr. DUELFER. Yes, I think we do have pictures. Mr. SUNDQUIST. Who provides the technical data? Mr. DUELFER. If I am not mistaken, Customs provided us with that information, sir. We have photographs and videotape. Mr. SUNDQUIST. Have you made a determination? Mr. DUELFER. Not yet. Mr. SUNDQUIST. Why on earth when it is almost a year, July of 1990, why on earth have you not made a determination yet? Mr. DUELFER. Well, the question was not posed to us a year ago. Our first task to make a determination on that came in August. Mr. SUNDQUIST. August of? Mr. DUELFER. This past year. Mr. SUNDQUIST. OK, so it is not July of 1990 it is August of 1990 so that is just one month less. Mr. DUELFER. Let me finish the tale. The initial time we were asked the question we had insufficient information to make a judg- PAGENO="0552" 548 ment. When we get these queries we take the data and we package it and we send it to expert agencies. At that time there was insuffi- cient information provided to us to make that judgment. We re- cently had additional information provided to us in March and now we have a more complete picture of the helicopter and I feel very confident that we will have a decision in the next couple of weeks. Mr. SUNDQUIST. Is it not true that the U.S. Embassy in Chile knew as early as March of 1990 about his plans for an attack heli- copter, Cardeon? Mr. DUELFER. I don't want to get into a lot of our diplomatic ex- changes but- Mr. SUNDQUIST. Well, will you respond for the record on that? Mr. DUELFER. I will, sir. [The following was subsequently received:] The Embassy first reported on the possible military use of Cardoen's 206 L-3 heli- copter in June 1990. The telegram quotes a Jane's Defense Weekly reporter on Car- doen's alleged plans to sell the 206 L-3 helicopter to Iraq for military purposes. Mr. SUNDQUIST. And also the same time will you respond to the question, did the U.S. Embassy in Chile send any letters or cables to Washington, warning about Cardeon's project? Mr. DUELFER. I would like to respond to the record on that. [The following was subsequently received:] I have described the June 1990 cable. In a November 1990 telegram, the Embassy referred to Cardoen Industries' marketing brochure on the 206 L-3 that refers to possible military uses for the "civilian" helicopter. SUNDQUIST. Let me go back to the Helmy case, and the Defense Minister of Egypt, Mr. Ghazalak. Mr. DUELFER. The former Defense Minister. Mr. SUNDQUIST. Are you aware that he was involved in that di- version scheme? Mr. DUELFER. We are aware that he was at least involved through information which came up in the course of the investiga- tion. Mr. SUNDQUIST. What does that mean? You were either aware that he was involved or you are not aware that he was involved. Mr. DUELFER. We are aware that it is alleged that he was in- volved. Mr. SUNDQUIST. You all answer questions differently at the State Department than I am used to, so pardon me. Were you aware that President Murbarak approved of the program in 1984 and met with Helmy? Mr. DUELFER. I don't know the answer to that. I can provide that.. Mr. SUNDQUIST. Will you provide that for the record? Mr. DUELFER. Yes. [The following was subsequently received:] We are not aware of any meeting between President Murbarak and Helmy. Nor, to the best of our knowledge, did President Murbarak approve of the program in 1984 or any other time. Mr. SUN]JQUIST. Also for the record, why did the State Depart- ment instruct Agent Burns to remove the names of high-ranking Egyptians from his affidavit? PAGENO="0553" 549 Mr. DUELFER. I don't agree with the question. That issue, we ex- pressed a view to the Justice Department and it is a Justice De- partment decision that we expressed the view to the Justice De- partment that the name of high-ranking Egyptian officials which were not necessary to obtain the indictment that we better, from our perspective, if they did not appear. Mr. SUNDQUIST. It was a diplomatic decision to avoid embarrass- ment? Mr. DUELFER. But it was not our decision and we did not instruct anyone. Mr. SUNDQUIST. What pressure did the State Department put on Egypt, Iraq and Argentina to stop the Condor II project? Mr. DUELFER. Well, I mean this is obviously something that we raised at senior levels in our bilateral diplomatic exchanges and that was a constant issue. Mr. SUNDQUIST. Were you successful? Mr. DUELFER. We believe we were, yes. Mr. SUNDQUIST. One last question, that is getting back to the denial list, is it true that certain foreign governments do not recog- nize the denial list? Mr. DUELFER. I will have to provide that for the record. [The information follows:] The denial list is the product of a Department of Commerce program, so that agency is most familiar with it. I can say, however, that our colleagues in Commerce have advised us that they are unaware of any country that has officially or publicly denigrated the validity of the denial list. Mr. SUNDQUIST. I believe it is and assuming the answer is yes, my next question would be what is State doing and what have they done to change this? Mr. DUELFER. We will provide that. [The information follows:] If it came to the attention of the U.S. Government that a foreign government did not recognize the denial list, a diplomatic demarche would be made. As a matter of foreign policy implementation, the State Department would have the agency lead in actually making the demarche, obviously in close coordination with the Commerce Department. Mr. SuNDQuI5T. Thank you. Thank you, Mr. Chairman. Chairman PICKLE. Mr. Duelfer, I don't want to appear curt but I want to thank you for very little information. You have a lot of an- swers, I just don't know and I accept it, I can't say that you know all the answers. But we have been in touch with you now off and on for the last month for some specific questions, and we have not got specific answers, although you said you would try to give us in- formation. I am going to submit for the record, a closing statement here that summarizes some of the difficulties we have. [The statement follows:] PAGENO="0554" 550 CLOSING REMARKS THE HONORABLE 3. 3. PICKLE CHAIRMAN, SUBCOMMITTEE ON OVERSIGHT COMMITTEE ON WAYS AND MEANS WEDNESDAY, MAY 1, 1991 The two days of hearings held by this Subcommittee clearly illustrate that we do, in fact, have a serious export control enforcement problem. The most disturbing aspect of this entire investigation is the fact that there are numerous examples where sensitive commodities and technology are routinely exported illegally to potential adversaries with relative ease and without any questions being asked. The Commerce Department issues licenses for commodities not knowing if the goods are what they purport to be; ever reach their intended destination; or, are used for the stated legitimate purposes. Sometimes licenses are issued despite objections and national security warnings from other Federal agencies. The enforcement agencies rely heavily on intelligence and other tips to make its cases and do not currently have the tools necessary to systematically target illegal shipments. Enforcement depends too much on the "luck of the draw". Over the course of these hearings, witnesses recommended several significant reform measures. These suggestions have ranged from enhancing our detection abilities by developing an automated export manifest system to increasing our civil and criminal sanctions. Some have recommended tighter restrictions and reporting requirements on duel-use items; increasing awareness and business education on export controls; facilitating the exchange of export information among the various Federal agencies; improving the area of licensing; and, consolidating export control enforcement functions into a single agency. Possible legislative and administration actions alone will not solve the problem of illegal exports and proliferation. The recent war with Iraq has taught us that proliferation is truly a global security issue requiring political attention at the highest levels of all governments. We must confront this issue head-on and compel our friends and allies to cooperate in this endeavor. I hopeful this message is finally being heard. While we examined only four cases, we have raised hundreds of questic)ns regarding the adequacy of our export control system. After today's hearing, the Subcommittee will make findings and consider the recommendations offered by the witnesses for inclusion in the Subcommittee's report to the full Committee. I expect this Subcommittee's work to contribute to the strengthening of our export control laws. As we move toward this end, I hope we have the cooperation of the departments and agencies involved. We simply must do better. PAGENO="0555" 551 Chairman PICKLE. These 2 days of hearings illustrate that we, the Congress, does have a serious export enforcement problem. The most disturbing aspect of this entire investigation is the fact that there are numerous examples where sensitive commodities and technology are routinely exported illegally to potential adversaries with relative ease and without any questions being asked. That goes all the way from the Commerce Department to the other agencies involved. We have only examined four cases, but we have brought out innumerable facts that shows that considerable im- provement needs to be made. We are going to be in touch with each of these agencies and we are also going to be in touch with the committees who have juris- diction on the Hill to see if we can't find a better answer. Our pri- mary concern is in the field of Customs, but we can't get Customs to make specific recommendations, and/or the Treasury Depart- ment saying they will review it much more than they would talk to them. A lot talk is going on between the agencies we understand I hope that something constructive can come of it. I must bring this meeting to a close, but I do thank you for the information that you have given us and we will be in touch with you later. Mr. DUELFER. Thank you. Chairman PICKLE. The committee stands adjourned. [Whereupon, at 2:57 p.m., the hearings were adjourned.] [Questions submitted to the Department of State and response follow:] PAGENO="0556" 552 United States Department of State Wa.shington, D.C. 20520 July 12, 1991 - JUL 1 1991 Dear Mr. Chairman: Vysand~~s Subcomm~ttee on Oversignt Following the May 1, 1991 hearing before the Subcommittee on Oversight at which Charles Duelfer testified, additional questions were submitted for the record. Please find enclosed all but six of the responses to those questions. These outstanding responses will be forwarded to you as soon as they are completed. Sincerely, ~/ 7)7~L~L~4;~ Janet G. Mullins Assistant Secretary Legislative Affairs Enclosures: As stated. The Honorable Dan Ro::tenkowski, Chairman, Committee on Ways and Means, House of Representatives. PAGENO="0557" 553 Question for the Record submitted to Charles Duelfer House Ways and Means Committee May 1, 1991 /k. Q: (.Helrnv Missile Case: In this case, Dr. Adelkader Helmy, a rocket scientist, particpated in a scheme to illegally shp ballistic missile technology to Egypt. Dr. Helmy testified that he engaged in this underground procurement network at the request of high-level Egyptian officials, including then Defense Minister Ghazala and, apparently, President Muba r ak. a. Why were missile components prohibited for export to Egypt in 1988? Are they still prohibited today? A: Since 1987, the U.S. has restricted exports of missiles and related technology under the Guidelines of the Missile Technology Control Regime (MTCR), which the U.S. helped create in order to control the spread of missiles. The Guidelines, and U.S. export controls, apply to missile-related exports worldwide, not just to one country. These controls are still in effect today and have, in fact, been strengthened recently under the Administrations Enhanced Proliferation Controls Initiative (EPCI). b. What does the State Department know about Dr. Helmy and his connections with the Egyptian Government? A: The information available to the Department of State with respect to Dr. Helmy's connections to Egyptian officials originates primarily from documents on the public record already furnished to the Subcommittee, and from Dr. Helmy's statements under a cooperation agreement with the Department of Justice. Further inquiries on this information should be directed to the Department of Justice. PAGENO="0558" 554 Question for the Record submitted to Charles Duelfer House Ways and Means Committee May 1, 1991 Q: c. Did the State Department have any knowledge of the Condor II missile program prior to the arrest of Dr. Helmy? If so, did the State Department know that U.S.-origin goods and technology were being used to support Egypt's missile program? A: The State Department was aware of the Condor missile program before Helmy's June 1988 arrest. By that time we had raised our concerns about the Condor program with other MTCR partners, in order to restrict further development of the missile. The Department was aware that U.S. origin goods and technology were being sought for use in Egypt's missile program, and that some U.S. origin items had in fact been put to use in that missile program. It was precisely these reports which led to the investigation that resulted in the arrest of Dr. Helmy. d. Was the State Department aware that the Egyptian Government was receiving technical advice from Dr. Helmy from the origins of the missile program in 1984 to Dr. Helmy's arrest in 1988? A: The State Department became aware of Dr. Helmy's activities during the course of the investigation, but the extent of his connections to the Egyptian Government did not become clear until he detailed these connections as part of his plea bargain. PAGENO="0559" 555 Question for the Record submitted to Charles Duelfer House Ways and Means Committee May 1, 1991 e. Were any of the Egyptian officials ever brought to justice in Egypt for their role in this case? If not, why not? Are there outstanding arrest warrants in the U.S. for any Egyptian officials involved in this case? Why didn't the U.S. Government pursue extradition? A: To the best of our knowledge, there have been no prosecutions of Egyptian officials relating to the Helny case. At the time of Dr. Helmy's arrest, we urged the Government of Egypt to take appropriate measures against responsible officials in Egypt. Two Egyptian military officials were indicted in the Helmy case. They are presently fugitives with outstanding arrest warrants, and we believe they are residing in Egypt. Unfortunately, our extradition treaty with Egypt does not cover the types of crimes these officials are alleged to have committed. Two other unindicted Egyptian officials who were identified as co-conspirators but who had diplomatic immunity were officially withdrawn by the Government of Egypt after the arrest of Dr. Helmy in June 1988. f. Did all the missile component items contained in Egypt's shopping list, such as rocket fuel ingredients, require State Department licenses? If not, why not? Q: All items on the MTCR Equipment and Technology Annex, including rocket fuel ingredients, require a U.S. license prior to export. Most of these are controlled as munitions items and licensed by the Department of State. A small number of MTCR Annex items are dual-use items licensed by the Department of Commerce. PAGENO="0560" 556 Question for the Record submitted to Charles Duelfer House Ways and Means Committee May 1, 1991 g. The Helmy case involved the use of the Egyptian Embasssy facilities and Egyptian C-l30 military aircraft. Does the State Department have any knowledge that U.S.-origin commodities are being exported illegally through diplomatic means in other cases? If so, please explain. A: The State Department has no such knowledge with respect to items on the munitions list, nor do I have any such knowledge with respect to other exports. Q:haThe Iraqi organization "BADR General Establishment~ is one of the Saddam's contractors for military equipment and supplies. BADR was the prime contractor for the high temperature furnaces intercepted by Customs. The furnaces were to be used for Iraq's missile and nuclear programs. i. What information does the Department of State have on the Iraqi organization BADR General Establishment? ii. When was the Department of State first made aware of the covert targeting and collection activities of BADR? What did you do about it? iii. Did the Department raise any concerns about the activities of BADR General Estalishment? If so, at what level? What did the Department do with the information? A: The Department of State knew that the BADR General Establishment was involved in steel works, including casting, cutting and milling, and that BADR supported Iraq's military production industries. We began to suspect its involvement in Iraq's missile program when it started to search for precision casting and milling equipment in 1989. At that time, the Department, along with other agencies, began to monitor BADR's activities more closely, and to scrutinize U.S. exports to the establishment carefully. No exports of MTCR Annex items were allowed to go to the BADR General Establishment. On a number of occasions, we raised with Iraq our concerns about the dangers of missile proliferation in the Middle East. PAGENO="0561" 557 Question for the Record submitted to Charles Duelfer House Ways and Means Committee May 1, 1991 Q: i. "Pro~èct 395~ is the name of Iraq's primary ballistic missile development program. What information does the Department of State have on Iraq's Project 395? Does the Department know how this project is tied into Iraq's indigenous ballistic missile development program? Did the Department of State ever discuss this projct with Egypt or our allies? If so, when and how was this done and at what level was it done? Did the Department ever raise any concerns with other Departments over this activity? Or with Iraq itself? A: The Department of State is aware of the nature of Project 395, and its role in Iraq's ballistic missile development efforts prior to the Gulf War. Most of the information on this project is classified, however. The U.S. discussed Iraq's missile development activities on numerous occasions with Egypt and other allies prior to the Gulf War. In some cases, the discussions were aimed at thwarting specific procurement efforts by Iraq. In others, the discussions focussed more generally on Iraqi capabilities and intentions. In addition, on a number of occasions we raised with Iraq our concerns about the dangers of missile proliferation in the Middle East. Within the U.S., all relevant government agencies participated in interagency discussions of Iraqi missile development activities, including planning and executing of U.S. actions in response. Question A. j. j. The Saad 16 is a facility located inside Iraq involved in missile research and development. A number of U.S. exports to facilities, such as Saad 16, were not covered under the annex of the multinational Missile Technology Control regime. One example was a hybrid computer exported to Iraq in 1987. The Department of Defense (DOD) objected but it was licensed anyway. Commerce had informed DOD that there was no legal basis to deny the export to Iraq either under foreign policy or national security grounds. i. What did the Department of State know about the Saad 16 facility? What did the Department do about it? PAGENO="0562" 558 ii. Could the computer have been denied for export, even though it was not on the annex? If it could not have been denied for foreign policy grounds, could it have been denied for national security reasons. iii. Did the Department of State know that BADR was involved in the Saad 16 project for which the German company, Gildemeister, was the prime contractor? Did State go to the Germans raising concerns about the facility? What was the German government's response? Answer As the Department became aware of the nature of the Saad 16 facility and its importance to Iraqi missile development activities prior to the Gulf War, the Department led the USG effort to contain the threat posed by Iraq's missile activities. The Enhanced Proliferation Control Initiative (EPCI) is one direct result of this effort. On a multilateral basis, the effort included numerous discussions with the German government about the involvement of German firms in Iraq. Under existing authority and regulations, computers not covered by the Missile Technology Control Regime or other foreign policy controls could not have been denied to Iraq solely on the basis of concern that the end user was engaged in / missile-related activities. The Enhanced Proliferation Control Initiative (EPCI) now provides authority to address this situation effectively. Prior to implementation of EPCI, items not specifically covered by one of the foreign policy controls, e.g. missile technology controls, were not subject to individual licensing except under the national security (section five) provisions of the Export Administration Act. Items controlled for national security reasons but not subject to specific foreign policy controls could generally have been denied effectively only to the proscribed destinations specified in section five of the Act, e.g. the Soviet Bloc and China. Any effort tocontrol items to Iraq under section five in the absence of multilateral controls would have been ineffective because of the foreign availability provisions in the Act. PAGENO="0563" 559 Question for the Record submitted to Charles Duelfer House Ways and Means Committee May 1, 1991 Q:K.Despite the actions taken by the United States with regard to Dr. Helmy and his activities to procure components for the Egyptian-Iraqi-Argentina missile programs, isn't it true that Egypt, Iraq, and Argentina still maintain active ballistic missile development programs? What is the United States doing to curb this activity? A: Missile development activities in these countries have been significantly affected by international events and domestic political constraints. Iraqs missile program, of course, was dealt a substantial blow by attacks from coalition forces during the Gulf War. Under UNSC Resolution 687, Iraq is required to destroy or surrender its weapons of mass destruction, including ballistic missiles of greater than 150 km range. The UN Special Commission charged with implementing UNSCR 687 is now in the process of carrying out its mandate. Argentina has announced the termination of the Condor program and is discussing with the U.S. ways to eliminate Condor-related equipment and facilities. Egypt has reacted favorably to the President's recently announced Middle East arms control initiative, which calls for a ban on the development and production of all surface-to-surface missile systems. We hope Egypt will take the lead in efforts to rid the Middle East of destabilizing weapons. For more detail on missile development activities in these countries, I would refer you to the Report on Missile Proliferation, submitted to the Congress pursuant to Section 1704 of the National Defense Authorization Act for Fiscal year 1991, PL-10l-5l0. PAGENO="0564" 560 Question for the Record submitted to Charles Duelfer Before the House Ways and Means Committee Subcommittee on Oversight Appearance Date: May 1, 1991 /~ 2. Alcolac Chemical Case: In this case, over 630 tons of "thiodiglycol", a mustard gas ingredient, was illegally shipped to Iran and Iraq over a 14-month period. The principle operatives, Peter Walaschek and Frans van Anraat, remain fugitives today because the German and Italian governments failed to take action. The Italian courts refused to extradite van Anraat and he remains at large. Waiaschek fled the United States before sentencing and resurfaced in Germany where German authorities have refused to extradite him. a. What is the State Department doing to ensure that those charged with violating U.S. export control laws are brought to justice? The Department believes that appropriate action should be taken against all persons who violate U.S. export laws. The Alcolac case involved violations of the Export Administration Act's regulations and falls under the jurisdiction of the Commerce Department. Several foreign nationals were arrested based on the work of U.S. Customs officials. Generally speaking, our agencies work together to eensure compliance with the various export control regimes but the ultimate responsibility of enforcement lies with the agency charged with carrying out the regulations in conjunction with the Justice Department. In this instance, the specific agency concerned was the Commerce Department. PAGENO="0565" 561 Question for the Record submitted to Charles Duelfer Before the House Ways and Means Committee Subcommittee on Oversight Appearance Date: May 1, 1991 A.2. b. What role did the State Department play in trying to secure the extradition of Walaschek and van Anraat? The Department of State only makes extradition requests when asked to do so by the Justice Department, which ultimately prosecutes persons for violations of U.S. regulations. Because Walaschek is a German national, he was not extraditable to the U.S. under German law and the U.S.-German Extradition Treaty. Like many countries, the FRG will not extradite its own nationals. However, DOJ's Office of International Affairs of the Criminal Division and the State Department worked through the appropriate diplomatic channels and prepared a requst for Walaschek to be prosecuted in the FRG. DOJ requested a transfer of the proceedings to the FRG but the ultimate decision as to whether prosecution could occur rested with the German prosecutor and ultimately with the FRG court. Such a determination, however, is clearly out of the jurisdiction of the Departments of State and Justice. Van Anraad was arrested in Italy but an Italian judge was prevailed upon to lower the charge to one for which there is no extradition provision in the U.S.-Italy Extradition Treaty. PAGENO="0566" 562 Please note that EtJR can provide only mininal information on this case. PM/PRO should be able to handle the general question and fill in the German part. QA2c. In-- this case, over 630 tons of "thiodiglycol", a nustard gas ingredient, was illegally shipped to Iran and Iraq over a 14 month period. The principle operatives, Peter Walaschek and Frans van Anraat remain fugitives today because the German and Italian governments failed to take action. The Italian courts refused to extradite van Anraat and he remains at large. Walaschek feld the United States before sentencing and resurfaced in Germany where German authorities have refused to extradite him. c. What leverage does the United States have to enlist the help of our European allies? How do the Germans and Italians view violations of U.S. export laws? A. The U.. S. Embassy in Rome strongly protested the Italian court decision in September 1989 to refuse van Anraat's extradition to the U.S. on the grounds that this offense was political. Italy takes, seriously the issue of control of arms and related interests. Its new arms export control law places severe limits on the export, import and transit of biological as well as conventional armaments. We receive excellent cooperation in these areas. 0. A.2.d. Should the Department of State get involved in the issuance of licenses for, such chemicals as thiodiglycol which is used for mustard gas? If no, why not? Isn't thiodiglycol the critical ingredient? A. The State Department is involved in the process of approving export licenses for chemical weapons precursors, including thiodiglycol, which is a precursor for mustard gas. Applications for licenses to export 50 chemicals -- which comprise the Australia Group CW precursor list -- to destinations outside the Australia Group countries are referred to the State Department and other relevant agencies by the Department of Commerce for their views before an export license is issued, PAGENO="0567" 563 Question for the Record submitted to Charles A. Duelfer House Committee on Ways and Means Subcommittee on Oversight May 1, 1991 Q. 3 The Global helicopter case involved the attempt by Carlos Cardoen to obtain FAA certification of a modified Hell helicopter. The Commerce Department determined that the helicopter was most likely for military purposes and, therefore, in August 1990 requested a determination from the Department of State regarding the requirements for a State Department license for re-export of the helicopter to Chile. This request is still pending. Why has it taken the State Department so long to determine whether Cardoen~s helicopter requires a State Department license? A. On June 24, 1991, the Department of State advised the U.S. Customs Service of its determination that the modified Bell~ Long Ranger helicopter belonging to Carlos Cardoen is covered by the U.S. Munitions list and requires a munitions license for export from the United States. This determination was made in through a formal Commodity Jurisdiction determination, in consultation with the Departments of Defense and Commerce. The Bell Long Ranger helicopter in its unmodified form is a civilian aircraft subject to Commerce Department jurisdiction. In response to a request from the Customs Service as to whether the modifications made to the Cardoen helicopter had transformed it into a munitions item, State initiated a commodity jurisdiction review. The initial information obtained by the Department was insufficient to make a determination as to whether the modifications had changed the nature of the aircraft. Further information, including written material and technical data, was sought and, after some delay, obtained by April 1991. This new information allowed the Department to make its final determination in this case. PAGENO="0568" .564 Question for the Record Submitted to Charles Duelfer House Ways & Means Committee SubCommittee on Oversight Hay 1, 1991 ~4. C-TEK Computer Case a. Detailed information on the C-TEK Case is best obtained from the Department of Commerce and from the U.S. Customs Service, both of which were involved in this case. Our understanding is that the failure of the Government of Canada to execute search warrants requested as part of the investigation was due to the inability of the Assistant U.S. Attorney to provide sufficient probable cause to Canada to enable that Government to comply with their law. Canada is a member of COCOM and has therefore pledged to cooperate with other COCOM members, such as the U.S., in the investigation of these types of export control violations. There is an excellent record of cooperation by Canada Customs and the RCMP in this regard in the case of controls agreed upon both bilaterally and multilaterally. The U.S. and Canada have entered into both a bilateral Mutual Legal Assistance Treaty and a bilateral Customs Mutual Assistance Agreement which provides an international legal basis for this cooperation. b. It is not entirely accurate to say that Singapore did not cooperate with the U.S. in this investigation. Trade authorities in Singapore, it should be noted, returned the DEC VAX 8700 Computer to the U.S. at the request of the USG. The Government of Singapore, through its Trade Development Board, did advise the U.S. in this case that it could not provide requested documentation because Singapore's Trade Development Act specifically prevented the GOB from providing documentation to any government body - foreign or Singaporean - except in the instance of a prosecution in the Singapore courts. The Government of Singapore does not prohibit the U.S. from obtaining needed documentation directly from private companies or freight forwarders. The GOS cannot provide such documentation to us under this interpretation of their law. The United States is discussing a broad range of legal cooperation matters at the present time with the Government of Singapore, including cooperation in both money laundering and in export enforcement. With regard to the cooperation of the United Arab Emirates in this case, we have no direct knowledge of any lack of assistance on the part of the UAE, although we understand that in the C-TEK computer case, there were some problems caused by the manner in which the U.S. requested the information. In general, our experience has been that the UAE has been cooperative on law enforcement matters. You might want to check with the U.S. Customs Service on this, since their Attaches would have been responsible for coordinating or conducting any export control investigation in the UAE, or with Commerce, since this was their case, for the detailed information you seek. With regard to the assistance provided the State Department to assist U.S. investigators in obtaining overseas information, this can take many forms. The best method is through the conclusion of bilateral agreements of cooperation and assistance in legal matters, such as Mutual Legal Assistance Treaties, or executive agreements such as Strategic Trade Memoranda of Understanding and Customs Mutual-Assistance Agreements. The 5K benefits of the Export Administration Act are incentives to cooperate with the U.S. on strategic trade. There are a number of PAGENO="0569" 565 other diplomatic tools available to the U.S. to use in gathering evidence in export cases. As you know, the responsibility for conducting overseas investigations of violations of U.S. export control laws rests with the U.S. Customs Service. For that purpose they have over 100 employees stationed at embassies ann consulates around the world, and their operations are fully supported by the Department of State. G. Each diversion scheme that we uncover differs from others to a certain extent. However, most diversions of U.S. origin high technology goods tend to be through countries with which the U.S. has a large volume of trade in high tech goods, such as Canada, the United Kingdom and West Germany. There are very few allegations of diversion through Mexico. There does seem to be a trend in diversions to have them go through many countries before being diverted to a proscribed destination. We think it is important to look at our overall system of export controls, which we believe is highly effective. There have always been, and will continue to be successful diversion attempts. They are not numerous enough, in our view, to significantly affect the strategic balance, and the large number of successful criminal prosecutions and administrative penalties for export control violations is a powerful deterrent. FOREIGN POLICY CONCERNS VERSUS EXPORT CONTROLS 3.1. A Washington Post article dated November 1, 1990, indicates that last spring the Commerce Department unofficially began to slow down the process of issuing export licenses to Iraq. In late July, Secretary Baker asked Commerce Secretary Mosbacher to impose more rigid controls on sales to Iraq. A few months earlier, Administration sources had stated that the State Department had balked on imposing tighter controls. c. To what extent do foreign policy concerns override export controls? Please give examples. U.S. defense firms which violate the Arms Export Control Act (AECA) (22 U.S.C. section 2778) and other U.S. export control legislation are prohibited from exporting defense articles and providing defense services. The Department of State may grant special exceptions because of overriding U.S. national security and foreign policy concerns. In making its decision, State consults with DOD and other relevant agencies. In the past months, after careful interagency review, State has granted exceptions for some compelling cases; examples are summarized below. o An exception was recommended for a defense export in order to permit a NATO ally to fulfill its commitment to an PAGENO="0570" 566 important alliance project, the Multiple Launch Rocket System (MLRS) program. Allowing the requested transfer furthered U.S. national security interests and encouraged collective security efforts within NATO. Impeding such a joint venture at this critical juncture in NATO~s history could send the wrong signal to U.S. allies. o In a case involving a friendly democratic nation, an exception was recommended to permit the export of components for aircraft which are essential to the country in maintaining its defense preparedness. o A firm prohibited from exporting requested to sell communications equipment to a U.S. ally. An exception was recommended because the nation provided crucial assistance to the U.S. in the Gulf war effort. PAGENO="0571" 567 Question for the Record submitted to Charles Duelfer House Ways and Means Committee May 1, 1991 2. Under the terms of the United Nations Cease Fire agreement, Iraq purportedly disclosed on April 18th the location of all of its chemical stockpiles, nuclear materials and ballistic missiles, which are to be destroyed several months later. a. To what extent have the Iraqis complied with the agreement? How does the U.S. intend to ensure that Iraq completely discloses this information? How will the destruction of these weapons be carried out? b. Are the huge quantities of the mustard gas precursor, "thiodiglycol,~ that were from Alcolac International listed as part of Iraqs chemical stockpiles? A. Iraq has not declared all the information required by UNSC Resolution 687 about their weapons of mass destruction and ballistic missiles. The UN Special Commission has requested additional information from the Iraqis to supplement their original declarations. Although the Iraqis provided more detailed and forthcoming information, the USG still believes they have not made full disclosure. In the USG view, we should not expect full Iraqi disclosure, but should instead use the inspection regime mandated by UNSC Resolution 687 to investigate Iraqi sites and facilities. This procedure is the best means to increase confidence in our information about Iraqi facilities and capabilities. UNSCR 687 calls upon the UN Special Commission to remove, destroy or render harmless Iraqi nuclear material, facilities and equipment, weapons of mass destruction, and ballistic missiles over 150 km range. The Iraqi nuclear fuel which was inspected and placed under tamper-proof seal last month will be removed from Iraq. The Commission demanded -- and the Iraqis agreed to -- a procedure and schedule for the Iraqis themselves to destroy ballistic missiles (under Commission observation) by crushing them. The destruction of chemical weapons is a much more complicated task, and the UN Special Commission has not yet decided how to proceed. The Iraqis have offered to destroy their CW themselves under Commission observation in PAGENO="0572" 568 order to minimize costs. The Commission is considering the Iraqi plans to see if they meet required standards. If Iraq is allowed to destroy its chemical weapons, we will insist that it be done under Special Commission supervision and control. The Iraqis did not identify "thiodiglycol~ in their declarations to the UN Special Commission. 3. We know that German companies have been in the forefront of proliferation in chemical, biological warfare, and missile and nuclear weapons development in Iraq and other third world- countries. In response, the Germans have made pronouncements that they have improved their export control laws to guard against proliferation. Yet, we continue to get reports that German companies continue to supply technology and equipment to such companies as Libya, India, Pakistan, Syria, and Iran for these unconventional weapons efforts. It is my understanding that the German government, as a matter of policy, does not conduct pre-license or post-deliver shipment checks to ascertain the bona f ides of end-users. Further, a recent New York Times article reports that the German legislature has rejected the proposed German proliferation control laws. a. What are we doing to get the Germans to make a more concrete effort to ensure their exports to these countries are not going for unconventional weapons development? b. What can we do if, the Germans continue to reject proliferation control efforts? - A: Since Rabta, the Germans have taken impressive steps to improve their export control regime and have cooperated closely in investigations of suspected export control violations involving German firms. Last year, the Germans adopted a series of export control reforms, giving then among the toughest export control laws in the world. As a follow up.measure, the German government introduced new legislation this year stiffening-penalties in some areas and expanding the investigative autho~rity of law enforcement agencies in export control cases. This legislation passed the lower house of parliament, but was held up in the upper house due to objections to wiretapping PAGENO="0573" 569 provisions. German authorities are nevertheless optimistic that a compromise bill, with few modifications, will be approved shortly. The Germans have established a special list of countries of proliferation concern that includes all of those noted in your question. Exports to these countries of a wide-range of dual-use and other items that might be used in NBC weapons programs require special export licenses. 4. It is German policy to say that it does not support proliferation in third world countries. At the same time, German companies contend that they do not break German laws despite what we know to be the contrary. The Germans end-run the system by "piecemealing" components for systems which later are joined together outside of Germany. German Economic.Minister Moellemann has indicated that it was through this method that German companies were able to build proliferation facilities in Iraq. a. What are we doing to get German authorities to focus and take action on this apparent end-run of stated German policy? b. Are the Germans trying to have it both ways -- supporters when it comes to international policy but shrewd businessmen when it goies to trade? A: The German government shares our concerns over potential diversions of sensitive items through third countries. For that reason, it now requires that German exporters exercise due diligence in determining the bona £ ides of their customers. If diversions occur due to a German firms negligence, it can be held criminally accountable. Drafted: EUR/CE: JFSammis 6 SECEFRG 3183 6/21/91 Clearances: EUR: RJohnson EUR/CE:OGrobe'~\ ., EUR/CE : WMenold PM/PRO:JDavi5 PAGENO="0574" 570 Taken Q&A Charles Duelfer House Ways and Means Committee May 1, 1991 CHINA~S NUCLEAR COOPERATION WITH ALGERIA AND PAKISTAN Question: ~. China reportedly is assisting Algeria in nuclear weapons development. We also had previous indications that China was supporting Pakistanjs nuclear weapons development program. What is the Administration doing to warn China to stop this activity? When was China told to stop this activity? What does the Administration propose to do if China does not stop? Does the State Department have any information indicating that U.S. firms are supplying nuclear assistance to the Algerians? Answer: Algeria -- We have had constructive discussions with the Algerians and Chinese over the last- several months on the matter of their nuclear cooperation. -- We have not concluded that China has agreed to provide assistance to Algeria for nuclear weapons development. -- Both the Chinese and the Algerians have publicly acknowledged their heretofore confidential cooperation on a nuclear reactor project; have agreed that the reactor being supplied by China will be placed under ThEA safeguards; apd have issued assurances that the cooperation is strictly for peaceful purposes. -- We understand Algiers has initiated discussions with the IAEA; we want a safeguards agreement between - Algeria and the IAEA tO be concluded promptly. -- -- China has publicly- and privately pledged on a number of occasions that-it does not engage in nuclear proliferation and that it will not help other countries develop nuclear weapons, and has also said that it will require safeouards on its nuclear exports. PAGENO="0575" 571 -- We have stressed our concerns about nuclear proliferation to the Chinese on numerous occasions; we have told them that we expect China to abide by its public commitments on nonproliferation as well as its private assurances to us. -- We will continue to review China~s nuclear nonproliferation practices to determine whether they are consistent with its pronouncements in this area. -- The State Department has no information to indicate that U.S. firms are supplying nuclear assistance to Algeria. Pakistan -- We have held discussions with China on nuclear proliferation issues, including our concerns abo~it Pakistan's nuclear program, on numerous occasions, including in recent months and weeks. -- China has pledged that it does "not engage in nuclear proliferation" nor does it "help other countries develop nuclear weapons." -~ We have told China that we expect it to abide by its publicly stated nuclear nonproliferation policy and private assurances to the U.S. -- We are monitoring the situation to determine whether China's practices are consistent with its pronouncements in this area. -- Congress will be kept informed of developments in this area through briefings offered under provisions of the Nuclear Nonproliferation Act. PAGENO="0576" 572 Question for the Record submitted to Charles Duelfer House Ways and Means Committee Nay 1, 1991 understanding does the Administration have with the Chinese Government concerning a halt to further missile sales in the Middle East? Is Pakistan included in the Middle East? A: The Chinese stated May 30 that, apart from sales of CSS-2 missiles to Saudi Arabia in 1987/88, China has not sold intermediate-range missiles to any other countries. China has also stated that it will not sell intermediate-range missiles to the Middle East and has specifically denied press reports of M-9 missile sales to Syria. There is some ambiguity in the Chinese use of the term `intermediate-range." We are engaged in discussions with the Chinese to ascertain precisely what Beijing means by this term. China stated it has no current "exchanges" concerning missiles with Pakistan, but has said that it did deliver a "tactical" missile to Islamabad. We are in the process of ascertaining what China means by "tactical" missiles. The Chinese have supported the President's Middle East arms control initiative and participated in the July 8-9 Paris meeting of five major arms suppliers. PAGENO="0577" 573 Question for the Record submitted to Charles Duelfer House Ways and Means Committee May 1, 1991 Q: To what extent does Pakistan have its own ballistic missile program? Does the State Department have any information indicating that U.S. firms are supplying, either knowingly or unknowingly, missile components to Pakistan? A: Pakistan is reported to have an advanced ballistic missile development program. Pakistan has developed the HATF-l and HATF-2 rockets and may be working on additional rockets. For more detail on Pakistan's missile development activities, I would refer you to the Report on Missile Proliferation, submitted to the Congress pursuant to Section 1704 of the National Defense Authorization Act for Fiscal year 1991, PL-lOl-5l0. u.s. missile-related exports to Pakistan are tightly controlled to prevent them from contributing to Pakistan's missile capabilities. In the past year several license requests for MTCR Annex items were denied by the U.S. out of concern that they would be used in Pakistans missile program. Q: Which-countries does the State Department believe pose a ma]or threat to the United States in terms of proliferation? Which countries are currently operating major underground purchasing networks to acquire U.S. technology and goods? A: Although certain countries have gone further than others in developing programs of proliferation concern, U.S. nonproliferation policy is global in nature. The goal of our policy is to encourage multilateral action by all nations to restrict the spread of weapons of mass destruction and the missiles that carry them. Specific information on countries and procurement networks is classified and should be handled through appropriate channels. 51-840 0 - 92 - 19 PAGENO="0578" 574 Question for the Record Submitted to Charles Duelfer House Ways and Means Committee Subcommittee on Oversight May 1, 1991 Ouestiori B.8. We know from the Iraq war thatmost of the damage was caused by conventional "smart weapons" like cruise missiles and laser-guided bombs. It is now apparent that every country will now want such weapons in their arsenals. a. How much importance has the Administration placed on the proliferation of conventional weapons? How concerned is the Administration about proliferation and what specific steps have been taken to address this issue? Answer o One of the Administration's major concerns is the proliferation of conventional weapons in the Persian Gulf. It forms one of the elements of the President's initiative for Middle East Arms Control, o The initiative called for the five major suppliers of arms to the Middle East to meet and discuss the establishment of guidelines for restraints on destabilizing arms transfers. This could include formulation of a general code of responsible arms transfers, establishment of effective controls onthe end-use of arms or other items to be transferred, and~ a mechanism for regular, ongoing consultation among the major suppliers. o The five suppliers--the UK, France, the USSR, China, and ourselves--have agreed to meet in Paris in July. PAGENO="0579" 575 Question for the Record submitted to Charles A. Duelfer House Ways and Means Subcommittee on Oversight May 1, 1991 ~Q~IY~NTIQNAL WEAPONS PROLIFERATION 8. We know from the Iraq war that most of the damage was caused by conventional "smart weapons" like cruise missiles and laser-guided bombs. It is now apparent that every country will now want such weapons in their arsenals. c. Will unilateral action on the part of the U.S. make a difference in terms of weapons proliferation? The United States has a genuine interest in identifying opportunities for practical, verifiable controls on the spread of conventional weapons. However, unilateral U.S. action is not likely to lead to such restraints, as there are numerous. other sources for such weapons. The United States regularly works with its friends and allies to control weapons proliferation. It has encouraged other countries to adopt similar regulatory mechanisms and arms export control laws. Furthermore, proliferation of conventional weapons has been the subject of numerous meetings and negotiations. Clearly, it remains at the forefront of the Department's diplomatic efforts. PAGENO="0580" 576 Question for the Record submitted to Charles A. Duelfer House Ways and Means Subcommittee on Oversight May 1, 1991 CONVENTIONAL WEAPONS PROLIFEpAT~Qji 8. We know from the Iraqwar that most of the damage was caused by conventional "smart weapons" like cruise missiles and laser-guided bombs. It is now apparent that every country will mow want such weapons in their arsenals. d. To what extent will the imposition of unilateral restrictions undermine more effective u.s. efforts to develop am international regime to stop weapons proliferation? Unilateral steps will complicate efforts to develop effective mulitlateral restraints, so long as there are numerous other supplier nations who, for political and economic reasons, place a heavy premiumon arms exports, and there is a significant demand for defense articles by recipient nations. The United States has taken the lead in international efforts to limit the proliferation of conventional arms and reduce global tensions. At the same time, it urges other supplier nations to develop arms export control regimes comparable to those of the United States. While seeking viable multilateral actions, the United States does not jeopardize its ability to meet its security commitments to friends and allies, but encourages other countries to follow its lead in limiting the spread of conventional arms. PAGENO="0581" 577 Question for the Record Submitted to Charles Duelfer House Ways and Means Committee Subcommittee on Oversight May 1, 1991 Qu~ian B.8.e. To what extent will unilateral controls divert business from the U.S. to countries that don't put the curbs in place? To what extent can unilateral restrictions be enforced? Answer o Our first responsibility is to ensure that U.S.-origin goods, technology and services do not assist CBW or missile programs in countries of concern. -- This is one of the major goals of the President's Enhanced Proliferation Control Initiative (EPCI), which has now been implemented by the issuance of new export control regulations. o We recognize that export controls are more effective if they are applied multilaterally. Thus, EPCI also is the basis for the U.S. to lead in urging its nonproliferation partners and others to adopt comparable export controls. -- We have already had a notable success in this effort as the Australia Group agreed in May that all members would control exports of all 50 CW precursors listed by the Group and that all members would adopt controls on a list of dual-use equipment that could be used to produce CW; both elements are important parts of EPCI. o Unilateral export controls do pose the risks of competitors increasing market share at the expense of the U.S. or diversion of trade from U.S. firms. o We believe, however, that these risks are minimized because our controls are not unilateral as our allies adopt comparable export controls and many nations that remain outside the nonproliferation organizations are also adopting stronger export controls. PAGENO="0582" 578 Question for the Record submitted to Charles Duelfer House Ways and Means Committee May 1, 1991 ~. Q.~.Has the Administration given any thought to supporting a plan for regional ballistic missile disarmament in the Middle East? Does the Administration support Egyptian President Mubarak's plan for a nuclear and chemical weapons free zone? How is this idea viewed by the State Department? A. As you are aware, the President has announced a Middle East Arms Control Initiative that addresses the need for elimination of weapons of mass destruction and ballistic nissiles in the region. The plan calls for, in part, the elimination of all surface to surface missiles, beginning with a freeze in the production, acquisition and testing of such missiles. The Administration has long supported efforts to achieve a Middle East zone free of weapons of mass destruction and fully supported the Mubarak proposal. In fact, the Mubarak proposal and the President's arms control initiative have parallel objectives. Those objectives are also embodied in paragraph 14 of UNSCR 687 which states that steps taken by Iraq in fulfilling that resolution's requirements represent~steps towards the goal of establishing in the MiddleEast a zone free of weapons of mass destruction and all missiles for their delivery. PAGENO="0583" 579 Question for the Record submitted to Charles Duelfer House Committee on Ways and Means Subcommittee on Defense Trade Controls May 1, 1991 10. According to press reports, Syria recently received some $2 billion as a result of its involvement as a coalition partner in the Gulf war. Syria almost immediately turned around and purchased arms, including "improved" Scuds from North Korea. a. Do you have any evidence to confirm this allegation? If so, have any North Korean missiles or launchers been transferred? How many? b. What has the Administration done to get Syria to halt its new round of weapon purhcases? c. How do they justify these purchases in light of the severe economic straits Syria finds itself in? d. Are we to expect a request to waive Syria's outstanding debt to the U.S.? e. What's wrong with telling President Asad that such behavior is unacceptable? If, as in the case of Saddam Hussein, we don't give the Syrians a clear signal, isn't that a signal of acquiescence in the mind of someone like Asad? We can confirm that Syria has received some improved Scud missiles from North Korea. As part of the President's Middle East arms control initiative, we have told the Syrian and other governments in the region of our wish to curb the spread of nuclear, chemical, and biological weapons, the missiles that can deliver them, and destabilizing conventional arms build-ups in the region. We have stated publicly that a spiraling arms race in the Middle East does not serve either the cause of peace or the interests of the individual countries involved. Our understanding is that Syria views a strong military as necessary to its security. PAGENO="0584" 580 Questions for the Record Submitted to Charles Duelfer, Director for the Center for Defense Trade Subcommittee on Defense Trade Controls May 1, 1991 B. General Export Control Policy Questions 10. According to press reports, Syria recently received some $2 billion as a result of its involvement as a coalition. - partner in the Gulf war. Syria almost immediately turned around and purchased arms, including "improved SCUDs from North Korea. e. What has the State Department done to impose leverage on such countries as the USSR to tell North Korea and Syria to back away from these sales and purchases? A. We have made clear in many diplomatic exchanges with the USSR our deep concerns about the proliferation of arms, especially in the Middle East. The USSR has responded that it shares these concerns and has indicated that it will attend - next month's Paris meeting of arms suppliers. Unfortunately, Soviet leverage over North Korean and Syrian arms sales and purchases is limited. 13.fl. Q: Brazil and Argentina have refused to sign either the nonproliferation or Missile Technology Control Regimes. Yet, these countries have a history of developing unconventional weapons and have shared their technical exports with other proliferating countries in these fields. For example, Argentina was actively involved in the Condor II missile program. Brazil was instrumental in aiding Iraq's nuclear weapons developent program. Despite this history, the United States continues to allow business as usual through the technology exports we allow to these countries. a. What actions would the Administration contemplate against another government for failure to prevent (or convertly condoning) their firms from participating in or supporting proliferation programs? b. What policies does the Administration intend to take against developing countries, such as Brazil and Argentina, to get them to alter their support policies for these programs? c. What leverage through limits in controlled exports do you anticipate being necessary to exert any necessary Changes in these countries' policies? A: Brazil and Argentina have taken several significant steps in the last year to improve their nonproliferation credentials. The U.S. has welcomed these steps. PAGENO="0585" 581 On November 28, 1990, the Presidents of Brazil and Argentina issued a Declaration of Common Nuclear policy which called for bilateral inspections of nuclear facilities, joint negotiation of a full-scope safeguards agreement with the International Atomic Energy Agency (IAEA), and steps to bring the Treaty of Tlatelolco into forcefor both countries. The two countries have met regularly to develop the bilaterral inspection program. They have also met with the IAEA and have indicated their desire to sign an agreement with IAEA in September of this year. In addition, Brazilian President Collor announced last fall at the UN General Assembly that Brazil would not engage in any nuclear research or development activity which would involve nuclear explosions, even for peaceful purposes. Argentina has announced the termination of the Condor program and is engaged in a high-level dialogue with the U.S. on final disposition of Condor equipment and facilities. Following revelations last year that a retired Brazilian Air Force general had been working on an Iraqi air-to-air missile project, the Government of Brazil has introduced legislation to control the foreign activities of former government officials and military personnel. Brazil is also reviewing its regulations and procedures concerning controls on arms exports. U.S. policy towards Argentina and Brazil recognizes the steps these countries have taken. At the same time,. we continue to urge then to take additional steps to improve their controls on exports of sensitive technologies. For example, we have encouraged both countries to implement the MTCR Guidelines, and we have held in-depth discussions with PAGENO="0586" 582 Brazil on technology transfer and export controls. Both Argentina and Brazil have expressed interest in implementing the MTCR Guidelines. We are confident that our cooperative approach towards Argentina and Brazil is the appropriate one for achieving our nonproliferation goals with these two countries. Q. C.l. Do you believe that existing proliferation control programs control enough of the sensitive technology to slow down current foreign weapons development programs and to deny these technologies to potential adversaries? A. Existing proliferation control organizations are doing an increasingly effective job of developing the lists of goods and technologies that can be used in weapons of mass destruction programs. The U.S. is leading these efforts ~to identify the appropriate technologies for common controls with our nonproliferation partners. In the CBW field, the Australia Group recently agreed that all members will control all 50 listed CW precursor chemicals, and that common controls on a list of dual-use CW equipment and technology would be adopted. Control of BW organisms and dual-use equipment is on the agenda for the immediate future. The Missile Technology Control Regime is completing a review of its Annex to ensure that the right technologies and items are controlled. In the nuclear area we have enjoyed effective cooperation for many years with other supplier countries through the multilateral arrangements of the NPT Exporters (Zangger) Committee and the Nuclear Suppliers Guidelines. The 26 countries that adhere to the Nuclear Suppliers Guidelines have recognized the growing problem posed by the potential use of nuclear dual-use materials, equipment and technology to develop nuclear explosive deviáes. They are examining arrangements to control nuclear dual-use items. PAGENO="0587" 583 Question for the Record Submitted to Charles A. Duelfer House Committee on Ways and Means May 1, 1991 Q. C.2. Has the Administration conducted a consolidated review of-proliferation control regimes? A. Responsibility for nonproliferation policy in the USG is focused in the Nonproliferation Policy Coordinating Committee (PCC), which is chaired by the State Department and includes representatives from all relevant agencies. The PCC is -continually reviewing the structure and performance of the proliferation control regimes to find ways to make them stronger and more effective. Q. C.2.a. Who is responsible for developing and implementing a cohesive proliferation control program? A. The interagency Nonproliferation Policy Coordinating Committee, chaired by the Department of State, directs the development and implementation of U.S. policy in this field. Q. C.2.b. What effect does the Administration believe will result from the Enhanced proliferation Control Initiative? A. We believe that implementation of the Enhanced Proliferation Control Initiative (EPCI) will have two positive effects: 1) it will prevent goods and technology flowing from the U.S. to foreign CBW and missile programs, and 2) it has already enabled the U.S. to take the lead in establishing more effective international controls by urging our nonproliferation partners and others to adopt comparable measures. In fact, we have already seen the Australia Group agree that all members would implement important elements of EPCI, i.e., export controls on all 50 AG-listed CW precursors and agreement to control the export of a common list of dual-use CW-related equipment. PAGENO="0588" 584 Question for the Record Submitted to Charles A. Duelfer House Committee on Ways and Means May 1, 1991 Q. C.2.c. Would a centralized office in the National Security Council to handle the consolidated issue of proliferation be helpful in giving political weight to our export enforcement efforts? A. We believe our cooperation with the NSC and other executive departments on nonproliferation policy and development of export controls is excellent. The NSC includes an office that deals specifically with nonproliferation issues. The recent implementation of the Enhanced Proliferation Control Initiative (EPCI) after extensive interagency deliberations is a good illustration of our effective cooperation. The President has given the proliferation issue high visibility in a number of public statements ánd-initiatives. To add an layer of bureaucracy would not appear likely to enhance significantly either the political priority given the issue or the implementation of specific measures. Q. C.2.d. What about a multilateral, COCOM-like office to get our allies to control their technology from going to * proliferation programs of concern? A. We do not believe that creation of a single COCOM-like off ice is the most effective way to pursue-efforts to control proliferation. The areas in question -- nuclear, chemical and biological weapons, and missile proliferation -- cover a range of technologies which differ widely in the degree to which they use dual-use inputs and the nature and scope of current controls. In these and other respects, current nonproliferation efforts bear little resemblance to approaches and procedures used in COCOM. COCOM-like rules and procedures therefore would not be read~ly transferable- nor necessarily effective in pursuing nonproliferation objectives. Rather it might add an unnecessary and complicating factor to our efforts to gain the cooperation of our allies. In our view, what- is needed is to strengthen and expand the existing nonproliferation organizations, where sensitive and significant work is now going on which promises to improve our ability to effectively to restrain the spread of proliferation-related technologies. PAGENO="0589" 585 Question for the Record Submitted to Charles A. Duelfer House Committee on Ways and Means May 1, 1991 Q. C.4. (sic) As multilateral regimes are constructed, are there any areas under these control mechanisms that fail to prevent the diversion of sensitive technologies to weapons of mass destruction? A. The multilateral proliferation control regimes are doing an increasingly effective job of controlling the spread of sensitive technologies usable for the development or production of weapons of mass destruction. Nuclear nonproliferation partners are drawing closer to agreement on controlling dual-use technology in that field; the MTCR is completing an updated and strengthened Annex of controlled equipment and technology; and in May the Australia Group took the unprecedented step of agreeing that members would control all 50 listed CR precursors and a common list of dual-use CR equipment. Perhaps the major gap in the coverage of these organizations now results from the fact that not all major suppliers are included in their ranks. We are working to strengthen these organizations by expanding their memberships where appropriate. We must take into account, however, the inclination of some suppliers not to join and the attitudes of our partners toward expansion of the groups. Where membership is not appropriate or desired at this time, we are striving to have non-member supplier countries apply comparable controls. Another potential weakness relates to controlling exports of goods, technology or services that are not on any specific list, but which could assist in CBW and missile development in countries of concern. The U.S. has a "safety net" provision that controls the export of otherwise non-listed items in this way. We are urging others to adopt a comparable measure and several countries are giving it serious consideration. drafted: PM/PRO: JGDavis 6/11/91 0l66L x7l430 cleared: PM:CDuelfer PM/PRO:FAxelgard T:GDunn PM: RMantel PAGENO="0590" 586 Question for the Record Submitted to Charles A. Duelfer House Committee on Ways and Means May 1, 1991 Q. C.5.a. How responsive are our allies in bringing under control additional technologies ~apable of unconventional weapons development? A. Our nonproliferation partners share our view that controlling sensitive technologies applicable to weapons of mass destruction, including dual-use equipment and technology, is vital to international security and stability. They are taking positive actions to adopt additional controls, both in cooperation within multilateral groups and unilaterally to strengthen their own export control regimes. For example, in the CBW field the Australia Group recently agreed that allmembers will control all 50 listed CW precursor chemicals, and that common controls on a list of dual-use CW equipment and technology would be adopted. Control of BW organisms and dual-use equipment is on the agenda for the immediate future. The Missile Technology Control Regime is completing a review of its Annex to ensure that its members are controlling the right technologies and items. In the nuclear area we have enjoyed effective cooperation for many years with other supplier countries through~ the multilateral arrangements of the NPT Exporters (Zangger) Committee and the Nuclear Suppliers Guidelines. The 26 countries that adhere tO the Nuclear Suppliers Guidelines have recOgnized the growing problem posed by the potential use of nuclear dual-use materials, equipment and technology to develop nuclear explosive devices. They are examining arrangements to control nuclear dual-use items. PAGENO="0591" 587 United States Department of State Washington, D.C. 20520 July 17, 1991 Dear Mr. Chairman: Following the May 1, 1991 hearing at which Charles Duelfer testified, additional questions were submitted for the record. On July 12, 1991, the responses to most of those questions were submitted to you. Please find enclosed the responses to the outstanding questions. Sincerely, Janet G. Mullins Assistant Secretary Legislative Affairs Enclosures: As stated. The Honorable Dan Rostenkowski, Chairman, Committee on Ways and Means, House of Representatives PAGENO="0592" 588 Question for the Record submitted to Charles Duelfer House Ways and Means Committee May 1, 1991 Q. A.2.c In this case, over 630 tons of thiodiglycol, a mustard gas ingredient, were illegally shipped to Iran and Iraq over a 14 month period. The principal operatives, Peter Walaschejc and Frans van Anraat, remain fugitives today because the German and Italian governments failed to take action. The Italian courts refused to extradite van Anraat and he remains at large. Walaschek fled the U.S. before sentencing and resurfaced in Germany where German authorities have refused to extradite him. What leverage does the U.S. have to enlist the help of our European allies? How do the Germans and Italians view violations of U.S~ export laws? A. Our European allies take very seriously the need to control the spread of nonconventional arms and violations of U.S. law in this area, including export controls. This is illustrated by the passage since 1989, in both Germany and Italy, of a number of arms and technology export controls, resulting in significantly stronger export control regimes in both countries. The U.S. protested strongly the refusal of these countries to extradite the fugitives in question. In at least the Italian case, this refusal was based on a court determination that the offense was political. More generally, the U.S. is working closely with its allies in the Australia Group to harmonize export control regimes and enforcement, which should help to eliminate such misunderstandings. PAGENO="0593" 589 Question for the Record submitted to Charles Duelfer House Ways and Means Committee May 1, 1991 Q: A. Questions regarding specific subcommittee cases: 4. d. Did the State Department approve or disapprove of any license in the four cases the Subcommittee reviewed? A: The Department has not granted, under Sec 38 of the Arms Export Control Act, any licenses in the four cases reviewed by the Subcommittee: (1) Helmy Missile Case; (2) Alcolac Chemical Case, thiodiglycol is covered by the Commodity Control List administered by the Department of Commerce; (3) Global Helicopter Case, the Department has determined that the helicopter in question is covered by the U.S. Munitions List, under Category VIII(a); and, (4) C-TEK Computer Case, the computer equipment in this case is covered by the Commodity Control List administered by the Department of Commerce. PAGENO="0594" 590 Question for the Record Submitted to Charles Duelfer House Ways and Means Committee May 1, 1991 Q: B. GENERAL EXPORT CONTROL POLICY QUESTONS: 1. A Washington Post article dated November 1, 1990, indicates that last spring the Commerce Department unofficially began to slow down the process bf issuing export licenses to Iraq. In late July, Secretary Baker asked Commerce Secretary Mosbacher to impose more rigid controls on sales to Iraq. A few months earlier, Administration sources have stated that the State Department had balked on imposing tighter controls. a. To what extent was the State Department eager to see that trade continue and improve with Iraq? A: o We attempted to build upon indications of Iraqi moderation, including improved relations with Jordan and Egypt and creation with them of the ArabCooperation Council in 1988. o The United States government provided no direct assistance, but for several yearsdid extend credit insurance for U.S. exporters to Iraq under two programs: -- The CCC, which guaranteed U.S. exporters short-term bank financing of 1-3 years to enable Iraq to purchase basic foodstuffs from American farmers. The program grew from a few million dollars in 1983 to about $1 billion in 1989. -- Exim, which provided short-term finance for Iraqi purchase of a wide variety of American products. From its inception in 1987 to mid-1990, the program financed about $270 million in sales. PAGENO="0595" 591 Question for the Record Submitted to Charles Duelfer House Ways and Means Committee May 1, 1991 Q: B. GENERAL EXPORT CONTROL POLICY QUESTONS: 1. A Washington Post article dated November 1, 1990, indicates that last spring the Commerce Department unofficially began to slow down the process of issuing export licenses to Iraq. In late July, Secretary Baker asked Commerce Secretary Mosbacher to impose more rigid controls on sales to Iraq. A few months earlier, Administration sources have stated that the State Department had balked on imposing tighter controls. b. Why did the State Department balk at imposing tigher controls earlier with regard to Iraq? A: 0 U.S.-Iraq relations have been troubled at best over the past decade. o The United States and Iraq renewed diplomatic relations in 1984, following Iraq's expulsion of the Abu Nidal terrorist group. o At that time, Iranian victory in the Gulf war was an imminent possibility. The military defeat of Iraq would have disrupted the regional balance and subjected other Gulf states to the immediate threat of political/military pressure from the militant Iranian regime. o The U.S. took steps to prevent this from happening: -- Operation Staunch, the campaign to block international arms sales to Iran, helped limit Iran's military capabilities. -- Information exchanges with Iraq on Iranian military capabilities. -- Reflagging Kuwaiti oil tankers at Kuwait's request ensured a stable export income to Kuwait, a major financial backer of Iraq throughout the war, and preserved the free flow of Kuwaiti oil to the international market. o U.S. diplomatic efforts helped win passage of UNSCR 598 in 1988, ultimately bringing about a ceasefire after eight years of war--a very constructive step in the interests of the United States and all countries in the region. PAGENO="0596" 592 -2- o When hostilities ceased, the U.S. government recognized two P?Ssible approaches to dealing with the disproportionate military capability Iraq had acquired: either seek to isolate Iraq through international sanctions; or attempt to draw Iraq away from policies of militarism and expansionism. o Aware that amy sanctions effort would lack essential international support, the United States actively encouraged Iraq to: -- Improve its human rights record, -- Develop its economy for the benefit of the Iraqi people, -- Cease efforts to forestall progress toward resolution of regional conflicts, and -- Become a constructive member of the community of nations. o We reacted strongly to Iraqi misbehavior: -- The United States protested the use of CW against Iraqi Kurds in late 1988. We maintained an active dialogue on Iraq's abysmal human rights record and monitored Iraqi abuses. -- In March 1990 USDA postponed action on the CCC second tranche due to alleged program violations. -- The same month an Iraqi plot to import U.S. capacitors with nuclear applications was exposed. We informed other Arab governments of our "fundamental differences" with Iraq on nuclear, CBW, missiles, and human rights. -- In April1990 we protested Saddam Hussein's threat to "burn half of Israel" with CW if Iraq were attacked. A few days later, we expelled an Iraqi UN diplomat for involvement in a murder plot. -- In May 1990 the Administration formally suspended action on the CCC second tranche. -- Following our action to halt export of a shipment of furnaces suspected of having nuclear weapons applications, action was under way at the time of the invasion of Kuwait to impose further foreign policy controls on sales to Iraq and enhance MTCR controls. PAGENO="0597" 593 Question for the Record submitted to Charles A. Duelfer House Ways and Means Subcommittee on Oversight May 1, 1991 ~. 8. We know from the Iraq war that most of the damage was caused by conventional `smart weapons" like cruise missiles and laser-guided bombs. It is now apparent that every country will now want such weapons in their arsenals. b. What is the State Department doing to prevent potential adversaries from acquiring the technology and equipment necessary to manufacture their own conventional weapons systems? The United States has assumed the lead in international effOrts to limit the proliferation of conventional weapons and to reduce global tensions. It has also urged other supplying countries to develop arms export controls which are comparable to those of the United States. This process involves consultations with other nations through numerous mechanisms: the United Nations, NATO, the Australia Group, the Missile Technology Control Regime, the Nuclear Suppliers Group, and COCOM, among others. On May 29, the President announced a number of proposals intended to counter the proliferation of nuclear, chemical, and biological weapons in the Middle East, in addition to the missiles that could carry such arms. These proposals reflected U.S. consultations with allies, governments in the region, and major suppliers of arms and technology. The President's initiative focused on the Middle East, given that region's unique situation, as a starting point. It was also meant to complement other initiatives announced by U.S. allies. PAGENO="0598" 594 Specifically, the President's Middle East arms control initiative called for the following: a meeting of the five major arms suppliers to discuss establishment of guidelines for restraints of- destabilizing transfers; a freeze on the acquisition, production, and testing of surface-to-surface missiles by states in the region, with a view toward ultimate elimination of such missiles; regional application of existing international nuclear non-proliferation mechanisms; rapid completion of a worldwide chemical weapons ban; and strengthening of the treaty banning biological weapons. On July 8-9, representatives of the United States, the Soviet Union, France, the United Kingdom, and the Soviet Union met in Paris to discuss arms transfer and non-proliferation matters. In a communique, they noted with concern the dangers associated with excessive arms buildups and the threats to peace and stability posed by the proliferation-of nuclear weapons, chemical and biological weapons, and missiles. They also undertook to seek effective weapons control measures in an equitable, reasonable, comprehensive, and balanced manner -- on a global and regional basis. Finally, they expressed strong support for the objective of creating a weapons of mass destruction-free zone in the Middle East. PAGENO="0599" 595 Question for the Record submitted to Charles Duelfer House Ways and Means Committee May 1, 1991 Q: C.5.b. To what extent have the allies initiated investigations of diversions or undertaken investigations based on information supplied by the U.S.? A: Our allies have been very cooperative in investigating possible diversions of nonconventional weapons technology, whether based on information we have furnished or information from their own sources. The allies recognize the serious threat posed by proliferation and are in agreement with our position that urgent efforts to stem the spread of nonconventional weapons are a priority task for the international community. PAGENO="0600" 596 Question for the Record submitted to Charles Duelfer House Ways and Means Committee May 1, 1991 Q. 6. Does the Administration have any indication that once the United States finishes its intensive look at this area, it will be business as usual? A. We have no indication that things will ever be the same again the field of nonproliferation. Our allies and nonproliferation partners continue to strengthen their export control regimes and the nonproliferation organizations in which we participate, such as the Australia Group and the Missile Technology Control Regime. In addition, a number of nations other than those traditionally concerned about the proliferation of nonconventional weapons are recognizing the seriousness of the threat and-taking measures to -improve their control systems and cooperate more closely with international nonproliferation efforts. PAGENO="0601" 597 APPENDIXES APPENDIX A..-U.S. General Accounting Office, Letter Dated April 12, 1991, From Allan I. Mendeiowitz, Director, International Trade, Energy, and Finance Issues f1 A ~ United States General Accounting Office- National Security and International Affairs Division B-243620. 1 April 12, 1991 The Honorable J.J. Pickle Chairman, Subcommittee on Oversight Committee on Ways and Means House of Representatives Dear Mr. Chairman: As you requested, this fact sheet (1) describes U.S. export controls that apply to selected countries1 in the Middle East; (2) summarizes U.S. licensing decisions on exports of dual-use items (i.e., militarily significant commercial items) to these countries; (3) provides data on levels of approved exports of dual-use items; and (4) provides summary data on overall U.S. trade with the selected Middle Eastern countries, including government-to-government sales of military items. RESULTS IN BRIEF Most countries in the Middle East are subject to similar controls on U.S. exports of dual-use items, munitions, and nuclear-related items. During the past decade, five countries covered in this report (Iran, Iraq, Libya, the People's Democratic Republic of Yemen,2 and Syria), however, have been subject to stricter export controls primarily for foreign policy reasons. For these five countries, the U.S. government annually approved about 67 percent of all applications for exports of dual-use items during the past 4 years. In contrast, the United States approved an average of 94 percent of applications for dual-use exports to the other five countries. The total number and dollar value of approved export licenses from 1987 through 1990 are shown in table 1. 1As agreed with your staff, are providing information on 10 Middle Eastez~n countries: Egypt, Iran, Irac, Israel, Jordan, Kuwait, Libya, the People's Democratic Republic of Yemen, Saudi Arabia, and Syria. 21n mid-1990 the People's Democratic Republic of Yemen merged with the Yemen Arab republic to form the Republic of Yemen. PAGENO="0602" Egypt Iran I rag Is rael Jordan Kuwait Libya P.D.R. Yemena Saudi Arabia Syria Total Annual average apt)R Yemen denotes Yemen. Source:-Based on data Approved Licenses for dual-use items Number Dollar value 1,208 $ 1,018,616 451 300,197 478 726,960 9,048 4,254,019 446 259,828 762 470,762 342 259,833 58 5,250 2,465 2,686,656 142 25,807 15,400 $10,007,928 3,850 $ 2,501,982 the People's Democratic Republic of from the U.S. Department of Commerce. During the past decade, total U.S. exports to the 10 selected Middle Eastern countries have averaged $10.9 billion per year; this sum represented less than 5 percent of total annual U.S. exports. Of the $10.9 billion in average annual exports to these countries, about $3.2 billion pet year~ represents government-to-goverument military sales. Appendix I provides a more detailed discussion of U.S. export control policies for selected Middle Eastern countries and includes a schedule of foreign policy controls that affect these countries. Appendix II shows~ aggregate data on licensing decisions by the Commerce Department regarding the export of dual-use items to these Middle Eastern countries. Appendix III contains information on level of approved export licenses of dual-use items. Appendix IV provides. data on foreign militarysales. Appendix V contains economic data on the level of U.S. trade with the Middle Eastern countries reviewed. 598 B-243620.l Table 1: U.S.-Approved Licenses for Export of Dual-Use Items to Selected Middle Eastern Countries, 1987-1990 (Dollars in thousands) 2 PAGENO="0603" 599 B-243 620.1 SCOPE AND METHODOLOGY To obtain information on current U.S. export control policies we reviewed applicable statutes, regulations, studies, and articles. We also spoke with officials from the Departments of Commerce, State, and Defense and the Nuclear Regulatory Commission. For a historical perspective on foreign policy controls for the Middle East, we reviewed the Department of Commerce's annual reports for export administration and foreign policy control reports for fiscal years 1981-1990. We obtained statistical information from the Commerce Department on the number and dollar value of license applications for exports of dual-use items to selected Middle Eastern countries from October 1986 through December 1990. We requested similar data from the State Department -on exports of defense-related items and services. However, the State Department could not provide us with this information in time to include it in the report. We -compiled statistics from the Department of Commerce's and the United Nations' trade data bases to present an overview of the level and commodity structure of trade between the United States and the Middle Eastern countries reviewed. Finally, we used Department of Defense reports to summarize the extent of foreign military sales to the same countries over the. past decade. We did not attempt to verify the data we obtained. We conducted our work during March and April 1991. As you requested, we did not obtain written agency comments. We did, however, discuss certain aspects of the information provided with responsible agency officials and have included their comments as appropriate. Unless you publicly announce its contents earlier, no further distribution of this report will be made until 30 days fran its issue date. At that time, we will send copies to other interested congressional committees and to the Secretaries of Commerce and State. Copies will also be made available to others on request. PAGENO="0604" 600 8-243620.1 Please contact me on (202) 275-4812 if you or your staff have any questions concerning this fact sheet. Major contributors to this fact sheet are listed in appendix VI. * Sincerel~~ yours, @LQL~~ ~ Allan I. Mendelowitz, Director International Trade, Energy, and Finance Issues PAGENO="0605" 601 CONTENTS Page LETTER 1 APPENDIX I U.S. Export Control Statutes and Policies 7 Affecting Exports to the Middle East II U.S. Decisions on Export Licenses to 14 Selected Middle Eastern Countries III Approved Applications for Exports to 20 Selected Middle Eastern Countries IV Foreign Military Sales to Selected 22 Middle Eastern Countries V General Trade Data for the United States 24 and Selected Middle Eastern Countries VI Major Contributors to This Fact Sheet 31 TABLES 1:1 Number and Dollar Value of U.S.- Approved Export 2 Licenses to Selected Middle Eastern Countries, 1987-1991 1.1 U.S. Foreign Policy Controls Applicable to 9 Middle Eastern Countries 1.2 U.S. Foreign Policy Controls That Directly Cite 11 Selected Middle Eastern Countries 111.1 Extent of Approved Applications for Exports of 21 Dual-Use Items to Selected Middle Eastern Countries IV.l Foreign Military Sales Deliveries From ~he 23 United States to Selected Middle Eastern Countries V.1 U.S. Trade With Selected Middle Eastern Countries 25 V.2 U.S. Exports to Selected Middle Eastern Countries 27 V.3 U.S. Imports From Selected Middle Eastern Countries 29 PAGENO="0606" 602 FIGURES 11.1 U.S. Decisions on ExportLiCenses for 15 Dual-Use Items to Egypt 11.2 U.S. Decisions on Export Licenses for 15 Dual-Use Items to Iran 11.3 U.S. Decisions on Export Licenses for 16 Dual-Use Items to Iraq 11.4 U.S. Decisions on Export Licenses for 16 Dual-Use Items to Israel 11.5 U.S. Decisions on Export Licenses for 17 Dual-Use Items to Jordan 11.6 U.S. Decisions on Export Licenses for 17 Dual-Use Items to Kuwait 11.7 U.S. Decisions on Export Licenses for 18 Dual-Use Items to Libya 11.8 U.S. Decisions on Export Licenses for 18 Dual-Use Items to P.D.R. Yemen 11.9 U.S. Decisions on Export Licenses for 19 Dual-Use Items to Saudi Arabia 11.10 U.S. Decisions on Export Licenses for 19 Dual-Use Items to Syria 6 PAGENO="0607" 603 APPENDIX B.-U.S. Department of State, Letter Dated April 26, 1991, From Janet G. Mullins, Assistant Secretary, Legislative Affairs United States Department of State Washington, D.C. 20520 APR 2 6 991 Dear Mr. Chairman: Please find enclosed the ten tables regarding munitions exports that you requested through the General Accounting Off ice (GAO). As I understand you and my deputy Steve Berry agreed at your meeting yesterday, these tables show the number, dollar value, and disposition of applications for exports of munitions and related equipment and technology during calendar years 1983 through 1990 to Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Libya, P.D.R. Yemen, Saudi Arabia, and Syria. I am hopeful that this information will satisfy your needs, and that you will so indicate to the GAO. In addition, in response to your letter to Secretary Baker of April 22, 1991, requesting his appearance at a hearing before your subcommittee on May 1, 1991, I am pleased to inform you that Charles A. Duelfer, Deputy for Defense Trade, Bureau of Politico-Military Affairs, will be available to represent the Department. Please let me know if we can be of further assistance. Sincerely, Janet G. Mulli1~s Assistant Secretary Legislative Affairs Enclosures: As stated The Honorable J.J. Pickle, Chairman Subcommittee on Oversight Committee on Ways and Means House of Representatives PAGENO="0608" 604. Lnte~i ~t~Les D~partm.~nt ~r ~ite JVashin~ton. D.C. 20520 ~FR 2 5 99~ Dear Mr. Chairman: Please find enclosed the ten tables regarding munitions exports that you requested through the General Accounting Office (GAO)~. As I understand you and my deputy Steve 9erry agreed at your meeting yesterday, these tables show the number, dollar value, and disposition of applications for exports of munitions and related equipment and technology during calendar years 1983 through 1990 to Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Libya, P.D.~. Yemen, Saudi Arabia, and Syria. I am hopeful that this information will satisfy your needs, and that you will so indicate to the GAO. In addition, in response to your letter to Secretary Baker of April 22, 1991, requesting his appearance at a hearing before your subcomrn.ittee on May 1, 1991, I am pleased to inform you that Charles A. Duelfer, Deputy for Defense Trade, Bureau of Politico-Military Affairs, will be available to represent the Department. Please let me know if we can be of further assistance. Sincerely, Janet G. Mull±~s Assistant Secretary Legislative Affairs Enclosures: As stated The Honorable J.J. Pickle, Chairman Subcommittee on Oversight Committee on Ways and Means House of Re~resentatives PAGENO="0609" NUMBER AND DOLLAR VALUE OF APPLICATIONS FOR EXPORTS OF MUNITIONS AND RELATED EQUIPMENT AND TECHNOLOGY TO EGYPT, 1983 TO 1990 1983 1984 1985 1986 1987 1988 1989 19902 4,713, 538,064 919, 760,365 466,285,441 724,104,606 861,067,083 1,000,447,110 2,584, 149,484 Disapproved Licenses Number Value 5 11,500 3 0 7 0 7 4,070 12, 000,000 36,252,050 11 5,733,690 10 175,210 24 32 43 36 45 37 41 18,853,208 13, 501,466 107, 658, 341 29,936,663 48,233, 131 95, 652, 678 2,403,025,032 1/ Excludes data for re-exports and revoked licenses. 2~ In 1990, 1.0 percent of applications were still pending. Approved Licenses1 Numbei Value 256 820,835,414 401 341 291 310 318 281 351 Returned w/o Action Number Value 37 163,317,625 15 13 0 PAGENO="0610" NUMBER AND DOLLAR VALUE OF APPLICATIONS FOR EXPORTS OF MUNITIONS AND RELATED EQUIPMENT AND TECHNOLOGY TO IRAN, 1983 TO 1990 Approved Licenses1 Disapproved Licenses Returned w/o Action Nurnbe~i Nunthei Va].ue ____ 1983 0 0 2 10,577,589 2 1~ 000,000 1984 0 0 2 270,552 0 0 1985 0 0 0 0 5 24,284,423 1986 0 0 2 18,204 1 0 1987 0 0 1 0 2 15,154 1988 0 0 1 0 1 0 1989 0 0 0 0 4 61,790 19902 0 0 1 26,910 3 5,384,505 Excludes data for re-exports and revoked licenses. In 1990, 0 percent of applications were still pending. PAGENO="0611" NUMBER AND DOLLAR VALUE OF APPLICATIONS FOR EXPORTS OF MUNITIONS AND RELATED EQUIPMENT AND TECHNOLOGY TO IRAQ, 1983 TO 1990 ~/ Excludes data for re-exports and revoked licenses. 2~ In 1990, 0 percent of applications were still pending. Approved ithei Licenses' Value DisapprOved Numbei Licenses y~jn~ Returned w/o Number 1983 1 8,800 1 371,140 9 650,076 1984 2 5,001 0 0 5 54,258 1985 2 1,255,787 3 1,278,064 4 1,305 1986 2 169,045 4 80,271 1 451,000 1987 1 350,000 6 362,762 4 428,288 1988 4 1,494,813 6 453,099 3 279,750 1989 3 1,606,907 3 33,169 2 26,460 19902 0 0 2 11,200 3 123,979 PAGENO="0612" NUMBER AND DOLLAR VALUE OF APPLICATIONS FOR EXPORTS OF MUNITIONS AND RELATED EQUIPMENT AND TECHNOLOGY TO ISRAEL, 1983 TO 1990 Approved Nurn1~e~ Licenses1 i~&hi~ Disapproved luinbej Licenses ~ Returned w/o Action NLm1~ei VaIue 1983 1,479 1,378,148,182 12 1,796,102 170 1984 2,295 9,190,591,625 17 176,599 228 330,955,176 869,232,067 1985 1,857 1,853,936,540 34 2,315,629 228 358,401,882 1986 2,687 1,997,789,327 44 3,309,815 460 506,397,835 1987 3,455 1,946,723,027 42 4,679,711 742 474,894,015 1988 2,250 2,299,896,044 51 2,665,444 295 406,481,634 1989 1,940 2,605,019,749 31 628,945 182 19902 2,290 2,586,785,203 68,460,271 0 Excludes data for re-exports and revoked licenses. In 1990, 1.2 percent of applications were still pending. PAGENO="0613" 1983 1984 1985 1986 1987 1988 1989 19902 Approved Licenses' ll~iinb~t 217 478,923,574 292 6,810,926,332 282 285,434,763 252 279,900,320 259 44,829,104 188 83,731,614 97 45,988,882 86 66,047,915 Disapproved Licenses ~In~ 2 240 4 3 1 1 4 w/o Action 68,975,640 225,423,895 60, 238, 574 5,701,225 6,913,270 989,371 1,034,421 539, 047 1/ Excludes data for re-exports and revoked licenses. 2, In 1990, 2.7 percent of applications were still pending. NUMBER AND DOLLAR VALUE OF APPLICATIONS FOR EXPORTS OF MUNITIONS AND RELATED EQUIPMENT AND TECHNOLOGY TO JORDAN, 1983 TO 1990 0 2,161,000 0 8,884 1,000 Returned 25 37 23 19 10 8 6 9 1 14 0 0 566,769 PAGENO="0614" NUMBER AND DOLLAR VALUE OF APPLICATIONS FOR EXPORTS OF MUNITIONS AND RELATED EQUIPMENT AND TECHNOLOGY TO KUWAIT, 1983 TO 1990 Approved Licenses' Numbei Value 70 143,413,853 185 268,872,442 80 103,032,563 112 8,761,237 79 70,522,037 94,799,810 8 56,192,593 6 5,283,024 4 Num~ VaJ~~ue Returned Nunibei w/o Action Value 3 50 9 448,065 0 0 10 12,124,240 1 0 9 15,216,221 3 0 8 4 0 10 150,516,983 82,065 6 680,792 50 14 1,902,968 1, Excludes data for re-exports and revoked licenses. In 1990, 0 percent of applications were still pending. 1983 1984 1985 1986 1987 1988 1989 19902 103 71 50 2,472,018 PAGENO="0615" NUMBER AND DOLLAR VALUE OF APPLICATIONS FOR EXPORTS OF MUNITIONS AND RELATED EQUIPMENT AND TECHNOLOGY TO LIYBA, 1983 TO 1990 Approved Licenses' Disapproved Licenses Returned w/o Action Niinib~i Va 1u~ 1j!.4fflbe~ ~L~JJI~ Number Va ltie 1983 0 0 2 13,629,037 0 0 1984 0 0 0 0 2 122,532,716 1985 22 374 0 0 4 42,936 1986 0 0 0 0 1 61,266,358 1987 0 0 0 0 0 0 1988 0 0 0 0 1 0 1989 0 0 0 0 0 0 1990~ 0 0 0 0 0 0 ~/ Excludes data for re-exports and revoked licenses. 2~ Licenses granted to embassy of friendly foreign country for diplomatic personnel transferring to Libya from the U.S. 3~ In 1990, 0 percent of applications were still pending. PAGENO="0616" NUMBER AND DOLLAR VALUE OF APPLICATIONS FOR EXPORTS OF MUNITIONS AND RELATED EQUIPMENT AND TECHNOLOGY TO P.D.R. YEMEN, 1983 TO 1990 Approved Licenses1 Disapproved Licenses Returned w/o Action Vaiu~ Numb~i Va1q~ lluinbe~ __ 1983 0 0 0 0 0 0 1984 0 0 0 0 0 0 1985 0 0 0 0 0 0 1986 0 0 0 0 1 0 1987 0 0 0 0 0 0 1988 1 6,340 0 0 0 0 1989 0 0 0 0 0 0 19902 0 0 0 0 1 8,763 Excludes data for re-exports and revoked licenses. In 1990, 0 percent of applications were still pending. PAGENO="0617" NUMBER AND DOLLAR VALUE OF APPLICATIONS FOR EXPORTS OF MUNITIONS AND RELATED EQUIPMENT AND TECHNOLOGY TO SAUDI ARABIA, 1983 TO 1990 ~/ Excludes data for re-exports and revoked licenses. 2~ In 1990, 1.5 percent of applications were still pending. 1983 1984 1985 1986 1987 1988 1989 Approved Number Licenses' Value Disapproved Number Licenses Value Returned w/o Action Number Value 227 1,636,638,496 8 825,000 36 1,088,198,442 347 2,783,984,527 5 272,248 24 1,299,675 208 1,310,844,281 2 1,000 27 1,523,546 282 1,874,083,624 5 0 27 198,047,206 250 858,729,576 7 0 9 26,522,963 254 644,026,021 7 200,050 36 229,013,045 249 374,274,116 8 5,261,380 24 271,429,698 19902 429 1,598,683,177 PAGENO="0618" NUMBER AND DOLLAR VALUE OF APPLICATIONS FOR EXPORTS OF MUNITIONS AND RELATED EQUIPMENT AND TECHNOLOGY TO SYRIA, 1983 TO 1990 Approved Licenses' Disapproved Licenses Returned w/o Action ~Jnm~ Y~1u~ Num~ 1983 0 0 1 10,250 2 148,090 1984 7 1,322,009 0 0 0 0 1985 0 0 1 264 1 285 1986 0 0 0 559,350 0 0 1987 1 0 0 0 0 0 1988 1 400 2 57,186 0 0 1989 0 0 0 0 1 1,233,560 19902 0 0 0 0 0 0 1/ Excludes data for re-exports and revoked licenses. In 1990, 0 percent of applications were still pending. PAGENO="0619" 615 APPENDIX C.-Honorable Richard L. Thornburgh, Letter Dated April 22, 1991, From Chairman JJ. Pickle, Subcommittee on Oversight, Committee on Ways and Means j.J P~C~LE. TEXAS. CM.'It ~ DAN ROSTENKOWSKI. IUJNOIS. CHAIRMAN ~H.-~MMtTTLEONOVUI3IGHT CO~UO~RS~~ - COMMITTEE ON WAYS AND MEANS ~ U.S. HOUSE OF REPRESENTATIVES DISXSOUta~,,W3flVA1EA WASHINGTON. DC 20515 AN SUBCOMMITTEE ON OVERSIGHT April 22, 1991 The Honorable Richard L. Thornburgh Attorney General U.S. Department of Justice Main Justice Building, Room 5111 10th and Constitution Avenue, N.W. Washington, D.C. 20530 Dear Attorney General Thornburgh: As you are aware, the Subcommittee on Oversight of the Committee on Ways and Means is currently investigating the administration and enforcement of U.S. export controls by the U.S. Customs Service. The Subcommittee held the first of two hearings on April 18, 1991. During the course of that hearing, it became apparent that to properly complete the Subcommittee's investigation, the Subcommittee would need to examine the Department of Justice's role in export control enforcement. Therefore, I request your presence, or that of your designee, at the Subcommittee's hearing on Wednesday, May 1, 1991, in room 1100 Longworth House Office Building, beginning at 9:30 a.m. The Department of Justice's Office of Congressional Affairs was advised of this request on Friday, April 19, 1991 In addition to presenting a general statement of the Department of Justice's role in export control enforcement, the Subcommittee Members would be particularly interested in hearing exactly what Justice's role was in the four cases examined by the Subcommittee on April 18, 1991: the Helmy case; thG Alcolac case; the Global Helicopter case; and, the C-TEK case. If you have any questions regarding these cases or what transpired at the Subcommittee's hearing on April 18, please contact Beth Vance, Staff Director, or Thomas K. Arnold, Assistant Counsel for Investigations, at 225-5522. Pursuant to Committee rules, please deliver 150 copies of your written statement, and 25 copies of your oral statement if you decide to summarize your written statement, to room 1135 Longworth House Office Building, before 4:00 p.m. on Monday, April 29, 1991. Thank you in advance for your cooperation, especially in light of the lateness of this invitation. ~~J~&1an ttee on oversight JJP/tal PAGENO="0620" 616 APPENDIX D.-U.S. Department of Justice, Letter Dated April 25, 1991, From W. Lee Rawls, Assistant Attorney General, Office of Legislative Affairs U.S. Department of Justice Office of Legislative Affairs Office of the Assistant Attorney General Washington, D C 20530 April 25, 1991 Honorable J.J. Pickle Chairman Subcommittee on Oversight Committee on Ways and Means U.S. House of Representatives Washington, D.C. 20515 Dear Mr. Chairman: Thank you very much for your letter of April 22, 1991, requesting that, the Department provide a witness for your May 1, 1991, hearing on the administration and enforcement of U.S. export control by the U.S. Customs Service. Regrettably, the Department must respectfully decline the invitation for that date and request that the Department of Justice's participation be delayed until the period of May 13th to May 16th, inclusive. As you are aware from your hearing of April 18, 1991, the four cases about which you received testimony (the Helmy, Alcolac, Global Helicopter and C-TEK cases) were handled in several jurisdictions around the country. To properly prepare the Department's representative, therefore, the Department must retrieve and review the files from those offices, including any classified materials contained therein, and consult with a variety of officials. Similarly, in order to be prepared to respond to issues raised in your April 18th hearing, we will want to review the transcript of that hearing, which we have not yet received. We look forward to working with you and your staff to prepare for this hearing. Sincerely W. Lee Rawls Assistant Attorney General PAGENO="0621" 617 APPENDIX E.-U.S. Department of Justice, Letter Dated May 24, 1991, From W. Lee Rawis, Assistant Attorney General, Office of Legislative Affairs U.S. Department of Justice Office of Legislative Affairs Office ot the Assistant Attorney General Washington. D.C. 20530 P Fc ~ `` ~ -it1L. May 24, 1991 M~Y 2 ~9g~ ``yy~ ano ~t - - ~. The Honorable J.J. Pickle Chairman The Honorable Richard T. Schulze Ranking Minority Member Subcommittee on Oversight Committee on Ways and Means House of Representative Washington, D.C. 20515-4610 Dear Mr. Chairman and Congressman Schulze: This is in response to the request of Subcommittee for the views of the Department of Justice on whether there is a need for any legislative change in the area of export controls. Moreover, the Subcommittee requested our response to certain questions relating to United States v. Abdelkader Helinv, et al., a case involving the unlawful export of missile parts and components to Egypt in 1988. Finally, for our information and comment, the Subcommittee forwarded correspondence and testimony it has received from current and former Assistant United States Attorneys relating to several other cases the Subcommittee has reviewed during the course of the hearings. By way of background, it may be beneficial for the Subcommittee to understand the Department's role in the enforcement of the export control laws. The Internal Security Section of the Criminal Division has oversight responsibility for cases developed under the Arms Export Control Act, 22 U.S.C. § 2778, the Export Administration Act, 50 U.S.C. app. SS 2401, ~ and the International Emergency Economic Powers Act, 50 U.S.C. SS 1701, et sea.~, the Trading with the Enemy Act, 50 U.S.C. app. SS 1, et sep., and related statutes. Over the years, the Internal Security Section has supervised a number of significant cases under these acts. In August of 1982, the Criminal Division established the Export Control Enforcement Unit in the Internal Security Section. This unit has general oversight responsibility for the development and prosecution of cases under the export control PAGENO="0622" 618 -2- laws. Attorneys in the unit work closely with the investigative agencies and the United States Attorneys' offices to develop and prosecute export control cases. Over the years, the Department has assigned a high priority to export control cases, and the United States Attorneys and the Criminal Division have vigorously pursued such cases, and will continue to do so. In addition to our case work, the Criminal Division arid other offices in the Department work on interagency committees which address .a broad spectrum of issues relating to export control issues. Justice and the State Department have taken technology transfer and export control issues into consideration in setting priorities for the negotiation of treaties on extradition and mutual assistance in criminal matters and in assuring, to the extent possible, that such treaties and agreements encompass export control offenses. Our Office of International Affairs works closely with the United States Attorneys' offices on the extradition of fugitives and on obtaining evidence from foreign countries. As you are aware, during the last ten years all agencies have significantly upgraded and revitalized our export control enforcement program. In 1981, the Customs Service initiated a national enforcement program, called "Operation Exodus'1, to prevent the illegal export of military and strategic technology to the Soviet Union and other proscribed destinations. During that period, the Commerce Department increased its resources in this area and opened new field offices. These enforcement programs are in place today, and the fine work of the Customs and Commerce Agents has resulted in significant prosecutions which protect vital national security and foreign policy interests of the United States. Since 1981, the Internal Security Section has worked with the investigative agencies and the United States Attorneys' offices on approximately 260 export control cases in which over 750 defendants have been prosecuted. The Federal Bureau of Investigation also plays a vital role in the export control area. As a member of the intelligence community, it develops intelligence which supports our law enforcement efforts. Although Customs and Commerce investigate violations of various export control laws, foreign counterintelligence investigations and other criminal investigations by the FBI can also uncover such violations. When this occurs, the FBI may continue the export control investigation or refer the matter to Customs or Commerce. In addition, the FBI conducts a program to develop public awareness of the real threat posed by hostile intelligence PAGENO="0623" 619 services. This program, called DECA, Development of ~~~nterintelligence Awareness, is directed at defense-related companies involved in classified work. There are currently over 11,000 of these companies. The DECA program seeks to alert each company's management and security personnel to the threat posed by hostile intelligence services. With regard to the area of new legislation in the export control area, on March 11, 1991, the President transmitted to Congress comprehensive legislation which subsequently was introduced in Congress as the Comprehensive Violent Crime Control Act of 1991, Senate Bill 635 and House Bill 1400. This legislation includes several provisions relating to the export control area. Section 737, Enhanced Penalties For Certain Offenses, provides for increased penalties for violations of the International Emergency Economic Powers Act (IEEPA), 50 U.S.C. §S 1701, et seq. Specifically, the Bill increases the current maximum criminal fine from $50,000 to $1,000,000. Moreover, the Bill increases the current maximum civil fine from $10,000 to $1, 000, 000. As the Subcommittee is aware, the maximum amount of the fines under a criminal statute has a direct bearing on the amount of fine a court may impose under the sentencing guidelines. For example, if the statutory fine is raised above the level of $250,000, the sentencing guidelines provide that the sentencing guideline maximum, which could be as low as $40,000 depending on the nature of the offense, is not controlling and the Court is permitted to impose the statutory fine. In short, the sentencing guidelines can limit the amount of the fine imposed, and therefore, it is essential that export control offenses have substantial fine penalties above the sentencing guideline maximums. Section 745, Authorization for Interceptions of Communications, adds additional crimes to the list of Title III predicate offenses (18 U.S.C. 2516(1)(k)) for interception of wire, oral and electronic communications. The offenses added include violations of the Export Administration Act, the International Emergency Economic Powers Act, the Trading with the Enemy Act, the Neutrality Act and other statutes. In recommending this legislation, we noted that the Arms Export Control Act is currently a Title III predicate offense. Section 746 and 747 would also greatly enhance the effectiveness of Title III wiretaps in export control investigations. The statutory comment accompanying the Bills provides as follows: PAGENO="0624" 620 -4- Sec. 746. Participation of Foreign and State Government Personnel in Interceptions of Communications This section would amend 18 U.S.C. 2815(5) to make clear that foreign and state government personnel, if acting under federal supervision, may help in conducting court-authorized interception. The current language in the statute permits such assistance by "Government personnel," but it is doubtful whether this covers foreign and state government personnel as opposed to federal employees. There is often great utility in permitting foreign and state government personnel to assist in monitoring a wiretap, such as in joint investigations involving terrorist or other offenses in which the particular language skills of such personnel are necessary. Currently, federal agencies such as the FBI may employ such personnel through the cumbersome device of cross- designating them as federal agents. See United States v. Bynurn, 763 F.2d 477 (1st Cir. 1985). The paperwork involved in such methods is burdensome and costly, with no corresponding benefit to privacy or other interest served by- the statutes. It would be far more efficient, and consistent with the purpose of the 1986 amendment adding "Government personnel" to 18 U.S.C. 2815(5), if that provision expressly authorized foreign or state government personnel, acting under the supervision of a federal officer, to participate in the conduct of a Title III interception. Section 746 would effect this result. Sec. 747. Disclosure of Intercepted Communications to Foreign Law Enforcement Agencies There has been a dramatic increase in recent years in the amount of international law enforcement interaction, necessitated by an increasingly sophisticated and active international criminal element. This has created a need for authority to disclose information obtained through electronic surveillance to foreign law enforcement agencies, in order to address effectively international criminal activity, including international terrorism. This section accordingly augments the definition of "investigative or law enforcement officer" in 18 U.S.C. 2510(7), for purposes of 18 U.S.C. 25l7(l)-(2), so as to include foreign law enforcement officers. This would permit disclosure of intercepted communications to, and use of intercepted communications by, such officers in ft~rtherance of the performance of their duties as provided in 18 U.S.C. 2517(l)-(2). In conclusion, the Comprehensive Violent Crime Control Act of 1991 contains important provisions which will enhance the PAGENO="0625" 621 -5- enforcement of the export control laws, and we urge the members of the Subcommittee to support this legislation. In regard to the jj~ case, the Subcommittee has inquired as to why no freight forwarders or Egyptian officials were prosecuted. The Subcommittee has also asked whether the State Department attempted to influence the conduct of the investigation. No freight forwarders were prosecuted in the fi~Jj~ case for the reason that none were knowingly involved in criminal activity. With respect to Egyptian officials, two were, in fact, indicted and two others are listed as unindicted coconspirators in the indictment. The two Egyptians named as defendants in the indictment are Ahmed Al Din Yossef Khairat and Fuad Algamal. Both men are colonels in the Egyptian Army. Khairat was responsible for coordinating the development of the Condor II missile project with several European companies. Algamal was the Condor II project's chief engineer. The two are presently fugitives residing, we believe, in Egypt. Unfortunately, our extradition treaty with Egypt does not cover the types of crimes Khairat and Algamal are alleged to have committed. The two Egyptian officials named as unindicted coconspirators in the indictment are Abd Elrahin Elgohary and Mohamed Abdalla Mohamed. These men worked for the Egyptian Procurement Office in Washington, D.C. Both had diplomatic immunity and could not be proceeded against Criminally in this case. They were officially withdrawn by the Government of Egypt following the arrests of Helmy and his codefendant James Huffman in June of 1988. The evidence in the case was insufficient to charge any other Egyptian officials with participating in the illegal export scheme. The Department of Justice routinely consults with the State Department about criminal cases which might affect adversely U.S. foreign relations, or which involve foreign government officials as potential defendants. This case was no exception to the rule. The State Department was apprised early on of the Department's investigation of Helmy and his Egyptian coconspirators. During the course of this investigation, Justice and State consulted on a number of issues. In view of State's statutory responsibilities under the Arms Export Control Act and its general mission, duties and responsibilities, suçth consultations were essential and appropriate. After obtaining State's views on various issues, the Department of JustiCe made the final decisions. In brief, the Department of State's role in this case PAGENO="0626" 622 -6- was totally consistent with its mission, and did not adversely affect the conduct of the investigation or prosecution. The Department has furnished the Subcommittee with a statement of facts, plea agreements and sentencing memoranda which provide extensive information on the evidence and decisions made by the United States Attorneys in this case. With regard to the case of United States V. Alcolac International, Inc., we note that former Assistant United States Attorneys who handled this case have sent a letter, dated April 22, 1991, to the Subcommittee. In this letter, the prosecutors directly address the question regarding the decision not to charge other senior Alcolac executives. In pertinent part, the letter states that "The investigation disclosed that all of the shipments at issue were handled by Alcolac's export department, for which Leslie Hinklernan had primary responsibility. She was the only person who ever saw the vast majority of documents that suggested the shipments might be diverted." In brief, there was insufficient evidence to prove that any other corporate official was knowingly involved in criminal activity. In addition to the April 22 letter, the Subcommittee has been furnished copies of the statement of facts, plea agreements and sentencing memoranda for this and related cases which provide extensive information on the evidence and the decisions made by the United States Attorney in this case. With regard to the case of United States v. Shiv Mohari Makkar, et al., we note that former Assistant United States Attorney Portia Moore testified before the Subcommittee on April 18, 1991, and furnished written testimony to the Subcommittee. As counsel for the Subcommittee is aware, Ms. Moore did not clear her testimony with the Department. The views and opinions expressed by Ms. Moore are her personal views and not those of the Department. Subsequent to her testimony, Dave E. Wilson, an Assistant United States Attorney who is the Chief of the Criminal Division for the Western District of Washington, sent a letter, dated April 29, 1991, to Laurence A. LaDage, Special Agent in Charge of the U.S. Customs Service in Seattle, Washington. This letter, which has been furnished to the Subcommittee, addresses some of the issues raised by Ms. Moore's testimony. Specifically, Mr. Wilson states that the Customs Service provided substantial assistance to his office in the prosecution of the case which was essentially a Commerce Department investigation. In view of this and from our knowledge of this case,~ we are at a loss to understand why Ms. Moore was critical of Custom's performance in this case. The Internal Security Section has worked with the Customs Service in a significant number of cases, and we believe PAGENO="0627" 623 -7- it does an outstanding job in the investigation of export control cases. In addition to this issue, Ms. Moore made several suggestions regarding improvements of the export control system. In brief, we believe that the forfeiture laws in the export control area are sufficient to cover the forfeiture of property related to criminal offenses. We do not believe that a national task force is needed to handle export control cases or that changes are needed in the Bail Reform Act as it relates to export control cases. The Department has furnished the Subcommittee with copies of the statement of facts, plea agreements and sentencing memoranda which provide extensive information on the evidence and the decision made by the United States Attorney in this case. It is our view that the Customs Service, the Commerce investigators and all three Assistant United States Attorneys who handled this case did an excellent job in bringing this complex case to a successful conclusion. As the Subcommittee is aware, two Assistant United States Attorneys took over the case when Ms. Moore left to go into private practice. They handled it for six months before obtaining guilty pleas from all of the defendants. Please let us know whether the Subcommittee desires any additional information. Sincerely, W. Lee Rawls Assistant Attorney General Office of Legislative Affairs PAGENO="0628" 624 APPENDIX F.-Honorable Richard L. Thornburgh, Letter Dated June 12, 1991, From Chairman JJ. Pickle, Subcommittee on Oversight, Committee on Ways and Means LI. PICKLLrExAs. CHAIRMAN CAR PC$TPIHCWRKL !W~ICS. CA.&~V.*.'~ COMMITTEE ON WAYS AND MEANS ~~`` U.S. HOUSE OF REPRESENTATIVES WASHINGTON, DC 20515 SUBCOMMITTEE ON OVERSIGHT * WHOA June 12, 1991 The Honorable Richard L. Thornburgh Attorney General U.S. Department of Justice Main Justice Building, Room 5111 10th and Constitution Avenue, N.W. Washington, D.C. 20530 Dear Attorney General Thornburgh: I am writing this letter to follow-up on my earlier request for your testimony at the Subcommittee on Oversight's May 1, 1991 hearing on export control enforcement and W. Lee Rawls' letters to the Subcommittee of April 25 and May 24, 1991. Needless to say, I was disappointed that you were unable to appear at the Subcommittee's hearing. However, I do appreciate receiving the Department of Justice's position on this important catter from W. Lee Rawls in his letter of May 24, 1991. There are still a number of questions that the Subcommittee would like you to respond to in order to complete our hearing record. Therefore, I would appreciate your response to the following matters, before close of business on Wednesday, July 3, 1991. 1. The Subcommittee's examination of export control enforcenent raised the question of whether the legal standard for proving export violations is too stringent to allow for prosecution in certain circumstances. a. Discuss, in general terms, the difference between "specific intent" and `general intent" legal standards. b. Discuss how the "specific intent" standard currently applies to violations under the Export Adninistration Act and the Arms Export Control Act. c. What would be the pros and cons of changing from a "specific intent" standard to "general intent" for these export violations? d. Provide Justice's position on such a change, and rationale for that position. PAGENO="0629" 625 Hon. Richard L. Thornburgh June 12, 1991 Page Two 2. The Subcommittee received testimony from the Department of Commerce officials indicating that Commerce export control agents no longer have valid police powers, due to the expiration of the Export Administration Act in September 1990. a. Provide the legal analysis for why Commerce export control agents no longer have police powers as a result of the lapse of the Export Administration Act. b. Discuss whether the police powers can be extended under the International Emergency Economic Powers Act and the legal rationale for your position. c. Are Commerce agents currentiy able to make arrests or seizures, or serve search warrants, after being deputized as Special U.S. Marshals? d. What procedures are currently being followed by U.S. Attorneys' offices to deal with the loss of police powers by Commerce agents? e. To what extent are other law enforcement agents, such as Customs or Federal Bureau of Investigation (FBI) agents, being used to serve warrants and make seizures in place of Commerce agents? 3. W. Lee Rawls' letter of May 24, 1991, stated that the FBI plays a vital role in the export control area. a. Discuss the circumstances where the FBI would pursue an export control investigation, and provide specific examples where this has occurred. b. Discuss to what extent the FBI coordinates its Development of Counterintelligence Awareness (DECA) visits with the Customs Gemini Program or the Commerce Business Outreach Program, and provide specific examples where this has occurred. 4. It appears that numerous persons involved in export control violations are foreign nationals or naturalized U.S. citizens. a. Does Justice systematically pursue possible violations of the Immigration and Naturalization Act with respect to such persons? PAGENO="0630" 626 Hon. Richard L. Thornburgh June 12, 1991 Page Three b. For example, when a foreign national is imprisoned for an export control felony, does Justice act to insure that the person is promptly deported after his release? c. Are steps routinely taken to insure that such a deported criminal alien may not enter this country in the future? d. What is the responsibility of Justice vis-a-vis the Immigration and Naturalization Service (INS) in carrying out such deportations, and in guarding against the re-entry of such criminal aliens into the United States? e. How does Justice coordinate such cases with INS? Is there an established referral/coordination procedure, or is the process ad hoc? What is the established referral/coordination procedure? f. In some cases, it appears that individuals have been involved in export control violations at the time they petitioned to become naturalized U.S. citizens. i. Would a person's participation in illegal munitions smuggling mean that he did not have the "good moral charactert' required by section 316 of the Immigration and Naturalization Act as a qualification for naturalized citizenship? ii. Does Justice systematically followup to determine whether or not a person may have misrepresented his qualifications to become a naturalized citizen, by virtue of his felonious activity in smuggling munitions? iii. How many cases has Justice pursued to revoke the naturalized citizenship of convicted export control felons based on the grounds that they misrepresented their qualifications? If you have any questions, please contact Beth Vance, Staff Director, or Thomas K. Arnold, Assistant Counsel for Investigations, at 225-5522. Sincerely, 4.~yf. ~ickle, chairman 6\~thommittee on Oversight JJP/tal PAGENO="0631" 627 APPENDIX G.-U.S. Department of Justice, Letter Dated August 1, 1991, From W. Lee Rawis, Assistant Attorney General, Office of Legislative Affairs U.S. Department of Justice Office of Legislative Affairs Office of the Assistant Attorney General ltfoshington. D.C. 20530 Auçsst 1, 1991 The Honorable J.J. Pickle Chairman Subcommittee on Oversight Committee on Ways and Means U.S. House of Representatives Washington, D.C. 20515-4610 The Honorable Richard T. Schulze Ranking Minority Member Subcommittee on Oversight Committee on Ways and Means U.S. House of Representatives Washington, D.C. 20515-4610 Dear Mr. Chairman and Congressman Schulze: This is in response to your letter of June 12, 1991, concerning various legal and policy issues regarding the Arms Export Control Act, the Export Administration Act, the International Emergency Economic Powers Act, and the Immigration and Naturalization Act. 1. The state-of-mind necessary for provina exnort control violations. Generally, a defendant acts (or fails to act) with "specific intent" if he knows that his actions (or omissions) violate the law. A defendant acts (or fails to act) with "general intent" if he intends the natural consequences of his actions (or omissions). Traditionally, general intent is presumed merely from proof of the occurrence of the voluntary act or omission. Specific intent, on the other hand, requires additional proof. See Committee on the Fed. Criminal Jury Instructions of the Seventh Circuit, Federal Criminal Jury Instructions § 6.02 (1980). Currently, violations of both the Export Administration Act, 50 U.S.C. app. SS 2401-2420 and the Arms Export Control Act, 22 U.S.C. S 2778, require proof of specific intent. That is, the defendant must have voluntarily exported (or attempted or PAGENO="0632" 628 -2- conspired to export) the item knowing that the export violated the law. ~ United States V. Markovic, 911 F.2d 613, 615 (11th Cir. 1990); United States v. Murphy, 852 F.2d 1, 7 (1st Cir. 1988), cQ~. denied, 489 U.S. 1022 (1989); United States v. Durrani, 835 F.2d 410, 423 (2d Cir. 1987); United States v. Malsont, 779 F.2d 1228, 1234 (7th Cir. 1985); United States v. Jan11, 707 F.2d 638, 642 (2d dr. 1983); United States v. Lizarraga-Lizarraga, 541 F.2d 826, 828 (9th Cir. 1976). The Department does not recommend amending the statutes to eliminate the specific intent requirement. Eliminating the statutes1 specific intent element threatens their constitutional validity. The Commodity Control and Munitions Control Lists are not lists of specific items. They are lists of categories. Frequently, the government is confronted with the argument that the Lists do not sufficiently describe the included items to give fair warning, as required by the Fifth Amendment Due Process Clause. We have defeated such motions by relying, in part, on case law which states the well-settled rule that a criminal statute's specific intent element protects it against a vagueness challenge. See Hoffman Estates v. The Flipside. Hoffman Estates~ 7jjg~, 455 U.S. 489, 499 (1982); Screws v. United States, 325 U.S. 91, 101-103 (1945) (plurality opinion); United States v. Swarovski, 592 F. 2d 131, 132 (2d dr. 1979); United States v. Edler Indus., Inc., 579 F.2d 516, 520-21 (9th Cir. 1978). Imposing strict liability for such serious offenses as export control violations (up to ten years in prison, 22 U.S.C. SS 2778(c), 2780(j) (1988); 50 U.S.C. app. S 2410(b) (1) (B) (1988)), clashes with the widely accepted view that crime- without-fault offenses should carry only a light penalty. See Model Penal Code S 2.05 & Explanatory Note (1985); 1 W. LaFave & R. Scott, Jr., Substantive Criminal Law S 3.8 (1986). In this respect, the Department believes that eliminating the specific intent requirement would diminish the importance of these cases in the eyes of both the judiciary and the public. The Munitions Control and Commodity Control Lists encompass thousands of items, some of which the layman would not consider subject to export restrictions. Where an exporter does not possess the requisite knowledge for a criminal conviction, the problem should be addressed in a civil or administrative proceeding. 2. The Subcommittee received testimony from the Department of Commerce officials indicating that Commerce export control agents no longer have valid police powers, due to the expiration of the Export Administration Act in September 1990. a. Provide the legal analysis for why Commerce export control agents no longer have police powers as a result of the lapse of the Export Administration Act. PAGENO="0633" 629 -3- Unlike the Customs Service which derives its law enforcement authority from the Customs laws, specifically 19 U.S * C. S 1589 (a), the Commerce Department's police powers, are derived exclusively from Section 12 of the Export Administration Act (EAA), 50 U. S.C. app. S 2411(a). Thus, when the EAA expired, the police powers expressly granted by statute to the Commerce Department's export control special agents expired as well. The International Emergency Economic Powers Act (IEEPA), 50 U.S.C. S 1701, et seq., the authority under which export controls are now maintained, contains no such express grant of authority to Commerce agents, and it is unclear whether police powers can be inferred from IEEPA's general grant of investigative authority. Moreover, while the Executive Order issued under IEEPA to deal with the emergency brought about by the termination of the EAA, continues in effect both the EAA and the regulations issued thereunder, a question exists as to whether this preserves the statutory basis for the Commerce Department's law enforcement powers. See EO. 12730 (Sep. 30, 1990) Accordingly, because of the potentially far reaching implications, particularly in terms of personal liability for the special agents should they be sued for damages arising from their exercise of police powers, Commerce obtained Special Deputy Marshal status for its agents during the EAA's lapse. b. Discuss whether the police powers can be extended under the International Emergency Economic Powers Act and the legal rationale for your position. As noted above, IEEPA does not specifically authorize police powers, and it is unclear whether such authority can be inferred from IEEPA's general grant of investigative authority or preserved through the issuance of an Executive Order. Certainly, Congress could amend the EAA's termination provision (50 U.S.C. app. S 2419) to exclude Section 12, or portions of that section relating to the Commerce Department's enforcement authority; Commerce's export control agents could then continue to exercise police powers in enforcing export controls without having to request Special Deputy U.S. Marshal's status, should the other provisions of the EAA lapse, and IEEPA be used to maintain export controls. c. Are Commerce agents currently able to make arrests or seizures, or serve search warrants after being deputized as Special U.S. Marshals? PAGENO="0634" 630 -4- Yes. As Special Deputy U.S. Marshals, Commerce Special Agents can make arrests, execute search warrants and make seizures, and carry firearms. d. What procedures are currently being followed by U.S. Attorneys' Offices to deal with the loss of police powers by Commerce agents? Because of their Special Deputy U.S. Marshal status, Commerce agents now have police powers. Nevertheless, some U.S. Attorneys' offices, out of an abundance of caution, have enlisted the services of other law enforcement agencies, most notably the Customs Service to assist Commerce Department agents in the conduct of its investigations. e. To what extent are other law enforcement agents, such as Customs or Federal Bureau of Investigation (FBI) agents being used to serve warrants and make seizures in place of Commerce agents? Answered above. 3. W. Lee Rawls' letter of May 24, 1991 stated that the FBI plays a vital role in the export control area. a. Discuss the circumstances where the FBI would pursue an export control investigation, and provide specific examples where this has occurred. As we stated in our letter of May 24, 1991, as a member of the intelligence community, the FBI develops intelligence which supports our law enforcement efforts. Although Customs and Commerce investigate violations of various export control laws, foreign counterintelligence investigations and other criminal investigations by the FBI can also uncover such violations. When this occurs, the FBI may continue the export control investigation or refer the matter to Customs or Commerce. The FBI would continue an export control investigation where the Bureau has lead agency responsibility, as it does in the area of foreign counterintelligence and counterterrorism. Since 1982, by Presidential Directive, the FBI has had lead agency responsibility for combatting and investigating terrorist-related activities in the United States. Moreover, routine criminal investigations of offenses for which the FBI has sole investigative authority may develop related export control violations. For example, in the area of counterterrorism, the FBI has investigated a number of cases involving the export or attempted export of weapons to the Provisional Irish Republican Army (PIRA) in PAGENO="0635" 631 -5- Northern Ireland. In a recent case, United States v. Richard C. Johnson. et al., District of Massachusetts, Johnson and three PIRA associates received substantial prison sentences on August 20, 1990, following their convictions for conspiracy to export missile technology and remote control bomb detonation devices to the PIRA in Northern Ireland, to be used against British military helicopters and troops. This case was investigated by the FBI. The FBI has also assisted the Customs Service in PIRA investigations. In United States v. Kevin McKinley. et al., Southern District of Florida, McKinley and two associates were sentenced to 51 months of imprisonment, after which they were to be deported, and serve three years unsupervised probation outside of the United States. On December 11, 1990, after a three-week trial, a jury found McKinley and his associates guilty of conspiring to purchase and export Stinger anti-aircraft missiles to be used against British helicopters in Northern Ireland. This case was developed from a U.S. Customs undercover investigation, and the FBI worked jointly with the Customs Service to assist in developing this case and its counterterrorism aspects. In 1990, an FBI undercover drug investigation resulted in the arrest of two Colombians who were attempting to purchase and export a large quantity of Stinger anti- aircraft missiles to a Colombian drug cartel. Luis Arcila- Giraldo and Alfredo Ramos-Tinoco were indicted and convicted in the Middle District of Florida for conspiracy and an attempt to export military weapons, in violation of the Arms Export Control Act. Both defendants were sentenced to prison terms exceeding five years and three years' probation. In 1988, an FBI foreign counterintelligence investigation led to the indictment of Mousa Hawamda and seven associates, in the Eastern District of Virginia, for conspiracy and substantive violations of the International Emergency Economic Powers Act and the money laundering statute. Hawamda and his associates had diverted a large amount of Libyan student aid funds to pay for unauthorized travel to Libya. A lead defendant, Saleh Al Rajhi, pled guilty and was sentenced to five years' imprisonment and a $100,000 fine. Hawamda is a fugitive and has probably returned to Libya. The remaining six defendants pled guilty and were sentenced to pay a fine of $100,000. The FBI is the lead agency charged with the responsibility for conducting neutrality investigations. Cases developed under the neutrality statutes also frequently involve export control offenses. For example, in PAGENO="0636" 632 -6- 1986, in United States v. Thomas L. Den1ey~ et al., Eastern District of Louisiana, Denley and 13 associates were arrested by the FBI for conspiracy to overthrow the government of Suriname. In addition to violations of the neutrality act,. 18 U.S.C. S 960, the defendants were charged with the attempt to export weapons to support their coup, in violation of the Arms Export control Act. All of the defendants pled guilty, and the leaders of the coup attempt received prison sentences. In 1985, the FBI and the Customs Service uncovered a group that was engaged in the large scale theft of military aircraft parts in California, which were being shipped to Iran. Ten defendants were charged in a 61-count indictment with violations of the Arms Export Control Act, the Theft of Government Property Statute and related offenses, in United States v. Saeid Inanlou, et al., Southern District of California. All of the defendants received prison terms; the lead defendants were sentenced to 18 years' and 13 years' imprisonment; three other defendants received prison terms of five or more years. In conclusion, the FBI plays a vital role in export control enforcement, and will continue to give a high priorfLty to investigations within its area of responsibility. b. Discuss to what extent the FBI coordinates its Development of Counterintelligence Awareness (DECA) visits with the Customs Gemini Program or the Commerce Business Outreach Program, and provide specific examples where this has occurred. The FBI does not coordinate its DECA visits with the Customs Gemini Program or the Commerce Business Outreach Program. While the FBI's DECA program does relate to the export control area, it is primarily focused on protecting classified programs from compromise by hostile intelligence services. In that sense, the FBI program addresses issues which are broader than technology transfer issues. 4. It appears that numerous persons involved in export control violations are foreign nationals or naturalized U.S. citizens. a. Does the Justice. Department systematically pursue possible violations of the INS with respect to such persons? b. For example, when a foreign national is imprisoned for an export control felony, does Justice act to insure that the person is promptly deported after his release? PAGENO="0637" 633 -7- Aliens who are in this country without permission to be here or remain here are deportable. If an alien legally here has committed a felony, depending on the nature of the crime, he or she is also deportable. A finding of deportability must be made by an Immigration Judge at a deportation hearing. It is the policy of the INS, as often stated by Commissioner Gene McNary, that the removal of criminal aliens is one of our highest priorities. However, INS does not single out persons guilty of export control violations as a special priority. Under section 241(a) (4) (A) of the Act, an alien may be subject to deportation for any activity relating to violation of laws of the United States prohibiting the export of goods, technology or sensitive information. This provision is new, having been added by the Immigration Act of 1990, Pub. L. No. 101-649. It does not appear from the language of section 241(a) (4) (A) that an alien must actually be convicted of an export control violation in order to be deportable. The Service would, nevertheless, have to present clear, convincing and unequivocal evidence that the alien had engaged in the proscribed conduct in order to obtain a deportation order. See Woodbv V. INS, 385 U.S. 276 (1966). c. Are steps routinely taken to insure that such a deported criminal alien may not enter this country in the future? Section 276 of the Immigration and Nationality Act, 8 U.S.C. 1326, provides that an alien, once deported, who attempts to. reenter this country without consent of the Attorney General is guilty of a felony, and subject to imprisonment. INS maintains information at ports of entry regarding such aliens, and would deny them admission if they attempt to enter through such a port. d. What is the responsibility of Justice vis-a-vis the INS in carrying out such deportations, and in guarding against the re-entry of such criminal aliens into the United States? e. How does Justice coordinate such cases with INS? Is there an established referral/coordination procedure, or is the process ad hoc? What is the established referral/ coordination procedure? The Immigration and Naturalization Service is an agency within the Department of Justice. INS initiates proceedings to exclude or deport aliens, but these proceedings are heard and decided by immigration judges in the Executive Office for Immigration Review, a separate Department of Justice PAGENO="0638" 634 -8- entity. The rules of procedure for these proceedings nay be found in Parts 3, 235, 236 and 242 of Title 8, Code of Federal Regulations. INS coordinates prosecution of criminal violations of the Immigration and Nationality Act with the Criminal Division of the Justice Department, and refers files involving possible criminal conduct to the appropriate U.S. Attorney' s office. f. In some cases, it appears that individuals have been involved in export control violations at the time they petitioned to become naturalized U.S. citizens. i. Would a person's participation in illegal munitions smuggling mean that he did not have the "good moral character" required by Section 316 of the INA as a qualification for naturalized citizenship? Section 101(f) of the Act outlines the types of criminal convictions that preclude a finding of good moral character. In particular, section 101(f) (7) provides that an alien may not be found to be a person of good moral character if, during the period for which good moral character must be shown, the alien has been convicted of any crime and confined to prison for an aggregate period of 180 days or more. This definition is not exhaustive, so that a convicted alien may be found to lack good moral character even if the crime for which the alien was convicted is not specifically included in the classes of crimes in section 101(f), and the alien did not serve at least 180 days. As noted, export control violators may be deportable even :Lf they have not been convicted. Under section 318 of the Act, an alien may not be naturalized if the alien is subject to pending deportation proceedings. Thus, the Service would oppose the naturalization of any alien, if the Service had evidence that the alien was subject to deportation for export control violations. ii. Does Justice systematically follow up to determine whether or not a person may have misrepresented his qualifications to become a naturalized citizen, by virtue of his felonious activity in smuggling munitions? INS makes security and criminal background checks on all persons applying for naturalization. Once a person is naturalized, however, there is not a routine follow-up on the background check. The Service has authority to institute proceedings to revoke naturalization if the Service discovers that the person obtained naturalization through fraud, such as by concealing criminal convictions or PAGENO="0639" 635 -9- other disqualifying factors. The Service bears a heavy burden of proof; however, it must present clear, convincing and unequivocal evidence that the individual procured naturalization unlawfully. Federenko v. United States, 449 U.S. 490, 505 (1981). iii. How many cases has Justice pursued to revoke the naturalized citizenship of convicted export control felons based on the grounds that they misrepresented their qualifications? Without an examination of virtually every case in which naturalization has been denied or revoked, the Service does not have the means to identify whether aliens who have concealed convictions for export control violations have been denied naturalization or de-naturalized. If the Committee has reliable information indicating that a person convicted of one of these crimes has nevertheless been naturalized, the Service will appreciate the opportunity to examine the evidence in order to determine whether to seek revocation of the person's naturalization. Please let us know whether the Subcommittee desires any additional information. Sincerely, W. Lee Rawls Assistant Attorney General PAGENO="0640" 636 APPENDIX H.-Additional Background Information 1. Helmy Case "Shopping lists" and notes found in HELMY's garbage. M~-~- ~-~T26 ~T 6 J~- S 5~ `V ~ 15~ ,~ ~ ,~`.-. ~ I ~ \~- \?.J" ~ ~ji~ç~ -: .~ ~ 5°,7 ~ 3~If - - ~ c - ~(A~(I~ P~AJJLS~ ~ ~ -~ ~ PAGENO="0641" 637 117 +`t~ lifl 14v.-ç 1(1~ 3o~z1! ~r~M ~ EP~t~ v~ Rz4~ NT ~ S t',~f L~xI,i~to ~ ~t~4i'O k4f04 7$O~L~j -bz~sro~U% ~ ~ gz~, +i~'~-~ t~* y~ ~ -4? 1 S'o 51-840 0 - 92 - 21 PAGENO="0642" ~\ -t~-~\ 2 ~ ,~ ~~T7~T~C Z ~ ~ c~) ( ~l ~ - C - ~ ------~- PAGENO="0643" 639 ~A~x (c7~v~c p-~(d.2) ?c Dec~J~&~ (J~~ ~ ~cd ~ ~ lf~) 2 ~ ~ `~ 1 2 ~ -.( ~ Z ~ ~~-2--2~t ~-~- ~ 7~ fr F -~-~ fr A ~ ~j ~ Co~'Js~t) ~ ~. C BC? ~ 15 t~0~1 r~c ____ * (~ ~ ~. ** j ~ ~ *i4) PAGENO="0644" 640 k~&v~tt+o~ ~ 1i~d~4 AA ~`2 ~t CJ3~7$~j F~A ~ C / ~3 972 ( Iv, ~T ~ L ~ AT ~ C I ~? ~ AA~ ?~-~ cI3itx~ ~z PAGENO="0645" 641 C~'LI GI-~ t::c'f'~) \\~KM Sc~A~) 1~'C) ~ ~ ~fl~4~(Qj~ ~Ck ~ Va4~ PAGENO="0646" 642 S~,!Ution ~ I ~ -c&. CdWtWI hi ~ ~-L~4 ~ )`~i~c. ~c,c'd. ~ c~ V~c. e~f ~ ~ PAGENO="0647" 643 gp~ ~ag ç~ D v~rs4~,,;4~ fI#c, c)~dh1 ~or ~ ~ ~ 1tc(H~ck~rJ) -VT,IX V~ficj ~od cJ ~ ~ ?~eC~* ~ c-c ~ ~ C-t°o4~ &J ~ ~c. ~ ~tndh14st ~ ~ c~ O7b,a~ ~t-1~_ ~ (i~~c~&) ol ~,L t~oL~,' Th~'p. ~ ~J~J~J j14.A. /`~ I It ~..* p. 1~4~ )L j~jj-ta ~)tV4~) -r4~fr ,~L& ~ ~ ~ ~ ~ ~it r4 PAGENO="0648" 644 Invoice and shipping document T~rHca1 Cewi~c~ 0~~i ~X 704493.5227 vancid Cerarn~c Mateiais 0ea~i~ Febric~t(on ~XEllBiL4 and specifications for sissile GREENLEAF TECHNICAL CERAMICS P.O. BOX~7 HENDERSONVILLE, NC. 28739 . Fri .1~: - ~ . rn- r rn~n SOLD :. . -I TO: :; ~ * . , -rn, SHIP .~ r. 4t~:.n3 :tnrvE TO: :LL~, n~. F~4~.0 32X1.22RW0-l0Q CFNE3 4ER F~RT L~WG 00022 .,EiJ~t, * ~3-3976X382X122R -000 HI iNtER H~S BEEN F'A.tt! BY iA3H tN .~t'V~NCE REH'ININC BAct<-oRr' t nose cores. HER INVOICE (PLANT) 7O4.~93..~J.5j FOb. 5.~ S ~ ~`N~ . ~..., ,.~ L~ S 6/0P~N8 BLUE AM0~T 636.00 636. RMS IOTW2STh FROE 1 636.00 .00 PAGENO="0649" 645 SC IENCES AND TECHNOLOGIES APPLICAT LONG 111~ ST. ANDREWS DR. ELDORADO HILLS~ CA 95430 ~ PURCHASE ORDER :. -` TO: GREENLEAF rECHNICAL CEFAMICS ~~19 VIKING STREET ~iAYWARD, CALIFORNIA 94545 -~r~a ~"~- ~.d~V'~* * .~ : `I .:~r ~ PURCHASE ORDER NO. 0020280 ~ DATE ORDERED 02-12-1988 ~.O.8. DESTINATION SH1b~ VIA, S~T JAY PROPOSED SHIPPING QUANTITY~ UNIr PRICE IC 2 ptocot 636.00 127: I!LI1 i~ *...~ DESCRIP1~9N ~ *`~~`i'. ~ Conc,.~p~d~.Z~ttaCh0d àk~ch MatOrts1t~'W8 100 ,ftrQd . . , UNI1~ ~ * --..-".--,~,".-J'-~ 3H1~ Ii : LII! SAINT ANDREWI3 OR. LZLDQRADO HILLS CA,9~63J ~I~MENT : ATTACHED CHECKIPULL AHUUN1. APPROV~; A.M, MEL Y PAGENO="0650" 646 _.i - - - - - - -. ~LLt fri. -- s~-i~ -~ct~r- ~-~--r I _~. ITEM Cu~~ ~ c~ c-~i~ £I5C;I~-~::N ~ ~ ~ ~:~)~A ~-~S ~ ~a I?~ ~Vf~CE - - ~ ~ -: - ~ ~ OI)(JCT ~ R~LI ~E ~ ~X~ORT LXCENE~ TO ~X?C41. ~(E CUSTGMEM'S ~ D SECtiRE TP-E EX-CF~1 ~ -. Ex~c~-r *_I~N~ f~EQtJI RED. ~-Gr~: ~-4I~ -~C~GE ~4Y ~ ~ ~f-~Th ~ b-~I - - CT ~ .-~j L ~ E ~ -~ ~ ~ ~ PAGENO="0651" ~4i~c~ 647 ~)~/~1a (4~'1s) ~\~r ~?~rcL ~ rc~ c~ C ç PAGENO="0652" 648 ~c~c~p ~. is t~c ck~ch ~ f,L pc~ z ~;~CLk~s',t~ H ~ ~ ~ ~ ~ W. N~W~n~ ~ ~ ~( 1~?Ot!4J~ Ji(~ ~ D~ ~d ~ p4~v1~ r~ ./~csk.4~ ~Lid ~L~i~i `~4~J , ~ c~ee ~ ~ ~/ `(~.a. Nontritorea. - Viennaet. Katepaoheu. neCatia. anless dslrens'rae-authoeond ho the _UnitedStases. . . - If the etport requires a s-alidaied license for Po(gnd. Hungary or Romania. `these countries shall be included. If the export does nor nequtee a validated'. license'for a country in the peebibited list, that country may he deleted. (uI Validated licersse ahipntersss. For a validated licensO sbtpmem- (Al The country of uftinsalq desttnalion nastred on the license shall he entered in the first space: an~ IB) The coontry(iesl shown on the license as approved for disnsbu. lion or resale shall be entered to the lass.space. Iso such coonmy is shown on the license, the word `tsone" shall be entered in the last space. (3) Statement 3. Uaand States lam prohibits disposition of inter correendiors to the Sunset Boc,~~* Laos Libya. hiatUs Roma. Vaotaes. Kom- pnchea,oeCab..aainaaatherssae~uendbYiie UniaadSoaes. Statement 3 permitudisasbutions or resale to any country in tIer world other than those specifically excepted in the statement. if an espoes to an excepted country does nor require a validated license, that country may Ii) Dicert any cargo to any country of oltimure destination oilier than that named in the Declaration or in the bill of lading or air waybill as descrthed in I 386.6: or liii Request or demand that any carrier or its agent divert cargo from the country of ultimate dest.inaltOn named in any such document. In addition, no agent of any carrier shall instruct or authorize the masler ofthe-vesasttodlveet any cargo~sg~otherccuaayof ultimate destination without peter written aatlsoit~i~ the Office of Eopoet AdmInistra- tion (See I 372.lI(flCZ) for ~mems unloaded prior to arrrval at the country of ultimata destinatilnx.thR do not enquire the naming of an. intermediate consignen.) - ` 141 OpdesaI poetsan bW of ladhageralrwa~l. No camershajl issue shill ofladiogor sir waybill prnnsdiagfee-delivery of.cargo to the-ultimate - consigtean named in the Decheatiow at optioeTal poets, wbere~ne of such - optsenth porno is ace fn the country of jaltimate destination named on the' - license or Declaration. without peiorwrstten pathornzalion from the Office of Export Admosinmattots. Hoofever where the Declaroclbn provides for'- delivery of catgo to optional intermediate consignees located in poets-in different cnunoses. the carrier may issue bill of lading or air waybill providing for delivery at such optional poets. (6) UnloadIng of Cargo at a Pore in Other than Caaatpy of lnaoewaedimt or Ultinate Desrinadon (11 Reasons beyned carrier's control. Nothing contained in the Export A4mia~tetcn Regsilati-ossa shall be deemed to prohibit a carrier from - ordoading cgo at a poet caassidr the country of interinidiate or ultimate destinition shown on the Declaration wheew. for reasons beyond the co~ trot of the earr~ (as set forth in the standard prnvisioess of the camera - bill o(lading or air waybill. such as acts of God, penIs of the sea, damage to the carrier. strikes, war, political disturbances. or insurrectionsl. isis - tot feasible so definer the cargo at the licensed port of desnnatton. (2) Req*ed actions for on,chedalnd loading. Whenever cargo is an- loaded at a port in any cottony other than be intermediate or ultimate destination shown one the Declaration, except where the cargo may hg -- enpoesrd under a'generaLlicense directly from the United Stales 10 such - mommy Ii) The career shall, within 10 days afltcdate of unloading~eepoet the facts to the nearest Amencan Consul andto the agent.of the carner located - in the United States Within fd4ays after receipt of such report. the agent shall send a copy of the report to the Office âfEopoes Administrosion: - This report shall consist of- (Al A copy of the manifest of sacledineetod cargo, (B) A statement of the place of anloading. and (C) The name and address of the person in whose custody the cons. modities or technical data were delivered. - lii) The Office of Espors Administration wilt inform the exporter of the cargo diversion. Within 10 days following receipt of ibis notice. the - enpoeter shall blotter the Office of Espoes Administration of the proposed disposition of the commodities or iecbnicaJ data.- liii) No person. including the exporter. licensee, consignee. carncr.orr any person diting on the carrier's behalf, shall take any-steps to effect dtlivery or entry of ihir commodities or technical data into the corionecce of the country where unleaded withont prior appevval cif the Office of Report Adnmnisrrarion. The mottler shall sake oreps so assure that oath commodities or technical data~reptacod in custody under bend or'oeher - guaranty not so enter the consmerce of such cosaasp or any cosasoy other Than the countries of the uleirneee and itstoesnodiaiC'asnsignees'shownoo the Declaration without astib prior approval. ` - 3163-DESTINATION CONTROL STATEMENTS - Ii) Reqoireaeent for Dead~n Conarnd Sare.oag When required by this 316.6(a). as appropriate destination control state- rem is required to he roamed on all copies of die bill of lading. the air waybill and the commercial invoice covering as export from the United Stales. The sante statement shall appear on all copies of all such slsippeng docunsents that apply to the same shipment. As the disuretiose- of the exporter or his agent. a destination coetrol statement may he entered on the shipping docanents for espoe'ss for which no destination control ssnte- mete is reqtored. ` . - II) Exports to alt dostiaatloou except the Repoblk of Sooth Africa "ne Ca~ atneecn,rtreo eoden oapincnor~ee, hi ~esuin One onan~n hen - ~4 Na*a. Per cogonu so a desaaoataoa other than the Republic of `espnua rrnsaepod ho I Ott thaOlOii nornpt at. or toot O.Oteis pe.aan oe'nt.oa onteh~or Naraoloa5 one of dto.deee deottoatamo consent oatemenm °~°~ descitbUd ix I i86.litcl aesdildl is required loran esportuadne-- .* -- ~~Oa tether ~. an oa,hns. osit a.an~ pie~eened'iboanose~ a~s eon - Ii) A vsralated licgnse ,. - .` - edt n sScb nt cmarn ot atimas thsnono xttrcti and aoanthpmee5~ ~aaa b~ `il Gaoersj Ljrntss GLV. GTF.VS. GTE, or GL.I: sc - . . ~ :s~ :~;otse sior' I Genteel Lcca*~DEST if Oar cnmeaodssrs me aider aladeted `c~r~ co~ ~srontamJinand Hanger a~ma e~nia.. ~ as PAGENO="0788" 784 be deeied If an esport to Poland. Hxngao'). on Rorea~u imloons T~n ocino ~eotco .so~g be oorenerro~ ~ validated license, these emanines should be aIded to the rentbiied dent infennion to prior or sues nririrnisstoe &nrn Oat nations listed. to any of the ahovn.r.soi~ prisons. prrrsded ~ eerdSuneesonat adrqxa.ely tdeiit.lIes the thipnrmei. As an otoentatree..~ ~ ~ , - Pie cornmerriai ioi'nace such person ray send aoopy~~~ A destination control statement may be ptnpnnted on bills of lading. Its or air waybill corcasot ~ deseisatson cuemnt ~ waybslls. or commercial invoices. But in this case, only ore of the three ~ c~~i0i ~ cer'-rirg a ri destination control statements shone nay be sltoucn on airy one of these agent receives from dat enponon a copy of conrrene~ documents. - d/e correct dear coe~ s~rs~n~, ~ (I) Permamin Rsropewu (Al Norify dat eopretor ~ wrtnng;. - If as exporter or his agent uses a moee tnstrtctive desssnatton control (B) Roquesa wrtsnn atoonanon from the eopoi~ that- statement that is nmatsaaty. the reexport provisions of 374.2 may ~ ThOdeSlUi*ttOC control statethent Ku b~ xvpneiy~. ~rthelesu authoeson recxpoes to certain destinabons. ~reeoport ~ all other coptes of the commercial invoice, and auibonzed. theesporsccnsay so advise his foreign iotpoeterwithous obtain- - - (21 Any ether person oho macwed ass invoice wnth~ ~ ing further authonzaaixea from the Officend Export Adminisoattod. Its all ment has been informed as srtting of dat resescsom ~ fort ~ other instances, specific authoeffasion'shull he obtained from 1* Office : cut~~ -: - - - of Export Administration (see-f 374.3). -. - . - . - (11 Eqserdseapgenpournscatmnenuenhincopyo(theati~ (V Renpsenoibility fee Lao ofsraiemw . ` - (2~ Return i(ts dat espmn~ for propm complerinec ~ (I) PrImary responsibilIty. - - -. . (Dl Keep and triakir asadalile for inixpechon. in neom~ hI Getsera!. The exporter has the primary responsibility for assuring 387.13. a copy of his nocil)cacioe to the exporter arid 6w ontgi~ ~ entry of air approprtate destination control statement olt the cornerasrcxal exporters assurance to birnlfcr further recorilkeepring reqco~~ invoice, regardless of whether be prepares this document. If a forwarder. § 387.13.1 career acting as a forwarder, or any other party prepares, presents. fk~ Refrain if Car~4y by Cceser' and/or executes this iltresuneet, the forwarder. crersen. or other ~t1~ ta No curer sIsal) relmae cusucily of a shiptnsenn cnrnred by 6w also mespoesible for assiarsng that an approprtate statement is entered of thisl 386.6 to sen ~rr wtt~ surrender by that arry. to 6w the document. The catvser. as the patsy Ibis issues the hi Ic tvg of at copy of the bill of lading on sin wnyhlll bearong on no f~ ~ oraybilt. bus-the prtnsat-y mnspoesihslssy furansurnng that the samestateimepat ~l~le de~ ~ asSess eiilur - appearing on the cnrnexpaxading invoice also apprats on6w bsllo(ladiel ~i Sitntu)tuzteorzsly with the release, the cart-er del/sets to mat or air-waybill. Arty other parry who geepares a hI) of ladtng or aarwuybsll ~ ~ oft, ~ control statement. contained is is also responsible foe atatarseg that an aPrnttrtaoe statement is placed on - copy of the bill of lading on an wuyhill for the shipment. The wri~ ~ the document. - I ~ shall identify the shipmens.hy bill of lading or air waybill comber. (xl Approprsoe . P~~' - s 11 number dice and of s'tL The standing must he reached between the exporter and forwarder. tamer, or ~l ol - either ped ` ed fthewnoen ~ ~ otherequinalem the commercial invomne. he'cuss deatrmiete the aPPeo~naxe desoins~e . ~2lThgulis~s of the innprenieg coiuesuy require Oat eaonsodelise control statement - . ` - - the comrtioditaes directly into the pltjsicai potsessete and coetsol o(cus `(i)Gensa'ral.No carrier shall issiae (and ~cs e;porter. licensee. ship~r, joma or 0t~t~~ gonemmere ~ for delis~y se the consigom on hi ness gnor con gsaee gene oranyodsenperson shall prepare orprorane) ~ Ic ce the cart-at- not gone -on -recesne f-ten Ow a bill-ollading coveistri es enpoet forwhictsadestinaciotn cseozoluoat~ - gos-mssanent agmey. - - .gom - is required aesder the peos'isioes off 386.6(al. unless all copies of each g - - - - - bill of lading (including all non-negotiable and office copieslootain.tbu fsJ Node, a~Prekdealee Agonat Dimension- - same statement in clearty legible form. (11 Coodare afhe' recelnieg ~ recoin/rig en inrnicn. hO C (ii) Air waybill. In Ow case of shipments by sir (other than airmail or l.sd~. .i~-~iji. onery ~dncxirumt cer.tatrrt; rreeico.cf the prohib- air parcel p0511. this esqsaeemeet applies so any air waybill, including one nolan agsisnot dinerseds sat fcnth isa desonaasee coe~ cuenrunt, on after issued by a consolidator (indirect crrior( for an espas included is a meceining cmxi entice of such pptbibiaien. no prmsce so ncnfied iscliadieg consolidated shipment. However. dseseprovisioess do riot ipply,toamas- the ultimate consignee, intermediate consignee, or or-forssrilirg curser or" air waybill issued by a carrier in cover a consolidazod-shiper~. aliail divert. trsns*rip. ormaspoan (oncsuxe tube diverted. trsinssltfpped. (iii( More Mae oat sraremeeranpplicabl~ ro bill ifladiegjf one bill of or seespoeced) any shipensera described in the reritsen.ornexi notice an lading is issued for two or sense indinidaai shipments is which differesat - country roe authorized is mah nnaon. ` , - - - destination coetrel stuatemesses ~ply, the aiplieable ataaemese-.atidl be (21 Ppoofifno&e. In ony adminisosecive coenpliatsre proceeding heougist entered beneath each ahipmesf or greupofahipmessas. However, (Ow bill tg~od8lce of Enpmr A niatmiua. e~aaze of Ow soiding of each of lading shows a single fseigbi aati6c~mon an descrOw 9~id o~oi.ce. bill of lading, xar waybill, or other fonts of notice of the peobib- commodities which eeqsabie thnaai of measdion one atwiatet, ~ ` ition aguinsi dinirraoo to yperson. shall coasaesttariep~smafncie pmot'of impeacsicbble to separue the cs,eyessedisies oat ~ae bill of ladirsg, Ow most that person's roreipe Owreaf. This shall also coestittnre notice the ensatictive statement applicable to nsy of the gsveps shall be used. The -- coesrra.odisses hare been licensed for a ponicnular cimunmy of ul~imace dmai- cotnnsemcial invdfce ateould. neveedrelesa, pegsto Owcuesnrudiry grinça - nation arid nay not he lawfully d/rer~ to any otl~ cncr~. In addition. and show she pmpe~ ntaeasse* (or each groap. . - of o~ sending of such notice ne the tnncrrridoate consignee Mall he (31 Slaeemout - csseW linslce. - doee~ notification of such pecdilbicioe so Oat utitmaco consigma at-al (i) Graerd. Ho bceesse, shipper. consignor, axpotler. ugene. or y per-t~ other person ds~ psepue or iaaaae a c~neecial'invoice for aahi~at for which a d~nathaa ceonol moement is meqstired under the provisions. (f) Lifer (Farrtgo Lame - - - of § 316.6(a), ealmo thecepiea o(the issneinela) eaonin~ uaee~t~. J.eox~ boeey c~ in a ` o~ ~ tine ceemel atatemene a clemfy te~at. This ~ ab~ ~ ratio-re apy ~ laser. (See I 3i&9.) applacable aoeaameee as fio~he B ~6(~ow. - ` - - -. ~` no - - ("1 Diurribsinose qrcopiesa(ou~swv ~6eeseea4i~Oat~ - - - -. is issued containing the prescnlbeddtn6iee content mae~ ~1b~n. (a) l~ is - - per or other person isxuusg such introit atsll proesØy seed copies as- A-atippi~ideeemSd j~ ~, ~ ~ o~thn unxhipped balance (A)- The ultimate consignee aid the sraaisadie~~. ofa csasenedey-..evm4~ export lica~ ~s the qeaacsey specified - dps-isat eeemudlty in ~asees VwetgW on ~. 4 pa~ bare) (B) The inteemedaae consignee; aid. - - `-f~ . ~ ~ sebt-~. - (C) Any other poexoon ai6 ~ - ..2. - -- - - -~` - - foreign country. Nothing contained herniae shall be conerand as linsat the .. - persons or classes of persons s~whom such tnvoices. billsofladiasg orait - `°Aia I rn-ri a ~atne ps~ dat on taO waybills am aseally and csasaaeraiily ~attn the course of capon e~. - . - - PAGENO="0789" 785 ca1 ~7~~Q4 ~U-ü ktn. -- ORIGINAL CONSOLIDATED MARINE SERVICES LIMITED 17*. 0j7! C1~T~J, L4LAZA3, 1j%~7 WIIZ000U* ~MA#4 tOAO. *0*0*-i 7*05070* 1. TRAN$H!P ?~MIT CULL No.826 To7 TU~ 10U$C'IQR OR CUSTOM8 ~ ~frj~ ~j ~en~~pv$fro~ t4zq S. S. PC:54 ~ srrived have - o under jopig colours from~j per 8.LRAN ~sfl- EG 4, PAGENO="0790" CASE Al - THIODIGLYCOL Belgium Switzerland 10/21/87; 604 66-gallo. drums Cited as - ~ I.Wum destination of U $ Iiotl; i tina (66 ciI. dsir.~~.) ~fl1~n'irjjd I~. fl~Itar~t~a~ 1st shipment 10/81 3/88 2/4/88; to Rottsrdam, `Western Correspondence from EUrope' cited as sod-ussr ~, %~, U. w 2/20/88; 478 drums, West.rn b% \~. ~ ~ .~rcan~ Europ. cited as end-ussr %% ~ toAlcolacrequutliig ________ ThIodI~ycol shipments ~ Jordan Actual destination of _____________ Iraq al 4 shipments Liberia ___________ 1st Shipment , Possible end-user of - 2nd ShIpment plp~i~y end-user al 4 shipments ~ 3rd Shipment of ThIoiglycol -~ (i~LImately nised) 4th ShIpment PAGENO="0791" 787 EXHIBIT 8 Attached documents show that Tanaka and Anraat were shipping chemicals precursors (e.g. phosphorus oxychloride, trimethyln phosphite, etc.) from Japan to Iraq as early as 1984 and knew of their uses. Phosphorus oxychloride is a key ingredient of the deadly nerve gas Tabun; if it is inhaled or absorbed through the skin, a drop the size of a pinhead can kill a person within minutes by short-circuiting the nerve impulses to his brain. In January 1984, Tanaka telexes Anraat concerning trimethyln phospite shipment from Japan: "Also, we have a duty to make report to our Ministry of Industry and Trade Institute (Central Government) that where the tri-phosphite is going to be shipped out. And the final usages as like as D.D.T. At least you can tell me the destination, because Japanese govermt is worry about these material can make a poison gas or gunpowder. So, I like to suggest you that these materials will be consumed by insect-killing medicine like as D.D.T. and plc telex to me the end user's name and unloading port (I am OK that you can tell us a necessary lie). PAGENO="0792" 788 ~ ~:3-'~ -- - - - - :- - - - - - ~ ~ ~ -: -~:.... ~ ,~!VEF T~'* NU:~'~ - : - - - - ~ `3 ~ ~ - TIi~ t~L~13.~ S~5~jL3 ~ ~ ~ :~ FJr'~. FJFr-~ ~ -~:~ - :-~~: _:~~:~ ~ ..- ~ ::~:~~:~ ~ !!~-:-R! -~4: 3T.ir4.VrI~N ~;:z3T - * PL3 A~7VI3Z. - - _- - = ~I3:N5 RS2'a5~3 ~-222q B NASAFI 1K - -. ~ 00.02.14 - PAGENO="0793" - `~ ~ *~ I 1% - M~ ~ - ~CAE~~ ~MCE - - ~ L-~~ - ~EAP AM - - - - rp ~W~YLM ~ IETCPIC T~N C~:.! t~!EOR ~ - ~ o~-c~sc~:~ ~ - -: PACE L~.fS ~ V~L'.EC~ .~4E ~O 5. AS I 1~'Lt- v-:~ ~:s ~ THESE ~`s~ c~ ~ ~°~-NJCE irus IN -J~~1, ~ECEN1L~ AL5~- ~.F YDO c~ GET c-~.~cs US ~M(W ~ S'L°PNG~ MAPp SEll ~EGA~5 C. rAMA~A - - P5: SENT :TEL~ ID MICHAUD ALREAEY. 789 ! _____ -I PAGENO="0794" 790 M~'5 ~-P: S ~`Tt~IN'5 P~24~54 - M~G ~C-P~ - - - - -- * ~-G - - -- - -5 KTI5IN~ P52455455S5 - - - - - ~ KAWASHOA J24277 - tttsiai~ J69~O ~~,ATTN* MISS POISE NOV 15' 1~B4 TMC-002B FCA-SINGAPOPE - - -- DEART POISE - - MANY THANKS FOR YOUR GENEROUS TAKE CARE FOR US REGARDING THE RELEASE OF PAYMENT IN GOTTARODO. I JUST HAVE GOT INFORMATION FROM OUR SUMITOMo BANK. * PLEASE KINDLY TELL TO YOUR BOSS MY GREAT APPRECIATION ANO ALSO -. _______NG FOR H-IS COMMENTS NEXT ITEMS (CAUSTIC-SODA AND ~ PCL3. POCL - - - - MMP IS COKCERP4TD~ IT jS-VERY DIFFICULLTO FIND OUT- f- MILL IN JAPAN. BUT NOW THERE IS ONLY ONE PRODUCER IN-NORTH LAST JAPAN. HOWEVER~ THIS PRODUC~..~ID~ THE BUYER SHOULD BE INFORM THE FINAL-USAGES oFcoss~ BECAUSE THEY ARE WORRY- ABOUT - TO USE A ROW MATERIAL AS TOP~WE A-POISON GAS. - - AS SOOS AS YOU CAN LET ME KNOW THE USAGES OF DMMP~. I WILL BE ABLE TO- OBTAIN OFFER FROM PRODUCER. : - OBESI REGARDSt - * - - - V - - - - C.TANAKA - -* - - - - - NNNN~'~"~ f~j41i~wdc oxye~4Lo#t,O~ ~ KTISING P524884 - - - - PAGENO="0795" 791 ,~, I ~ ~TIStNG. P124584 ~ IQ/tt/B4ADDITIONAL ~ATTEN - MR. F. VAN ANRAAT - T~1C.-O0~0 - - - DEAR FRANS, - - - IT WAS NY BIG PL~ASURE TO HEAR YOUR HEALTHY VOLCE BY PHONE. PEt PCLsPOCL CONTINE.&9~ - - - - * BOTH- I?EM5 ARE CONTAINED NET 280 KG THEN INVOLVED TARE WEIGHT IS ABOUT. ~O0 KGFOR ONE DRWI. - - ACCORDINGLY' WE CAN BE.LOADED ON 57 PIECES.OF DRUMS FOR ONE 2OFT * CONTAINER. - - - - - - THEN' DECEMBER -SHIPMENT IS 60 MT EACH FOR PCL3~ POCL3 -°WE NEEDS 440 PIECES OFDPUN ANO-7 ~(SEVEN) 2QFE~ CONTAINERS. POCL3 BALANCED 60 MI WILL BE SHIPPED ON LATE-~JANUARY. P.S DMMP - THERE IS NOT TOO MUCH DEMAND FOR IT IN JAPAN. BEST REGARDS - C.TANAKA - PAGENO="0796" 792 MSG 07-R: -. ~ KIISING R524814 -+1ST NOV. ~984 - -~ -. - AllEN- MR. F VAN ANRAAT -- - -- - FRM-TNC-0013 - - * TO FCA SINGAPOIE - - - DEAR FRANS~ - - - - - - - - -- -~ YOUR REGUESTED 3:~TE~ C PCL3~.P0CL3 AND CAUBTI SODA-AND D.N.P ) ARE CONCERNEDi I AN GOI$~ TO VISIT ON THOSE MILLS RESPECTIVELY THEREFORE, ALL COMPLETED AND BINDINGORDEP WILL~COME3~UT WITHIN & 0FEW DAYS. - AS PER YR REGUE3T~ AN HARDLY TRYING TO GET MORE COMPETITIVE PRICE FOR YOU IN ANYWAY. THIS IS AU.. FOR TODAY. - THANKS AND WARM RE~GARDS~ TANAKA -. . -o - ~ MuSING ~24884 PAGENO="0797" 793 ~ ATT!N - MR. FRANS V. ANRAAT - O1~9/84 - FRN: CHARLES TANAKA - DEAR FRANS. - - - - -. -- . -- .- - - .- - - - R~: T..Z1.P ~./C ISSUING -. - : - I HAD THE MEZ~NS WITH KUREHA MEMIAL INDUSTRIES C~RPS DIRECTOR IN TOKY'~ AT TWICI DURING MY STAYED OVER CHIBA OFFICE. AS I TOLD YOU BEFORE. I ALREADY PAID UP THE ADVANCED MONEY TO OUR * MILL AND FINISHED THE CONTRACT. 1SWEVER. THIS~ IS MY FIRST BUSINESS * :-. WITH OUR MILL EVENTHOUGH THERE IS SOME GUARRANTEE OF KAWASAKL STEEL * CORP AGAINST KUREHA CHEMICAL CORP. ACCORDINGLY. OUR MILLS DIRECTOR ASKED ME TO SUBMIT A COPY OF YOUR - L/C ~4HEN IT ARRIVED ON NEXT MONDAYWHICH YbU TOLD NE ON THE PHONE - LAST THURSDAY MORNING. IF YOUR- L/C ARE NOt ARRIVED tO TANAKA METALS UMTIL ~TK. SEPTEMBER' CARGOES-R!ACV AT `)US.NILL SI~E WILL. 3E * DELAYED. : - * **. -. - .* - - DEAR F~ANS I WOULD LIKE TO LELI~/EYOU-SURELrBUT, ITJS VERY-HARD * TO BELIVE THAT YOUR CLIENT CAPS TAKE bUT L/C FOR YOU CERTAINLY. * IN THE ANYWj~Y~ PLS LET ME KNOW YOUR CORRECT -INFORMATION OVER TKE UI * ISSUING SITUATION ON NEXT IIONDAY- 3V RETURN TELEX OR PHONE. - I AM Pf OSAKA HEAD OFFICE. - - THE OTHER~HAND. PCEASE LET US KNOW YOUR SHIPPING-MARK IMMEDIATELY. * -. : --`~ ~.- * - AtSO. WE HAVE A.OUTY TO MANS R~PO*T.TO OUR NINITRY OF INDUSTRY AND - TRADE INETUITE C CENT~*L GOVERPCENT)THAT WHERt THE TRI-PHOSPHITE IS GOING TO BE S1~IIFPED OUT. AND THE F~N*1. UBAUS AS LIKE AS D.D.T - -- - AT LEAST -YOU CAN TEU. PIE THE DESTINATION. BECAUSE JAPAP IS WORRY ABOUT THESE MATERIAL CAN MAKE A POISbN GASOR SO. I LIKE TO SUGGEST YOU THAT THESE MATERIAL MILL BE CONSUMED BY INSECT-ICILLINI MEDICINE LIKE AS D.D.T AND PLS TELEX -TO MET-HE END USIRCNMIE AND UNLOADING PORT C I AN OK THAT YOU CAN TELL US A -NECESSARY LIE). - * -~ - ANFRATEI PLS* ICEEP IN T~VCH WITh NE-O!~ MONDAY. - - ~SEST REGARDS - - - - - -.. -- - - - C* TANAKA - - - - i'~ * - PAGENO="0798" 794 EXHIBIT 9 Attached are the shipping documents relating to Alcolac's first shipment to Iraq in October 1987. The invoice dated October 21, 1981 and signed by Leslie Ninkleman, Alcolac's export manager, indicates that Alcolac sold NuKraft Mercantile 277,200 pounds of thiodiglycol at 57 cents a pound and consigned the order to Companies, Inc., in Switzerland. the total price was $158,004, plus $9,800 ocean freight. The space for the country of destination in the diversion clause was left blank in violation of U.S. law. The draft invoice indicates that the decision to leave the diversion clause blank was deliberate. Patron Services, at Alcolac's request prepared the bill of lading for the shipment. The bill of lading indicated that the `!textile additives",, nowhere identified by name, were shipped via the vessel European Senator on October 22, 1987. The port of discharge was listed as Antwerp, Belgium. the diversion clause on the bill of lading stated that the ultimate destination was Switzerland. A copy of a telex dated October 29, 1987, from Industrial Project Forwarding, Ltd., the forwarding agents for Ariraat, to NuRraft, was found in Alcolac's files. The telex stated: "according to the information we have received all transshipment costs in Antwerp have to be Senator account." On the following day, NuEraft instructed Alcolac to revise the bill of lading to indicate "goods in transit". Alcolac complied with these instruction. At Alcolac's request, Patron prepared a * second bill of lading indicating in the routing instructions section: "Goods in transit. Senator Linie (sic) responsibility terminates at Antwerp." The shipment of thiodiglycol never reached Switzerland. After its arrival in Belgium in November, 1987, the chemical was transshipped by vessel to the Port of Aqaba, Jordan, with its final destination being Iraq. These documents establish the fact that Alcolac participated in concealing the destination of its chemicals and knew of the transshipments. PAGENO="0799" - S~~PER (._._ ~ ~ ~P I ALX~r~c. Ln~ern.atL~a-i, L'~tc. 3.!.W) £`a.~rtieid Ro.&a * 1~~E Ba1tiz~re, Z~. tJS~ L21225 - ~::~-rl S :~.~L~9-~1I6) ~-~1r1~ t~xti1e odc~j~.j~ ~DMc:t -- - \. ~TER UI NO. ES TO TRNI&UC11ON - - 0 Rs~ ~L1W~E OCN~ - Ccx~parties It~. ~ia t'~derrx 10 ~~it~rt~ - Notify Sane . FOR~O W ?atrc*s Serqices - 21 S. CaJ.vert Str~t ~itir!ore, ?~. 21202 ~oi~ s~pyt~ o~ o~.o..om FTZ ,io ICOIJNTRP OF i~is Baltitore, ~V. L~A 1,3~itzer1az~ SHIPPER'S LETTER OF INSTRUCTIONS - NOTE. G A~ LNOERTAIP OF fl~ ~IUIU I CO~OCIT~ 10-00 ICY TYPE IT El-WI WIL~.ETE~10I P~E3IElGi5S.v. - ~ W~PPIO nil MNT~NLTOul VIAil NJJCCAilIIR-PUAI1IM IS 11W ls.vCCU~aSNYML lPPPlGORT~. AIC PECEPTOI PlO. ~ ~V~AJ1LL~ 1145 WI~ ME.? IS C~WrTE ~IJI 3MPIWN1~W4Th TIE ElL~CA~ - - - S~ TO PCI UP TOP SlUT NC 5014 TNt P1IET IUPS CICItOIATIONIETI PIll N~ -. - - SAP! thIEF. N~ - ~)ATI - ~~~15 - - 2671 - jJ()/21,7 - C AIR * OCEAN ... ~ ~ ~-- - - - - 0 CONSOLiDATE 0 DIRECT SAL ~ T-j~-1~.~ Nos.lOp/ -I- -~ - ... - -* - - . - - - - - 000489 - - -- -I. VALiDATED UCE1WENOJ~IUIS. UCENIE SYNIQI. ECCN `~* i,~-' r' e~s. - -*~~ SI~1PPER MUSTCHECK* ~ PREPMD OR - fl COLLECT l~s ~L50sJ c.o:o. AMOUNTS 795 a 421.3290 277200~- 2963524 ussT~a4. SPECIAtINSTRUCT1ONS - Price i~ C & F , Ters~i: Net 3( Days, B/~ ~o TUt~e ou~ T~ O~er - en~rs~ - S~ii~y Shio2er - Calpnniel Inc., Tie.scriDti'~1 o~ ~cExt~. `extila ~c~-eTI - - - I SHIPPER S INSTRUCTIONS IN CASE OF INABILIrY TO OEuvER * - ~-``-- I CONSIGNMENT AS CONSIGNEO- ~ABANOON ~ RETURN TO SHIPPER CE SURIE~pP~I JPTOPSNCETANDSIGNThE FIRST - VIP TO CU~TOSC'-ARAT1ONWffH PEN 5 SIYPPEP REQUESTS ~ ~ES s PAGENO="0800" THESE COMMODITIES UCE. ~ U S F ULTIMATE DESTINATION ,~ OTVERSI000NTA CONSIGNED C1 )-~~ P~ `- ~ TOORDEROF. ~~-.-1~~.cr1O i~j ~ I~1) - * . INVOICE 796 ARotac International, Inc. SOLD t~JU~ jk~ç1~4k fflEcc~-.~*k Coc~. TO * boo &3~ S1~-~~*~ ~ t~J.L?.)Y~O? NOTIFY - `~ You~ORof~NuUuR -- - -. - - -. ;;~ - - - - - -- N~i ~ - -. - I$LANDCAMI~ - - ~tLss * MAR~AHO NUMSERS - .- * ~tUT~tt~. .OESC~tP1IOw *Pcfc~, ~ -~`~- ~`~` ~ ~:"-P)-~~ -. - - - - - - - -- - - -. - -* -7I~ ~ ~ ~ . 3! -~ec~N4~:cRL ~)o~- t'j~1 -~ ~ - - -* : - ~ ~ ~ ~ - C~O~ ~ ~Jo~ - - r~-~' ~ ~ ~ ;.)`~ ~ ~ ~ Gc~Je Z~rdo~ rn~4~c:cJ-~ -. Uaf,.~~J$U1. ~$~) ~ ~( *- - ~ `~°~ * * ~CO4~ ISOSSWE)Ot(T *TWEIGNT ,~ -..7~oO 3 kIlOS / ~ ~ A$ccAac IUMmaEoti~. tic- fCictIfMd Cic~icfl ~ - / - / KI~DS -- - - -~- -~ f `1' - p1, ~ I ~Ji-Oqu i~j PAGENO="0801" 797 ~ ~ - ~ Com~o~ ~ Cccu-~~7~ ~ s2~_ ~ - ~ ~ ~ - - - C.1L~ ~ ~ N~A~Q~-~ 73 ~1'i'/ Co~ MLh&~L~ - - - ~ ~JC' i1L~- ~ ~-~-Q ~;~-~_` ~ ~ ~ ~7~4- ~ 1T ~a-~j ~;~:`~ C. - ,.-~ (_ -s;- 2 LO~'~.~' ,- ~&- ~1\.) I _~`CLC - t'jJ~r~;~ -1 -~J~- ~q ~ `-;/7~D'~' 51-840 0 - 92 - 26 OOO4~ 1 PAGENO="0802" 798 ~ ~ ~PS-60~(247i) - ORDER OF SHIPPER Fi-1C-2158 PATRON SEEVICES, ONO. 190.21Z02 ~ - - - - CON~AOIE3 INC. - VIA M/DERNO 10 6900 LUGARO EEL SWITZERLAND `GOODS IN TANSIT" ~ -~ SENATOR LINIE RES?0NSIBILITy~ k~E~ TERMINATES AT ANT.ERP' EUROPEAN SENATOR EALTI}IORE- ANWE9P~ -~ ~ PORT EAST-S. CLI~ZoN ST. ~QUPP TO EP~E I 10 0OTAI000 000 - - AMATEX 87-3-232 MOE 1 OP/504 - - C0NTAINE~ NOS: CCCU-2c19170--9 CTIU-236410-4 CLOU-216406-7 *0. 0~ 0000 GO&CPPTIOH OF PACKA~5 L.FD G.OO~ ooo~ w~-~- ONtOANDOc-T22~CR7 - 7 20 HOUSE TO E0USE-~ONTAIMERS S~T.C:"~~'95,352I 504 x 53-GALLON POLrLTh'ED STEEL DRUXE TEXTILE ADDITIVES (NON-HAZARDOUS 134,424 SZGS) AL NOS- MATERIALS, - NOT RESTRICTED, NO tABELS 2581 (#1/72 REQUIRED) 2582 (#73/1 4) 2585 (#145/ 16) uj~op~ 5,544 C (156.990 - XTRU-837445-2 SSIU-360476-0- !TRU-85-6835-5 - CLOU-221220-.5 2584 (#217/ 88)- 2385 (#289/ 60) THESE COBO~0DITIES LICENSED FOR ULT: 2586 (#361/ 32) DESTINATION SWITZERLAND. DIVERSION 587 (#433/ 04) TO U.S. LAW PROHIEITED, - !!~T ~ .4TH DNTRARY - . ~ - F~ 11 t~ 5-. ~-1 - -i - OCT22 1981- ~ LINIE 1538 0O'JTMS00(!TE.&tf.iw GMSH&COKG B~E~N - - / / O1-~4Q KU KRAFD ?~RCANTILE CORP. 1000 ESSEX STREET BROOKLYN, N.Y. 11208 PAGENO="0803" 5.0/COO AWONUMEEM Al//AlEX 81-3-232 NOS l UP/504 (ONTAINER NOS: SE /CCU-269170-9 02 TIU-236410-4 02 / .00-216406-7 02 5110-837645-2 02 5510-360476-0 02 6100-856835-5 02 IAflJ-221220-5 02 FREIGHT PREPAID ON BOARD 20' HOUSE TO HOUSE CONTAINERS'.S.T.C: 504 55-GALLON POLYLINED STEEL DRUMS TEXTILE ADDITIVES (NON-HAZARDOUS MATERIALS, NOT RESTRICTED, HO LABELS REQUIRED) ) SHIPPER'S LOAD, STOW, AI~()~ THESE COMMODITIES LICENSED FOR U 7) ` DESTINATION SWITZERLAND. DIVERSI 4) TO U.S. LAW PROHIBITED. /1/ K//AFT MERCANTILE CORP. I I//I) ESSEX STREET ///////Kl,YN, N.Y. 11208 5/ I/RI/ER I/IA//K ENDORSED) .PS-6872 (2671) 111208 MC-2I88 PATRON SERVICES, iNC. * 31 5. CALVNRT STREET BALTIMORE, MD. *, 21202 USA aPOllO ISTATEIOF050II100ETZNUN*eEI MD. ~~UPo,1 l//EIAONJOHOPIZEO OFFIcIO OF EM~OOTh izi~:0...~~0 Dna, S//CO /P000VIIN010M00770E AMPANIES 1NC. V / A MAI)FRNO 10 .0)0 LUGARO BEL . SWITZERLAND / C*IOAGF IV , iI.PUCEOFOFCMOIVPIECAOIOO , , . , . .~ , , ` o~k~r"1~':' 5.~EATIOFWO5TA0ll~Wa.~ , 1EuIOl1~ATnlU" $~E~D VT000INGCAINEI ` ISROPEAN SENATOR ~IO)GO7FOII 0FONN0100//o..,.'.*J A//TWERP , . J.p01070t000sR,Exr010 BALTIMORE /?.,`LACIOFOEUVEIYBOONCAIIOIO , 0. LOAOINOPIE0/10RMONAL ` PORT'EAST-S. CIiINTON 5T. .* . .1. TYPE OF MO//I' II..CONTAEIEIZED(V..,.IldFI HOUSE `TO hOUSE ` ~Jv.. Os, (~~II ,. ~ n~ ~ Dad -~ UIO' IladdO) S dos.. AND N//MOORS //~) DESCROP010NOF COMMOIOT0SA5CG.d/A,fldD~I 75 . °~NU~ 70) NEASUIEMENT 70 . 75 ll..sna,5.Nool) NOS: 1. (#1/72) 2 (173/14 3 (#145/2 4 (121712 5 (1289/3 6 (#361/4 N~ (#433/5 296,3521 34.424 KçS)(l TIMATE ICUNTRART - .544 CFT. 6.?92 P13) 31.5890 C-OAth's 158.004 LIK4SOUIEINO. 277,2001 ~ ThNI,0000,00b.FUFIO.IOpdAO,d. No'ov4..,v),.nsnb,obtdnn.df'snth.5.,.a.oIth.C.o.,,. I .5 Ss.I0I;IIUSC SS.100EOOA000SC A~ 7405. * ` GE ICES, INC. . 10/20/87 ~ ~ PAGENO="0804" TIESE COMMCCrr;ES LICE. s~ LI S FOR ULTIMATE DESTINATION DWE~SIONCONTR~ARYT USL~AW PROH CONSIGNED C~.-~jes Inc. TO ORDER OF. Via e~ 10 :G9O0t~oaro~l - ~itzerlar~d - INVOICE C~CEkO 2671 800 - International, Inc. NOTIFY * Sa.e S~D Nu Kraft Nercsntilé Corp. 101)0 Essex Street Brccklyn, NY 11208 - /~vOuRoooRNuMBER ~ 125 A & B Net 30 teys S 0 ESCC~O - - I 7 x 20' H,"16 Cootsirlers etc ead~ - - P~natex 87-3-232 72 x 33 -gaulcn ~lylined steel dr'~±ia, ea~ ~ntemninc, Nes_ Up! 588 Lka.Gross. - 266.71 Kgs.- - - - - 38-the. Tare 17-.24 Kgs. - - - 550 L~. Net 249.47 Kgs. Kraefax - 277200 the; Net - - SSG.57/In. 153108004. - - 125735.15 Kgs. Net - - - - - ~tS ~ 8~L0O.U5S 158004. Thiodigy1~1 - Textile ~itive - TecI~i~I Grade ~r~ax! - - - 017'-. C&F USO ~ZE-~7~J5 !~I?L5 os~r ~ici~ - t.a~s REOJIR~ - -- - Country of Origin: United -States of certca - O0O48C~ GB055wEIrso NET WE}GMT Alooiie IStv,,atiee4. Ie/çC,-,if I.e Cc~sset) 96352 LBS 277200 LBS. tc -1/ A SILOS 128'38 18 SILOS ~ ~ L) !=_62~s,.~ e - PAGENO="0805" 801 I~ugaflO, October 29, ~87 To the att~rttiOfl of- Mr. N~.ck ~e±i~ RE: ~.7 Cont~nerS shipped ret Mv. E':r~pear S~at~r ~:~m Baltimore tO Antwerp. - - This-is Ind.istrial .rcjet ~ - - - Cornparu.eS r~corporated S~i `~r~ ~ f-w~.:~g- agnt-'. We love heefl-~nfOrm~d by r~r -~r~ ~rAr~t~ierr t~st ~ootcr - ~ ~p a n ~ a ~ ra r~ T- cs~ `lease thcrefore~.COfltaC-t i..~ ~`: Lfl ~ait:1.c:~~ ~ ±nstrLiOt t~em to ir.fo~ -`~-~ ----` -~ ~-: ~ :- `~o~r Lr~tet~ent1on ~s ~ , `.:-.r :r.. ra:utr' teLeX. - - - T~nkS ar'.d-best regard~. - -~ustrial Pr ect~For'w~Y-~ U. PAGENO="0806" ~` i~r~ ~ f.~7 ~/ ~ ~ ;/~ 802 ø00497- 4~ t1~ 7 ,~J_i_ A~s~ ANGIE SMITh PAGENO="0807" 803 - I c -. / ~ / ~ ~ ;;~ I - 14~L~ / ~ - - - - -~ 000498 - - - *- ANG1f~ SMITH -: A~TW - -~----~ ~T~J~1 iFW~q -- - - - ~ (cftT~S ~ PAGENO="0808" 804 I I h)~ 7 /*~`~" - - - ANGIE SMITH PAGENO="0809" 805 5ft' PP/MG 9OcuMcb TO ZFc'IPM3 5744/17~ -. ~a tQ2-~' j /31 4V!c~ 4~~$\J~1c$LuOENGEWMRMtBJcT *7iui-snN43 ~m'ii c1iPcn~ ~A61b1 41SCAc PAGENO="0810" 806 OGGErTO OESCE!Z1ONE ~ :~li: ~ VALU1A~ M~RT~ ~ - ut~ Mfr&~ PAGENO="0811" 807 - - * - - - -: - -. = ~:-~-~:; ~ - - - - ~ - -;~~ :* ~~-: 73*~~ ~ - :-~-~- PAGENO="0812" 808 EXH1BiTj~ The second shipment to Iraq was shipped on the vessel Decart Atlantic on January 12, 1988. Although thebilLef lading listed the port of discharge as Antwerp, documents obtained in Rotterdam, The Netherlands, indicated that the shipment was discharged there and never actually reached Aritwerp. Alcolac's preparation of the shipping documents without reference to Monrovia, Liberia, its use of an improper diversion clause, its designation of Western Europe ac the destination, its agreement to indicate on the bill of lading that the. shipment of was in transit, and its assistance in purchacing the shipping containers rather than using the shipping line containers all assisted NuKraft in transshipping the thiodi~1yco~ to Iraq. Tele:c dated March 24, 1988, indicates that truck shipment - from Jordan to Iraq was diverted by Iraql government to Samarra from Baghdad (Note: main Iraqi chemical warfare complex located near Samziara). - Also included in this package are the shipping documents for the February 4, 1988 and February 21, l9S~ shipmc~it~ divertedto Iraq. PAGENO="0813" 809 laT $H1PPQ~G ~SRUCT3Q~ ~ ~ srei ~ et~ Ln~I~ - . -- - P.O.00X20307 `0 George Lileron - - - - 1703 CAST .IOPPA ROAD * DALT4MORE. MAR YLANO 212 - - - - - PWONC (2OI~ COZ-44~ * TCLIX: 4CR14$ ANCHOR $A~ c* - - . .. - - PAX: 30*1 002-2103 I1P00T90D0~2~~ __~J1i 1/8/88... 10 - i~ ~ ~.atioead go~a Itnee been .bipp!d-to jc~-~ - * vie Ringzr to ~rt Lir~g,'Thir nd OTt tobe banjiod wpe? en? IOUTOZIOII$ iedicat*d be1o~: ~* ~ _______ -~- - ~a,to ~d Kenton ~nateX WC 87-3-2790 ~b. 1 t.~*/504 -;- CIA - 7. -~- ~ -. Ctoeen ~ 20' S/B ~~ta.ir~s etc -~ 2963520 72 ~ 55 ~iil~ po1yI~thvd crt ~t1 . ~tme tenctile ~itivo - * 2772000 ~ 1~Uen1~tt$ 5544~t . Bcx~tingNo. B~-O1 3030 - . . - - * .. Kj*tp..ZDt3e493329° - . . OfA~0'RA elO - ID : P1en.,*0'~$eni 0~ O*W 0~ i'eni. ~ 0 ~`S ~ 0* - h~*~RR* - ~ I*',~NItg~ . PUASI aE~0oWAaD TO DLSTINATIQN .~ ..~ WITI4 1~~- ~ D4SItIUCTIOOIS. e,ioWo. . - - - .- - -- - - 1. -lou. billofladingin the ~ ~i.Z*1 ~ . ~_.. ._. 2.. Coosignto thecfdOf vi .$~`. ~Z~14lId-..-~~---------. 3~ D,utinodao: ~St~rp. -. *. .~. Pan vi dochorce: ...&ITb2rp 4 Perty so be ~ ***~~ ---..-.... -...- -~ - S. Addreee - - ....-. - __~._ -._-......--. ..~. 4. Valise fee elisppere cnpor~ J.clarttion laO ~ _-~-_ 7. Vaue f~I cOn'uiir invOiCt is TA S. -$ ....:.. ... .. - - CIT. 5. * - * . ~ Jason foeS . - plus chge.plOi ~ againat fo8on-ing rinks: .._._ _. ....._~..- 9 Cbargeiail f,ctghttoU. S. soapce~t - - . ticoosignee D to to candor) D ). C1,erge cartage or lighteTage sa-steaoer - en cposageee D -. to to (ane~or) ~. - 1. Chargeocean(reiglll - toconeignee D .. .- t~c~(needt) 9 2. Charge insistence pe0IDin~ - . to cooeignoe 0 - to c~ (condor) 0 3. Charge consu'ar ~ -. ~ ~ D . . ~ ~ 4. C~'s~~ f raiding cetvice feea . . . ~. to consignee -D ~.. . to (tender) D.. S. Cflectcnrinvc'cefcT~ ... 16. t~&J 3 cngin~1bil1s e4 lading to .*~..oU- ~ to-3~1ce1r~~---- -. - -~ .-. 17. hiad - topics of bdls ci lading to ..~.. . - ~.------ -~ - 50. Special instructions: ~ ~tdi~~-ZTi71 ~ii~ã ~Eö~ i~ofC..d~Od, ~ ~ ~ ..~- th~ -tip frd~ijv~~to Un ~iestndirito1y -. - 1151674 CO74SULATJ DCCLA11ATIOW 111 ~ - - qoo ~ * * . -~. ~. . . ~ ~, ~ ~oto9G~~-j - - ~. -. - -- - -. . --- - - - Ta~0 r0~° ~Iisad ~ ~ 1E- A~L t1U91*tU UnMOTAcCO ZUBJSCT TO ~3 OteiDlIlteis AZ ~ ~ 5T let B*~TIisOflt CuSlOosOJlC 000cUSO POO~ 34(5 Tnirf~o1d _____________ CaflDIflS *000ATICO. COST avail.MU U?Of3 CCCSIC$1 -n- ~ -- - - * - - PAGENO="0814" 810 DA..~RT CONTAINERLNE - BILLOF LADING -~ ~D~JST~LAL P OC~1!J~3~T CO~?. - - ~O 6U8~ ~ I -I I - C~~I!S, W'C. ~T~!A2IO~L ra~ v~ ~M~C 17~3 ~. :0r2A E~. ~ 2ii24 1~X ~O. 41 91 511707 6900 L5C~3~ ~L, $VIT~~.1~ - - 1Th.ILS,A. - - - - ~E-CM~&G1 S~ *.~21- - - 1 ~ ~ `~ - - - - 007 U~ 0~ - £~?V.I-LP 1 ~OO~LtUR~ t~OMC.&~t!*~7~ ~ CF ~CT~ - - - - - FARItCULARS FURP4I5H~ rr SP~IPFER ~~i; !JC - 07-32790 7 ~z4' ~tn ca~ z.~.c. ~ ~, i~ -~0. 1/504 fl~CL~ - ~ 72 P0L7LW~ SI~1~ ! 35 G6L. ~.- 42,336 L~ ~ - 512 ~ - COP~ - I - - - - - 1~,203 - ~ ~ ~~1'S ~ - - MflM ~~~(`o IABL~-~~ - - - - I'4U I V L ~ - - - ~0T~ - ~ L~B ~ "?~gg ~ ~ ~2YiD 8~X2~ ~U?~~TZ W~8T~1 1~ DU~~ ~ ~ ~T D~T7~Afl0~ ~ ~0Vt~ 3I~, * L12!L, ØJ ~ VI~1fl, C4!~ ~2& ~S o~ji~ A~r~o~x~ gy ~ ~UJfl~!'* I PAGENO="0815" I I ~ - D~9VS?flUL P1~O~T 9~~* ~1303O 1000 £~U~ ~TP2~ - - 1!100~.TI!, IL!. 111C3 - PT~1'f~flZ~?. CO. 2752 - - - ~t7~_%3t't 1~L?V. to. e3113/&J ~ ~ I I ~ P~A2 ~. 61 91 607707 1703 ~, 3OPP~ ~ ~fl~0O.U, to. 2U34___ 6990 1.0 DIILL, CITZ1COJ~I~ - - V ~ AD~A-P~Tr! ~JlD - : ~ *~ - - - : - - - - - -- - t~L~lAl - ~ ~ rl~ 0O7D~ wz5o3Dri.~ ~4IR~9OD, to - ~ ~ -~m~JD ~ ~~fr ~A~T ~ 1:-i ~ -1-- ~` ~! P.. r~ 3486C~2 2) 9O~'fl 2057490 (2) C~TZ'a. CO 22 19~) ~C4L CO. O25L~O - - CO. 02290 C9~LC0~ 022C~ - ro'fl. 1172 - VT2O~O. 73/14~ - t0'13. 142/21Ci : C4) 007? a. to s409029 ~) o~ a. to 3311020 ((i) C9~2'-fl~ to C~C0.(~VO2S~ - CflJILCO. (~299. V CP.9!.to. 02990 V £993. 21T/ZFJV0~ - to~f3, 29/290 - -t:D~O, 291/429 - *V~~ - -. - - I V ?) r~V~IL ~).!ES~2O) CVAV £9. C29~VV - O0LO7~ V - - 1 tD'C. 422/29~ - jQf)~)! `T~ - ~ C*DDDA S LAeSr.~-~DPl AD YAL~ ~fl~A lb C~ dAD ~A dl t~dl ~ V - j~VV -~ A ~ ~ AD ~5l A ADS A V V V - ~ A ,~...,lASAb$~Ay S. ~ddAD A~i _~ dl AD~ADAl 57 Cdl.? ~dl ddlADl A CSADJ ~ 811 I ~. J~ART co~~-~ - - -~ - ~ BILL OF LADING (SD M.qADAD. Us~. ~AAD5?AD *) t~Li~-~b - p T~___. t7 t S s~-~ 5~V 0 AD~AD. e~7rel. ~ ci ~ c~J ~1 C~7 7~ D~tD CidlitS 6 ____ 7?AD - - _*~~_~ ~ Ci ~ CADV D.? V 7 tdl~ Ci=cAD~ dl dl~ 1JT1~~J~pi PAGENO="0816" 812 1/13/88 George, Per our telecon this date and confi~tiorr fran Leslie - - 2J~-c~ange bill of lading ~o - .s~hc~ - - Consignee Car~nies, Inc. ~tify Party Leave Blank Marks to. read Arr~tex L/C87-.3-2790 ~. 1/504-md. Please use long diversion clause 4 ,tj_~ `V ~ ~ A/ ~A ~ ANGIE SMITh Baitim&e, Hamsburg, P~ttsburçjh, Troy, OH MD PA PA (301) 6757550 (717) 774.41M (300) 1301241 - (513) 338'llSS AtJsrna, GA Charlston, SC Jacksortvull, FL. Savannals, GA (404) 8224350 (803) 5544114 :(904) 3545112 (112) 184.1415 PAGENO="0817" 813 THESE CO~tODITIES - LICENSED BY THE. UNITED STATES-?OR ULTIMATE DESTTNATION WESTERN EUROPE FOR DISTRIBUTION ~)R RESALE IN ANY DESTINATION ENCEPT SOVIET BLOC, LAOS, LIBYA; N. KOREA, VIETNAM, CAMBODIA, OR CUBA UNLESS OTHERWISE AUTHORIZED BY THE UNITED STATES". 1' ~j0ic'1i~t?5 t~L~j~5 -r?t~i~ 1'~ ~ 1u6r cV~~ U~tp - ¶~. ,wcc~?D Baltu~ore. MD Harri6burgL PA - Pthsburgh, PA Troy, OH (301) S75.7550 (717) 774.4100 (80~) 030.1240 (513) 330~100O AtI~nta, GA Ch&1e~ton. SC J~ck~onviIIo, FL S~nn~h, GA (404) 0224350 (00!) 5544914 (004) 3544192 (012) 9141415 - L%icenteflflia! 2?ansport ~ PAGENO="0818" Ico~ LIIDU~t1UAL PftOCU ID1E~T coat'. * `104Xk ESSW( STTLEiIZT moc~xL~m, u.~. ii~oo *~ ~O. 275 MQIWR'9 oth~ NO. 6113/88 1703 0. J0?PA ROAD 8ALTfl1Ot'i~~ M*R1iAND 2) 234 FXPtRUIft DULY AU1HO~ZDD ~INATBX ~.IC 07-3-232 110. 1/504 It~ co~rrtt's. t.c. ,stuot'uü'o 110*0, 3&CLI 72 X 55 OAt. ~`OLTL1N20 SJ~1ZttL b~I~3( ~ 1~011-4L&ZAtLflG11~J ,,HATEILT.ALS * 1101 STIUCTIID `- 114) lAnE~.S RJ~UX1thD S LIC1t111~n 01 T~11C U.~L. 3~* WJZI8*Tt'~ DIISTI 21 TO (/.S. `IA11t'ROH10ITh~," - S~Md.b ~ )9,a~~ LU. 0. Do...-~ 4ovPAYrvrmAT$c'~c.i ~ 1k~USThXAL pnocwtr~sr cots. * * * "L~fA A& 80. 3 * ~aa ti~wonr,o 10 ** * LMflWTADUN~~ 6900 L113A0110 DIlL!., 9UI7Z03LAI~2) * T~U- f~,dLTZ&jt$414D * f~f9i'rwrrxc v ooi ~~W!i~ tt&aamt ~nn * *_____________ * 041sb.e.d DN..,.i.(.d ~ JI.U~CD&~Ov~ YI..CTAZID(Y....J11&~~ ~ ~ .~.,i ~ y., by 11$ * Do. N. *~-$M~nr~*tYe~:t3 * ~ * * MYASUDIMINT (~fl I!~I - ~ "y~1m~ ~3 III $21 18 7 CO3~ODIT] `11011 COOT * * * DIVI :owcr 792 ci~ 22.421 Ci ST01JACLC, A11~) 42,336 Ln~ 19,203 aoti 1A~V21l R1flT~8 ~ULUL!DULD.D2~ DU.,UUYJW.Ic(N?D $YLY~OL ~$. (CCN (bSY~..~ ~. L4L31. ~.q~.hd) 2. OuA~TiW 3auAlmTV o~..p.1t11..I13U,1C$,,, 20$. 220$ c.$..T4pI 001 C S.o I00I.~~d$OU$C~A~24I($ PAGENO="0819" 815 CONSIGNED - TO ORDER-OF. - * ~Lcx.Lc:ic~ -* Intemationa~ Inc. - )~ ~A?I~LD ~*O - CA~1~O~ MA~YL~ U.&A. sot.o Ir~ustria.l ProcuraT~it O~rp. TO 1~00 Ess~c.Str~t Hr~dy~,NY 11208 - THESE COMMOOmES Li SED BY U.S. FOR ULTiMATE DEST1NAT1 DIVERSiON CONTRA TO U.S. LAW PR.OHI - ~ D(A~ O~ ALCØ~AC INC. - ~zz. - v~.= -* 6= -. NO11FY --- -- INVOICE.. NUNCER -. r*YNENT1~ - CVOICC ~o. DATE 125 A -- * ~.sh~athst ~o.~nts - - - = 2752 - . 1/7/88 INL&DCARR?W * PORTOV DE~NATOC~ . VECCELEE - - - Ant~VErp,-Be1gi~ - - - - ~Dart At1~ntic VO0-7 -1/10/88 MA~(SANO NUNCERD -. * * . * - DCZC~PT)ON. . . - ~CEItD. * - ** . ~natex. - * - 14/C 87.-~-2790 * - . . * - - . . 7 x 20' H/H ~tairVErs ctc e~di ~ - - - - - - 72 x 55 ~U~.~]y1ii~ c~1 druirn, eath c 588 tho.Q~s 266.71 igo. - = - - 38 t~. Thro 17.24 Rgo. * 55OT.~.Nzt - 249.4lItqo. - . Thxtito AddittvD - 277200 ~ - --.- - -12Sj35.15!~qo. tDt -~ ~ ~ILB ~r ~ - ~ : t~itcd Stat~ of ~ri~ ~ &Au~ #0049 i.~ ~i1UL#~jj~ .~ R~ oF /N1~~Ct7~ ~J1' t$crn~1 ~ ~ cbeI~e~ Wfi~1~6 j0 ~ ~MO~O~S * . . tAthir~: - - - E$0.57/zb. S$15à,004 -- Prejght - 9,800 ~tain~r thg. 5,950 3I~L C B P G ~si~s~ ~ ~ ~ so ~_-°j--~ AI~d~ t~Tc~S~ b~ (CcVED3d C~ 296352 L~ 277200 L~ - .._.fl4422. 3 `°~°~ 1257331~ IOL~ ~ PAGENO="0820" 816 MEMORANDUM * To: - Distribution ~ ~ ~g, 1987 * Froñi: - Lee TertTune - Subje~: Nu-Kraft Mercantile Corporatlon/ United Steel & Strip Corporation Visitors: Nicholas J. Defino, V.P. United Steel and principal of Hu.Kraft Charles Tanata, Japan/Xorea office of United Steel & Nu-Kraft Fran.z Van kwaat, Cmrçanies-I~c., Lugano, Switzerland - - - - (Complete addresses on attached sheet) Nu~Kraftis affiliated cqrnpanyofUnlted Steel forned 10 years ago ~o import - non-steel products. United Steel is 50% owned by-Tokyo Bokiwl, in business - for 35 years. Hu-Kraft is owned-by Harold Greenberg, President of Unlted St-eel. Tokyo- Bokiwl is not Involved in-Nu-Kraft. - - * Mr. Van Nnraat Is Europasn agent/custo~r for Mu-Kraft. He in t~rrn seTis the Kromfax to- European distributors, e.g. Italy ~nd Geraa~ny iAo than dilute -and/or repackage for sale to actual users - all fortextilé application.- Van ~a5t~~ -primary business-is ~onstruction he eentioned food processing plants; Also - international, trading, ~hipping, and fowa-rdthg Operations. - - - Considerable discussion on ~lght supply and escalating-prices of raw naterials, - -10 ant H2S. However, both Franz and -flick ~re ~hatlc that lowerprice of - - Kronfax was necessary to maintain and -increase their sales position.- Final offer las for their total require~nts at $056 per pound.. He gave Nick t~ - * copies of the attached contract. - - -- Apparently Morton Thiokol has made only one shlpeent to th~ and did not perfo,~ well with--rngardto scheduling and-paperwerk. Nick was veryc~lieentary regarding the help and cooperation he has received fr~ Leslie. - - Note to Bob Singer and Eddy Mahieu: He really need eere earket information on the use of Krozfax in both U.5.A. and Europe. Edt~': Pleaseaak~ contact with Van ~r~at. ant usc C-olieez in Germany and -Ui~i: in Italy.-. Datt is our oldo~t rr~fax custo~r in Europe; could we offer him s~e Incentive for information? _____ -. - - *t~Terhune' - * - - *.~1- "lW LTzea - -- - * - - * * - - * - - .- -" * P1st: 0. Gleeson,~~~~'P. 3ones, E-. Hehieu, R. Mlelsen, 0. PhIllips, * R. Singer -_ - - *w~i 154 PAGENO="0821" 817 ~:Qo~oTc T©~II~ CO~~C0 ~ W. Pat~p~c~ Avénu~.. - - - Baltimoro, M~4~n~ 21225 [3355~47jJ~ OUT OF MD &)O~ 47~126 27~_~7c~ - . - *~Lk. 2~-3~~ ~ ~ * PAGENO="0822" 818 1OISST. TRUCKING CO~, 616 W.Pataps~Av~i~ Baltimore, Maryland 21225 OUTOFMD 8~547-O126 PAGENO="0823" - -TO: i~:~i~ ~ i~i~: ~3O1.~'O~9-49OO r~x NL: - - 3C13~9-4929 ~ K~E~ OF P~LS (I~C.ZZIN~ ~J1~ ~ - iF ~c: N~T- ET~'EAL `1~-i P~, PLE~S? t~?J~ Q? - -- - - = - - - - - ~ (~&4~ C&~~? co~A4) ~` -~ .-~ ~gi1 - ~ } Ip - S\L ~2~°~'~- ~ - °1~ ~. - - ~ ~`& `O~ $~c~- ~ ~9vocw~'~' v~"~ ~ `~ P: ~ 819 ~~SSION ~ ~A~I~t - -: - :Sk ~ - PAGENO="0824" 820 A[COLQc, lAX ~ - ~.Z: 1/13/88 - - - - TO: FrariS-Van Anr~t ~ L~lie Eix*1.e!~t ~: ~ - - C:: 1~ick~Pir~ ~-.. ~ OF P~L~ (L~.~i~G W~ ~ 1 - `~ ) N~ R ~1. ~I pG~ P~V~ "`~L~ ~ ~ ~` ~Z-Z (~. ~.): ~t11~it1S~ ~der - Per ~,r te1~% this &ta plas ~ ~tk is: -- Ph~1~Iis I~ti~ii1;~ -. - - -. - - P1~e r~t b~ ~ . .- -- - -- - ~vift4~ R~ 33 P~. - T~1~ - rrr 4990118 * ~ ~~it to A1~.1.i~ Intermti~a1 Ii~. - Ac~zit IC. 0147 3360 - - - - - - ~ toc~ies Ir~ -- - - - - -: ~ ca~ to ~ -- -- -- - - - - -: .. 2 ~ ~ - ~~3O1/8!9-49O0 - : PAGENO="0825" 821 /OATCH - - - /NTF /WUW B'.83797:L0 25 JAN.1959 ATN MR.H.HAUNERT/DOC. CREDIT DEFT. F:E COMFANIES INC. -MR. FSANS VAN ANRAAT - OUR INVOICE NUMOER 27!2 IN THE AMOUNT OF USDL1737!~.00 - DILL OF LADING NUMOER DA:)13:'3( - PLEASE CONFIRM DY RETURN TELEX THAT WIRE TRANSFER WAS MADE TO OUR - ACCDUI4TAT THE PHILAD~LFHIA NATIONAL DANi -- ACCOUNT NUMOER 0147- -- 3360 - ~wIFTOR TELEX PNO-PUS 33PHL - ITT 4990118-- WE WEF:E ADVI-SED THAT ~TRANSFER WAS MADE ON 2~TH JANUARY, OUT WE STILL 1IAVE NOT YET RECEIVED- CREDIT IN ~OU~ ACCOUNT. PLEASE SEND YOUR - - CONFIRMATION OR" R-EIEF:ENCE NUMOER FOR THIS.- TRANSFER IMMEDIATELY. IF HARD COFY ISAVAILAOLE, PLEASE FAX-TO US AT (301~ ~!9-4929. WE APPRECIATE -YOUR ASSISTANCE IN THIS URGENT MATTER. - - - THANP YOU AND YIND AEGARDS - - - - - - LESLIE HINI..LEMAI4 - - ALCOLAC LNTERP~ATIONAL~ INC. - TELEX 8762Z FAX- (301)S~9-4929 - - - --- MMMM - : -. - - -. : - ~ArCw MESSACE NUMEER 766~420C - - - - - - ACCEPTED -1 MRSSA~E - - - - - - -- - ph change-Sw~tzer1and into Nestern EurdpsT, in the phrase of - - "these coaaodities h-sensed ", like on the jpv'~ce. * ~.B, pie aake sure that under DATLLASCK ON B07~RD ~he~ tI~e -. siqnature.on the original IlL of Ceapoc Services Inc., as - - -~ - Agents. - - - - - - - This is all for the coalents. - - Now pie send the original plus three ~on-n.gotieble copies by DNL courier directly to: / - lanque Continental. du Luxestbourq, A~ ~ -- - - - - Rue S.Servais 2 -. S - * - -- -- - -- ?.O.$QX 1405- - - - *- - - - -~ -- .- - - - - L/1014 WXE1~OYRG - - - -. - - - - - Grand Duchy - -. - - - -. - : - - - - - Attn:Mr.~H.KaUflSrt/DOC Credit Dept. - -Nb.náed to send the invOic~ to SuropC,:that chould go to IPC i1~ Irookly~. Por this.shipeent, paysent will be code directly tO your * account upon receipt of the relevant docucents. for good order pie * - fs~ u; the naate of your lank ante account nr. or include your draft Many thanks and very )4aPPi `~ / ~i ~ Trans * ,S*l `~/ ~A,SC~f~ ~ 000640 ;jji ~ *i~* 1q#7 - ~/J .: ~ PAGENO="0826" 822 tes- 15:52 FAX - 2°" * w ~`?* 1~* -t Ji, ::~tL PAGENO="0827" PiL 98/88 - Messers - Industrial Project Forwarding Ltd0 Shipping and Forwarding Agents Lugano Office, Via Delle Aie- 1/A SWIT2~RLAND Subfect:I~AQI MLNIFEST NOS: 322731, 322732, 322733 dated-22.3.88 - 024992 - dated-18.4.88 - 7 containersBx-M.V."Red Sea enterprise - - Arrived Acaba on 7.3.1988~ B/L 3O215-1~ DearSirs, - - - - Enclosed, please find 4 copies of Iraci manifest duly si~ed by receivers" S.E.O.R.G.I." in Sanra'a, the- * : manifestes advocate delivery 7 X ~2O f~ containeiu to the above - * mentione4 receivers. - : - - - - - - - * With regard to weight of eontainers as shown in - - - manifests and -you can note- the-exact weight of the cbntainers = which are at average each unit approximately- 22 ~tone. - - - - Also, please find our invoice No. Ph, 2018& dated 3.5.1988 which is self explanatory. - - - - Therefo~o, you are kindly reauested-to -transfor the -; sum ~f US Doijcrs "iO433,2O!!~ to our account: - - Philadelphia Corporation for shipping agencies. Bank of Jordan - Jabal Al Hussein Branch Account NO; 4001 Telex ~o. 21272 Banjor JO - Ainman~~Jorden -- _: - - - -. - -- -- Thanking ~you ~or tour co~~operatton. - : - a faithfully, - -. F- ~ General Manager 823 - ~ `t~L~, ~_~i - P$1ILflDELPtIIfl COQPO~TiOfl-FOQ 5~1IPPflO lO~(E5 0.,7th Nay, 1988 end: - AB/an PAGENO="0828" 824 PHILADELPHIA CORPORATIQN - 6 ~a FOR. SHIPPING AGENCIES - - - ?.O.Joz 164003 : - T.là 23646 ~HILCOQ - - ~ ~Y%t~ ~~_K - : Td661237.661209 - )~c 3.5.1938 - - - N~ Ph. 20/88 M(sscn Indus~ria1 Project Forwarding Ltd.- Switzerland. - - On carriage oU7-X20 feet containers - Ex N.Y. "Red Sea Enterpriseu B/L * 3O215..111~ Liner-out Aqaba P.O.T. - Baghdad, 2~t weight per i~nit. - -- Rate as agreed ~er our telex -~ 1236 * - dated. 10.9.87 at 3D'~50 per-u~.it.~ ~ * containers, .- - Transit-Taxis per attached"receipt No. 317t76". - - - - Storige fines as per attached receipt Nos: 73993,8O~90.- - -. - - Diversion o~ trucks to Samra'n- as shown in nanifeats~ l5lMt I .TD 1.82 per ton. - %Ve hstc dzb*ced ~cur A/C-.ith tb. followiag - - - - -: - ~ - - - - - - -~ D.t*tla - - - - - - -- USD - CENT J~- D. Fil 3150 *000 ~ 29 600- 27L~ 820 99 36 - 36 -121 88 820 - ~US~DOLLA~ ~ ~C~SAflD ,FOVR -- - * - - EU~ AND ~TY ~ AND - - 20 CENT ~0IILY. : - - 20 1Qh~33 ~20 R.O.E. I USD J~ O.335~ PAGENO="0829" 825 432~ :n:: . - - - - o : s a ~- t ~ar~o e a a -~ .1 return:1; :ruc~ ::`es LeO ce~1Ve0r~ t'sse con'.a~as ars presentlj'g man:~es:es ~`.ao;e~ an: s:gnc: t-~ rcv:s an: t'.a-.:n; that the~ ~1-so~arge~ cgos ot sears a at: km n:rtn of ta::a an: no: t Ia;nta: as rer agreement. orO~n tr.anCOQ t aw cc~e -.:: ~:-ve the ør:ver tneoot:On of refus:ng seon a ~tve'.!0fl to h:s ::u:e :ut protects hts claIm for extra transoort costs. :ns reorm whO are a :a:t c a ~uo~:c sector coro. are no: aS~t .fl-L :csit:on to meet such cs:ms es:e:Ia::y ~n the oresent uar s:tua::cn; the - -~r:-~èr has t~e nj~ht to- due fm ~ e-cannot ca:m t c-or;:rate -or a:k :~ a :e- ver-~ .::nt:~d~. :r. `.e. :~st ~e H~ana;ec to arm::: :~ec.~ mx~:a- :01t5 t~e~ -are o~- -~ caoe~. a'. ~present al~ co~ta:herm ar9 Oe:r ::s ~ at. aar.:s *a an-i `.111 tè our cos1ts a~t~j0 t .8~. ~er ton. - - -- we -:n: no cc-tion 5ü'. to ~atme tn~s matter -with u as u ar~ ~ :0. - rea:h the ~lh5~ r:vrs more effe:tivaliy for the co'.Le:ticn ~t theme - extra costs. theactuai re:e:ct mani~steS mai1e-~ to u shd-.1 the c- ::crar;e. - . g@OIcF~rz~ S CM~ft1ICI~S Dfl/f;1~~9 r~ a~: :dour -- - - 23s'~6phi1ca-jo~ 8~32e9 ~ On - rsmmm - - .O'~ .88' 10:00 PAGENO="0830" -- -. - -- - - Tun~D& :c38 ~2:3~'. - a43.~ ir~-: cr - - iO'~~ june 8th 1983 scrg~ ik it,~ ~ 4 8811 i~ 33 826 .i~.staipre-t-r~a-rding Ltr~.c3e~ercia1 dept./51 te~~5~ ofthisj~ornir~g y~: .te1e~ ~nder5tari Liat a~SQ tbe r~'~ices a1ieady~aiu~. ~ia~e~hta ca~. f s~uc~ir~g age~i-es~ cf~: traspo:t-cf 7 + ~. ~rs-~- have- ~ ~e-~e~it to iraqi trar~s~crt c~pany. ~-1s - a;~vis~i~g rtamé of the~er~chthese:-invoicee have tc be se.~t tha~~ fo' a :very ~r~mpt reply. ~eoaz~s /-i.p.f iu~arto :58 il(._ - - - ~ ~ S -- PAGENO="0831" 827 ~~t23 19~ ~ I~-3721 sor~ ~ - ~b~2o9 in~ ch t~04 4/ ~ne ~3 irt~Ls a1 2 c~ect for d~aro~ng ~ ci' e~~-'a ~coiimè:ci~ai ~ - - - e t ~f~fi - 7 ctrs -rs~ sea eiiterpriso' + t~ ctns ~ed son er1v~# P01" ot~r teLex 0409 of ~ur.e ~th-~ls get ~n touco w~tn rness:~ - ~iadelprua ccrporetio~ for shipping ~g~r1cies for the pa\'mer,t c~ tne ~t~ady etfec ed forwarding s~ pe~tt s-f ~9 of the ~i c+ns arrivec in on ment~o~e.iz-~ves~e1s. we -ore not ~ wtth the pàyment~ ~1~nd tr.~r~o:t_of th~sectns so ~ou siould~et ~rtc~c~ with t~es ~ to tel-I -then w~o -t~ey. nave to ser.~ th~i~. invoices to-. wé~èoeat s nce they ~tLL1 bav~ in the r war~houso tn-c last ~ ctrs t~y not-be refor~Jarded- to-ys-u until thoy :ecei-v& th.e~onev. -- ~skeep inrn~rc the matter is very u~ent,-the more tise 2asses the ~Jghex~ stcraoe-cnarges for-the 1-act 2 dtns ~ou will have to face. D1S conf~irs-everythj..~ xcttlee 5sa - = ~ - ~ regards- - - - - - - - V ~.f - - - - - - : - -- md oh ~Q414 PAGENO="0832" 828 i3~ - r13 :~~1 26~9 L~721 ~`àO4O9f~ur.e ~:I ~ ~roa ihCL~str~a-1 ~ro;e:-tr~arcir~g to eor~- - - -: - st-tn; ~ - c'~:~ -- - - re. shL;~s ~r vms~ej~ `re~sea m~ter:r:m~ ar: re: sea e~:.- ar:L/e: a:a~a r~s;e:t~vei~ ~`.~3.33 and ~ a~: a~:ea:~ refcr~;:e: to s:te as ~er ~ar~oL.s tmexes ot ~ - - - ~i11 vcc~oj~ t in contact `~:th oh~jadei~ja ccr~. ~o: s~~;::r~ ~qenc~es - :o. box 1a4003 - amman (jo~an) - t1x23646 phslc: ~o ~:: th_e paymer.t of the ir.i4r~ transpcrtatj~ or 19 o~ the 21 conta~nerj ~rived on the t~o above me~tior.ed vessels. - - - - :ontainers o~t.of these 2~ are-st:ii ~areho~se.- s~rnent-a~t.r~ ~a~9mEr.t. * - - --- - `is confirs è~e:yth1r :c1~a- : est re~az'~ - tP.~f :uQanc: 3721~scrd ~ - ~3~69 in~ - ~6~&8714: ç4 PAGENO="0833" 829 I / 51-840 0 - 92 - 27 PAGENO="0834" 830 ~ ~s~ucrio~s ANCHOR INTERNATIONAL - P0 BOX 283-87 rn George i.i~eron l7O3EAST.J0P~AWA0 * BALTIMORE. MARYLAND - - - Pi4OPi~ 301) IIZ-1a45 *1CLtX £00143 A0C*Q~ AL Gentlemen EXPOST OlDER 81* .2846 FAX3 ~ ~ - flit below mentto~td good~tt*ve bent shipped to you ci, vta ~.nger to TFL Lir~s/~lT and are to be hanJled 51 pIT cur iflItruClions indicated below: ~. ,., --. - - , ,.~ ,~ Uarbs aid W**'beT Coatests Grma~gi Wctwgi- - Musurraiee,s ~~znatex L/C 87-3-2790 Ho. 1 Up/479 . 7 20' H/H Ca-~ta.thers stc 479 x 55 gall~ ~1ylined a drors textile a~.itive - Bcoking Ho. ~JO1905O0 SCflLDULI 1 0. 439.3290 281652* ci - 263450 5263cft . Piaiai.rai.n tmy 0 *it~ *` O?~1. *~y 10 ~`t *10ai'st.*l~C0 Ii~ ~ mei m.wcim. -.. ~ - PLEJ~SE RETOQWARD TO DESTINATION jN AC~O0DANCf-WITPl TNt ~OU.QWIN~ ITOIJCTIONS. BtemNo. -. - . - - - - I. heir bill cif lading in the ~tne of ~ 2.. Consign to the order of ..CaT~.n.teS.,~.Inc. .............. 3. Destination Ant~rp . Port of diseharge:.. .Aro~. 4. Party to benott8ed cccoparLes Inc. - Infortra .V.Ha~. fa Street 112030 Antwerp, S . Address Frans Van ~nraät ,. F~X Pb.. 4.1. 91 6B7.70.7.~.S900..Liga~ Bell, ~itzerland - 6. Value Inr.ihippers export dtéfaration j1 5 150167 . . . .... 7. \`aluefnr connalar invoice is F.A.S. . $ : - . . : C.LF. $ 8~. Insure for ~. . plots chgs. p1st 86 agsinst-folloajng rioks: ... . . 9. Charge rail freight to U. S. seaport . -Zo-eonuig~ee ~ to as (seeder) ~ 10. Charge cottage-or lighterage to steamer to- consigner 0 _ to vs (sender) ~ - 11. Charge ocean freight . - to consignee ~ to as (sender) C 12. Charge insurance premium - to consignee 0 - to us (tender) Q 13. Charge consular fees and formalities . to consignne 0 - to us (sender) C 14. Charge forwarding service feet . . to consignee ~ . to us (sender) 0 - 15. C~.1lect oar invoice for $ .. . ~. .p~us ite~ncu . . 16. Mail original bills of lading to ~ .~fl ~cxnents- to- ~ 17. Mail `op'esofbullsofladungto 18. Special instructions: . 9xic.. is...C&. .F. Teor~:. .Cast~..agair)sl..~co~nta,...BjL to .~. rade cue. TO..CP0~. - Blank endors~ ~ ~~la tfi~ ".Pocds r 6~i George Pls get the ortg~al B .ck frat SB line ~5 ~J~fl~y ASPCSSIBI2 Have rrmssenger p~ck-uo & del~r ~ ~ ~ RE~ D~ (~ofrad):. - -- L-,~er dtwzs.ion ,.1mr~.- - - - - .- - - DoctameataZac1~.d - - - l~aotns - Paiksg - Inland Import .Or*,r hut - aia7biU tiensit - doeeaests - - $KIPP~R1 NANE klcolac Irtter-.aoional, ALt. BUSIWEII UwOEITACEW SUBJECT 10 110*5 AND COoOITiOaS AS ItCOseIsDID Br Tot BaLTIs050 CuSTOwlOJtt 15OCt51 & FO5* 3440 Fairfield R~d SAIDEIS ASSOCIATION. TEXT *vait.*st.g up~ haunT. ADDRZ*S - . . ... - - Baltircre, ID. ~SA 21226 PAGENO="0835" COMB~4t&.~ TR~NS~~- PORT ~O.PORT Trans Freigtit Lines BILL OF LADING ______ ~S~~ii~ItE ALCOL*C INTER~&I!-J~!AL ~. L2~~'-'~ 340 f~L~ffELu ~TOAO -- BALI rH0RE, MARYLAN(~ ?122',/L',.~ ~°°~ ~ ~ F 2 ~JQlOQ - V -. 1HLPP~OI~ °EF 2844 ANCHTR'' REF o!83 88 TO ORDER: 22212~2 . . AN~H1R INTERNA1LONAL 17')2 o. JOPPA 5000 - `BALTIMORE, MARYLAND 212)4 fIT! LW C0ML01~ 01 0~5N MO./U.S.A. WID! WIlT !~oeKf INFORTA N.V. OCOO~~ HAIFA ST~EEI 11 2030 ANTWERP, I0~L~IUM - OWDY'C E0uTITG;UP0~ L~TWXfl~ 00,-I - L~....... . - -~ - -_ - l1WCA~*QEIY - - 0' ~C0F! D~ETWQ cAE1WN 3311. - CLARENCE 020E ~ET-O1 0*03W - øALTZ1.qGP~E ~- *110*30 *1tA30 30.10100 - - - - - - . 301101 ~ - - ROTTERDAM - . LACE 0* 01*1*130 - tNt~EPP- CAI30E 1WCIIPO PARTICUL&RS FURNISHED BY-SHIPPER - MARKS AND NUMBERS AMATEX - L/C8?_3~2.7 NO. 1/479 I~. -. - THESE COMMOD ,ESTERN EIJR~ - LAOS, LIBYk, AUTHORIZED-.!~ NO OF PIGS . - 7 * ~L ~ - - - - jILTS LI C ~IJ5 CI `IjJDT~ K- -TWA UNI DESCRIPTION OF PACKAGES AND GOODS 1:-iIFP,EU ON B_3R0 F0~IGWTTO ~E - 10' H/H LO~-T~.~ s.T.c-. ~HIPPERS L,~ 479 X 55 ;~i. JOLVL INED STEEL 0°-j' TTATILE AD~.)II t~lE - - I') TRANSIT S~tIP'ER'- OIJFI C3NT4ITIcR N -HA ROU'JL MATERIALS - NOT PAEST-RICTLO - NO LABELS REQ~Jt~E NSI') BY THE ~TE'I ST~TES FOR LJLTT40 T7IBUTION u5 QSALE IN ANY- OESTINErr EA, ,IcTNAM, ~,MPIjCHEA, CR CUBAI `flE ED S1~TES. - - - GROSS WEIGHT REPAID ~ -S 10* 4L1 2~I * 6~2 127,755~(. - - - E OESTIrsT N EXCPT SC SSOTHFRWI MEASURELI ~ CLIUNT 8~ S.149.2 - ON LET BL E - - E1CE~ OLLOAflOIL 31113 TOCkA051 20# 3101.01 1*03 - NUMBER ~~~ooo A 3103011 103101, ~dMN~. ~o1W'10o~'. 00 ___ 010 31 0010 1130.'1~ A 10 - I ow o*co'o~ o 1w ~ 30~3l~ 310 003~ OoDAt 0033001313001*101*9103030 3103 31303093010.1W 0131010. wmw. o30s ~30.0033 O31930 TO. go31 30 10 II .~LJ03 A 1W0303~I3o&A0E0w,1 1113100. 3*3010 11330$ 101W *!o,1001* 3010003$. 0030011* 301.1$ $30 103010 0~T~E~3I I~3~ ~ 3W 311*304 10013130~ - ~l*9~ WIIA 1.31*3 MOlE ow $0011 011010030.~Ol owA*3W0$o3.,.l.wo.01,30-30.$ 0*01 *0 P03? 0*0*1530 0*~0 0301 z~-n'~-.o~ 5O.O0i22~ CA~ ~. .300.00 ~ ~O.OOO ~ Ti,C H.- 165'$Oa(:19.O0/22o ~- ~ - 1260,0 - 2319.:. - ` - ~ 831 -- OCEAN FRE1GHT-CHARGED 0N 1 NON NEGOTTATLE COPY 187437 (U) FE~ LI4~ 1~oS u~'~ " TOTAL CHARGES ~ TI-ItS ~TLL OF LALI~G t:. IS~u11 ~y p~ n, TA!~,0RI (11L) LLMV'~r) U/B/A rUA~ST~3?E~ 01*0. 0C000I~I-I~ T f~j. 1*lcTUT ~ `.LI1JL~ TIQ PtC C~.TAT'-~'oc roLl LIMIT PAGENO="0836" ~RCVV1OW .4 .4.4'. ~ ~ p. .4P .4 -~ 4 `~$ 44 4 .4 .4.4 4 ~p ~W .4... P4 .44~ ~ -~ - P.., *~ ~ .~ ~ - 44~. ._. ~ .4 .4~ .4's - YP. -` p.~~' W~ .4 .4 A ~ A P~,. 4. C 3) ~` .4.4 4 POPO OPTO PT P04004 I.~B3M~ £40'PI 832 COMEm4ED TRANSPORT -. 1~J~[L1 Trans Freight Lines ~i-u'o~Te. - - I'-~-'~~ jOx*4.A0.0.4. A~E 2 ~F 2 ~Z1C~-~:~- ~ALCOLAC INTER~4ATILNAt. INC. ~ -~ jQjqr~503 - 1' 3440 FALRFIELW ~~AD - - BALT'EMOR~, MARYLO2I2~6,USA ~ IPP~Q'5 GEE `!C, 254b - - -~ - :~ - CH~R'~ ~EF bIA3/88 C04P40PRL -. .4044 TO ORDER: - I~ ?fl22~2 . - . O44*~ £GL0T-4tFp4~$ ANCHOR LNrER?~A0roNAL ~ 1702 ~. JOPPA QUAD ~ALTTMORE, MARYLAND 21234 4o.J'J.c.A. ENFORT A N V L~Q~ ~ HAIFA STREET 11 2030 ANTWE(CP. 2tLGILJ'4 -~ ~ ~ijro~ ~pp~y ~ - - - - - - - - - `~~ca~ 4! - - ~AC1 ~ - EXQPO.4 CA~0 ~3$0J - CLARENC~020E - ~PT OP ~O*OP.G - bALrLMa~E PPOP$0.4.P40 4~JT40 - - - - - -- . ~.i OP ROTTERDAM - - t*c~ o oiu-.-o'-' ANTWEPP C44* 4~T MARKS AND NUMEERS * NO OF PEGS - PARTiCULARS FUR~ DESCRIPTION OF NED BY SHIPPER PLC~AGES AND GOODS GROSS WEiGHT MEA~E~ - (1) CONTR NC ICS!J 3jg94)1p - SEAL Nfl. 0ZS95 (5~ CONIF NC USLU 211 SEAL NC)-. Q2894 *; (4) * * -bC 2'. CONTA I~ER ~!.3'5. - LJNTQ NO Ci) CUlT' ~O (4) ~LU-i2935R - USLU 2~ot3Q4 - - ~AE NO, - TL4L NO. 4994 - - - 03047 - - CINIP NO. (1) CO~)T~ N0. JSLU 212017o U~LU 2129684 E..%L. N0.-~ - SEAL NO. ~97 0289 - ~N1R SLU 2i1~7 SAl `4Q. 2~~4 - - ~ VAtuAl,0N 44F(4t0CL*UU~04.tV(*US1OI 1ITEMNUMBERj ~~9~O2O00C FREIGKTCHARGUPAYAIUAT: BY - OCEAN FREIGHT CHARGED 0$ - J~EI ~A NON NEGI~TIAQL.E COPY SPINO 40 187437 CU) F~E 04, 1TI89 TOTAL CHARGES THIS SILL OF La1rNr, t~ 15.'JE) RY P%~j Ln:TATNTRs (TEL) LIMITED 0/4/A r~ANS**E. 580 f~.P1 0~.! W~tI~ 0~ O;Qfl oc:n (~~TATN5OS 1 ~- I LINT PAGENO="0837" L~ 87-3-279T) TIC. 1/479 It~CL "Cl.W~ CU UIJA9D ~1~1CU~ .F~EP~TD" 20' 11/1! C0~i~r1'S. S.T.C. SHT1~PEa'9 WAD 419 X 35 G~. ?0L~L7NED ~iT1~LDR1JHS `rg~Iu~ ?~Dfl~flY~ `111 `IUA 01,~' tUP?LUt'~ Q~14' C)N'r&~N1UW `uoNz.A1~~q U4Trfl~41g. * tOT aES~SJ~D-1'O I 1W~LS SEQUIIUW DY TUE UU~ED STATES L'OR ULT~HATE DX I OS UXSALE It~ AN* OEflIATIuTi ~C~1'~t SOV ~H, CAMBODI4, `911 CODA UIIUIES O).'iIERW1S~ AL iS DEPARTMENT O~' COMMERCE - ~URTAL) OF Too COLLOOS - OT000ATLONAL TR000ADLAU$TRATOtI CORWLOENTLAL - 7526.V.ALT,flnterrcd&)slocoL' SHIPPER'S EXPORT DECLARATION iizo~yS°~??~ rc~~i )~AL L~( 00 R~NCE `40 i'~fltYu?LO 1(40 . , iUt1l'~ft' `1 59'. ~ ~0LT1}D)RE, HA4tYL~ND 21226/USA [i~cooo ANCIIOR' S R1(F. NO. u103/UU "~NiNiQt4LD TO * 000AIL AGENT 00'00000000,, - ,i.~,Ao..) ooiCup1~ Iw~Rsi~thob~ 1435 * .tDJZR 0?' C1!WPES: ` , 1703 11. JO1'PA ROAD * * 11ALTD10RE~ LEYLAND 21234 - ~r~TT1~°" & OCTET PARTTILFLTEOCODIATI 0000I001000OCOO,à'&R*,C,I 1 ~O0I~ioTiC kOIJTNLLiEuOoTNaTpg~oTOns `I ` gmsvmcAooI44~o.~~ I ~o~~4ooo CLTNT1TOLA$DQ~T ou~o~ ~ ~`~~-`~-- -~---- IM~TOQPGiITAT,ON00~41.'A ~ ~ ~ IPORTh H.V. , ` I, UPA STREET 11 * ~)30 A1~Ztf4~P~ ~ I ` * ALSO WY1'127Y:' C0t~PANflS~ IXCi * , PRANS VAIl AIIPJAT * `. ` 6900 UJGAh~) B~LL, , ` SWZTZ~LPJID PAXHO. 41 91 607707.' ` ` *` L.E'~A~PNM0,A~Lk.,.OCL .* . Lc~oo,uLuMthoesu.uooe1 ~, ~ ` $&~AETLAO0TY ` , * %OC~00~ET00ETETOC~G&O~T0ftthN*L ,AREIICX V. 20 F!,A0O'J TIM,TTMOITE 1303 WJTILSAT000MTTP3 * (1T3 * `~ HOMIER OPPACLT.000.$ o'G * OTTCTTWTTOIICT005OC ERHSo0oL,~600h I ` * * `O0000WELONT L 5*) MORA~0UT ~ , `* ~R', GOM4LL*H ~ ~LO~)(N~~ ~CL$ 00* I `~ `I flH.~, flo*, DrlA ~)ITL1~8~ LIC )Ls'ru.IIuTl )9E&0 VlSI ES." STO~Jh~, AND 281,652 LEN "Thi~SX (0th E1JU0I'R FOR LIBYA, H. UHLTKD ETA 52~9 ~? ID ~ a630413 La~ rZT755"E~o ~ .,*,,,,,,,*,*,,,,.,,,-.,_- £49;7174'cI ~i ~ *(0NO~4~ ~oinut'', 1~4~ ~ TIHATWII NESI ~l " ~ AAUE NY hIOC, LAGS * *~ S .1* VAlIDATED 1)00000 PLQJASD000AL. LKLGI$3O $0000). fl ECCNIOC*~ ~0 9.050?. -: ~ PAGENO="0838" Infortra N.y. NOTIFY Haifa Street 11 2030 Ant~rp, ~lgi~n CONSIGNED- Ccsrt~anies, Inc. TO ORDER OF * Frans Van Anraat -- -- 6900 LL1gar~c Sell, ~iitzer-~ INVOICE Ca.ah?gast~ctrrents 2846- *29/86 INLANOCARPIER P0 R1OFCESTiHATio~ * Rii~er MARKS ANO NIJMBERS - Ant~xp, Belgitsn - *-L.~_ DESCRIPIION VESSE~.SS -. clarence V.20 - 7 x 20 H/H Cootainers st~ - - - 479 x 55 gallon polylined steel dnrs, eath ~`J_-c: 588 L~. Gto~s 266.71 Kgs. 38 L~. Tare 17.24 -Kgs. 550 L~. Net 249.47 Kgs. - Textile P~.itive - 263450 Lbs. Net ~SS0.57/Lb. CS5~~ - -. - 119498.29 Kgs. Net -~~ean Fre~n: - 9800.: ~ ~T~IAIS ~Cr R~I~ICI~ - NO L,GSZ~ R~JIR~ Q~arge 6650. C~intry of Origin: IJnited States of Nre.rica TOTAL ~ & F - - IN~LDINO Goods in Transit . - - - - - . - - - - - ~TS CSS666~6. GROSS WEIGPIT -~ETWEIGkT Ai~i~ 281652 LBS. 263450 LBS. _.1.1~71ica ~I KILOS I1OAOO ~ KILOS 834 ~ T~~ESE COMMCCIT;E~ L~CE~SEC ~J-S ~CF ~ ULTIMATEDESTINA7~CN~s:9_.~-..ce PC _ - DIVEF5~ C0NT~aRY TO US- LiW ALCOLOC International, Inc. SAC PAIRP1ELO ~ap - - RALTIMORL ~ARI~.u~ si~ SOLD lodustrial Procur~rent Corp. TO * 1000 Essex Street Brooklyn, NY. 11208 125W ( VOURORDERIIUMBER . - - PA~EN11ERMS M~atex tIC 87-8-232 - No. 1 IJp/479 `000565 Leslie B. HLrJde~ao, E~c- Yao~a PAGENO="0839" 835 IP4DUS~ 419~ 68?y'O' TEL No. - 419L687707 i3.O1~88 17:~6 P~O1 I. I ~~7Tø1- I.. --~-~ - - ~rttL6V~X ME)1OItI~HOU~4 - ?1~: cotpani~i~T~c. - - DATO: 13/01/1900 tO : Mrfl.LeVliO Ilinklotio.n - J~LCOLAC z?rrL. INC. Door LecliO, - - - - - - -- - thanke for feat not,eogo. othicla ate received `ast night. More ore our coenofltc; - - - 1/ invoice jia oh, .oaocopt undor "conoigncad to carder of~ , legally Inductriol Proclar000nt Corp, catitzorland doec not catict yet, therefore ehould reet ~`CC~3pcafliCt0 Inc.° or loevo it blank. 2/ 0IL. under notify pert~7 (~) the ncu~eO2 IPC cbouldbo deleted end left blonh. - - under (16) plo add 27D0 caftor 07-3-232, to read 67-3-232/2790. - - -pin cbnngoStlitZórlCfld into t300tora Btropo, in the pbreoo of ~thOOOCO~DOditi0-~ liconcod ".. liho on the invoice. N.)). p15 nake cure thet under DAtO LADON ~a SOAR)) there s the caignetuxo on the ori~the1 D/L of ceopec OerviCOC Inc., as - Agento, - - thie-te all for tho cccaontc. -~ l7cat pie et,ndttio original piwa three noo-acaçetic'blo pies-by D~L courier directly to: - - D~n~uo CotatincutelO dat Lur ~.boerp. Two 0.oervaic 2 -/ * - P.O.t~oat 1609 - L/l016 LUZZ!O~OtOG - -~ grand Ductiy Atn:L~.fl.tounOrt/~~~ Credit Dept.. 170 need to co~4 the inYotco to Tluropc,~th6t cabould go~to XPC in - : - -. DroohlyD. Per thin chipuont, p tei1lbQI71~0 directly to~you * -account oipon receipt of tho relevant do oeto,.)?ot good order p1 Len uc the onee of your Dank end ecceunt. er. or Include your draf -~ - -. _ - - -T tieny thenke end very nnppy PAGENO="0840" :~ ~ F H Co PAGENO="0841" 837 ~ ~ Z.~~_~~#/'* ~ nO~CE~ Ph. 92/88 7th May, 1988 Messers - - Industrial Project Forwarding Ltd. Shipping and Forwarding Agents Lugano Office, Via delle Aie 1/A SWITZERLAND Sub.1ec~ ~.AQI MAN~ES~ NOS: 024991, 024992 dated 18.4.88 - - 024996, 024997 dated 20.4.88 - - - 7 containers Ex MV- "Red Sea Envoy." - arrived~ Aqaba on 6.4.88 B/L 3O~15_12E. Dear Sirs,. Enclosed, please find 4 copies of Iraci Manifest duly signed by receivers "S.E.0.R.G.I." in Samra'a the sanifestes advocate. delivery 7 X 20 ft container5 to the - - ab~ove mentioned receivers. - -We regard to weight of containers as shown in manifests and you can note the exact weight of'the containers - which are at average each unit- approximately 20.5 tons. - - - -Also, please find our invoice No. Ph.21A/88 dated 3.5.1988 which is self explanatory. Theref.ore, you are kind.ly requested to transfer the sum -bf US Dollars ~!9886.k5" to our account. Philadelphia Corporation for shipping agencies. Bank of JoHan~-Jabal Al Hussein Branch Account No. 4001 Telex No. 21272 Banjor Jo Am~an.Jordan - * Thanking yeu- for your eo'operation. - - * *~ tthirs faithully, - - / /N. `1ald~1~ - Genera]. Manager eric].: AB/un PAGENO="0842" 838 PHILADELPHIA CORPORATION FOR SHIPPING AGENCIES . - P.O. ~oz 184003 - ~ * Ammn~ Tclei 23646 PHILCO JO - ~ T ~1 .$Z.- Tel. 661237- 6.81209 ~A~T-~ 3.5.1988 ~ Ph. 21-A/88 DIJIT NOT2 ~ industrial project forwarding ltd. Switzerland. We Ii~~ .Lebue~ `our A/C o,tb cbe felIaw,.g D~u~L~ - - - - - USD CZ~'i~ - j~ J. 0. Fil - On carriage of 7 X 2Oft containers Ex M.V. "Red Sea Envoy" B/I 30'~15-126 Liner-out A~aba P.0.T. Baghdad 20 Mt weight PfIllnit. - -. - .Rat~ as agreed per our telex Ph. 1236 - dated 10.9.8? at 3D 430 per unit 1 7 - - containers. - 8985 08 30~O COO - - Transit tax as pe~.attached r~ceipt Noo~ 320962, 320997, -~ - 106 35 700 - S~torage fines as per attached - receipt Nos. 81317, 80607 - 17 91 C6 COO - - .Djversjon~ of tracks to. Sanra'a- - as shown in manifests ~ 143 Nt - I 3D 1.82 per ton. 776 90 260 26C - TOTAL: 9886 45 3311 960 - USD DOLLLRS: Nine tbousend,Eight - - -. - - - hundred, eight7 six and 45 cent - . - - - only. . . - . - R.0.E. I USD ~- 3D 335 PAGENO="0843" 839 5W' /~,flE~7 ~7Th PAGENO="0844" `~i~LiO1u h¼&:~,,~O.~cfl3~fldii 840 - ~ RO~.~r ~ :.Y-2 ~ ~, IOTT*OCOU~rOTO~G,~OFCOOOO NoT'TP*RrTCo~PtE7ET*~.E*NOAOORES5C*gpE~,rqEspdsIe(E,O~ ~LURE TO NOT~ - - (12(IPflIA~ cARRIAGE BY * ((3(PL*CEOF YETTA(. RE~1WT - GOT: GLRGILI5I~RTOBtOAORG n-:: I QBT OF OIOCRARGE - I)FLAC1OFOEL,GEBT3YQG.c~~F[~ PAR11CLJL&R~FIJI IA~3OTOaOUnQSTR~CTO,~S - . (O(t&OGTf~tY(R~,~&1 G;: ~ IORI~OC&»=S*F.I~FI&E - RFS & ROS ,coRTAFAB SOS SQ OF-PROS III - -Ill) - GLL~ ~ - ~. ~ ~iC ~21 - - 3~-i. -- - -~4) c~'rt-~. ~ * - ~LU2~2-'8Z - - sfAi. ~!3. 23~39 5FFEOBYSF4(pp~R B OESCRIYTOB OF Fl :*Ou ASO 00005 - BF&SUFE& - - ~I (21' (221 - - . - -- = - - - - ~L~Q ) 13: - - -- - - [ii, - - - ~c- L - ~- ,- -. -: : - - -svi. :-~. OZ~13 - - - - - ---.-~ - - - ~- - - PAGENO="0845" ~ci7~JALT. ~ 3HIPP A~1~OT ECLAFIATION T70)000007TJ )7))~)) .0. L'~ L-3 (u&~I ~j~-co~c IN TIOTi&LO z.t~c. T ~ , AUNT~CAOON(WO.' ,.qol~)d) *~:~440 ç~ fI&& ROAD . ~. ~Df~D iiALWMIiD 21226/U&T4 z~Pco4T~ SI1LPP~R'8 ag~'. fl()u LPC-TIIIB THOU3710TT3773000UT7700ZC$ * ~ ~P. N;). o?061b8 - 7 7O~AOOTNO t0* .0) - * *~-~ *. .~-. *-i.a~, `~cJciit ü~tt()ltAL , CQflT,.NOC#$TOM3~O)7S JOPP& ~I~o 7. ;* - -. , - . - . O7F~CLR OftIMPLOYM7~- -- ç . i!T.~E 4L'LL.~ffl 2i2~ ~ ,~ ~ ~ ~ 0 o'~' TO co~e~)0tJ- *~. L , O)STT74CROTO .~L~MA~0 . I t ~ 3 Ir.!~TA 1 TI TO))) fl4I~IA S~ZIWET it . ..; *-:~T.~o~o T~&RP, ~`1~I'JU f) . . OF ULTIU~T! ITuao?1~ * 11. t7. 77 . Ot )XPO3T~R7IH NUU)7R t~ ~ T~ C~ LOLT~. 7 73 LOAOT7TO FT L * PART)U TO TOANOACT700 . ,C3o~.f~~f3J~ *.. . ~(T773~ 0 RololOd 0 77~o-i*ia77d - L. , is. OF 5)073 * iE.CO3TAAO(00)0)~~'71 I 1 TO) [1 ~ * L~77TS3 3A~3 7~.T!~T4O7OO25)OO*YI~3~' 30)~O)flOF0) wEO)HT 5)&A3&NT00777T - a.ooo II .0) uS 4)70)0) 00)107 OTW~.3 * (T~) 0) 7)0 00)0)77 - 3)01434(0300) 261C00 I ~ * ~- * * . . ~~o's. . ~ ~f~) couTLt. * . - (5} ~ 1.50 107.00 ~ UBLU 21 Si40 USLU s I ~0 ~`4'~ ~ IIZIAL 0 O~.!,T ~T0~ 1Ii) 02013 ~ `*q*~ ~ ,~ -~ ~ 112 ~ - T'~J.i 1 0 [1~19 ~ ~11AL ~`() 02014 ~~3~T(s~) ~0~R'tt. ~- * * (7)~ GQUT'R. ......- -. .* 71471 U~W ~ T * * 1UITO 2~I6 192 UANTITO ~ OIL tiO ~ -~ * . * 0 s&~x. 1k). 02p15 * * OOV 10 - `~(4) cojrr'~. I LICOPTU OT070t ~ 77074 7~ )0)77)4)40))340)01000O330)0~030~ O4I&I.I USLU 41 ~3D2 .77.070 .u.~i347~oW0) ~ 02009 0 DOOT ~ :~_;0E?T 02/~WU PAGENO="0846" a PAGENO="0847" 843 HEPCK C. C~t~ at. ~ - octt~ E PAGENO="0848" 844 :~:~ :a~ ~ ~ tc- -- - ~:-tc: ~e.'~e:a. cc c~:~e~~a -ct. c:~:: - - - - -. ~ t~ ~o-t',a~ ~ fr~'r ~ ~e ~ -~-:::~ r~. ~: ~ :ea ~ ar~: `:~: e~,vc~ a-:a:a - - t: - :-~ gh~~ :.e ~c~: :.-a- ~:an~::; -.~: ~~;:-~ ra~e ~ a:~:-~:: a:- 1~~.:--.a ~::::~a~:r ~mar~- - : - Ix 2:,~ ~ - - - - - - - - t ~nc~~y ?eturn telex ~ ~e ~ar :u~:~ t~a~~e yc~r naee ar~ adc:es;. - - ~ let u~ kr~c~ ~ t~Lex. t6: PAGENO="0849" 845 ~ ~ I1~\~MIIU1NML - P0.8-OX 28387 (P-zrge Lijeron 1703 EAST .IOPPA ROAD * BALTIMORE. MARYLAND 212 - - PHONE (301) $$&.4400 * YEI.EX: 1t0141 ANCN0~ 0*~ CI - - - - FAX: 3011 152-2102 Gentlemen: EXPORT ORDER fl~ ...28.20..~ _...._._i] .. FOb. 2Q, `1-988- - 1* The bs~ow mentioned goods have been shippedie 70000 - - vihRii2~ei~ to Hapag - - and sre to be hanjled as pet set lnstTect.ons indicatetbelow: SO: Stuttgart E~cpress V906 sa.ilina 2120/RR - MuhsudNsmkrs *~:~ - C~5u Gf155~$L Umwgt 261800* ;w~.1. 1/C 87-3-2790 No 1 IlrI/ - : -- . 7 - - 20' WI! Ccettairmrs stc 476 x 55 gaiboo po1y1ine~ drIlls Textile ~ditive Booking No. ST13063675 5CNEDUL& ~ 4393290 - 1 279888* -5236cft . - . - - . ,, ,, ~ ~,* ~ s me~sto ~ mu' ~ *110 ~ uO~*1I*~ - - - PLEASE WO*WARD -TO DESTINATION IN ACCORDANCE WITH THL~PQ1.LQWINIi IN~T~UcTlQt*. Item NO.- - - - - - - - - 1. lucy bill of Jad&ng in the',s.ame of .I~ustria2. .Px~r~nt..Coep,...-..-~' - ._ .. ~- _.. 2.. Consign to thi order of ..~.... -. - .. ...- ~ ......: ~ 3. Destination: ~ Pen of djsnharge: .~t~torp 4. Party to be noti*ed Cxpanies Inc... Infortra..LlJ..-Hsifn..Strect *-13--203O--Mt~mrp.,-Belqirten 3. Address Frans Van .fij~raat,~FAX No, 41.91. .682i079~I~=.Bell. ~tzerlai - - ~ Value fit, shippers capon decliration la 8 - 14. ...._ ... ~. . - 7 ~ ~ .:.. -. - ..` `......... C.1.F~$ . ... - -. -, Insure for $ plu~chgs. plus - % against followmg risks -. 9. Charge rail freight to 1.1:5. seaport to consignee D - lo us-(sender) 0~ -- - - 10. Charge cateagt or lighierage to steamer to consignee D - - to as (sender)' Q 11. Charge ocean freight - . - -- to cottsignee D - to to (sender) 0 12. Charge insurance prerniwn . - to consignee ~ - - so as (sender) 0 - - 13. Charge consular fees and foçvnaiitiea to consignee D to as (sender) ~ 14. Charje forwardIng service fees - - so consignee 0 to'os (sender) ~ - ES.. ~olleecoor invoice fo$ - - .. -. ...plas~teoi~on. ......... -...- - -~-.- - 16. Mail original bills of lading to ~ ~ . 17. Mail ropies of bills of lading to - _.__....__.._.__.._._..... --.-..... - 16. Specisi instructions: ~ Threm ;.Ca~h .~nbe~ ~ b1ar~ ~ rse~ * B/L asiat sE~ "Goods in Transit" G~ nm c-' -~-`--` - k--k fm 55 line AS Ha nsssenger - r~i~-i~e - - - -- - . PORZICN EONSVLAR DI~CLARA?1ON (If ~çelved):1 - - -. - : - - `~ ` (55O*o 00 bm~ 5i 01311005; . - -: -- - - - - - - Pis prepare a.si last Obiprnnt - ~.ll if any quez~i~ - - - - - - - - - Deeemesta EecHaed . - -. . -- - . - - - - - - - Psc5m~ - laksd - I lispoet - OiM~ ban . oa~bi5 5; - - - . . . . .. - - - . - ` - BttzPPE*'C 13AM5 Aboolac. Intarnatia2al.~Inc~ A1~L BUSINESS tjiio(l7*EeN SUBJICT TO 7510$ alto CONDtTtON$ £5 SICOuMIsDeD ii me SA~TsoD1I CUSTOSNOJSI seoeess a toe. BaROnS all~aTtON. TesT avalt.a*l.1 1250111101.1557. ADD 34.4O...FaiXf351d..~. 21226 PAGENO="0850" T~E95 COYMODi~ES L~OE~3E2 S ULTIMATE DESTINATION ~ DIVERSION CONTRAflY TO US. L&W PRO~SIT9 ~ Su~A~~ C~ ~ :~ * Infortra ~.V. Eaifa Str~t 11 2030 At~rp~. ~1gitri CONSIGNED - - - - - TO ORDER OF * Ire. Fra.i.s Varl A~aat 6900 i~gar~ Bsil, ~itzer1a~ 7 x 2O'-~/H C~th st~- -. 476 x 55 .lla~ o1y1ir~d ateDi dz~rE, ea~ c 588 Lbn. ~eas 226.71 1~gD.. 38 Lö~. Ts.re 17.24 P~:s. 550-tth.Nst - - - 249.47 Tcnctilo ~itivo -. ---: 262808 L~. )~t - 118749.86 F.gz. 9~t ~ -~ ~r ~i~xc~ - ~ i..~-m.s R~1IR~ ~mtxy of ~igin: T.htt~ States of ~ ~G~z in ~anait 846 AiC°~aC International, Inc. -- 3~OFMTSI.EOAO TiWO~. UAR~1AND~1~ - ~- - u.s-k NOTIFY ~ Xthustrial rz9TentCorp. - TO 1000 s~sex Street Brooklyn, NI 11208 * ~YOuROBDEB ~IUMDEE 125-A-B ~sh Aga~thst ~c~zr~t INLANOCABRIEB - - - INVOiCE PAYMEHTTIRLdS NVO,CENO. CArE Rihger - An1warp,~ Belgitzl1 - - -. 1Stitt~z~ ~zess V906 2/20/88 MARESANO NUMBERS -. - - DE~flON - - - -- f PRICE 1LJ - - 2870 2/20/88 L55AL5~S ALIUNG DATE P,nate~ 2/C 87_3z.2790 No.lUp - S$O.57/th. ri~ ~ta~ D~LC & P tE$149226.C -- 9934.OE 7000. CC ~166160.0~ ~3$I ~12?2 -. ~s1 PAGENO="0851" 847 PPO(I~ LIST custa5~r: IfldUStzlal Proc.1r~Tent Corp. Order No.: 125-A-8 Inoice No.: 2870 Vessel; Stuttgart ~cpress V90& Salix~ ~ oi~ a~it:-2"20~'88 ~scription: 7 x 20 H/H Ca~tainers stc - - 476 x 55 gall~ ExDlylin~I steel dr~Ts, each ~taining: 588 Lbs. Gross 266.71 Kgs. 38 Lbs. Tare 17.24 Kgs. - 550 Lbs. Net 249.47 Kgs.- - - -- -. Textile Mditive - 261800 Lbs. Net - (Thiodiethylerie Gly~l) ~t4-H~ZARIXY -. 118749.86 Kgs. Net - -- I'tT~IAIS - - ~Cotsitzy of- Origin: Unit~ States of ~u~ri~m - - ~: ?IMtex tIC 87-3-2790 No.lUp- ~ntori,ati~al ~3440 Fairfield Poad/ 8alths~ro, Mar~tlaz~ 21226-9987 US~/ 301-355-2600 Telex 8~ (1) C~ amer b~s±er - U51L12116160 -- Seal No~ 02811 - No;ltJp/68 (2) Ccr&tainerN~ither: - USLZI21O621.8 ~ea.L ~. u2810 - No. 69/136 - (3) C~ita.iner Ntz±er U~.U 2124700- - I Sea~l No. 0281 No. t37/~04 ~4) C~tainer ~ber (SW 2124382 - - Sea]. ~ 02809 - Ne. 205/272 (5) Cáitainer )~zber * USW 2110650 - Seal No. 02813 :No. 273/.340 -- - (6) C~tair~r 9s~ber~ - - - tSLI.~ 2128205 - -- Seal No. 02814 - * -. No. - 341/408 - - (7) C~itairar N~rt~r - - I~J 2568792 -. S~alNo.02815 - Na. 409/476 PAGENO="0852" ~ ~~*G~CTO M~%CA) ~C ~. ~Q - - O...~ CA&.T~O~* - 848 Ha~ag-Uayd Aktlengezeflschaft florth A~er~-E~r~ce ~ ALCOLAC I ~NATI0~AL, IHC. 3440 PAIR-ItELO ROAD S~?fl'S RI?. ~3D. ~C - FF2 MLTDiORZ. !4&RTL.A»=(D 21226/USA ~ ~ (3~IG~t( ~UTt *A~C * - - - - TO ORD!R: - : - - - - - -- - - - - - -. - - - )F~~G~T P~.C ~. ~(C - 1433 AIC~R IRTRR2~ATIO~ZAL 1703 E. JOPPA ROAD - 3ALTI~3RZ, MAflLL~) 21234 ~~flTANO ~tJNTCT ~O~$ O~ *~ - - MD.IO.S.4. - - - - - - - C~~NOT~3PO$t2~.L FOC - FAU.lJ~ TO NOT~TY). -_ - - INTORTA N.V. - - CAIFA STRZZT 11 2030 ANTWF2P, Z~.GIUN ~~FFF-~Vfl~OAj,Q PI$t~Lt1~N* - - - - - - - - ,2~,MmM. CA~U~T CT j(1Z'L~ OF ~7W. ~~PT -: j14~VU~t. - - YO~ F~AG~1O~T OF .3~F@ - - ~ -i O~t.O&~ ~ u `t~i~u~o~ ~ - - - MXLI N0SJ~NTA1NXLNOL NO.OF PE~. PART1CULA~$ FUFPIISHCO CYSb4IPPEC H~ - OIXCXIPflOXOF PaWCUA,~GO0CX - OXO~MX1~(T - urn- -. - - - -- - L/C81-3-2790 80. -1/68 fl~ T~ Ca - * WESTESS DLO IA IlT80ItIZ ~fL2'~2& * 1 - ~ITI30 ROPS ?~ ,L15!& DTT~ 2Z2L - ~- - - 2) - "~3D'P~ ON 88430 TREIC~ - - - - -- 20' 8/8 C08TR'S. ~ S~~'S~ tOAD, ~JLCE~ A30 ~ 68 1 55 GALLO8 POLTLI~ ST. DRV~ t - 9.984 US- SA- ~r 1T~T~.8 ADDITIVES -: - 8,137 cs ~ : .20i~ 18 tRAFISIT ~P181'S C~ ~ - ~`o8-8&L82D~S MAI~I~LS 80? EZSTLICT80~tD LA3~S- !Z~UIR80 - ~30 ST ~ StA~ FOR ULW(&ZE V~ FIRA!I~ - SFUI30TIO!i ~ ~ZSAL8 18 43T D3STIEA21~ ~ ~T SQV~T ECESA, vtirrs&'i, E&2U'0~lL, 01 ~3A, ~ 133 0T~JI3I Y80 STATES. --- - - , P... .MFFTX3 DA~D VA)UT Q4)FREPGI4T ~ ~ P*YA~L1 $ AT~Y I O~CTTO~OT)~1 - - ~ *3~:4~ ~ - - - - j~14f~ ~D$~ 4~- ~ ~tucr - ~ *-- - - TOYM 1j9~q4~ 711 HLA47 IF$$ F~r tA,~$4~ Or rXXF rn~ Fern T~ Prnt $rnm~ - PAGENO="0853" 849 4. Global Case ~ ~ ~IL ~Y~J.-..~.--------- *PP. tNG.__~-.-------- AT?: MR. JIN AUTRY ______ FAX NO. (617) 2803631 (BELL) ______ FLL AS PER OUR CONVERSATION OP TODAY BETWEEN YOURSELF * FRANK ICING AND THE UND!RSIONKL, i AR M~CLUSINU THE NAMES AND ADDRESSES OF THE COI~WANISS WHICH COULD BE INVOLVED WITH TECHNOLOGY TRANSFER FROM BELL: A) C0I6'ANIES IN SPAIN I~W.Z.C. ~I. A. (VWUflRIAS I~?ALURGICAS ESTRATEGICAS DR CANTABRIA S. A.) ORAL. 14CR.: ICR. HERMAN CENIJ?I ADDRESS : CTRA. A PIIDROSA NO.75 POMTRJOS-IIARIMA DC CUOCTO CANTADRIA PHONE : (942)502-303 TELEX : 35754 13538* C E.S.A.U.fl.E. (ENYUDIOS7PROYECTOO V REALIZACIOI7 DR AU'2OCATIZACIONES TITRTRTAT.MN) ORAL. 1403%.: 153. MARIANO RODRIGUEZ ADDRESS :. AXULAJI S APARTADO 27 PONTUGALETE (VIZCAYA) PHONE : 49-50011 TELEX : 32034 ESAUIIR B) COIWASY Ill PAIIACA: IOB~C~~EISEZ INC. PRESID~ AND LEGAL RZPI%ZSRMTATXVE: MR. PABLO J * ESPINO NOIPICZO TONED BARCOSUR P100 16 ________ APACTADO POSTAL 1824 - PANAMA 1, NEPUBLICA DR PANAMA TELEX : 2729-3611 RORGAC PG ~J/ ~- PHONE : 636621 (PANAMA CITY) BEST REGARDS, / CARLOS CARDOEN . - SANTIAGO (CHILE), NOVEMBER 13TH, 1988. PAGENO="0854" 850 Dr. Carlos azdosn Cor5sjo Cardoac L~V&. Los Coaquistadorsa 1700 Ssatiaqo-'~i1s Dear Carios: This La to soot iso ~ diacvasioa of this soiaq so tha ~oiat attack h isoptar project. vs fool that vs _. ha's soovqb issigbt into ska soacspt to c~lsts a daciqs st~y. ~-- pvsposs of this st~y ~3d be to detegoiso ths feasibility of using tha sit aM ~ fvas]aqs a~ cuirsot dynics of a MU ~.l 20443 as part of tha Cardoso attack belicopt~. This stody vsuiâ be dooo by MU aM incl~s - Thrss-visw strueturat arraeqnt. - ~n~o%t s~jSt cosoopt. - Seating arrsng~t. Prsl1a1~iexy weight aM bsiaace ~ry. - AirspeM aM ~so psrfosoaacs. arisE statot of ~k to ~lsta tha propesM unit. we ask yea to participate in tha soot of this s~y, with tha Cardoes s~x. being 1 15,000 to be paid $ 5,000 ~ aM tha baLance over 50 days. Cazld yea plssss give vs y~ f~l sqrs~t of Cardosa financial participatiac aM that ~ aMarstaM this is a atMy to slice beth sides to rsvi feasibility, prier to ea~r is?~t, aM does rs~sssot a ~ittasct by tither party. :"~`~`ff PAGENO="0855" 851 ~ c3olico~tor~ INTgfl.~ç?pjC~~ MEMO April 14, 1987 F1:RCC:bb-016 p~N0 TO: Attendees: R. Courtney, J. Garrison, 3. Justen, R. Marion, P. Prince, R. Wharton COPY TO: M. Carter, F. King, N. Primis SUBJECT: MINUTES OF MEETING DR. CARDOEN REFERENCE: a. Profile prepared for I.. Homer b. Memo from N. Joiner dated 1 April 1987 c. Agenda of discussion items d. Preliminary program definition and schedule 13 April 1987 The following items represent the minutes of the emoting held in our facility on 13 April 1987 followIng a lunch which Mr. Homer attended: 1. The scope of the Documentary Feasibility Study was discussed and the options provided to Cardoon for approval. Given the facts presented, Cardoen approved proceeding with the NTE 350 hours of Engineering at a cost of $25,000. This amount will be paid with $10,000 imoediatoly and the balance upon completion of the study which was estimated at 6~8 weeks from go~ahead. This agreement will take the form of a Cardoon standard Purchase Order containing the contents of Engineering's proposed Statement of Work (Reference b.). The original check dated 6 February 1981, *in the amount of $5,000 from Or. Cardoen was returned to him during the meeting. 2. In review of the preliminary 30 sketch of theaircraft, it was pointed out by Or. Cardoon that sliding doors and a hoist were required for the rescue work and outside litter application envisioned. 3. The extent of Bell involvement in the project was discussed at length and Dr. Cardoon was interested in considering the question of Boll marketing assistance. He felt that he would work with Boll or their authorized dealers in certain countries if we jointly felt it could benefit the sale of the aircraft. To what extent this might occur and what comeissions, discounts, etc. might evolve was left for discussion at a later date. Dr. Cardoen did make the point of the retention of Boll's name on the aircraft would be a positive sales factor. PAGENO="0856" 852 Distribution ~~prfl ~, ~E7 Page 2 F1:RRC:~-O~ 4. Bell's involvement with respect to supply of spare parts and ongoing technical support was similarly not addressed in great detail but concluded to be via Bell's dealer network. 5. Regarding qualification of the aircraft, be It FAA or another form, i.e., Spanish or Canadian equivalent, was discussed and decided that qualification would be desirable only if time and cost-permittedand it were a necesary Ingredient for the sale. Bell did -agree to work with Cardoen in development of a Bell qualification plan and would assist through its guidance and supervision to obtain a qualification test. Car-doen wants Bell to supervise the design efforts or possibly even perform the design. 6. The question of training of Cardoen employees was addressed and considered to be a requirement In that Cirdoert wants to follow Bell standards. Bell will estimate the training to be furnished when the extent of training requirements has been made available to us. 7. Whatever technical data would be required to furnish Cardoen on the 206L would be Identified and made available when required. - 8. The~potentlal market areas Identified for the low cost attack helicopter proposed was related by Dr. Cardoen as follows: a) Ecuador e) Jordan b) Brazil f) Egypt c) Mexico g) Eventually Chile ___ -~ It was clearly pointed out by R. Marion that sales of armed helicopters to Iraq is not approved by our government and we would not presently sell 2061.'s for MOD and arming by Cardoen for resale to this country. The -question of the Southeast Asia market was raised to Dr. Cardoen and hs responded that this was felt to be a significant market as wall but it has not yet been developed. ~em asked by the undersigned about the impact on the project without the Iraq sales, Dr. Cardoen stated that the viability of the project was still good enough to proceed. 9. It was also made clear by the undersigned that although we saw no direct competition with Bell's other models should Cardoert producethe low cost armed helicopter, we would have to be aware and work together on possible competition for available funds in certain countries. ~ i~ PAGENO="0857" 853 Distribution A~ri1 14, 1987 Page 3 F1:RCC:bb-016 10. The question of Bell's Product Liability and Warranty as it related to a Cardoen modified Bell 206L was discussed. It was pointed out by P. Prince that it depends on the extent of Bell involvement and participation in the MOD program. 11. The program definition and schedule dated 13 April 1987, was discussed by J. Justen and modified (Reference d.) during the meeting. Dr. Cardoen was In agreement with this preliminary schedule of events. 12. It was finally decided that our next meeting would be at Bell on or about 1 July 1987. During the Interim, Bell would prepare an estimate of all the areas of Bell participation and associated cost which Dr. Cardoen would be responsible for funding to Bell. The meeting was concluded at approximately 4:15 p.m. R.C. Clegg Manager, International Business Operations Attachments PAGENO="0858" 854 REF. ESTRACA~C*~ 23~ ~ T4e~ ~1~C iti~e 1.07$ Satisi~i,1 ~ PURCHASI ORDER N!R. 0421 1. TO: CELL MELTCOPTEX TEXTRON, INC. 2. DATE: Apr~1 29, ].967 BOX 402 FORT WORTH, TX 76101 UNITED STATES 0? AN!RICA 3. ATM: KR. RON COUWNEY TEL: (017) 200-2090 REGIONAL NANA(~!R TLX: 758229 FAX: (017) 200-363]. 4. FOR: STAT~WT Of WORK FOR 20G43 VARIANT CARDOEN STUOY 3U~ARY: Thic Study shall identify a preliminary orcreft configuration for usin5 a206L-3 mid and Oft fusels~e with & ne~ forward fumol000 concept for an arced sing].e pilot contig.Lraticn. Included in thiø Study m~.ell be: 1) A 3-vic~ prolicinar7 concept dowtn4 2) The becie concept ortoll identify: - A) PuceIOL30 cnd cteucti.iriil ccdifiCCticrLG to the 206-033-CC]. Forcscrd Pucota~e Acceebly. 0) Plight control elwngcc to the 206-001-010 Collective Controls Inctolatten, 208-001-011 Cyclic Pitch Ccnt'o1~ installation, end 206..001-044 Directional Controls installation. C) Weapon oyetem configurstiofl far nose ucunted gw~ turret and "Texac flenger" type aids mounted weapons. 0) CocWpit armored seat installation based an the Kàdel 406 Conbat Scout configuration. E) Instr~ent panel modification from the existing 206-075-443 instr~ent panel installation. 3) A brief Work Statement of thooe parts r.~uirtng change fran t~e 206L-3 configuration. 4) B weig)~t and balance atatement for the preliminary confIguration of thO rotsrcreft. ~ ~tLXVERY; Soonest, via Courter to: IKIC, LA. Ctrs. Pedrosa, 75 6. PRICE: Not to exceed USDLRS 25,000.00 39518 PONT~J05 Cantabris, SPAIN 7.PAY71I.NT: With this order: USDLRS 10,000.00 Balance up to USDL~ 15,000.00 upon receipt of Study - Plenne unc our PlO nun. 0421 on all correspondence related to th~.s order. - Kindly confirm via telex receipt of thiS PlO and payront. ~Mts1re~ PAGENO="0859" 855 BELL HELICOPTER TEXTRON FT. WORTH, TEXAS PRELIMINARY DESIGN REPORT NO. PDR47O6~O1 MODEL 2O6L~3 A~ED VARIANT FEASIBILITY STUDY ~ Preliminary ~s1gm Preliminary sign X3835 X8438 Approved By: Chief, Pr iminary Design X4278 PAGENO="0860" 856 TABLE OF CONTENTS SECTION TITLE PAGE ~O. 1 INTRODUCTION 1 2 AIRFRAME MODIFICATION DEFINITION 2 3 STRUCTURAL MODIFICATION SU~ARY 3 4 CONTROLS SYSTEM MODIFICATION SU?~ARY 4 5 WEAPONS SYSTEM INSTALLATION LUCAS T~JRRET 6 6 WEAPONS SYSTEM INSTALLATION ROCKET PODS 7 INSTRUMENT PANEL MODIFICATION SUI~RY 16 8 ANCILLARY EQUIPMENT AND A~OR INSTALLATION 17 SU1~1ARY 9 WEIGHT AND BALANCE SU~ARY 18 10 PERFO~1ANCE SU1~RY 32 11 CONCLUSIONS 34 T~ PAGENO="0861" 857 LIST OF ILLUSTRATIONS F I GURE NO. TITLE PAGE NO. 1 GENERAL ARRANGEMENT SIDE VIEW 35 2 GENERAL ARRANGEMENT - TOP VIEW 36 3 GENERAL ARRANGEMENT FRONT VIEW 37 4~ COCKPIT CONTROLS - CYCLIC AND ELEVATOR 38 5 COCKPIT CONTROLS TOP VIEW 39 6 COCKPIT CONTROLS COLLECTIVE 40 7 COCKPIT CONTROLS DIRECTIONAL 41 8 INSTRUMENT PANEL CONFIGURATION 42 9 PILOT SEAT A~4OR CONFIGURATION 43 10 CONTOUR LINES Z- ISOMETRIC 44 11 CONTOUR LINES FRONT VIEW 45 12 CONTOUR LINES SIDE VIEW 46 13 CONTOUR LINES TOP VIEW 47 14 HOVER CEILING, OGE 48 15 HOVER CEILING, IGE 49 16 VERTICAL RATE OF CLI~ 50 17 SPECIFIC RANGE, SEA LEVEL ISA 51 18 SPECIFIC RANGE, 2000 Fl', 75°F 52 19 SPECIFIC RANGE, 4000 Fl, 95°F 53 II LE~1~H:: ~:~L~'(j PAGENO="0862" 858 PRELIMINARY DESI~ REPORT POR~~87O6-O1 MOCEL 2O6L~3 A~D YARIANT onloduction The study embodied in this report was corrrissioned by Cardoen Industries Ltd. to investigate the feasibility of an armed version of the Bell model 2061.3 having a single piloting station. The configuration requested by the customer requires; the modification of the airframe forward of the front turnover bulkhead to provide a single piloting station on the aircraft centerline, the provision of pilot seat and engine armor, and a Lucas turret mounting of a single .50 caliber P460 machine gun. In addition, weapons provisions are required for the mounting of 2.75k rocket pods or other stores, near the aircraft rotor station to minimize the center of gravity shift. The requirement also exists for a civilian configuration of this same aircraft that would transport four to five persons In the main cabin. This will require the removal of the armament package or any part of same to reduce empty weight and allow the aircraft to balance within center of gravity limits. PAGENO="0863" 859 ~ ie'~ ~eI1 ctrr - D~te~ ~~_2oct~co ~e~x~a8~101 17 Novenbor~ 2L.._.~.. Fl : RCA : oc~6 e 1 M. William B. Robinson, Direcr~~ P~MMC Room 800 SA~6 ...,L~-.-. Department of State Washington, 0. C. 20520 Dear Mr. Robinson: dill (~-) Boll Solicopter Textron received Department of State Export License No. 022554 validated March 22, 1982 covering a demonstration tour of our Bell Model Toxac Ranger (206L armed with twin 7.62mm machine guns) to Brasil, Colomhia, Mexico, Peru and Venezuela. We now have interested parties in Panmma and Spain who would like to purchase Bell Model 206L's from Bell Eclicopte: in Fort Worth and then modify them to accommodate arms in tmeir factories in Panama and Spain. Those modifications would incLude external hard poinus, gun mounts and olect:±:al to accommodate 7.62 machine guns and unclassified 2.75 rockouc. Those modifications would be done under a technical assistance agreement between Bell Eclicopuor Textron and Induct:ias Metalurgican Estrategicas e Cantabria S. A. and Entudics, P:oyectos y Roalizacion Do Automat~zac~cflo0 duct:iales of Spain and Zodiac Entarp:~zoo Inc. of Panama. Our customer certifies that they will ad~ero to all ~. S. State Department Regulations and the holic:;toro will only be sc1~ to those countries zactionod by the . S. State Department. If it is determined to be. consistent with the ;c1~:ies of t~e Onitot States, approval is :e~estod for Bell to propose the technieni assistance agreement to cur ruztomo:s in Panama and Spain. If you require more information, dlense contact the undo:s.gned or Mr. Patrick Briggs of cur Washington of fico at 289~5858. Sincerely, a. C. Autry :-e:-ationaY Matketing s::atiofl PAGENO="0864" 860 Bell HeUccpterki~ ~Tri1I~i1 Reff H.ffcep~r ~x~on Inc. P~ C~ct SCX 412 A ~3)OSf~' ~ ~ 2 June 1987 F~ Wcr~. r.XSS 75101 F1:RGA:oc~681 (517)250.2011 Ms. Rose Biancaniello Office of Munitions Control P~MZ4C Room 800 SA~6 DeparTment of Stats Washington, D. C. 20520 Reference: GC~080O~86 Dear Ms. Biancanlello: Bell E.licopter Textron received Department of Stats Export License No. 022554 validated March 22, 1982 covering & demonstration tour of our Bell Model Texas Ranger (206L armed withtwin7.62 machine guns) to Brazil, Colombia, Mexico, Peru and Venezuela. We now have interested parties in Panama and Spain who would like to purchase Bell Model 206L's from *B.ll Helicopter in Fort Worth and then modify them to accocdate arms in their factories in Panama and Spain. These modifications would include external hard points, gun mounts and electrical to accommodate 0.30 or 7.62 machine guns and unclassified 2.75 rockats as options. The arms will be supplied from B.lgiun, Prance, Turkey, Portugal and Spain. - These modifications would be done under technical assist~ ance agreement between Bell Helicopter Textron andindustrias Metalur icas Eatrat icas Dc Cantabria S. *~aad Estudios, Proyectos y ea sac on e i2~Iones Indust:iales of Spain and Zodiac Enterprises Znc. of Panama. Our customer certifies that they will adhere to all D. S. State Department Regulations and the helicopters will only be sold to those countries sanctioned by the D. S. State Department pcten~- tially Ecuador, Brazil, Mexico, ~ordan and Eypt. If it is deteined to be consistent with the policies of the Onited States, &ppraval is requested for Bell to propose the technical assitance agreement to our customers in Panama and Spain. If your require more information, please contact the undersigned or Mr. Patrick Brigga of our Washington office at 2895858. Since el R. C. Autry Irtternation ~jrketing - -~ - -: AfninistratiOn PAGENO="0865" 861 United StaL - Depart~ent of 5tate Wizthingron, D.C. 20520 1NT~NATTCNAL MARKETING ~1 -~ ~ In reply refer to MC case GC~042287 Mr. R. G. Autry Bell Belicopt3r Textron Inc. w.~ P. 0. Box 482 ?ortWorth, Texas 76101 Ft1.E Dear Mr. Autry: Reference is made to your letter dated June 2, 1907 requesting an advisory op relative to providing tec~nica1 assistance to Panama an pain ocessary to modify the Model 206L helicopter to accommodate The Dep4rtment of State has determined that there is no objection, in principle, to the proposed trannactio~ at this tine with Spain only. Such a transaction vitha firm in Panama would not be in furtherance of the foreign policy of the United States at this time. This determination, however, is not an authorization to export any defense articles, defense services, or technical data as designated in 22 C~R Part 121. A proposed technical assistance agreement must be submitted for consideration pursuant to 22 CPR Part 124. It must contain the infornation and clauses required by Sections 124.0 and 124.9, and the transmittal letter must include the information specified in Section 124.12. In addition, the agreement must specify the final avionics, commu5.tcations, and weapons configuration. Please reference the above case number in the transmittal letter. Sincerely yours, Willi m 0. P.o~inson Director ~` Office of Munitions - 51-840 0 - 92 - 28 PAGENO="0866" 862 REF. `c Dc~fl ~ Cc~2 ~ Thzr~cn me. A SuD54~i~ Of Tc~tr~ IflC. F~r~ wo~m. Thx~s 76101 (817) 280.2011 28 Moreh 1988 M2:RCC:jkrn..029 Dr. Caries R. Cardoen President Industries Cardocn Ltdn. Los Con uistadorce 1700 - Piso 22 Snticgo,, Chile Doer Canoe: It Is with sincere re~jret that Boll Helicopter Toztron, Inc., cannot work with you on yo&w Single Station Crow Variant to the 20GL~3. ~ p~ ~oti~ nvoetod much time on your project, lVs felt by our management- that required U.S./Ccru~an govornmcntaj l~ wcuj~ not approve the calca~ You have already bean notifIed In t~tr. Z cn-r!d's rne~e of 2 March 1928 regcir~ng the otattr~ of yew' 222, end Bell IooIn~ forward to rceclvlag your eircrn.tt at ow' Van Nuy's facility. Based on your conversation with Ben Cle~ on 25 ~1arch, Boil will caned your order for 206L-3 helicopter, S/N 51022, end return your deposit of $50,500. Bell end I personally wish you maccoos In eli your future andenvors end look forward to working with you again In the future. Sincerely, BE~94ICO~T~.xTRoN INC. ~nIotATico Pr~rsldent ,~øethierciei B~ain~ PAGENO="0867" 863 ~ 525 -v - -- - ~WZ~RC0 C17~T2fl C~3?4F.'1H( ~tC. ________________________________________ 1549'S ~(T~ NE~F L'~htE SOTT2~E~ ,7E~Mc .9 ..`C~...o ~ 9~ t1t7~1T t.A~C1, FL. 13014 __________________________________________ 50-2453121 - ~ ~f±~S CtR130E34 LTDA. A'?. 9.01 CC1SQUIST ORC~ 17F0 PTCC) 29 E - BNIC'3 5~D Abt~tCM!0 DR?rrrAco, CIt ILE I24rE~?TATI DNRL FOTfIUAROtSG CO. 345 W. 74th Plscn, 01_josh, Fl. 33014 O9A FMC: 7722 R0Ft 51223 c-~~ ~ wni~i't'. ~ UUOC Q# P0297 OP fl0t~ LEA20 . ff11. 29,9.11Th Rt72~ V.2900 POP'2 OF NEIl 0PL2~Uo. L7~. VRLPRFJ9TIO. CRILE X~~3 D~O .U2905 uCS. 900 SIF SCO2900t.E 0 909.03CR 99990039 - 590905035999953 (9.9099:09000.0.! ?tt!9CP3CF? 1~ND OP.CC1ICSthFT; ,~stb PARTO rrtot~or, u.s.P. NOUXII.ITARY 4II1PL?T2929: OCED OR RIIUUILT.!.. 1 19291 AR A12019. D~ 6°4.402C3 1 fl2LICOP'~ER 1 2300 LOS PRC~ED IN~1 400 CORTASItEP SEAL ED. 03030*LU000SZ 59500t. 120. TItIU 41 pG4S663 sn4 22.24.994 7202-4 ~S4S669 .~ 2994.305300 ucUNO. 0-DEOT .ICOP?EP $ 490,000.00 2flo290eoS3flo.0~~00 U U.S 4.0$ 0303904000 3 USC. s.o. 305.22 U.S.C. 5.0. `02 :0 U.S.C. Sm. 003. 50U5.C. !~. 22303. ____________________________ -~i ~ The Correct W~y to F:If Out the Sf3392909 s Soport 000t3r3t:0n :s avatLobte from the But-ecu of ho Census. W~,hrngtOfl. D.C. 20233. PAGENO="0868" 864 `15200 CHARTEA CIMPANt 5485 EAGlE JEST l.AHC -~ 1171 210 :11.50 LAKES, FLORI2A 31014 :PPEo3 115': 0 TIORDIR ORB 10 SOD A R I I FOR TUE APPLICANT I. . -- -~ I001STRIAS CARICIN ~ I~~' : * - - 11. LOS ~Jiw1':ST1IoRES ---. P 502851 lAO C ------------~--:~-~------~----------- V. SANTA RITA V.806 REM ORLEANS. LA. I.R.A. ~ -.. - Sc ~- (,,._, : C 1253/88". PART 1x40' 4CONTAINER. 1 HELICOPTER ~~QL~lT~ 2.2O0Lss.~ SRI 24 1 6ELICOPTERO MARCA SELL 206-Li USADO 1981 SERIE 45593 CON T000S SOS ACCESORIOS. I,... SHIPMENT FROM TEE PORT OF HEM ORLEANS. LA. `AN ON BOARD ~` U.S.A. TO VALPAARISO CHILE. CONTAINER `;C.TRII 410111- GOODS BULKS AND 00001-SENDS ARE MARKED "pc: SEAL VI. CONT. NO. TRIU-4 0202-4 2333/88". SEAL NO. 3845663 cod THIS TRANSACTION IS COVERED BY IMPORT LICENSE 3845669 NO. 068334. BANCO SilO AMERICASIO IRREVCCASLE CREOCO 21O:f 18210474 SHIPPERS tOM: .STpwA~ BANKERS TRUST COMPANY NO. R724222 bUNT NITED STATES LAS4 PROHIBITS ISPOSITION OF THESE CCHMODIDIES TO THE CCI-L'L'IST CHIEA. `.010. HONG KONG.I COMMUNIST REAS OF VIET HAM AND LOAS AND CUBA UNLESS ~THERWSE AUTHCRIIIO BY ~S ~R.'5~9 ~ATESAcsj M~GHT CHARGES PAYABLE AT: ~ ITEM NUMBER BY ~CE*S~ScE:GcrCccR5EQ0N I .~.c I / I -. ~="~==~. ~ ~ B ,~, ~ TOTAL CHARGES PAGENO="0869" 865 ACREEMtNT s a~rae-e~: ~s ~ade an e-:ermd into thz.s 2 ~ day a: ~ ly and de:'~ear. ::SR:As CARCCCN L~A., a lz.~uted company incorporated ur.:er the a.s ci c:-)e, ~aiin; ~:z gs:ered offices at t.cs Cancu:cres P:sc 25 San::aga, C~zile, heretnafter referred to as `tCl c.::3r. r:::::Frz~ TZC:-~cLCc?, tNC., a Texas corporation with offices a: S~CC ~ni:y Slvd., Suz.ta 101, Kt.zrst, Texas 76053, U.S.A., hereinafter rm~'arrmc :cas ~HE~ZS, 1C zs ur.der:ak:ng the modification of the Bell Helicooter 4cce~ 2'6L-3 to oo:ain ar S..C. for the Cardoen Single Crew Staz~cn ::z.:y nel:ccp:er. This modif:cation to be accomplished an Chile. ~t~ZAS~ ChT as interested an providing the engineering effort and caner program management as necessary to obtain from the FAA an S.~.C. the Candoen Single Crew Station Utility Helicopter. ::~t~z~:sz, the parties agree as follows * CCI and ChTC agree to enter into an agreement for desagn and development of a single cre~w station in the Bell Helicopter ~4odel 2061-3 (Ion; Ranger). * ChTZ is commited to obtain for ICI, art FAA-STC to operate the Helicopter with all modifications descrived in annex 2 of this agreement. / IA Dallas Field Of fi~è A ~ N~, - /2 `~~~~-`- PAGENO="0870" 866 Page 2 of - ACREENENT IC. AND c~crrI * 0H1 agrees to conduct pilot ta~ning sufficient to operation of the single crew stat~on a~r:raf:. * GHT agrees to allow iCI one time use of the CHTZ pending S.T.C. in mcd~fying the existng door to a sliding door config~rat.~. ~tion of ONT: S..C. ounerzhio must be octerved and a:piL:z::~ drawings will be returned to GHT at completion of door modifL:~n. * ONTI would be ha~cy to work out a business arrangement with in use of th~s S.T.C. on subsequent aircraft. - PROVZSCNS TO BE P.WVZDED BY ICI * Helicopter with all support requirements. * gineer/Draftamen. * Drawing to FAA standards. * The Test Equipment available in Chile. * Transportation and lodging for GHTI personnel while in Chile. Article II - TASKS TO BE PERFORMED BY GHTI * Provide necessary engineering dIsciplines conaistant with require- * ments to obtain applicable FAA-S.T.C. * Conduct and perform required meetings and/cr design revie~s with the FAA. * Prepare and perform applicable flight and instr-~mentaticn test plans required -for submittal results to the FAA. - * Participate in program review meetings with ICL on regularly scheduled basis to assure contract performance accordingly to intended cronogram (annex 1). * Instrument the aircraft sufficient to record the required data in accordance with approved teat plans. * Conduct static/ground and flight teat as required for FAA-Sr. C. * Conduct and perform an ENC- test in accordance with FAA require- ments for all electric/electronic equipments on board. * Assist Id. on flight manuals, eaintensnce and tec~'.nIcal document- ation revision. / Dallas Field~Office IA * Case No. _A44~ O P 9~i 1/ Date ~ / -74 I.-' Serial No. ~ PAGENO="0871" 867 "-C? Page 3 c:~ AGPEZ'Z~T 1C. AhO CHIt prfor~ the requireo data reduction. analysis of the test results and prepare and subm~t firal test re~ort to the FAA. Prciide the instr~menat~On neces5ar:~ for execut~on of task contracted exceo standard equipment that IC~ can octo~r. ~n C~T: is commited to obtain the SIC approved by the FAA doing all fl~gnt test ~n ChLle. Art~c1e - Pr~ce 3.1 In consideration for the services to be rendered by CHIt. lCd shall pay to CHIt a sum of $227,292.00 1~.S.D. 3.2 This price mentioned hereabove shall be paid am follows and GHT will invoice based on these event3 and ICL wtll pay with~.n seven (7) calendar days. I. 534,094.00 at signing of contract. I:. $64,399.00 at start of flight test / 11. $64,3g9.oo at completion and eubmital to FAA of aid repports. IV. $54,399.00 at S.T.C. approval by FAA. Article IV - PROTECTION OF PROPRIETARY Er4F0RZ4AT:oN 4.]. Each party shall use and reproduce the Proprietary InformatIon obtained from the other party exclusively for the purpose of executing its obligations under this agreement and shall disclose same only to its employees having a necd~to~kflow. 4.2 Each party shall refrain from disclomitg the Proprietary Inform- ation obtained from the other party to any other person, without the prior written consent of the said party; in such a case the recipient of the Proprietary Information shall cause such person to undertake the same commitments of protection of Proprietary Information as set forth in this agreeaent. and shall for.'ard to the second party a copy of any sucZ~ agreement. for approval prior to the disclosure of any Proprietary Information. 4.3 During the time that either party t~ol~s Proprietary Information obtained from the other party, it shall take all reasonable measures and care in order to prevent any discloeui'e of same. 11/ 1 Dallas Field Office $eri~! ~ PAGENO="0872" AGRE~4ENT ICT.. AHD GHTI 868 Page 4.4 The FAA S.T.C. approved will be the sole ~;erty of ICL. Article V - t.IABILITY * CHT will be resoonsjbi.e for any personal injury over his own persortrier Mn~.le act~ng ~n Chile * ICt. agrees Gh'TI shall. bear no reepcnsibiljty or ljl.~-, the future for possible danages arising frcn the design a~ data used to secure a S.T.C. on the Model 2C61.-3. Art~cl~ VI - GZt{ERAL PROVZ!:CN 5.1 This agreenent enters into force upon signature and shall. rerain valid untj. all parties have performed their ebligaciors here- under. - 5.2 Zf the program is determined by both parties agreement to be impractjcaJ~ aridlor inappropriate, both parties agree to mutually terminate the said program without further :cbljgat~on to either party other than return of the parties respective property. 5.3 The present agreement is governed by the laws of Chile. 5.4 AU. disputes arising in connection with the present agreerent shall be finally settled under the Rules of ConcilIation and Arbitration of the International Chamber of Connerce by cne or more arbitrators appointed in accordance with the Rules. In witness whereof, the partIes hereto have, as of the date first indIc- ated above, hereby executed this agreesent. IyWCJ5TRIAS CARDOEN LT~A. GLOBAL HELICOPTER TEChIiOLOGY, INC. Represented by: Represented by: Name: G~Z.C.Lv1 ~ Name: CL e'~i ~ 1. ~ Title: ~ ~ Title: ~ Signature: ~ ~ ~ And by: * And by: Name: ~4~fO `~` Name: ____________ Title: `~1~v0~7ic~. Title: ________________________ ____________________ Signature: -Oallg~ FiC!d Office -~ Case No. ~ Date -y~ Q~r~i ~r /5 ~. PAGENO="0873" 869 C 345 West Seventy Fourth Place II ~ Hialeah, Florida 33014 (USA] Phone: (305) 825-8475 CHILE S.A. Telex: 221160 C(FCO UR FAX: 825-8575 Consolidated international Forwarding Co. FMC 2722 M~O1CRANDtJM MR.073 TO c:~CC M::.~1:/~TT: MR. PATRICK ~JALSH FROM CIFCO SCL DATE : DEcEMBER 2.st., 1989 REP. INCAR HE~COPTR This is to in~ocm you that via Lufthansa flight 519/30, we will be shipping Carcloen's helicopter for final destination Dallas The ~ain reason forusing Lufthansa for a transhi.pment inFrank~ furt ~s that the main piece doesn't fit in 707. Anyway I'm attaching copy of breakdown of pieces with their di~cnsiOnS and weights. The main reacon why I'm confirming this to you , is that this unit has to be returned to Chile by air freight also by Luf~ thansa, at negociate rate of (JSD 43.000.- if air freight co~ llect and USD 42.000.- if prspaid. The person to contact in Lufthansa Dallas ~S Mr. Jens Juergen StammnitZ, Cargo Manager and/or Mr. Ernie Bilg, Service Manager or secretacy Ursula, Phone: 1 (800) 4427518 (214) 5742838 Fa:c : (214) 5741538 Aproximate shipping date for return will be february 15th., in order to have helicopter on time on Chile for FIDA'90 (Interna- tional Air Fair). So pls. whenever you think it's conveniell , cc Ct ufthansa people in order to coordinate the air fre g t ck Chile. Best Regards J S K. TR NCH Latin America: FOIIEIGN OFFICES Europed 1901 C1FCONhndoIUfld Sp.dIt(on GMSH Santiago. Chile 0.2800 Bremen I Phene: 1561 (21 3517467.6-54 W. Germany Fox: 150) (2) 2312681 Phone: (49) (421) 550844 lix: ~41O54 Fan: 551614 TIx: 245156 CIFCD D PAGENO="0874" 870 245 West Seve~ty - H)afesn. Fcrica CHILE S.A. Te!ex: 22t tOO CFC3 j3 Consolidated lntemz~onaI Forwarding Co. MEMORANDCJ! N' 039 TO: CIFCO MIAMI/ MRS. RAQUL CAST1000 FROM: CI?CO CH:L: DATE: FED/3/90 3SF: CARLOS CARDOEN HELICoPTER. I AM ATTACHING SO~iE P:CTUCES -~ :-o~:c:~ rot- NY APPREC:AT: HOW WE STOWAGCD THE ME000PTER ON THE SPEC:AL PALLET P7E,660, LONG 6,60 x H. 2,44, GROSS N. PALLET: 500 .t~. IN ORDER THAT YOU CAN GIVE INSTRUCTIONS HON TO LOAD SAME, WHEN EVER TINES READY TO SHIP BACH TO CHILE. REGARDING COllISION LUFTHANSA CHILE WAS WILLING TO PAY ALL COMISION TO CIFCO CHILE IN CHILE. AS WE NEGOTIATE THEN ROUND TRIP RATE OF )JSD 79.000,00.-, BUT I THINK, (ALSO FRANCO SR.) THAT THE HOST FAIR IS THAT I WILL INSTRUCT LUFTHANSA TO PAY CIFCO MIAMI A 2.5% OF THE USD 42.000,00.- PLUS HANDLING AND THE BALANCE ( USD 1.050,00.-) WILL BE PAYED DIRECTLY BY LUFTHANSAS CHILE. FINAL? AS INDICATED BY PHONE TO YOU WILL A?PREC:ATZ YOU CAN OBTAIN SOME PICTURES OF THE UNLOADING, TRUCKING, RECEPTION AT GLOBAL HELICOPTER, AS WELL AS SHIPMENT BACH TO CHILE, WHEN THE TIME CONES, (AROUND FEB/15/90). REG)~RD tin America: FOREIGN OFFICES Europe: CO Chile S.A. C)FCO Handel Und Spedllian GUSH Prnvidancla 2633/0?. 1901 Lehnstedtsr3tr. 19 antlago. Chile 0.2200 Bretnen I ~ (569(2) 2517467.6-5-4 W. Germany ax: (S6112) 2312681 Phr,nn: 1491 (`711 7fl5-t~ ix: 341654 - PAGENO="0875" 871 -~--~---~.. Thc!~ -. d PAGENO="0876" 872 A'. ?RCV~CENc~ :~;~ C~:oA~31cd I:e ctal For.~arth~; C~. PIN - `- __________________ NO.: -_________________________ TO: :`:::: A~AN/RA~::: C~ST:.Lo -- ~TTN. -_________________________ -~ I~X TRA~S~I1SSIC?~ ~ ~j ~ c~:os o.;~;c:~: Ns::c:TT:R -__________________ -~ CcMPL:::sN:A~y ~ N:::c 5N0 YCtJ DAMS AGO,, o.~=s :s CO?~ CF A~E 22O962.~C33 Cs LFONANSA. NCA?~C5~A;:s C:Fcc :t:?.~: CCORL::ATss CLEARA~ACE O~ CF C~SCCIIs -~ AND COORDINATES ONE LOWBOY :Rcc< FROM DALLAS AIRpORT TO OLOBAL ~- `~- HELIcOPTER ;~cJss , so PLEASE Do ALL NECESSARY AND SILL "~- `i'- `~ EXPENSES DIRECTLY TO IXDUSTP.IAS cA~.COEN, REF. PCI ~333/SS. THE ?ERSCM TO CONTACT IN GLOBAL ISQ~R. MIKE ROSlN~)OR HER SECRE N, TAPY, MRS. MELLOW AT PEONE 817-2841212. ``ANY WAY, MR. CARLOS NIELSEN, INCAR ENGINEER, IN CHARGE CF THOB PROJECT MILL ALSO SE THERE. THE FLIONT 442 OF LIJFTHANSA WILL BE ARRIVING TO DALLAS TODAY ~ (O1.O~9O) AT 15:25 P.M. SO PLS COORDINATES BY PHONE WITH /` ~., A?C~f'~/~EOPLE INORDER TO TAKE ALL NECESSARY STEPS IX ORDER TO / IN G~DBAL S ~L~tCE ~ PAGENO="0877" 873 CIFCOFPX MESSAGE~ ROM: CONSOLIDATED INTL FORWARDING CC. (CIFCO) 345 U. 74TH PLACE/HIALEAH, FL. 33014 U.S.A. PHONE: (305) 825-8475/TLX: 221160 CIFCD UR BOUR FAX NO.: (305) 3~S-9575@ TOTAL PAGES THIS FAX: DATE: January 5, 1990 TO: CIFCD CHILE S.A. ATTN: JAMES K. TRENCH REF: STATUS ON INCAR - HELICOPTER TEXT COST FOR CLEARANCE OF HELICOPTER (CUSTOMS FEES, CUSTOMS BOND, CUSTOMS ENTRY, PICK UP AND DELIVERY) OBTAINED FROM FRED HALL AND ASSOCIATES INC. (CUSTOMS BROKES) IS: $4133.00. HAVE CHECKED AMOUNT OF BDND. AMOUNT IS CORRECT, AND IS REQUIRED BY STATE LAW. THERE IS NO WAY IT CAN BE REDUCED. WE ARE SENDING CHECK FOR FULL AMOUNT VIA COURIER TO CUSTOMS BROKERS TODAY, IN ORDER TO GET HELICOPTER PICKED UP ON MONDAY AND DELIVERED TO GLOBBAL. RGDS, RAQUEL CASTILLO CIFCO PAGENO="0878" 874 CU3~CMKauSE Q~E~ NTE~AT1C~iAL FREIGHT FARGER.S G-04-90 Q~ ~ ATTN: PA WALSH ~ FROW: RI K MO$LZY RE: CHIL RELZCOPTZR PAT: THE FOLLO INC IS A COPY OF OUR BILLING GUIDE LISTING TEE CHARGES B E OW THE EEELCO?TER TB GLOBAL HELICOPTER. WE :-!UST H VE THE FUNDS IN OUR HANOS BY TOMORROW TO AVOID STTB.;GE OF $45.00 PBR~±FFECTIVE WONDAY 01-08. THE ENTRY HAS ~FOT CLEARED CUSTOMS AS OF YET, HOWEVER WI WLL HAVE THE ELEA~E TOMORROW KORNING 01-05. WE MUST HARE DELIVERY TOMORROW .AV4ID. STORAGE. WE WILL C NIBACT THE DELIVERY OF THE AIRCRAFT AT A RATE OF ~I00. PROVIDED LI. 7 CRATES WILL FIT ON ONE FLAT BED. (WI UNDERSTAND FROM GLOB ,~ I~ WILL). OUR P~YSI :ADDRESS IS AS FOLLOWS: FRED HALL~ & ~S$OC~A~ES, INC. 8405 STER rN~,!SUXTZ* 102 IRVING, T ~AS 75063 OUR REFER NC~ NUMBER 31234 IF Y 11A11 ANY QUESTIONS, PLEASE CONTACT THE UWDERSIGNZD~ VICE PRES~ PAGENO="0879" ~,- 17) -~ I ~ ~ Customer Ref: _______________________ Bit. or AWB: ~ ~E~/ 2~T3 3__ Descript: ____________ ~/~:~73~Y ~ (Invoice No. / Cuit. No. - Carrier: Entry No:3//'CC ~3/23C/-~7 875 (Oats) Entry data: _______________ * Iendor ---~--- Vendor ~ D~acript~on T/C AOUflt Duty 7~((~//~('~:, /7,? 100 -~ Ocean Freight 101 - -k------ Air Freight 102 Port Pee: 103 Insurance & Placement 106 Delivary/Pic3CUp 107 In-Bond Transit Fee 108 -~-4~----- ii - -k Custom: Bond ~ (!~L&C~ /~c/~~'9~ &h~ - 109 ~ ~~6r~J = ~ ;~- 7/C Descriptio~ Amount T/C Description AEouflt 300 Customs Entry gs~~e 315 . (CL COD Fee 319 Bond - FHLA 02 Add1 C1aa4 320 Transfer Doca. 03 Add' 1 rnvo4~ee - 321 C.~. S * C* 04 Spec. Mess~nqerj - 330 De1iVer~ FIUA 07 Other Govt~ Agency 35~f~('~S. Out Po;t Cdord. - AE:a~ . - -4------- - 10 Mess._CustcfrRel. ~ MESSAGE TO CL~1T: ~ ~ PAGENO="0880" 876 Z~U L ~ ~ -~ -: ~ z:~c:c~ ::;c. ~3co ~ .0:. S 76053 -.~:o: or - - CPCO c3I~ S.A. - --. - - - -: ~. - - ~v. O7I0Z~c~\ G3~ OP 080. - -- - - - ~ çp~odoro \70~2ro florioo n~.t0~ 3~/77J~/~rW - - --~ *:-~- ~-- - -~ - ~- F0~7 ~ ?o~ La p~'~ r~ oa~ ~ix ~ - - - -. -- ~S~S~) ILZ/9/30LE/442,021- ~ or~c::z6LocCz~o A0~0~ 00 . - C~\NC.~ 0 000079 D~ 17 08 83 DEL~\ - ~~IcoP ~S~IZ 453~~191~ ~~~5;. Z:0,66x0,23a1,03 2$.~~: 3 0 56~ 4E~5 2 ~a 7 0 3S~ 62x1 1.5 - - PAGENO="0881" 877 *, ~ ~TALAJE CE KELICOPTERO P~kir1E do Helicóptero Cardoen 206L-III trasladado a U.S.A. el que ccns~a do 7 cajos y que a con~inuación so detalla ci contenido de coda uria de alias. CAJA N 1 Cuerpo central do helicóptero Interior 1. 1 Antona OCR 2. 3. Eje mando rotor de cola 3. 43apas 4. Conjunto del teen de aterrizaje 5. Engine Log 6. Aircraft tog 7. 7.0.7. Indicator 8. Manual de vuelo 9. Certificado TrataMiento termico 10. 1. par de fonos 1 Rotor de cola Historia3. de Helic6ptero CAJA N' 2 Conjunto cola de Helicóptero Los Conctisitadores 1700. Pi,~ 2~ - Fonos: 2313420.2314219 - 1*1cc 340997 INCAR C1( SANTIAGO . CHILE PAGENO="0882" 878 14 ~ CiJA N 3 2 Apas (~i~) d~ ~e!ic6ptero CAJA N' 4 3 A1cta~ v'!rtica1c~ de He1~.c6ptero CAJA N' 5 1 CQr&jur~t~ rnaot~2 d~ Te1ic~pt3x-o CMA N' 6 Cor2junto estabilizador horizontal CAJA N' 7 Corijur.to cubo rotor principal Lo~ Consulst~dorn 1700 . 20 - Fono~: 2313420.2314219 Th~x 340997 INCAR C?~ SANTIAGO. CHILE PAGENO="0883" SWIESCO CNARTZR COMPANY iNC. 15485 EAOLE NEST LANE SUITE 210 H.NI tAXES. FLORIDA 33014 879 . .- SHIPPER'S RE?: MO 653 ~NSOM( ~ SUD AMERI~i~Q 34S N. 74T:t pt~ :~02;~1~0 - `SANTA RITA V.306 REM ORLEANS, LA. U.S.A. it ARAISO cli ,IANRS ANO ~V'OE~H ~ OF P - QESC::PTIOP: OP .,.2~R ~LN AL CHAOE3 ANti 00006 QROSSwE;GsF M*NJM(UEN `PCI 2353/88'. PART 1x40' CONTAINER. 1 HElICOPTER 2.300 LBS. 850 C3F~ I 1.043 NOD) 24 M') - 1 HELICOPTERO tIARCA DELL 208W. USADO 1981 SCAlD 45593 CON T000S BUS ACcEsoR:OS. EHIPHENT PROM THE PORT OF NOW ORLEANS. LA. CLEAN ON SOAZOD U.S.A. TO VALPABAISO CHILE. CONTAINER N0.TNIS 4102~ GOODS BULRS AND DOdCZZSTS P.RE MAXXW ~ SEAL NO. 38 5663. 384S~ ODN. PlO. TRIU-4~02O2-4 2353/88. SEAL NO. 38456631 ond TIlES TRANSACTION IS COVERED DY IMPORT LICE SE 3845669 ~ 068354. /-S. I 3ANCO GOD AMERECANO IRREVOCABLE CREDIT NO * ....L. 1923.0474 P.9.5 .L3~O, mACE & DANXERS TRUST COI'.PAH? NO. R724222 cO'-54T 0 STATES LAP~ PROHIBITS IDPOSITTOP4 OP THESE COMMODITiES TO THE COl .751ST CHINA, NORTH KORE MACAU. HONG so.o.I COMMUNIST READ OP VIT NAZI AND LOAS AND CUBA UNLESS ~THERW1SE AIJ'TIHORIED DY ~L'BN UN9788 N8TA1t33R401$ 70DM MM~1M.S 475 - FREIGHT CHARGES PAYABLE Ar: ~`r~ NUMEEB OCEAN F~*DG$T C~4ARGt0 ON ~MM'o~ co~tC? ----.-` 75N~ABgWUPAOVICT.7NC. S.E.L. MADUR (FWR)1)A), NC'~"~ ~PtN1'~ ~p `4* 11111T B 4, r** ~- 0 47 `~` *00 I~ / ~ P. PAGENO="0884" SHIV MOH.AN )WXXAR, Defendant. COMES NOW the United States of AmerIca, by and th.rough Mike MCJcay, United States Attorney for the Western District of Wa5h;Lngten, and Paula S. Bogge and Thomaa C. Wales, Assistant United States Attorneys for the District, and the defendant, SHIV MORAN MUXXAR, and tim counsel, Albert .7. Krieg.r and John U. Lundin, (collectively, the ~PartL.s~) and enter the following Plea Agreeaent pursuant to Rule 11(e), of the Federal Rube of Criminal Procedure (the ~Pl.a AgreementS or ~Agroement"): 1. SHIV MORAN XU~AR having ben charged in Counts I~ XXIV of the Third Superseding Indictnsnt (the ~In4ic~nt) agrees to plead guilty to Counts V and XVII of the indic~ent, which charge him, in Count V, with exporting a DWC VAX 8700 I5!TW STATU A1T~1T 3$X Sisfirn P~tth A~ Pliia Sssttle, MIhllgt Z104 (20) 442-757U 880 5. C-TEK Case 2 Judge Dwyer 3 4 5 6 UNITED STATES DISTRICT COURT 7 WESTEM DISTRICT OF WASHINGTON UNITED STATES OF AMERICA, Plaintiff, ) NO. CR89..247WD V. ) PLEA AGRZEME~T 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 ruau ~ PLEA AGP.ZEMENT/MUXXAR - 1 ~I*Ii} (521!~FS) PAGENO="0885" 881 computer without a licence, in violation of 50 U.S.C. app. 2 ~ 24 10(a) and 18 u.S.c. 5 2, and, in Count XVII, with money laundering in violation of 18 U.S.C. 5 1956(n)(2)(A). SHIV 4 MORAN MUICKAR understands that the maximum penalty for Count V 5 is imprisonment for a period not to exceed FIVE (5) YEARS and a 6 fine not to exceed five times the value of the DEC VAR 6700 7 described in Count V (approximately $2,500,000), end, for 3 Count XVII, iznpriaoruuont for a period not to exceed TWENTY (20) 9 YEARS and a fine not to exceed $979,970. SHIV MORAN IfLJItIUkR 10 further understands that, subject to the provicioric of 11 paragraph 2 below, the actual sentence will be left entirely to 12 the discretion of the Court. SHIV MORAN I(UIUtAP. ecknowledgoc 13 that, other than the provisions of poragiaph 2 below, no 14 promises of any typo have been made to h4.m with respect to the sentence in this matter. 16 2. The Parties agree pursuant to Fed. fl. Cnn. 17 P. 11(e) (l)(C) that, if this Agreement i~ accepted by the 18 Court, the sentence in this matter, as t~ imprisonment only, 19 shall not exceed 42 montha' izspriconmefltt~with credit for time 20 carved end for 54 days/year good-time earned in pretrial 21 detention (based on Duronu of Pricono' standard manner of 22 calculation), unloec SHIV i~oa~ rw~ c~n~itc en infraction 23 that would effect the Euronu of pnicons'calculation of his 24 1 good-time earned. 25 ~ The Parties further agree that the ~otal finn/forfeiture 26 in this matter nhcll total $1,500,000, w~iCh figure shall (SITED ETATEE ATTtY 35O~ !e~fir3t Fifth Awnm Pieu Dwttio, hirTIm (S1C4 ~ ~u..; PLEA AGREEMENT/RUIKAR - 2 (25~) uh.7~75 ~ (5219FS) PAGENO="0886" 882 include the value of the DEC VAX 8700 (valued at $490,000 for 2 5. this purpose), the $8,Zl,283.34 seized by the Government, and 3 the $90,000.00 currently in the custody of Robert J. Casperzon. 4 As to the moneys just specified in the preceding sentence, 5 SHIV MOHAN MU1~KAR agrees to substitute is~ediately equivalent 6 cash (;~.n U.S. dollars) if a ~ucces~ful claim is nade to these 7 funds by a third party. 8 The Government agrees to make a motion if neceesary to 9 bring this Agreement into accord with the Sentencing ~ 10 Guidelines. Subject to the express limitation on imprisonront 12 just specified, the Parties reserve the right to argue in favor 13 of differing positions as to tho apprcprLate of fense levels 14 under the Sentencing Guidelinec relating to the offenses to which SHIV HUMAN MflUtAR is pleading guil~y. Specifically, SHIV 18 HUMAN MtIHAAR admits that, vhilo ho is guilty of the money.. 17 laundering charge contained in Count XVII, ho reserves the 18 right to argue that the provisions of Sentencing ~uidoliaec 19 ~ 251.1 should not be applied to this cave; the Government 20 believes, and will, argue to the Court, that this provision does 21 apply. &IIV HUMAN XUX~AR also reserves the right to ar~iao to 22 the Court, as to Count V, that level 14 £5 the appropriate 23 unedjusted offence level under Sentencing Guidelines 5 215.1. 24 The Government believes that level 22 is~ the appropriate 25 unadjusted offence level under this provision, and will argue 26 this to the Court. ~s to each count, and the conhin.4 offense ~IITW 5~TAT~ A~T~T ~O Sc~fIrst FI~h ~ I Sssttl.. ~1~thçt~ C104 PLEA AGRET.XENT/flu7ir.AR 3 (~) 4C.7V5 (5219FS) PAGENO="0887" 883 2 level, the Pertioo reserve the right to c~ppooI datorznientiona by the Court that are contrary to the ponitiono outlined obovo. 3. SHIV MOFIAN MU1U~AR ogreec to forfeit voluntarily to 4 the United Statec any end all moniec and goodn identified end S alleged to be forfeitable in the Indictment end to teko 6 whatever ctops era necoccary to pace clc~r title to the 7, United Statoc. Thece ctopc include but cm nmt linit~d to currender of title, the cigning of ci conCent decree, a 9'; otipulation of facto regarding the trano~or end bade for the 101 forfeituroc, and cigning of other docure9tn neccoonry to 11 of fectuate ouch tranofero. It Ic hereby otipulated and agroo4 12 I between the United Statoc and SHIV I~HAN MU1UZ~fl that the 13; property cubjoct to forfeiture ac doocribed ciheve inciudeic any 14 and all of SHIV !4OHAM MURI~.AR'c intorect 4n the follc~ing 15' prupurty: $851,283.34 previously ceined~and forfeited by the 16 United States as having pacced through beak eccounte of 17 John To~rncond, Robert J. Caisperson, C-ToI~ Computers, Inc., and 18 Computer Acquisition Specialists, Inc.; ~ho DEC VPiZ 8700 19 computer described in the Indictment; an4 the cun of $~0,0OO, 20 together vith arty and all accrued intcro4t, currently in the 21 custody of Robert J. Ceoporeon, which ho~obtained fran artothor 22 defendant vhilo cooperating with the Gov4rnnnnt. 23 4. Ac to all cach paynento specified in this Agrocnent, 24 the Government agrees to inquire of the t~nitod States 25 ~par~nt of State ~rhothor thoec funds i~ny be peJ.d to the United States Embassy in Ne~ Delhi, india, in Indian currency, L~ITE) STATES ATT~IY 1~ SmfIr~t F~ fth Il~o P1~z~ Sr~nIo. ~Mt~Tc~ Ei1~ PLEA AGnEEMEWrIM'JERAR - a (~) ~ (5219FS) PAGENO="0888" 884 2 if the Government of India will not permit the transfer of thes. funds out of the r.nuntry of India. 5. The United States agrees to move for dismissal of the 4 remaining counts of the Indictment as to SHIV MOKAN XUIXAR at 5 the time of sentencing. SHIV MOHAN MU~XAR expressly waives his right to challenge the reinitiation of these charges if he 7 breachee this Plea Agreement. 8 The United States further agrees that no additional 9 charges will be brought against SHIV MOHAN MUIKAR based on 10 evidence now in the Government's possession and arising from 11 the acts underlying the charges contained in the Indictant, 12 unlesu SHIV MOHANMUXEAR breaches this Plea Agreement. 13 G. The United States expressly reserves the right to speak to the Court at the tim of sentencing pursuant to Rule 32(a)(].)of the Federal Rules of Criminal Procedure. The 16 United States further reserves the rightto provide to the Court and to the United States Probation Office a statement of 18 facts relating to all the criminal conduct for which SHIV HUMAN 19 MUICEAP. was responsible; and further reserves the right to 20 correct and cousnt on any misstatements'of fact made by SHIV 21 MOHAN MUXKARor his attorney in the course of the presentence 22 inveetigation or in the course of the sentencing or other 23 proceedings. SHIV MOKAN MURXAR reaffirms his rights under 24 Rule 32 of the Federal Rules of Criminal~ Procedure. 25 The United States and SHIV MORAN KUFIAA acknowledge that 26 the above~.etated terms and conditions constitute the entire .111W TrAit! A1T~Y ~X 3stfirit ~1ft5 Plus - !~ttls, ~M151PIqt~ ~1O4 PLEA AGREZMEN'r/xuEy.AR 5 (~) ~ (52].9PS) PAGENO="0889" 2 3 4 5, 6 7 6 10 ii 12 13 14 15 11 18 19 20 21 22 23 24 25 26 aIlED STAllS A1T~Y 3~OD ~flrst Ttfth A~ Plus Sn~ttts. ~ 53104 (203) 442-7570 885 Plea Agreement between the Parties and deny the existence of any other terms and conditions not stated herein. DATED THIS - day of _________________, 1990. SHIV MOMAN MW(KAR Defendant PAULA H. BOGGS Asaistant United Statee Attorney ALSERT J. nr~n~~r.n Attorney for D.fsndant Mohan THOMAS C. WALE5 Assistant United States Attorney JOHN P4. LUNUiN Attorney for Defendant Mohan PLEA AGUEXZNT/XUETJsE - 6 (5219PS) fl PAGENO="0890" 886 EXHIBIT 2 Judge Dvyer 2 3. 4 5 6 UNITED STATES DISTRICT COURT 7 WESTERN DISTRICT OF WASHINGTON 8 UNITED STATES OF AMERICA, Plaintiff, ) )lO. ~RB9-247Wg 10 V. ) PLEA AGRED~ZNT ROBERT J. CASPERSON, 12 Defendant. ) 13, 14 COME NOW the United States of A~.rj~a (the 5united 5tates~ or 15 "Govlzrnment"), by and through Mike McKay', United States Attorney 16 for the Western District of Washington, and Paula H. Boggs and 17 : Tho~s C. Wales, Assistant United State* Attorneys for the 18 District, and the defendant, ROBERT J. CASPERSON, and his 19 attorney, Kenneth W. Sheraga, (collectively, the 5Parties5) and 20 enter the following agreesent pursuant to Rule 13. the Federal 21 Rules of Crixinal Procedure (the "Plea Agr.uent" or 22 "Agrrn.a.nt5): 23 1. ROBERT 3. CASPERS0N, now being charged in Counts I 24 (Conspiracy), II (conspiracy), III (exp~rt of Micro Vax II), VI 25 through XI (false state~i.nts Bade in connection with export of 26 DEC VAX $700), XII (att*tpted export of Tektronix 4225 URITE~ STATES A~0R2~Y 3600 Seafixit Fifth Avenue Plaza Seattle, WA 9e104 PLEA AGRXEMENT/CAZPERSOH - 1 (206) 442-7970 (1658FP) PAGENO="0891" 887 wor)u,tctiorto), an.I XVI through XXIV (money 1~undorinq) of the 2 ~°°~`~ p0mm~~~~g Indictment, agreoa ~o plead ~1~iity to each of 3 the coi~nte in which ho in charged. In thin regard, ROBERT J. 4 CASPERS0~ underatanda that the maximum penalty thet tho Court w.~y S impeno upon hin pica ot guilty in ce o coj~jLi MAXIflUN~IMPRI~QN~4~ MAXI,~UNIIRE 7 I 5 Y0~~ $ 250,000 o ii $ 15,699,700 9 III $(v~1ue of 5x5 Micro Vax 113 II'n) Ii VI $ 250,000 VII $ 250,000 `3 VIII $ 250,000 14 IX N $ 250,000 19 X N $ 250,000 10 XI $ 250,000 I? XII $(valuc of 5x23 Tektronix 4225' 0) `9 XVI 20 yearn $ 979,970 90 XVII $ 500,000 91 XVIII $ 500,000 92 XIX $ 500,000 93 XX " $ 500,000 9 1 ii XXI $ 500,000 XXII " $ 600,000 U~I~ZD SThTES Z~?~1~TEY 3600 Scat i~nt ?ifth Av~r~o Plaza S~attlo, B~ 90106 (206) 442~7970 PLER ACRE ENT/CASPERSON - 2 (2658FP) PAGENO="0892" 888 1 XXIII " $ 500,000 2 XXIV $ 500,000 3 ROBERT J. CASPERSON acknowledges tb.at no promises of any type 4 have been made to him with respect to the sentence in this 5 mattor. 6 2 * ROBERT J * CASPER.SON egress to forfeit voluntarily t~ the 7 Unitod States any and all monies end goods idefitified in the 8 Second Superseding Indictment. It is htreby stipulated and 9 agreed between the United States and ROBERT J. CSPE~O)~ that the 10 property subject to forfeiture as described above ccnsist.s o any 11 and all, of ROBERT .7. CASPERSON'5 interait in the following 12 property: funds -- approximately $800,000 - previously seized 13 and forfeited by the United States as having passed through ban)~ 14 accounts of ROBERT.7. CASPERSON, C~Tek Computers, Inc., and 15 : Computer Acquisition Specialists, Inc.; tna DEC V&X $700 computer 16 described in the Second Superseding Indkctmant; and the sum of 17 ~ together with any and all acc~4~ed interest, currently in the custody of ROBERT.7. CASPERSON, which he obtained from one ot his co~d.fendants while cooperating with the Goverr~ent. The 20 Parties further stipulate and agree that ther. shall be no 21 additional, forfeitures imposed an ROBERT.7. CASPERSON; 22 Susan Casp.rson, his wife; C~TeJc Computers, Inc.; or Computer 23 Acquitsitian $p*ciali~ts, Inc., as a result of the conduct of 24 ROBERT ~. CASPERSON, based on evidence now in the Government's posseosion relating to, or arising fro*~ the events underlying 26 the Sucond Superseding Indictment. UNITED STATES ATTVRSEY 3600 Seafirst Fifth Avenue Plaza Slattie, WA 98104 PLEA AGREEMENT,'CASPERSON - 3 (206) 4427970 (L6Sarp) PAGENO="0893" 889 3. ROBERT J. CASPERSON ogroon to coo~OratO fully with the 2 united Stataa. Thin cooperation ahall include providing the 3 GOVO~I'BCflt with all truthful inforaati9fl known to bin rolating to 4 the chargon contained in the Sccond Su~orncding Indictn~rnt and 5 tontifythg fully, coeplatoly, end truthfully before any Grand s Jury or at any trial or retrial at whic~b thin tantinony in dooaod 7 noconcery by the United Staten. 5 4. In exchange for ROflERT J. CAS~P.SO~3'$ eqroeRO1~t to plead 9 guilty end to provide full end truthfu]~ cooperation, tho 10 United Staten aqreoo that (1) it will ~rthg no additional ChST~OS banod on evidence now in ita peocecoioi~ relating to, or arising 12 f roe, the ovanta underlying the Second Suparooding Ind~Jatnont; 13 (2) purnuant to Sentencing Guidoliflon 181.0, it will ~ot una 14 neif-inerimincting information that hcii~ been and tYill b~ provided by ROBERT J. CASPERSON an part Of bin ~li~ntiofl to cooperate-- 10 and which wan not known to the Govornnc~flt prior to R081~tT J. 17 CASPEPSON'S cooperation coxauancing flaz~h 31, lOC~~for any purpone, including determining the app3~icnblc guidalino range 19 under the Sentencing Guidelines, oxccp~ in a proaccution for 20 perjury or giving felon statceonto or 4' the event ROOEPT J. 21 `~ CASnaOU brnnchco thin Plea Agroeront~ and (3) it t5ill recommend 22 to the Court at ncntencing, purcuarit t~ Sentencing Guidelines ~ .1, that the Court depart from the +idolintX) and nentenco 24 ROBEI~T ~. ~ to a aentonce bo1o~ the range ethorUica 20 applicable to bin cane, an may be doceT appropriate by the 20~ court. ~7RX~T3D ~`i~Z~T~3 A?POR~1ET 3600 Soafi~ut Pifth Avenue' Plaza ~~aettlo, ?IA 00104 PLEA AGUZEME~4T/CASPERSON 4 (206) 442~7970 (1658FF) PAGENO="0894" 890 1 5. RODERT 3. CASPERSON expressly understands that the 2 Oov~rnmsnt'~ obligations under this Plea Agrseacnt are 3 conditi~cd on hic complete end truthful cooperation arid 4 performance of him other obligations under this Agreement. S ROBERT J. CASPERSON further understands that this Agreement will 6 provide him no protection whatever againet prosecution for 7 perjury or making a falce statement in connection with his 5 testimony or other obligationo under thLs Agreement. 9 ROBERT J. CACPEPSON recognisoc that, if this Plea Agreement 10 is breached, the United Staten expressly retains the right to 11 withdraw from thin Agreement and to prosecute fully all criminal 12 violationc cotablichod by the cvidonco, including perjury, 13 subornation of perjury, and obotructionjof justice. 14 ROBERT ~. CASPERSON oxprencly waivc~ his right to challenge the initiation of additional chargen agi~inct him arising cut of 16 the obove-dencribed conduct if ho brcecttec thin Pica Agreement. 17 5. The United St~tcc oxproncly rocorven the right to cpoa)~ 18 to the Court at the timo of nentoncing purmuant to Rule 32(a) (1) 19 of the Federal Rube of Criminni Procedure. The United Staten 20 further rocervoc the right to provide to the Court and to the 21 United Otateo Probation Office a otate~nt Of facts relating to 22 all the criminal conduct for which RSB!T 3. CASPERSOB was 23 reoponcibbo; and further renorvon the r~g2tt to correct and 24 comment on any misstatements of fact mache by ROBERT J. CASPERSON 25 or his attorney in the course of the sentencing or other 26 proceedinge. WilTED STATES ATTORNEt 1 3500 Seafiret Fifth Avenue Pl~Z~ Seattle, WA 91104 PLEA AGREEMENT/CASPEP.saw - 5 (206) 442-7970 (1651FP) PAGENO="0895" 891 1 7. The United Staten end ROBERT ~. c~?ERsQII have 2 pravicuely reached agroonante outlirtoci in lottoro dated March 3]., 3 198P~ Juzio 30, 1BOS; and 8optoc~er 22, l98~. Thcco lcttorc arc 4 attzichcd hereto ac Exhibita A, B, and C, rcopectivc3~y, ~tn~ B incorporated heroin fully, except incofar an they ore 6 inconniatont with thia Agroenont, in which eeoc thic Agrcoeent 7 shaLl control. 0 0. The United Staten and EOBERT J~. C1~P~SOM nc~owlodgc 9 that the abovo-atatod tor~c and conditi~no ~~ituto the entire 10 Plea Agreement botween the Partion and ~ony the c~icti~nce of any other tome and conditione not ctatcd .12 DATED THIS day of ___________ ______, 1DEO. 13 14 ~ ROBERT J. CASPERSON PM~Q~E. Defendant Anciatant ~nitcd Statec Attorney 10. 17 KENNETH W. SHARJ~A -- THOHM ~ Attorney at Law Ancintant nitad Staten Attorney 1~ 20 21; 22 23 24 25~ 20 UNI~ED 0TA~ A~I'0RSEY 3600 Setifi~St ]~`ift.t Avew~cpla~n Sóettlo, ~1A 90104 PLEA AG1~EE1'1EHT/CASPV%SQN - 6 (206) 442-7970 (].6S~PP) I PAGENO="0896" 892 EXHIBIT 3 The attached docu~entis Mohan's "wish list~ of e~ipnent and the prices he was willing to pay. PAGENO="0897" 893 F~X COVER S~EEL TO: ~ ~ FAX ~: FR~1: DATE: TIt~: /~:~ CUR FAX #: 26-~1-8~84 No, ~ PAGES: fO (Dlc. mis `~) Oi4~/~I IL:$ i.S~ 4 ~ c1~1 ~ / ~ .i~11d - ç'J~ ~7 ~. C,". ~ ~r /,~ti& -rL~ pcc..~s 11,Z~t g~~: Lix1~J AD C Q~T~ f~ ~ ~ic~ Q~r ~ U.S. v. SHIV MORAN CAUSE ~~_~7wn PLAIN11FF ~4flN.E~ 124th St. EXHJB~T -i(Imland, WA 98034 ADM3TIED____________ 206-823-5563 . 51-840 0 - 92 - 29 PAGENO="0898" LI E~C R I? t ION LIE LUA-N H4005 TRANSCEIVER TRANSCEIVER CABLE BNE3H-jQ $ BNE3H-20 $ ?NE3H-40 O!ZMPR HULTI?0RT REPEATER LIESTA-AA STATION AOAE'TER BC1GH-3(; THIN WIRE ET~1ERNET CAE'LE a S S a BNE2A-tiC COAXIAL CABLE 117M EINE2A-ME 70~j ~INE2B~,1C 117V1 BNE2B-MB ` ION BNE2B-'NA * 23?1 tEREP-AB RFPEATER E~ECSA-EA ROUTER SERVER LJC~AX-LA 4 LiNE SYNCH R5232 UebAX-LC 2 LINE ASYNCH RS232 BC17L-04 CABLE DC17F-25 CABLE L'EeNkI-Ljos EUR P5/2 QVAOS-A1 bECNET-vAx 00004-NM DECNET-1]pi+ L'ECNET ROUTER SERVER 0P725-HM ETHERNET INSTALL GUIDE NETSIART PLUS ETHERNET iNSTALL TOOL KIT TRANSCE1v~ iNSTALL TOOLKIT BARREL CONNECTORS TERN INATORS PRICE u~ 3, 400. OC 199.Q( 99.0( 135.O ~ 94~.C~ 270 . CC 29.O 22.O( I ,464. 974.O 83C~.0 5~G. CC 230.0( 1 ,7~0.0( 8,~OO.OC 1 ,bSB.0( 420 .0C 48.00 12~.OO 460.00 1 ,925OC 549 a 37.0C 37. 12.0( ç~;:,~) ~49 894 ALL P~z~a.s ~ QUA r~t 1TY 32 14 B 10 S a, 3 S 4 4 5 6 6 4 1 1 1 1 2 40 2O4~' PAGENO="0899" 895 ETHERNET TURNAROUNZI CONNECTITh H8223A I 12.00 ETHERJAC)< t$EXJI~ 30 33~00 THINWIRE T~CCJNNECT0R AN!.' BOOTS H8223A 20 12.00 THINWIRE TE~MINAT0RS AND LOOTS H822~A 8 .12.00 ETHERNET TESTEJ~ 1 F~S/2 SOFTWARE COSMOS/M STRUCIUI~AL 2 kESEA}~CHAND MAINTENANCE SYSTEMS MSC/PAL 2 V 2.0 MACNEAL SCHWENL'LER C0~P 9 205C ~3(~96 PAGENO="0900" 896 UUANTITY 1~A23-AR, RAG3u, F?, 16~iB, t~0, TOIC~0 TUI~0, tiF0rJA-~i, C!:-LiEUNA~~~, TRILIM H9646 0Z004-HZ MED ~ DOGS MV2000, F?, Rti~4, 6Mt',.5A40, [`E~TA-AA X 3 r~5o + ~ Box, Rt~4 I~X? ~ox TE~TRONICS 4325 ,19' 12R0 X 1024 RES 01SF' X 16 oPrION9 3A, lo, 4200F2A, 4~O04M, 4300F3E, 4200FUB, OPTIONAL ACCESSORIES; SERVICE MA4UAL, DISPLAY CALI~RAT~ON GRATWULES, GOFTWARE PORTING GUIDE, GRAPHICS PROGRAMMERS REFERENCS IJTE~ COMIIANI' REFERENCE, IJTEF~ TOOLS, C REFLPE~NCE MANUAL, X WINDOWS REFERENCE NFS ~EEEI~F.NCE TA~sLET SIJiItIAGRA?HICS, 17 X 24' X 16 VAXSTATTON I1/f3PX (SV-~VXG~-~N X 4 TABLET GRAPHIC TECHNOLOGIES CO. X 4 0113)-f'AD TYPE S OR 5A ~2' X 18' EMULEX OD3~ (MSCF') X 7 I?ORMATTING I DIAGNOSTIC SOETWAHE X 1 EMULEX CVX ~51804-2 ON TK~O NEC 02363 DISK DRiVE WITH 3M CABLES X 14 EMULEX TC03 TA}'E COUPLER X 6 KENNEDY 9600 TAPE DRIVE WITH 3M CABLES X 3 -t$EQA TAPE 111750 CARTRIDGE STREAMER X 3 EULL-WIDE CONFIGURATION WITH 3M CABLES DSRVC-4B DECROUTER 200 DOCup,EP4TA:r ION ~ SOFTWARE DSRVBAE. DECSERVER 200 DUCUIIENThT ION I SOFTWARE L'NE4C-l5 H4000 1'ESTA~.AA WITH CO~4NECTQR X4 X2 X 20 F'RICZ uso X 7 22,823.00 14,708.00 ci ,000.oo :3, 150.00 23,990.00 1,700.00 19~.00 1 ,~iO.0() 4, 500.00 14,OSt,.00 3,000.00 421.00 X 2 2V5.00 X 14 290.00 2051 p. `~- `is" X 1 4,788.00 PAGENO="0901" 897 EMUL.EX CSO9/CP09 16 LN ASYN PULL MOO~M X 6 ABLE P1UXMASTER WITH rJHV EMULATION HOST X 1 B LINES X 1 RACAL-VADIC 9GOOVP MODEM X 6 C-ITOH CIT-326 240V NTH AMER KEYBOARD X 48 WHITE PHOSPHOR Ig~.T~0NIX~.42O7~ITH OPTIONS. ~ XB TA8IJT. 4557 `7 - DATA PRODUCTS B300 WITH ACOUSTIC CAB X 1 WITH 0-BUS CONTROLLER STEEL PRINT BAND 2500410228 X 2 250529-0~2 PROM STEEL PRINT BAND 250134-049A X ~! 2~0G48-049 PROM UZOO4-H5 X 1 VAX/VMS SERVICE EOR MS-DOS 0ZA93- X 1 REMOTE SYSTEM MANAGER(RSM) FOR SERVER X 1 AND CLIENT SYSTEM QZB13 $ QZB14 LOCAL AREA VAX CLUSTER SOI~TWARE (LAVC) X 1 QZ-ZCE TERMINAL SERVER MANAGER/VMS (TEN) X 1 02-Z42 NNCC/VAX ETHERNET QZ-514 x i ENGiNEERING DATA CONTROL SYSTEM (EDCS) X 1 (AZ-SiR VAX DATA DISTRIBUTOR W/RUN TIME X 1 ENVIRONMENT (IZ-Z96 VAX LISP V 2.O,,OR LATER `2Z-917 X 1 VAX SESSION SUPPORT UTILITY (SSU) X 1 OZ-ZAV THINWIRE ETHERNET CABLE PVC 1000 FT. X 5 210 .00 1,100.00 3,700.00 1,895.00 800.00 550.00 ~5,7SO.Q0 , 4,7~54.0O 243.00 243.00 3. 9')5. 00 6~0.00 2, 096 .00 2, 485 * 00 9,908.00 12,821.00 5,990.00 5,488.00 719.00 PAGENO="0902" 898 VAX X-UAY QZ-729 X 1 2,39~.00 EXECUTIVE SOFTWARE INC DISKIIEPER ~`OR X 1 9~i.0O VAX/VMS RAXCO R~BE4IT SOFTWARE RABBIT-5 X 1 ARCHIVING BACKUP RAXCO RABBIT SOFTWARE RABBIT-7 X 1 9~)5.O0 VMS DISK OPTIHISER VAX RALLY QZ-A8C, X 1 17,995.oo VAX TEAM DATA OZ-741 X 1 5,040.00 LET'S C NOW BY REX ~AESCHE, 2 VOLE x 2 60.00 PRO~'ESSIONAL PRESS INTRODUCTION TO VAX/VMS BY TERRY X 2 50.00 SHANNUN PROFESS 1Ut4AI. PRESS VAX/VHS INTERNALS $ DATA STRUCTURES BY X 2 50.00 KENAN L.J & RATS S.F. DIGITAL PRESS THE DICITAL DICTIONARY BY ROBERT E. X 2 50.00 MURROTTA LIII3ITAL. PRESS DX-ZNAQ1'~C5 MUAX II DIAUNOSTIC ON TKSO X 1 DX-ZNAAA-CX MVAX II HARDWARE DUeS X 1 GENESIS (ENCODE TECHNOLOGIES INC , X 1 12, COTTON RD. NASHUA, NH06063, (~ARY GUY (603) 882-1666) -NC PROGRAMMES (NC HICROPROUuCTS. INC., X 1 * 3333 NORTH CENTRAL EXPRESSWAY, SUITE 380,RICH*RDSON, TX 75080, RAY WHEELER C~14) 234 6655 ENULEX QD33 X 1 EMULEX TC03 X 1 HOC CARTRIDGE POE HTI5O X 100 TK5O-I( DATA CARTRIDGE FOX TKSO X 20 DEDNA-M X I * ~ 2O~ DELLIA-M X 1 ~ Q. PAGENO="0903" RRON ____________ 899 I ~ 24 7.j ~ L ~ 1 9 ~ ~ *c#~e* C.t'~g~ `1.7 ~ ~Z~r~4~5 5.0 Vti~ W~:~ r'w~ ~ dei.ivecy 25~ 2~ I, I' 15I?c~ (, /qo~ 5T9c~ ~ #4 zil/* * * is ~ ~To~M Is. 7q9s~ ~ ~~OOo~ `Q ~ * II `4 ~qo~ `I I2~Q . iqqe i~ ~ 1i9o ~rc -. f4IçQ.. ~ */07$' Z (ji. 2054 ~ 0* ALL ?OLLO~4ING £QUIPMEN~ IS NEW. ~.E,C ~3OQZ~A3. MICrCV~ II sys~sm OuHding ~.1cck D.~.C Ms6~3O~CA, 0mb Memu'y * Na~sem~ NS638~IM. 8mb Memory 27oo D.Z.C I~ZQ~(A~M. Ethernet Contrc~1or ~,3.C CX~OEQNA-~C?, Cabinet Xit O.E.C ~$E3X-~O, iom Cabie D.E.C ME3ZC-'2O. 2Cn~ Cable D.!.C BNZ3K~'4O, 40m Cable D.E.C RQ1~X3~~AA. Q ~ D.~.C RX33A-AA. ,2mb Diskette ~r~vtE DE.C RX33A~'A3, 1,2mb Pi~et~o Drive * Emuiex QP3~, Ccntrci.ier ?u~it~*.~ M2361A. 5ec~mb Diek ~ive Fijiteu M2442AC, Tape ~rive Eauie~ TCO3, Contro1~er * Sigma L~RV-l6, Mi'~ipie3car * c~(.DHV~16. CabInet X~t TRIMM 59046. T;im* Cabinet D.E.C QZOO1-44Z. Twe ~aer D.?~.C OO~R!, Doe. and Media * ~.E.C ZNAA~'C~. ~Ltàga and Manua~ (inei. ~ PAGENO="0904" 900 PROs ~ `I Q'I~Y ZC~I?T~0~! ~ D.~.C 63CQZ~A3, M~'QVax z: 1Z'~2S~ 2~eelc, System Building Block 2 D.~.C M5t330-CA, 8mb Me~cry ~ ii ~ 2 Natsami NS63I~8Z1, 5mb Memory 2.7~ ~ ~ 1 0.E.C DEQNA-~4, ~t~tern.~ Ccritro3..tsz' I5~'tS~ `~ 1 D.Z,C CX~Dtt~8fAK7. CabIr~e~ ~Ut i'jo~ 5~%~Q,J~ ~- 1~ D.~.C BNE3ICI.C, 1Cm Cable D.g.C 3NE3~20, 20* Cable ~ ~ Z 1).1~.C 3?(3~C-4Q1 40m Cable 2.i~ ~ 1 D.i.C ~QDX3~AA, Q5~* CCZ~t2'O1l.z' j3~o~ ~ `3:~ 1 1~,E.C RX33A-AA, r. 2mb ~iskette Diiv. ~ ~ I e.E.C ~I(33A'A3, 1.2mb Disks~s Drive 1 EmuIex QD33, ComtrcjU.r . is~ f'-~k ?ajltsu M2381A, 190mb DImk DrivE 5I~~?~'~ ~ /1 ?ijitau t~2442AC, rape Drive 1. Emulex TCO3, Contz'oil.r `~ 1 Sigma DMV.16. uittpi.x~r ~ 1 Sigma CX-PMV-ie, Cabinet 2Cit (qQ~ T~ZMM H9546, Tr~mm Cabinee /~4~ ~ o.~.c ~zco~.vz, ~wa ~ae; lia.nc* ~ ~L 1 II.E.C QZC0'~fl5, Doc. and Mad~a I D.E.C VfAA~C8, Diags and Mariua.1 (mel. ~ L4~ 2 D.Z,C v'r220-F3. V.D.~' q'7o~ qi4i0~ ~ 1 D.E.C O$L~f~AA, £I.A.N IDtRr~ac* ji'~,o~ ,....~ :~ 1 D.~.C DIL~7AAA. !tbá'n.t :nterfa~ ~ n 21'L I .D.Z.C U30-AA~ 95mb rap. Drive aJo~ ST~* ~ ?~IC50-AA, Co~trcil.r p21' ~o *~.g.c TX80-'~. Thp. Cartridge 31 ~ 3.. ~ ~ ~ I ~ ~ 2O5~ ~- ~ PAGENO="0905" 901 ?5~ ~ ~!.2 ~ ~!sC~Ip'rroN ~ _____ D.!.C 630QZ-A3. Mir~v~x II Sye~Cm 1i~d~ng 3~ce~c ~ M~83Q~CA, ~mb Memo~'y NAtsemi NS638-1M1 8Mb Meir~ory D.LC C~NAM, £ther~et CQn~z'ofler/ri,~s~ ,`1 D.Z.C CX~D~QNA~ICP, C~bi~iet Kit rno~- STod) D,E.C 3NE3~-1O1 lOrn Cable D.K.C RQDX3-AA, CQn~Z'O11er L35o~ sro~ D.~.C RX32A'AA, Disk Drive D.LC RX33A~AL ~.tak Drive 3 Eaulex QD32, Cuntroller ~ 1'- A ~b io,j~- ft ~zs~ ~ s'~ Mb~ ~ Me4~t ~k~'t a~e % ~ ~*Je Nee~* ~t~ø ,~ ~ %4~~L 4,d~k *f~ I$Q~ ØU~ ~e,ce. `U 3ø'e-~ Q,wJ iJ~~ .~ ~.1*, ~ *" %~I ~ 205C ~ PAGENO="0906" 902 EXHJBIT~ The attached document is a declassified intelligence cable which describes a distribution system set up to import western electronics/computers from the United States through India to the Soviet Union. This cable describes exactly how Mohan operated his purchasing network. Note that the Soviets pay cost plus 33 percent for the equipment. PAGENO="0907" PAGE:000 1 005 138MIDB UPID 903 INQUIRE~D0C2D ITEM No:001169813 ENVELOPE 5T~T~ 5722 0000000ZM R S lEADER ~ff~Yuw RUEKJCS5722 0971921_SSS5__RUEALGX. ZNY SSSSS R 07192~lZ APR 87 FM JCS WASHINGTON DC INFO RUEADWD/OCSA WASHINGTON DC RUENAAA/CNO WASHINGTON DC RIJEAHQA/CSAF WASHINGTON DC RtTEAIIA/CIA~ WASHINGTON DC RUERC /SECSTATE WASHINGTON DC RUEAMCC/CMC CC WASHINGTON DC RIJETIAH/DIRNSA FT GEORGE G MEADE MD RUEACMC/CMC WASHINGTON DC RUCQAAA/IJSCINCCENT MACDILL AFB FL RUWSAAA/}4.AC INTEL CEN SCOTT AFB IL//INO// RUETIAQ/MPC ORGE G MEADE MD RUEALGX/SAF~ (. E~ O7161~Z APR~87 Vl'O RUEEJCS/DIA WASHDC INFO RUEKJCS/DIA WASHDC//RTS-2B/DT-53/OA-14// RUSNNOA/1JSCINCEUR V~IHINGEN. GE//ECJ2//. BT - cONTROLS SECTION 01 OF O2/~'~ hR J0182 87 Lu.'.. USSR INDIA (IN). ~ ,~182 871 T~CU~OLOG! TRANSFER DISTRIBUTION SYSTEM/ (U) THIS IS AN INFO REPORT, NOT FINALLI EVALUATED INTEL. 7~ 87O~ SERIAL: BODY COUNTRY: L.. WARNING: L. EDO!: ~REQS: SU?*(ARY: 1 THIS hR DESCRIBES A DISTRIBUTION PAGENO="0908" 904 -J FAG~:QOO2 / ADHIN ~PROJ: jCOLL: J IHSTR: ~ PREP: D~ APPR: * ~ARNING: WARNING NOTICE-INTELLIGENCE SOURCES ~ - AND METHODS INVOLVED DE~L:OADR 15722 PAGENO="0909" 905 PAGE: 000 1 INQUIRE:DOC2D ITEM N0:00~46982O ENVELOPE 5722 0000000ZM R 0051414M1D3 S JPID HEADER i~FfUW RUE~JCS5722 097 192Lt~SSSS_~RtTEALGX. ZNY SSSSS R O7192~Z APR 87 FM JCS WASHINGTON DC INFO RUEADWD/OCSA WASHINGTON DC RUENAAA/CNO WASHINGTON DC RUEAHQA/CSAF WASHINGTON DC RtJEAIIA/CIA WASHINGTON DC RUEHC /SECSTATE WASHINGTON DC RIJEAHCC/CMC CC WASHINGTON DC RUETIAHIDIRNSA Fr GEORGE G ~ADE MD RUEACMC/CMC WASHINGTON DC RUCQAAAIUSCINCCENT MACDILL AFB FL RUWSAAA/MAC INT~ CEN SCOTT AFB IL//INOI/ RUETIAQ/HPC FT GEORGE G IADE MD RUEALGI/SAFE ~~71~13Z APR 87...... ~TO RUELICS/DIA WA~DC INFO RIJEICJCS/DIA WASHDC//RTS-2B/DT-5B/OA-4// RU~ ~IOA/USCINCEtTR VAIHINGEN .GE//ECJ2// BT CONTROLS J SECTION 02 OF ____4~ERIAL: \\ IIRF ~O182 87 COUNTRY: USSR (13W); INDIA (IN). ~~~JHJECT: ~JJ~ 0182 87 TECIP~0LOGY TRANSFER PAGENO="0910" 906 FACE :0002 SYSTEM WHICH IS SET UP TO IMPORT WESTERN ELECTROUICS/ COMPUTERS ThROUGH INDIA TO 7~ SOVIET UNION. TEXT:/ 1. / TNE FOLLOWING TEXT DESCRIBES A DISTRIBUTION SYSTEM WHICH IS SET UP TO IMPORT WESTERN ELECTRONICS- ~0UGH INDIA TO THE SOVIET UNION. THE SYSTEM INVOLVES THEEE ELEMENTS: THE FINANCIAL BACKER, THE CONTRACT SIGNER AND COORDINATOR, AND THE INDIAN IMPORTER/EXFOETER. 2. . THE FINANCIAL BAC~R IS DR.S. ((BOSE)), WHO OWNS/RUNS PERFECT TEC}~ZOLOGIES LIMITED (ADDRESS: 34 RAVENSCROFT AVENUE, LONDON, NNI1ORY, TEL: (01) 455-1342 OR (01) 209,1278, TELEX 918093 PT!. LDN;: HOTEL INTERNATIONAL 2, APT 937, ~ASNOPRESNEN5KAYA NALE. 12 MOSCOW, TEL: *253-29-37, TELEX 411432 CO~Q1 SU). DATA ON DR. S. BOSE ARE AS FOLLOWS: -INDIAN NATIONAL IN HID-40'S WHO USES TITLES M.D. AND PH.D. ON HIS BUSINESS CARDS. -EXPORTS BIOMEDICAL ELECTRONIC E~UIP~T TO USSR~ -HAS WORKED FOR (POSSIBLY CREATED) PERFECT TECHEOLOGIES. FOR TWO AND ONE HAL.F YEARS. -PREVIOUSLY MANAGED CALIFORNIA TECNNOLOGI (OR TECNNOZ.CCIES) INTERNATIONAL TRADER (OR TRADERS) IN PALO ALTO, CALIFORNIA. - THE FIRM IS NOW CLOSED/OUT OF BUSINESS. -HAS ASSOCIATE FIRM CALLED TECNNICON IN VIENNA, AUSTRIA. 3. * THE CONTRACT SIGNER/COORDINATOR IS DR.~ S. C. ((ROY)), WHO RUNS OR WORKS FOR CAPSTONE LIMITED (ADDRESS: 2 CAMBRIDGE TERRACE, DOUGLAS,- ISLE OF MAN; NIKITIVSKAYA TJLITSA 2, Ky; 2, MOSCOW, TEL: 165-05-88). DATA ON DR. ROY ARE AS-FOLLOWS: -INDIAN NATIONAL IN MID-30'S. -HAS SUPPLIED COMPUTER AND DISC DRIVES TO SOVIET FOREIGN TRADE ORGANIZATION (FTO) ELECTRAUORGTECHNICIA. -HAS SIGNED CONTRACTS WITH FTO'S MACRINOIMPORT AND MASHPRIBORINGTORG. 4. `,.... ) ~ INDIAN IMPORTER/EXPORTER IS KOHINOOR IMPEl PVT. LTD (ADDRESS: 1/25. ASAT ALl ROAD, NEW DELHI, INDIA). THE FIRM OBTAINS THE IMPORT CERTIFICATE AND ADDS ABOUT 33 PERCENT TO PRICE ITEMS BEFORE THEY ARE SOLD TO THE USSR. ACCORDING TO DR. ROY, THE FIRM DOES ABOUT 300 MILLION RUPEES TURNOVER PER YEAR IN TOTAL BUSINESS. 5. HERE IS HOW THE SYSTEM WORKS. CAPSTONE (DR. ROY) SIGNS TWO CONTRACTS IN MOSCOW (OR LT COULD BE IN THE SUPPLIER'S CITY OR A COMBINATION OF BOTH): ONE PAGENO="0911" 907 PACE:0003 CONTRACT IS IN DOLLARS AND IS WITH THE SUPPLIER; THE OTHER CONTRACT IS IN RUPEES WITH THE SOVIET FTO REPRESENTATIVE. PERFECT TECIDJOLOGIES (DR. BOSE) EXAMINES THE DEAL, AND IF ALL IS PROPER, OPENS A LETTER OF CREDIT FOR CAPSTONE (MOST OF THE FINANCE PURCHASES ARE FOR 60 - 90 DAYS). THE WESTERN SUPPLIER SHIPS THE ITEMS FOB BOMSAY OR NEW DELHI AFTER TIE LETTER OF CREDIT IS ESTABLISHED IN TIE SUPPLIER'S BANK. KOHINOOR OBTAINS II~ORT CERTIFICATE AND EXPORTS TIE ITEMS (COST PLUS 33 PERCENT) TO THE SOVIET FF0 UNDER CONTRACT FROM CAPSTONE. COMMENTS: ADMIN BT #5722 NNNK ST PAGENO="0912" UseO 908 EXHIBIT~ ~f7ç s-*(T~77 - oo ~y g~TA~*~ THt$ ~OP WH(R sueMtrTTvea YOUR APPlICATION I ~ I JCATmNIOS : a~ lnternanional Materials Exchange. Inc. 33 Agassi: Street av~gn~ Cambridge, MA 02110 ~ 1IIJI1I[i_ .~m Rabin. fratittzte of TV Manuf~'tb~~' Ilagrarjonoyskj Parelok Macse 7 em~ .lAht~tm. USSR 2~. * * 25 25 * * 25 * *. 25 * 25 25 25 (4 deicrtgtcne brnchvee01 thin item i*~d. : ____________ - ~ I ~ E C ~ TDI.: `, p/t~xb 1 Pt I~ * Itis PASITMTNT uFr oweçs J*I ONLY * - ~* . I :. ~ ~ ~l~f7 r~Jr 3 / PAGENO="0913" 909 EXHIBIT 7 The attached document is a letter to John Townsend from "Deepah Sharma" on Virtual Computers' letterhead. It is dated "08-05-1988" -- the date on which Townsend first met Mohan. Mr. Townsend has stated that he did not receive this letter until November 1988, when additional documentation was requested by the Department of Commerce, concerning Virtual Computers' order for MICRO VAX. Townsend passed this request to Mohan and received this document in return. Naik has stated that no one named Deepah Sharma has ever worked for Virtual Computers nor has the company ever order such computer equipment, or sent the letter to Townsend. PAGENO="0914" 910 RJP~ COMPUTE~5 PVT. LTD. Mfgrs. cf vlrtucl-cornputer & c6mmur~4c~11cn ~ ~ * Oe~-os-i.g~~~ Mr. J. ~ M/~. Capricorn C~~iti~g Smrvic*a pty L~. 1. £v~ M.. North Rydm, I1$W. 2113. ~iJ5!R?4~e 1~a.r Six. 1~aes ccpt ~r ordar for th* fo11owi~q ~ c~f ___ 5 MO~ZI~ DU~-63OQ5 MS 1E~C]~ ~W~Ss PP~, iata M~4O~, C~1~R ?8$O ~n \ ~~L*Z ~c2.3 ~m ~ ~n ~(TJL*X Q~33 ~ ~T~L .~R ~4ULZX S~3. 16 L~iZ M~X ~GA. ~M2 CP~2~E~, VM.. 5O??~4MZ 10 ~ M2361. 69~3 ~ ~V~3 P*y~t viU~ bs by irr.~cca~1. 1.t~ of cr~it against 31~ippi~q do~ita. X~u~y .c~cw1dqs t~ re~ipt ~ or~r an~ issu. cr~r Tc**rs fatthf~i1].y, for V~~L ~PUTZAS * LTD. ATTACHMENT E - .. 2O4~ PAGENO="0915" 911 EXHIBIT~8 The attached document was provided by Mohan to Townsend for a Commerce Department re-export license that would permit shipment of MICRO VAX II computers from Australia to India. The attached end-user statement was completely false and fraudulent. Blank letter hear stationary was obtained by Mohan's right-hand man, K.B. Baligia. The statement was submitted to Commerce without Virtual Computer's knowledge. Mr. Naik of Virtual Computers told a U.S. Foreign Commercial Consul stationed in Bombay, India, that his company never agreed to purchase MICRO VAX Ils or workstations from Mohan and has never submitted end-user statements for such equipment. Naik said Baliga approached him sometime in 1988 and asked for blank letterhead. Naik gave the stationary to Baliga because Mohan had given Naik access to a line of credit to get his business started. PAGENO="0916" 912 VIRTUAL ~OMPUTERS PVT. LTD. C.122. Aris* nduetrl*I 3*1st., 5.,. .Vilt~, ~:.`.d, 90?.fOAy.4oQ 072. ~j PHO?JE 58 38 49 20th t~.. 0 3 C r. A A A ~1 row `~.`E hereby declare that our ccn~pany is not engaged by or ~3s~ciaeqd with any Nucluer Assoctated Industry. Further ~e wis to declare that the ecuipment ic for resale in India end wili not be ~re~sxpcrted to destination outside India without authorjsatj~ of U.S. Dept. of Cc~arce. , f VIATUA3. CO.MPUTEI1S PV'r. LTD. DIAETOR. D~aclar~icn gi'~.n tos I CAFCOM AUSTRALIA ~ ~ed, 1~t Itonlit r::cc, *431* ZJ.J.J ATTACHMEW2~A_ PAGENO="0917" 913 EXHIBIT 9 The attached document is a letter from Casperson to the Department of Commerce stating that C-TEK received the 5 MICROVAX II computers. These computers were subsequently shipped to India via Canada. PAGENO="0918" 914 Deceober 15, 1988 Mr. Paul E. S~raughn U.S. Deparrnent of Cerce Office of E~porc Eriforcenent 2400 E. Devon Avenue Suite 300 Des Plaines, IL 60018 Dear Paul: This letter is to confiro our receipt in Seattle of 5 each Micro Vax II Model DH 630-Q5 syscens. These sysceos were sold to us by Capricorn Ccrputing Ser~rices Pty, Ltd., 1st Floor, 1 Avon Road, North Ryde, N.S.W., Australia and shipped to us fr~ Singapore to Sea::le, Washington. If I can ke of any further assistance, please don': call. U.S. v. SHIV MOHAN CAUSE C989-247WD PLAINTIFF EXHIBIT NO. 90 ADMrrrED________ ~411 N.E~ 124th St. ( `te145 \~..jkIand, WA 98034 1 `J 206-823~5563 (~ q ~3i~-~ (~ P.JC/cs PAGENO="0919" 915 EXHIBIT 10 The attached is a copy of the serial number plate removed from the VAX 8700 and discovered in Casperson's office. PAGENO="0920" ri' I hi p.' p.' ~1' r PAGENO="0921" 917 EXHIBIT 11 The attached documents are the "smoking guns" which established Casperson's knowledge of illegal conduct and were used to convince Casperson to cooperate with the Government. 51-840 0 - 92 - 30 PAGENO="0922" C~k TO: John FAX #: FROM: Bob C. DATE: 12/27/88 TIME: 13:00 OUR FAX #: 2O6-82i-333L~ i~O, OF PAGES: 2 (INc. THIS PAGE) John, I hope you had a Merry Christmas. We had a very nice one. think that we are going to go skiing on Thursday. I hope that it will be nice. We still have not received the wire transfer. The bank said that they were unable to trace it from this end and that the sending bank would have to do the trace. Boy I hate banks. Page two is the article on the Vax 8800 smugglers. Boy we are sure going to have to be carefull. Today is a holiday in Canada, so I won't know anything about our licenses until tomorrow. I will fax you as soon as I know something. Did Ron's VMS license show up? If not, we should be able to have a duplicate to him this week. Regards U.S. v. SUIV MORAN CAUSE 0R89-247WD rw~ Bb EXHIBIT NO.____________________ ADMiTTED_________________ *~ 3/:~~ - ~ ~ ~it7 918 FAX CO~IERSHEEL 11411 N.E. 124th St. ite 145 ~_.rkIand, WA 98034 2064323-5563 PAGENO="0923" lION fl Filday. December 23, 1958 iSle Times 01 Computer-sn*iggling ring reportedly broken Fool Lsodsedatu Shims & $uts'$snltttui lbs aelsoes of the Ill mii005 computsr O'$elsn said lb. Sosiet deCent. eyste,n "W* need So detetmtos cheiher these prntolsed to betp ttuk sm..gels sod Asauctaled 555.5 ctitetlnatc'I an ci td-otooth htoesilgatios. begat, c oeolcg to V~X compotens soul. companlrs hot trscoyotied sod tooditted cutoponr to liotgsts. hr ho.'ici his. uatd Pstrmk O'lbien. apodsi sgenl Its erltt lit. `80.. the sods incus losolctng bootcmcly,° center for counpoter technology, 0 lIeu MIAMI - A liigtaiechootogy smog' cbae sot Costoms to Miami. "Itot he cannot hoOd heir `sos. lb. Sheehanasid. said. gtlng elaug thacghl to ha the laciest `IL coot er hhciy otcobl hans been only mu t~ey cue fin its through ha "Tb. bcihens sen lbs people that mets tlc.k, 42.1*. Dotch nstloost ohs to. eepoclee ot coetosdur ipcttset to Clot' `used by the Soniel detent. ayaltm. (Jotted Stiles' O'tlneo seld. "II n's can aCten." Ofleec sdded. `They sue the in tinlsete. Belgium A tuao4 sty tetoni. eec bloc couatiefes has been cescbeI by O'Belessald. deny theta tests tubing ours, thu hans to roy1. tabs aus gob to cbs Ii hots a thneeC000l codolotnttt o1sn~;tny Ii, US Customs sgeuts Is Miami, officials `By getting on. at these computers hoOd the tsoeones. Is comes oJot their re~imau. tsdosiry so~ gins it to illogic' nub conspiring to tllefally e~poi1 oonq.. scildyesteediap. ` they bans used ihemaeioes 0 years .O~I delenos boitget ted really slums them lmsle iedostuy.' en equtpmeOt tom I C coed SisInt Agents scioeds 11.1 ecitilosmaiatesas' haaadncdsatetill000 of cioilarsio eesesecb duo's.° Thee. ants other smuggling netsuotbo of Bob ana. computerbooms us VAX U(8 - which asd dsvetupmeni,° asld Michad Sheebso. Customs offIcIals said targets of the similarucope. Sheehan scud. It coccuided of alt coocis, utah co csscocleot systems Isis Iauoolaludgolda aaoaharCaotouttupObesmsn.' lonestigatios Include msoofsctorees. (sub's netwoub lila year has por' rececee a maoitoum senience ul Si ballistic missiles, opeeuls radar ci' asia a `Those counlties see walhlcg teem the beobees sod shippers itt Boston; Chicago' chased and dinetiod oumeroou VAX corn' in prtoon soda $575 million line. msutcaosk em - tail mesh at Miami StosedgsbtiOths 2iatceotufyhsooeatr~t New Youb; Newarb, Ni.; Itouslon; GraoJ poiers, O'Bneosaid. A ledetal magtalralu yesterday dcci Inaeroatbtuat~7~pttetbetttreknuIhlItPcd at the eopuooe of the Unbefi Stoles, sod Itaplds, blob.; Ootgseis; Yogoulaoia; Ito' Ageoha areeoted lash on Dcc. 14 sher hood for itash aher peocecnbou% aeiJ So Bolgatia. they're using thIs tecbtsoIo~ for loteneots mama; tlongaey Belgium; Aootris, libya; ha paid $50005 in So'iss (tints to under' prohubl tcooid flue this coontty it .11cc Tbsseresa ateddyGorssdcaatlaakasd ccear.sytu OaiaudStales iutsrests.', rat, cod lesq. coner agents, OCtet saul. They had to pout bail. ~ ~ PAGENO="0924" 920 EXH1BITj~ : H ~: .; ~+-H~ I; ~1TT s-i- 41 r~-1e~~ TE s-i ~w; ~ - T ft :~ç r I ~ cC) : ~ L ~-`ii :;!~ I~---j--J-- ~-:~ .4 -H 1) - Ii -I S - - ~rI~ - - -A - - IL --t--~--~ ~ I I Ifld `4 c~ - `.#. -I- I - iLJ~LLjflLJj u.S. v. SHIV MOHAN CAUSE~_ PLAmTWF scwsrr NO____~ 450a - ADWrrs__ t ITI ri II ~! ...i....J.:fi PAGENO="0925" 921 ~XJ-1IBIT 14 U.S. v. SUIV MOHAN CAUSE ~RRQ-~47Wfl PLAINTiFF EXHIBIT NO. 427 ADMITTtD________________ PAGENO="0926" 1 Co ND ND )` zm-n 0 oX *2 9 A `U F-' `1 PAGENO="0927" 923 PAGENO="0928" 924 EX}1IB1Tj~ The attached documents relating to the payment of $490,000 from Perfect Technologies to C-TEX for computer equipment destined to the Soviet Union. PAGENO="0929" 925 Perfect Technologies Lisited Perfect Technologies Lihited have requested U5 to effect a telegraPhic transfer for US$490,000.00 favouring C-Tek Computers bc, being advance payment for equipment being purchased under their contracts, with Russia for US$562,000.00 (obtained during the recent exhibition, copies enclosed for your reference). The difference being their profit margin. Perfect Technologies Limited will draw Bills on the Russian buyers on 30 days acceptance basis, which will be sent on collection through us. However, they have requested the E.0.L. for a period of 30 days and propose to adjust the excess from proceeds of an earlier contract, for which we issued a, L/C for US$1,754,000.00. Acceptances due for Payment: USS 332,519.80 on 19.12.88 and balance US$1,438,002.93 on 09.01.89. These figures are inclusive of interest being charged under the L/C. Documents under these have now been sent for collection to BCCI, Bombay, total value: US$2,484,000.00 on sight basis, drawn on Khoinoor Impex (P) Limited, who we have been ad-vised are considered good for the amount. Documents sent by courier on 09. 12.88~ Consisting of the following (i) US$1,343,500.00 (ii) US$ 480,000.00 (iii)US$ 234,620.00 (iv) US$ 40,880.00 - (v) 05$ 385,000.00, of which we anticipate immediate payment under documents valued US$480,000.00 as these goods were Air Freighted and will be used to adjust the excess being requested. In the event that we enter into this transaction the outstanding position would be: TOTAL CASH SECURITY AVAILABLE. 1. Letters of Comfort from BCCI Isle of Man (i) US$ 244,000.00 US$ 244,000.00 (ii) £ 794,000.00 ~ 1.83 US$1,453,020.00 (iii)US$1,445,000.00 US$1,445,000.00 2. Funds under lien on subject customer's A/C £150,000.00 t 1.83 US$ 274,500.00 TOTAL US$3,416,520.00 SANCTION LIMIT US$3,400,000.00 (cont 2) PAGENO="0930" ~ontd .11 926 Lees Outstanding Liabilities / Mar~~~ Overdraft OlD US$1,920,000.00 J.L 48,500,000 ~ 123 £ 146,00000 ~ 1.83 Total Overdraft Dr S Bose Overdraft £7,000.00 ~ 1.83 £7,000.00 ~ 1.83 Letters of Credit 1B03403 (Russia to Singapore - 100%) US$76, 270.00 1B04027 (U.S.A. to U.K. - 20%) US$105,364.00 US$21,072.80 USS 781,247.17 USS 11,643~89 plus (2) US$80,000.00 being credited to customers $1,920,000.00 $ 394,308.94 $ 267,180.00 US$2, 581, 488.94 US$ 25,620.00 Acceptance. 1B03628 - £ 63,666.03 ~ 1.83 (100%) US$116,508.83 1B03628 - £ 63,666.03 ~ 1.83 ( 20%) USS 23,301.77** 1B03836 -~C 67,332.331~ 1.83 ( 20%) US$ 24,643.63*1 IB03836.~~61,oo3.5~)~ 1.83 (100%) US$111,636.So 1B03593 - 8332,518.99 ( 20%) US$ 66,503.80* 1B03911 - $ 53,709.75 (100%) = US$ 53,709.75 1BO3593 - $1,438,002.93 ( 20%) US$287,600.59* * Documents presented under collection to BCCI, Bombay. **Documents under collection paid, entries to be passed. US$2, 473,737.49 Total LIC Liability Total L/C Margin ~ Total Security Remaining .(1~US$159,g87.o3 remittance received draft drawn Lloyds Bank, London. Both account. PROPOSED TT for US$490,00.oo Favouring C-Tek Computers Inc. USS 490,000.00. EOL US$ 238,369.08. ~44~ In view of the track record, previous very satisfactory dealings and control of goods under collection, we recomrned. ~3c~ PAGENO="0931" * TO: BANK OF CREDIT AND COMMERCE INTERNATIONAL SOCIETE ANOrIyME LICENSED DEPOSIT TAKER N o~-~z- BRANCH ioLDm~aNcPl REQUEST FOR TELEGRAPHIC TRANSFER AMOUNT/PAY VALUE DATE In Figures: In Words and C rrency f ,4" ~ ~ / /c_i'~i ~~COO::O~ ~ 13 (1- ~)3 a-a~ (1 BENEFiCIARY BANK .:. Ac/c. N'~ Deduct all charges APPLICANT(S) Enter Full Name(s) ~i ~ DEBIT ACCOUNT NUMBER~ /ls°7 J'«=" CURRENCY: (J,( 1~ Please transmit the above instructions entirely at my/our risk and coat in cipher or otherwise. It is understood that the relative remittance is to be sent by you or your correspondents or agents at my/our risk and that no responnibility is to attach to you or your correspondents or agents for any loss caused by errors, ommission, interruptions, delays in transmission or at destination or due to you or your correspondents' failure to identify the beneficiaries mentioned in the text of the message or retaining the remittance, if deemed expedient, pending satisfactory identification of the beneficiaries or for any event beyond your control. It is also understood that the applicable rate of eochange un the case of foreign currency) will be that ruling on the tate of processing. SIGNATU~E(S) OF APPUCANT(S) For Branch UsoOnty TO: REMITTANCES DEPARTMENT LEADENHALL STREET BRANCH DATF~ Deal booked - Deal Confirmation EXCH-F-49 (UK) attached VALUE fn reimbursement please debit our Branch S~~rtg/Dolfar Account No. [»=`l ~ >~ 9H~ I Lp~quoth9 above Reference Number the amount from our customer. ~wm~wehav(cov~,~ ___ 927 ______19~ BENEFICIARY F~r~ ~ &~ ~ ~rq~%~ ~±~.:LF~~LF 4~hQJ ~ E;~k~I~1~ tdA,~ Entetrfr~MRe~rf~ Fuif Name and Address: ~ce~ ~ ~niputô~c~ThC' _____ @~b4) ~n~3 ~j-j~ ACCOUNTNO.~7~73 7-" BY ORDER OF REFERENCE! DETAILS fre~'-{Ae~ ~ ~io/o~/~ CHARGES QJ Debit me/us with alf charges FROM: ~ frs'~~'L~ BRAt~CH BRANCH REFERENCE NOiJ~"/'fi/) ~~Ji ~ PAGENO="0932" 928 Cha&«=~ PERFECT TECHNOLOGIES lIMiTED Tèl:(01) 455 1342. (01)2091273. Te!~: 918093 PTLLDN. Fax: (094588973. ___________ 12th Nov~mb~r 19813 Our- ref: F/112 Mr Natars~an Mart 1313£? r- Sank of Or-adit and Ccmmc~rcs Intl M~rbi~ Arch cc Mrs Taruna Wisthy F1s~ss tra.nsfsr US S 49O~OQO.OO (four hundrsd and rin~ty US do11~r~) to; Ssattlo First National E4ank Tot~am Laks Branch 12424 Kingagats Way, NE Klrkland, WA. 9S034 Tc~l: (21Th) 823 ~8~S ~ccc~unt Na~ 7i737-~13 4cccunt Name: C-TE)~ COMPUTERS Inc. Raqards Ltd PAGENO="0933" 929 KOHTPaHT N~ 98-270/2/16-88 r. MOCKBA 2 ______________l9~ ~ T 1 ~ L-r~ "nE~QEKt TEXHOI1O~11114C J1Tfl." /BEJIHKO6PIITAHII1I/ iDupMa a .i3.1iIICñIUCM aIIpUiaEICU'. C o.tiio0 CTO~OIlU ii BceCoIo3IIoe oóbe~iu~e1flIe ~Cos~ pb16c~JIOT" r. .\1cKna. li~icuyeMoe a .ia.1bIICUWCM ~floI~ynaTc.1b~. c ~pyroi~ crrpoHu. 3aK.lio `111.111 taCroanwu K!ITf)31'T t' iii +ccc.ie.ayicuae'i: § I. flpeai'ier KonTpaIcra Foi~ ~ I lpwianeit up'~w.i. a floi~yliaTC:ii kylliw 111 ha ~C.1flflhIhIX c~pahiKfl cieiu nanH~1bOH !I~h hhLICTahhkC~ "HAYKA - 88 B r. MOCKBA SC ~ C~4y ~_~c~.CC O60PY~OBAHHE B COOTBETCTBHII C flPI1fl01'~EHHEM 1 K HACT0~l1EMy KOHl PAKTY ___________________ - (ha i~teuouau te (h(~upva()hJahhhta ii hihieMe. ui ueeee hI UI cnetan((huicauuu c'r.~aciio flpII.IOiKChUIhO .N~ 1. eoropoe HOJ1RCTCO neomeM ~heMh' `IUCTbIO KoeITpaKTa. - Ue,,a TOCPa3O ii h~MCIIChhlhhO ire hIOLaeuUIT. jIç J~'C(((~ h-~ OGuta,r C~MM3 KcruTp3Kra cocran:urer AMEPIIKAHCKIIX ~OJ1J1APOB 70.92~,0Y /CEMb~ECRT TbICA4 LIEB~TbC0T ~BA~UATb 4ETE1PE AM. ~OJiJL/ AMEPHKAHCKHX ~OJ1J1APAX !teira ycraiwhh.leUa II ________________________________________________________________________________ a rnrwIrraercri ~pahhao-creira flODIMbOH BEICTA3KH "HAYKA - 88" ` ~ ~ ~ ~( ________________ ia aL4craBKe a r. MOCKBA i'~ n~:itn'ha~e CTt'IhMh'CTl.. yUaKi'hhkhh II r.lapKhIpouKhr. § 2. Cpoe nacrari~w. 0~iy:eee yriabaeeiioe a 1? HflO~EH (11.1 ie' 1 ~ IICTOOIILC4V ~nTpa~ry (`y:icr. icpc.rauo TlOaYrraTciIo ia TC(~IIT~IIU UIICTaIII~II 1 ___[_i__MOCKB~ tie upucuIh'cJh.lTo4IioMy aKTy, hi. :!iihiCiihhhhbMy UpC.1CTZIUIITC..IIIMII tGciix croputh. .ilaru~i tocras a ciiiiaercu ~oTa I~hehcrIeeC.aaTh)ehh(hihb asra. .....:.-:.. - . . - § 3. Iapaurnn Ip.itai'tu iapzhhhi hh()yei a.ee. ~ ;h;...;c.~.::y:~ p~~ory o6 py~'ur'-e"'e ~ ..i,hte,i C ~aTha ;no;ra Octpyii"rhaihiin ii ,kc!!.1yaT~IuiiO, i~j;ae~o ~ ~ ~ ~ ~ .hphhhMe-e.iaTh'ehhh'I'e :e~ra. Ee.iii ii rc,c,ii,c Cp.hCO rapahirirri h)()opylohhahhhie oicaieerca e~earHtiM i-en we," riiercroyioutnn yci~ii,iiii~ Khe.hTpaKTa. flp'.~aiien oi5hh3yercri io uuóopy floeynare.10 iICiipalhiiTb h(eiiapY)KCiihhIi .tc~ .rbecizih,4. annapar~ ~aciii 10 PAGENO="0934" 930 § 1. Ycionun 1.13 rc.~t - . - AM~PHKAHCKH.~ ~OJ1J1APAX Z1.13rcii~ 13 Kvltleune )I)npy3orhltIlle )Y~ 113 I - O1HAKU HE PAHEE `4EH 4EPE3 120 ~HE~ C flArE! fl0flflHCAH~ KOHTpAKT,~ ____ ---V.-.- H B TC4E1II!C .~O .11C1 c 1113 l1l;Iy1c!III1I 1311cu1rnprlllIlKrP1 CCCP, \!c,na c.lelyloII[1fx .l;yMeIITln: 1) Cnc tii ui;pniitiu.iil c~c-r - 4 .~i. 2) ~~kT liC'j1t~l341 I(II)~ py. )IIZIIIIIB* iu'initea~jut.th lpe.lcTaHITe ~ni flp 3nit3 it 3) CCp1II)IUK3T C' Kaqccrnc *n K ~ flp:ci~1cu3 11 Tnep.K.i;uoujc.r) oTnparu~y fl yU3Te.i~-n TCX.1.NyMciiraiiuii IcuoTHercTnitiI C § 3 131 rnslI,Lcr ~~`~7~D con~Q~g, - ~~-- e-:--~ ~ ~ ~ ~ ~ cr For Oep.rtrnent Used Ocly - A `usage do rid stOre seuiencerct - 942 Apofouct (0 cdfe- ?&c see-otec) Coo-Otto si £5 ~.i5 recoce- &iai COoftOy ci ta eec-ace-c Pays cc casotuoco Mee SINGApow~ Occia,cecca:y .ccecc* of hhe CeetOsOdo )tyts-tcecocd c. pci Ce-tOcsfeiEAp Us. Elsie. I~1 - Ut O00iri.t o-a.'-t-t Yeats deoucioc :Ce-c~ 0(-:-~- The .eeet ci goes. deocted ece ~ pysag~ 5~Lee- ~ ~.3~.iee-e-cg~ g~g ~e-ce-~~g ciorce ds.g~ ~e- . - cscfe-e dase-ted £~OS~ se-b ~e i~i ~e- ~?. :_oue c.~ce dee o~ oe~e- 9 0 1. 1 3 0 7 5 Pests. Ac ae- e~ e-e-~e'. sate ss.eoue - - -.- --.. aaua .,te~acco as ~e e.~-~t at ___________________________ a. .Qda5,.5,55~. eat se/ase. - ~ asdeasceco face-cee.,teseeie tess ~ 5 ..t~9 01 13 - - -- - FAST TRACK. ~-_Q S ~`~-~- e-~e by Ceace C uL~t-e ~ ~cC Pale- roe. s~ ea.asou - - -- - ~e-~"e-°~ j °~*- *f°~ ~ ~fc~ Pae-a~ - .-; - ~ -5;~77 ~ PAGENO="0947" 943 (ranabian ~an~u1atz ~nerzit ~oa~sF? ~ansu1nt ~S~n~rsi bu (~anubs 3mmigrnlisn & ~cxtsu1sr Aftxirs 412 ~1a~ 525 &ixtII A &tewsrt `rsttlt. ~a~ingtsn 551211255 3mmirsttan TeL: (2fl5) 4431372 ar 1377 TaseuIar Tel: (anN 4431777 22 June 1990 i hereby certify that Pierre J Gossel~.n is known to me to hold the office of Director General, Export Controls Division, Special Trade Relations Bureau of the Department of External Affai.rs and that the signature appearing on the attached document is the signature of the said Pierre J Doss e un. - ~ ~ ..-~ ~5IGEL: THOMSON `~ CONS IL CANADIAN CONSULATE GENERAL SEATTLE U.S. v. SHIV MOHAN CAUSE _C2po_2Ltlwre PLAINTIFF EXHIBiT 700 NO._____________________ ADMITTED___________________ PAGENO="0948" 944 ea:c~s ~:-~e'; les /~UTECN (CAI:ADA) INC. APPLICATION FOR PERMIT DEMANDE DE LICENCE POUR VAN DE~U1TER COURT LI9.~~!ORT GOODS EXPORTER DES MARCHAHDISE~ NISSISSAUGA, ONT2~.RIO * LST lbl ~ IThv~e 4-67-373~ T~ ~ VIRTUAL COIIPUTERS PVT LTD. C-121-122 ANSA IND. ESTATE SAKI VIHAR ROAD ~~TYfl!T~flT~ 4OfltI7~ LJ~ ~ ~ ~ Pfl~TC~ __________________________________ ~`~°`~3" INDIA ~ ro ru. corr.ct. ***3C~~~ ~ ~ por Ccat~~ 53. Srar.- I 2. Th. ooouwn *.rrr or 2. 1, ~ouOrvrr *3 ~e3da*t O~ ~.ot; o **~OrO* °*3!NOO ~ Car.o.. Cao*oa. _______________________________________________________ L__.~ Sç3.~. rosur Oo~~ ECL ~ ~. .3'. 3. Cot.1 Co&2 C*L3 p 3 I TEXTRONICS 4225 BASE ONIT SECTION with $MB Z~MORY OPG~E 3565 TEXTRONICS 4225 19' DISPLAE UNI TEICTRONICS 4957 DIGITIZERS TEKTRONICS 4200F4N DIGITIZERS I COMPUTECE ELECTRICAL 220 to 110 VOLT CONVERTER L~ir:E t~r~ft~e I________ For Dspartm.ng-~eod-On --Aio~v~umrm,rsr, ~iuIsm.r1 ~ £2 c5~) -. Cu. 5.r. ~or~ r.-.,~ Cot. Cot. 5 Cot. 0 8.~ Z5~1OOO lbs 466,724 ~25~ 1000 lbs 92,250 ~5Y1 2501bs 22,447 125 lbs 9,225 2-5 ~) 250 lbs 2,075 9u_ 1s5 L~ i9 02 15 ç3 O~ :8 PAGENO="0949" 945 LIST OF EQUI PMENT ORDERED. S.No. Qty. Description. 1. 25 Tektronics 4225 base unit with 4 MB Memory Upgrade 4957 Digitizers and 19' display unit instead of 16" complete 2. 25 Tektronics 42OOF~4 Digitizers 3. 25 Cornputech Electrical conversion kits. -.~--~ .-`,.~....*.... / - PAGENO="0950" 946 ~E ~x~trnzt! _~1E:tr~ ~ ~ FF2: j-~'~ 1'.~tr2-~ P.O. Box 481 Station `A 0TTA~A, CKTARIQ KiN 9KG April 13, 1989 ESE-5l 18/SB File No. 32979 Mr. Dave Whyte Computech (Canada) Inc. 6470 Van Deerater Court Mississauga, Ontario L5T 151 Dear Mr. Whyte: Re: Export Permit $90216514 issued February 16, 1989 I refer to your letter of March 21, 1988. I advise you that export permit #90216514 has been amended to add the following: Col. 3 ` Col. 4 Col. 5 Col. 6 (remains the same) now reads now reads now reads TEKTRO~i~S 4225 Base Unit with 8Mb Memory Upgrade 50 2000 $933,448.00 Cdn. TEKTRO~ICS 4225 19~ Display Unit so 2000 $184,500.00 Can. TEKTRONICS 4957 Digitizers 50 500 $ 44,894.00 Cdn. TEKTRONICS 4200F4M Digitizers 50 250 $ 18,450.00 Cdn. COMPUTECH ELECTRICAL 220 to 110 Volt Converter 50 500 $ 4,150.00 Cdn. I recommend that you present this letter, along with the original export permit, to Canada Customs as your authority to export these products. Yours sincerely, . . ` .~...,t". Director ..~ ~ Export Controls Divis~ori L~I Special Trade Relations Bureau c.c. Mr. V. Castonguay Customs Command Centre PAGENO="0951" 947 ,)I"~~ VI RTUAL ~ COMPUTERS PVL~1TD. ~ Mfgrs. of virtual-computer & communication products. fir. Qavio 4hyce, CCriPuT~CH (CANAO~) INC. 6470 Van 0e~mter Caurt, flisaissauga, Ontario, 1.51 ~51. Oear fir. tJhyta, Kindly be in~orrned that we are Computer brokers and 0~M and the order placed by us on us ror the equipment as per attached sheet is ror fl/s. Kohinoor Impex Private Limited, who is the ultimate end user. You are kindly requested to get your export licence amended and inrorm us as to enable our customer to open the Letter or Credit on you, so that you can ship the material. Thanking You, Yours raithrully, ?or VIRTUAL C~IPIJT~ PVT. LTD. PAGENO="0952" 948 VIRTUAL / ~ COMPUTERS PVT. LTD. ~ Mfgrs. of virtual-Computer & communiCation products. 25 TEXTBCNICS 4225 t3ASE UNIT WITh 4MB M~ORY UPGRADE 2. 25 TEKTR~IC5 4225 l9~ DI5PL?IY UNIT 3. 25 TZKTR~ICS 4957 DIGITIZES 4. 25 TEKTR~ICB 4200 P4M DIITI~as 5. 25 COMPUTECH ELECTEICAL C~VSI~ ~(ITS. IT~24. 1. PAGENO="0953" 949 ~F E~h~ntzi1 ~tir~ ~t'~ ~:urt~ ~x~rut:ri~ P.O. Box 481 (,t.nI1flL'~U Station `A' OTTAWA, ONTARIO KiN 9K6 April 5, 1989 ESE-5O1 3/SB File No. 32979 Mr. Dave W'hyte Computech (Canada) Inc. 6470 Van Deemter Court Mississauga, Ontario L5T 151 Dear Mr. Whyte: Re: Export Permit $90216514 issued February 16, 1989 I refer to your telecopy of March 21, 1989. I advise you that export permit $90216514 has been amended to add the following changes in Col. 4, 5 and 6. CDL. 3 CDL. 4 CDL. 5 CDL. 6 Tektronics 4225 Base Unit ~5~0 2000 $933,448.00 Cdn. with 8MB Memory Upgrade Tektronics 4225 19" Display Unit 50 2000 $184,500.00 Cdn. Tektronics 4957 Digitizers 50 500 $ 44,894.00 Cdn. Tektronics 4200F4M Digitizers 50 250 $ 18,450.00 Cdn. Computech Electrical 220 to 110 Volt Converter 50 500 $ 4,150.00 Cdn. I recommend that you present this letter, along with the original export permit, to Canada Customs as your authority to export these products. Yours sincerely, ~ /~Dav~d Ryan ~ ~ ~O~ontrois Division ______ Special Trade Relations / Bureau c.c. Mr. V. Castonguay Customs Command Centre PAGENO="0954" If you have any further at 416--671-3736. Yours very truly. Judy Gibson Cornputech (Canada) Inc. 950 /Ø// ICANAOAI INC. COMPUTER PERIPHERAL SALES & SERVICE (.470 Van Oe.mt,, Ccwn. Us ss.ança. Ornz~ LOT SI T.L (416) 671-373.6 F*x (416)471.4416 December 6. 1988 Mr. Marcel Saucier EXTERNAl.. AFFAIRS Export Controls Division 125 Sussex Drive Ottawa. Canada K1A 002 Dear Mr. Saucier: RE: EXPORT PERMIT *116045 As per your request regarding the above mentioned export permit, I have enclosed the original documents for your perusal. questions please call David Whyte jag Enc 1 osure C~r PAGENO="0955" Mr. Marcel Saucier EXTERNAL AFFAIRS Export Controls Division 125 Sussex Drive Ottawa. Canada KIA 0G2 Dear Mr. Saucier: RE: EXPOP.T PERMIT ~116O45 As per your reguest regarding the above mentioned export permit. I have enclosed the original documents for your perusal. If you have any further questions please call David Whyte at 416-671-3736. Yours very truly. ~ 951 ~pJech (CANADA, INC. COMPUTER PERIPHERAL SALES A SERVICE 6470 Van Desnuer Court. Mss~seauQs. Ontar,o LET 101 Tel. (416) 671.3738 Fax: (416)471-4416 October 25. 1988 judy ~son Computsch i'.xr~a) 2nc. PAGENO="0956" c~ns~çc.. sl'~U Us~~Ufl 25I~lst.Im. I I~s~I c.sw~ss~ VIRTUAL COMPUTERS PVT LTD. C-121-122 ?~NSA IND. ESTATE SARI VIH.AR ~.OAD ~M~V~TNflT~ 400077 A~.s~s V QCW l~l SRU~W) R~p~~u ls~ ~Ps ~ ..~wI's; S~ac.ai Tr~~ø Oiec:cn ;ere-ra~e ceo Ratatior,a Bureai reLaUon~ c .erca~ao ~c.c;e~ APPUCATION FOR PERMIT DEMANDE CE UCENCE POu TO EXPORT GOODS EXPORTER DES MARCHANC 1 116045 lc*~_-~/ CUCTE TIoS ouc~8zR FCC A~i ~ CCEC CE NUIJF.PO POUR rctjr~ CE~Al.CE :~c~er~ PsP~.l P J.I.~U 01 OS 5*01 E~ E.,1.Cp~w Ao~p~ Uc*~a. 51 ys I~. I ~ Pc E.~w LX. P~.e. 141*141C~*~ *451 1411fl15*. Es G~141 ~ Ml Ptyi ~ Ua.*s141 4515 CERTOF)CATIOI4 AITESTATION TP* ct8Sts~5* lwsCy cwE~ P4Pc La Ulçpl carIEs Es1 OoEso.,tvv 5*4*45 oP Ml 1. U I,~ms~ po*~ 51, *M I. Coca *s nsmen~ dococas 05551*55* 14*00514 p~ IS ~ 4 oos 000 C5Y~. 0515 dOS 5Thc4 15115145. psI CarPclc.oxscEnd 0*1 SOs. ~r7 ~ 2. Th. aascsu *5 ~ss~wu ~ 2. La pscsrsru sos ca :ssoarn s~ s.~fl a sc~s0 L.i *4iNoc~ ~c01a.&~ M&sc icc- ROad psccaroa~s oP Es 551 ~ *c~~ ./~` ~ ~ l15SoPEISo14llSQ*414 5.14 5151015115*I5*U 5*~ ,E' ~," U~*arr14oss~4 ~) P.511 051 £015414. is _______________________________________________ lOS. 0001 oP 14L14IC*07s cool 51 1.11.1? ~ ***x~l 952 j~~aaa C~occa ISSSU. *4 0.141*50114.5*514. lIosp14) COMPUTECH (CANADA) INC. 6470 VAN DEEMTER COURT MISSISSAUGA, ONTARIO L5T 151~ .viA Whv~~ 416-671-3736 - P151'sl 11 0* - UcWc5 Reoci lou E~ E:~~5*55. ~ INDIA Ccl. 3 TEXTRONICS 4225 BASE UNIT with 4MB MEMORY UPGRADE TEKTRONICS 4225 19~ DISPLAY UNI TEKTRONICS 4957 DIGITIZERS TEKTRONICS 4200P4M DIGITIZERS COMPUTECH ELECTRICAL 220 to 110 VOLT CONVERTER 8Z 25 25 25 25 25 1000 lbs 1000 lbs 2501bs 125 lbs 250 lbs cl. 0 466,7 92,2 22,4 9,2 3,C it LI USA GROUP 3 SECTION 3565 I. 01* ..~ ~ ~. 554555 55*55* 5 4 1. L..ssslsIS 555 555515555555 5*5*555 5*5551514 51*4*5 455551514555.1 *45550.55514 ~5 545 ~ P.555. .15 .w'ss~o I I 1.5 55S~*OP55 15*4~5*5~ - 2. 01*. ~ .sl 5*~ 45 4 o~ .~s.srs a~socs 2. Cccl. 15~ Is 5*4 555 5*455 45 545 4 Ls~s 0*5*4555*4 ~5O*4 5555*551. 3 ~ ~ ... ~ PAGENO="0957" 953 L~ vc~.\ ~1R~\.~'T'1 LI~i ~TED ~.: o. ~/`~`J:-t 5:.-. = Jwr:~ ~Jhwzc, (~;.:-.~:.) i:.c. 5470 ien D=tz~r Co'~, i~u:a, 0nz~r:r, LSt' 151 De:r ~ir ~;hyze, ..~er our conversotion on Se~te.eber 15, 1935, in which ycu recuesced inf~rnat:on to helo you obte~n Sxnort P~r~'its from the Government of Can~da, we are enclosing the inforoation you re~ueszed. 1. The e~i~men: lioted (see attached sheet) is to be used in In~a and no: to be rc-emn:c-ed. 2. In the event that at a later daze we would consider re-exporning any e~ of the ote. We would do co afzer seehing the pe~ies:or. from the Canadian Gove~ment. 3. The e~i~ment `~dll no: be uced by the ~it~~i or in conjunction m~th any mnilita~r ~rojec:s. 5 hone that this letter will helm, in obt~in:n: en (?;:port nermit. In t.e event any othor infomnetorn is needed ~,lew~e fs~ml froe to cont.~ct ~e. PAGENO="0958" 954 EXHIBITiI PAGENO="0959" 955 E~JI~ The attached Shipper's Export Declarations (SED5) relate to C-TEK's illegal exportation of a single Digital Equipment Corporation (DEC) VAX 8700 computer valued at approximately $650,000, and required a Department of Commerce individual validated license. The VAX 8700 system had been broken down into two crates and* nine separate cartons, for shipment to Singapore. The serial numbers and other identifying information was removed from the computer and the boxes were falsely labeled. To avoid detection, Casperson filed false SED with freight forwarders directing the export of the commodities. One of the attached documents shows a shipment of the commodities to be an "expansion cabinet", valued at $4200 with the export license designation blank. Another document shows a DEC PC compatible computer valued at $2,000 with the license designation as "G-Dest". The broken down components were grossly undervalued -- purposely valued under the $5,000 threshold for a license (items under $5,000 did not require a license). Townsend instructed Casperson to list the VAX 8700 unit as a DEC expansion cabinet because the two cabinets are roughly the same size. PAGENO="0960" FORM 752~'i~.~ - SH~PPERSEAPCRTOEC..~s~T;cN ~I-~~Z2' cc~ ~ v' i~CC 11411 N.E. 124TH ST., STE 145 1E~QE~LC*TEOFEXPOgTAT1ON ~ RIBRL&ND, WA 98034 L~ARCE 14. 1989 ~I (~ (4U0 - 5. ~PORT~E~N(tRS~NO. s. PAR1IESTO TRANSACTION - V 37-1164765 0 Relited Uon-~elated - -- - - - -- 11) (lfl 51055 D18471.10.0060 1 -* DEC PC 380 PC cO~AIA~SZ C0~UTEa - !su 0303193 V - 38.6 - - - / x 3~&"..~7' x~-711 . R ,. coi~oojoee~e~.ucv 19 V V scco I / -I~EST~ 15454 U.S. v. SHIV MOHAN CAUSE CR89-24 PLA~FF 7W0 ~H18~T NO. 20 I - D~U1~ED -~ 956 1.. UI MATECO SUNS! V V *V W.E. AGENCIES PEE. LTD. V 18 .IAL&N ~~IL ~706-22 EASIEBZt HANSI0~ V -NONE - 5. FCRW050INGAGI1NT V V V~ V V PROFIT FREIGHT SYSTEMS, INC. - V ,~ LOAOINGPIEN(VSUNUSI') 9. MO0EOFTRANSPCOT(S~es~j Al?. 10. EXPORTINGCARIUS! V ll* P5.IRTOF5.XPORT VV:VNORTHWEST AIR L_VSEAm.E & POINT(STATEI cFoR1U1NoeFTzN~ 7 CC1OFL5.1~Mt7~rAT1C1, WASEENCTON USA SThCAPO~ V V V 15 ~NTOFL54L0At11NGb~6AUUNy) 10 CCSTAREO7NN.SoNy) 0 Yes 0 No $2,000.00 PAGENO="0961" 957 -- -- - SH~E~ ST `2L~R~TC:~ F~ _____________ ~jvYr T'n T~4~ 5' ../15/89 SE~ - - ~5 1~3~Q. ..?.R'T:s~orCA)-cN 0 ~ MaC--sEed 4.~UATE COM~Qet1 ~0~WDTE~ 70C~ PIE. LID. 535 Cecil S~rc.e 02-413 L~»=I ~1aIg. 5.FOCWACCC4Q AGV.1 lilt t 1~ Sl~T CT S~C~ __________________________ WA ~~QPdd~V&Ee Cv -~-~T CC ~~~7S' -- -~ ~ ~~XPCCT. S~0 12.POC! mI.ca3r4~. am, 3.CNNET~Z~~ r~. am, - 0~ 0~ 4. 6~MC~t.aEI Cd5C4CTCM~FC~4M~C,CIL ~ - ~ (Ulecciwre's 7-IC) 4 AACaS.NC$..aHQ -`03CC ~A~.A4E3 J ____________ ~? £ C ~ 50C01. C d~dI 2 LT~ 34/i 30 3003 x Spare Parr.~ fo~ a Dig3~c*1. Iq~.tp.ttn Corp. 11/750 * ~AI10 ~EsdC MC-.CV-iRAa..0Ve~j~ 5o 22.CCO.am.s eea,ej -~ CM v't2~-s~* `MC 5-0 ~CM'Ma5 0~4 C~M~Ms ~o C'.wsoo,oT Tel d'Ma'MC~ Sit Ca,,ot Ee, a, PC Cu C, 1al~w. tesot; 0.cSs,.uot- IOiT,~~ `C T0!O*it TTeM4CJ OP5tMC 5~0 sit.*:TCs MmM504 us. `-~a~o s:aaaot.i ~sot.. `. 0 004,, 4, ola.sos `oj~e ~ 3C&23)J.4~3,...4,; `au-s.c 3s-z ~ - \F~aaaot - [~WSd.M1M. (it io~Catao rio ZOuT TCA 40 ,~,, 3/ U.S. v. SH V IIQHAN CAUSE_~.~247WD PLAINTIFF EXHIBIT NO._.~ 21 ADMITrED__~ ~ ro Cuu..-t ala-~ ~ to. 3h)~pot'o £x~ot ~caaratIcn as ~habe from os Eur,,~ m a-o Cen,as. --u,'--.':, :c. PAGENO="0962" FCRM7~25.V11.l..~) CQlPUT~E AcQuIsrrIoIj SPEKIALISTS, INC. 11411 NE 124I~ ST., SUITE 145 lii~IE rr~LAN1J, ~A 98034 ~ ~(PORT~E~N(IRS)NO. 1 PAR11ESTQTR&NSACTIOP4 37-1090467 DRelaled ~Non-ieii1,d ~~4t Ut.T1UATECONSIGHEE IJ.E. AIENCIES PTE, ~D. 18 JALAN ~IL 106-22 EASTZ~i MANSION .::NONE. _~~;l ~ TATE)CFOPIGZNOA FTZHO. 7. 958 SHIPPERO EXPCRT OECL_SRATTCN L !4AE~T ic PROFIT FREIGHT SYSTEMS, INC. * .. SEATTE WA * & ~OAO7GPt~(V.s~.i~y) . & MOOEOFTAfl$P~RT(5~~yj ~A ~kC_L1-P,P0RT AIR * 13. £XPORflNGCARR1ER 11. POR1OF SPORT .1~'OTr'~'~EST AIRLINE SE~ 13. PORTOFUNLOAOINIS(v., 4~.ee~y) 3. CON ERl(~*eey, Dyes DNa (UCaR~es17-l11 15. RARK&NOS. ANOX15O5OFPACp~&73E3 ~ SEHEDNUMW ~ ~Resif.re;lR D473.3O.O0Oo,~ .J s.j . *1 DEC 11/70 SPSTEM CAhINET CO ~4,2OO.0O U.S. v. SHIV MORAN CAUSE.ç~~89-247wD PLAIN11FF EcHIerr 22 ADMITTED_________________ S15~~ ~ LOOSe e.,e.,,.~e) ~3.m * ` -. r~1 ~ PAGENO="0963" 959 T~) jj4lL N.E. 124rA ST., STE r L0~TE~7A/~ OSEXPORTERZ LINIIRSIN ~.PR9TlES TO TRANSACTION 37-1164765 0 R.iatsd Non-~Nat,d LLTIMATE CONSIGNEE COMPUTER FOCUS PEE. LTD. 135 CECIL STREET O2-O3L1D~ BLDG. * SINGAPORE 0106 R!GHT-O-WAY, INC. ________________________________ 1912 S. 146th STREET ,.pomr (STAn) OR 000RIOR FTZNa 7. CCL 551105 SEATfl.E, WA 98168 SEATTLE AIR THAI SEATTLE 12.RART0FUM.OACRIGA~ Roy) 13.COHDJNERIZES (5~ xoy.~ SINGAPORE Dv~~ * Drso S0A)EQU1.EB CESCRIP1TON0FCOMM0O(TTE~ ~ ~` (Use ~rTra 17-19) 15LIARIIG.NOS..ANO KEGS OFROCI(ASES ~__SOKEOU NURSER__~ RAn Ri. `00050 50y SI Ri. 00 5i~S touR O.ousOe,.' A~150eo005SI s00.~ ou.~ 005550 RA / N lou s.sensoull3 U~C. SIt 3SE nAtO. 5.e.xOI; IS ALtO. ~ ~RE~IDE~ T / l2LNlREGeoesol D 8473.30.oaoO 5 2 BOXES 47.7 k 2~ IL) UCEN0ENOJGGN55,s,uC5~55~) CL 22.ECCN( 2i~~ssone ~ (Sae'q p~ 251 $4,030.00 U.S. v. _HIV iIOHAN CAUSE CR89-247ND PLAINTiFF EXHI8~T NO. 23 AOMIT~ED MARCH 13. 1989 The ~Correct Way to Fill Out the Shippers Export Declaration' Is available from the Bureau of the Census, WastAnqton. D.C. 20233. PAGENO="0964" 11411 NE 124TH ST., STE 11459~âoa 2~Ar T~ç~c? ~. Z~-.., KIBKLAIW, WA 98034 ~ I ~3iuuuZOu bEXPO~T1R3E1N(lfl3NO. 9.~RT1ES TO TR~&cr.r~j~ 37-1164765 DR.a1.~ ~Non-~1at.d T~MT9CONS1G1~1 CONPIJTER FOCUS PTE. LTD. 135 CECIL STREET 02-03 LEN BLDG. SINGAPORE 0106 - ERMEO~&TECOKS1GNEE N0!E RfGH1~-O-WAY, TNC. -~ 1912 S. 146th STREET ,.Po~rot*~oc, o~o~oqrrz~ 7.cCj~T1 ~ SE~flLE.WA9816a _W.A.~ S1~IP 8.LCAO~NGP~ER~~. ~.yj 9. 900E CF TRAl~SPCRT (C9,6CF, 1OE~.~:R lt.PGRT CF EXPORT TI-IA? I2POR~1tA~IGM.. a~ ~ 13.CONOJ?E~D~~ ~ SOMGAPORE D~. * D~ -~: } (I-u c~m 17-19) SO~O I ~AT 3 8473.30.0000 5 DEC H9652 UNIBUS E~P4NSI 1 N CABINET -n ~ to ~ E.g to. tooo~,s ~i o~~- ~ ~ (S~q~ $2,350.00 960 24.~e*Wp ~ *to%aaaE* U.S. v. FillY ?IOHAN CAUSE CRS9-247W0 PLAINTIFF EXHIO~T 24 AOMIT~ED________ Th. Conect Way to Fill Out Wa Sh)pp.r's Expo.t Oclaratlon is ava~tabIs tram Wa Bureau oil Wa Cattsus. WasArglor. D.C. 20233. PAGENO="0965" 961 ~ EAT/all LLIANIX UN COMPUTER ACQUISITION SPECLALISTS, INC. _______________________ 11411 NE 124!li S!., SUIE 145- [DIP CODE ~. DATE OF EXPORTATION 3. OIL~. OF LAO/C GA/H IIA KIRXE.A~, IDA }9~p34 .._.~V~1ARCM89 180 1527 1q10 N. EXPORTER ElM NO. 3.PARTIES TO TRANSACTION 37-1090467 011.1.1.1 ~NHl1,I$R,d HAWB: 134028 W.IC AGENCIES PTE. LTD. Mu 18 i~ j ~i 18 JALAN ERONIL i~06-22 EASTERN MANSION ~ 334~ ~TI~~TECN MSAS Cargo International Inc (206) 244.4122 18920 13th Place South POINT STAT OF RI INORFTZNO. 7.CDUNTR'T OF 0/1/SATE DESTINATION Seattle, WA 98148 WASHf~G'F08? SINGAPOHE 8. LOADING PIER/TERMINAL 9. MO OF TRANSPORT(Da.E1y/ SEATAC INT'L °BLAINE ~ 0 Y*s No 14. SCHEDULES DESCRIPTION OF COMMODITIES. IUME*Io,,oo 15- 191 M 5c.s SC ME ~ 1/ 10./oH, 2 BOXES D 8473.30.0000 I SPARE PAR1~~ P~3R DEC MODEL 1 ---____ * /730 l22Lbs. 55 KGS 2~A/GL/ ATED LIC...SL ..DJGEIME.RAL UCENSE .. ~ INOL 22. ECCO .01.., o~.oo01I /20/ $4,300.00 U.S. v. SHIV IIOHAN CAUSE CR89-247ND PLAINTIFF EXHIBIT 25 NO. ADMITTED_______________ o t D11011!101001886T114 0,081.11.0.1 p~40tIss /01104.11. I8,1$/E01 old IS PIIESIthT 1r ~ I'~ . Ig~ °~`°3/10/d9 1 2S.AUTHENTICATIONIRE..H,#H/ooI ~2\I \$~t19~ Tholo,,,, 1. p~/o~~dbp pA,~1*p~,1/,o~o,.d.d 1 ~.oloo'lo 1I1.Oll'.$ 10.~". Ps, ~40b~ 10 SIOOIHIIRRO.IOOI 0oo.o,1.~s. Go.~I,~o'11lo P,ll1Rq01110.. W..E..q1~o. D.C. 20402. 0,0 sod CUs1,011~ O/.,,~, Oo~s18'l. 1l~s CDI'.sI P081,~ Fill Do* H~. SR.so~'~ 5op~,, 004.0.10. .. ~ool.01. 1101111111 8010.. DI 1111 CIRoH. W0.oIç180. D.C. 20233. 0 51-840 (968) PAGENO="0966"