HEARINGS BEFORE THE PERMANENT SUBCOMMITTEE ON INVESTIGATIONS OF THE COMMITTEE ON GOVERNMENTAL AFFAIRS UNITED STATES SENATE NINETY-SEVENTH CONGRESS SECOND SESSION
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TRANSFER OF UNITED STATES HIGH TECHNOLOGY
TO THE SOVIET UNION AND SOVIET BLOC NATIONS
HEARINGS
BEFORE THE
PERMANENT
SUBCOMMITTEE ON INVESTIGATIONS
OF THE
COMMITTEE ON
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
NINETY-SEVENTH CONGRESS
SECOND SESSION
MAY 4, 5, 6, 11, AND 12, 1982
Printed for the use of the Committee on Governmental Affairs
C / 3 7
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TRANSFER OF UNITED STATES HIGH TECHNOLOGY
TO THE SOVIET UNION AND SOVIET BLOC NATIONS
HEARINGS
BEFORE THE
PERMANENT
SUBCOMMITTEE ON INVES
OF THE
IGATIONS
COMMITTEE ON
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
NINETY-SEVENTH CONGRESS
SECOND SESSION
MAY 4, 5, 6, 11, AND 12, 1982
Printed for the use of the Committee on Governmental Affairs
U.S. GOVERNMENT PRINTING OFFICE
95-9290 WASHINGTON ; 1982
For sale by the Superintendent of Documents, U.S. Government Printing Office
Washington, D.C. 20402
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COMMITTEE ON GOVERNMENTAL AFFAIRS
WILLIAM V. ROTH, JR., Delaware, Chairman
CHARLES H. PERCY, Illinois
TED STEVENS, Alaska
CHARLES McC. MATHIAS, JR., Maryland
JOHN C. DANFORTH, Missouri
WILLIAM S. COHEN, Maine
DAVID DURENBERGER, Minnesota
MACK MATTINGLY, Georgia
WARREN B. RUDMAN, New Hampshire
HARRISON H. SCHMITT, New Mexico
JOAN M. MCENTEE,
THOMAS F. EAGLETON, Missouri
HENRY M. JACKSON, Washington
LAWTON CHILES, Florida
SAM NUNN, Georgia
JOHN GLENN, Ohio
JIM SASSER, Tennessee
DAVID PRYOR, Arkansas
CARL LEVIN, Michigan
Staff Director
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
WILLIAM V. ROTH, JR., Delaware, Chairman
WARREN B. RUDMAN, New Hampshire, Vice Chairman
CHARLES H. PERCY, Illinois SAM NUNN, Georgia
CHARLES McC. MATHIAS, Ja., Maryland HENRY M. JACKSON, Washington
JOHN C. DANFORTH, Missouri LAWTON CHILES, Florida
WILLIAM S. COHEN, Maine JOHN GLENN, Ohio
JIM SASSER, Tennessee
S. CASS WEILAND, Chief Counsel
MICHAEL C. EBERHARDT, Deputy Chief Counsel
ELEANORE J. HILL, Chief Counsel to the Minority
KATHERINE BIDDEN, Chief Clerk
(n)
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CONTENTS
Testimony of? Page
Arkov, Joseph, (assumed name for former Soviet engineer) 27
Asselin, Fred, staff investigator, Permanent Subcommittee on Inves-
tigations 82
Baker, Dr. Lara H., Jr., assistant office leader, International Tech-
nology Office, Los Alamos National Laboratory, University of
California _ 54
Bell, William H., prisoner; accompanied by Robert L. Kirste, at-
torney_ 37
Brady, J. Lawrence, Assistant Secretary of Commerce for Trade
Administration, Department of Commerce 262
Bryant, Clyde, Chief, Support Services Division, Office of Munitions
Control, State Department 156
Bryen, Dr. Stephen D., Deputy Assistant Secretary of Defense, Inter-
national Economics, Trade and Security Policy, Department of
Defense 249
Buckley, James L. Under Secretary of State for Security Assistance,
Science and Technology, Department of State 156
Corcoran, George G., Assistance Commissioner (Border Operations),
U.S. Customs Service 193
Fry, Glenn W., staff investigator, Permanent Subcommittee on Inves-
tigations
74, 82
Greenberg, Theodore, assistant U.S. attorney, Eastern District of
Virginia 129
Inman, Adm. Bobby R., Deputy Director, Central Intelligence
Agency 235
Johnston, Ernest, Deputy Assistant Secretary of State for Economic
and Business Affairs 156
Kapper, Dr. Frank, Director of Military Technology Sharing 218
Lecht, Charles, former president and chairman of the board, Advanced
Computer Techniques Corp 229
Lomacky, Dr. Oles, 'Director of the Office of Technology Trade 218
Lorenzo, Michael, Deputy Under Secretary of Defense, International
Programs and Technology, Department of Defense 218
Maguire, John, president, Software AG of North America, Inc 121
Marshall, John D., businessman, Santa Clara, California 71
Martin, John L., Criminal Division, U.S. Department of Justice_ 129
O'Brien, Patrick, Director, General Investigations, U.S. Customs
Service 193
O'Malley, Edward J., Assistant Director, Intelligence Division,
Federal Bureau of Investigation 168
Southard, Douglas, deputy district attorney, County of Santa Clara,
California 143
Van Cook, Arthur, Director of Information Security, Department of
Defense, and chairman, National Disclosure Policy Committee 181
Von Raab, William, Commissioner, U.S. Customs Service 193
Vorona, Dr. Jack, Director, Scientific and Technical Information,
Defense Intelligence Agency, Department of Defense 10
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Iv
EXHIBITS
Intro-
duced Appears
on Page an Page
1. Assessment of the technology transfer problem regarding diver-
sions to the Soviet Union 6 7
2. Public Law 96-72, 96th Congress, September 29, 1979, Export
Administration Act of 1979 97
3. Testimony of William V. Skidmore, Director, Office of Export
Administration, Department of Commerce, before the Sub-
committee on International Economic Policy and Trade of the
House Committee on Foreign Affairs, March 26, April 14, 28,
and May 13, 1981, Export Administration Amendments Act
of 1981 97
4. Export Administration report to Congress, October 1978?March
1979, issued by the Industry and Trade Administration, De-
partment of Commerce; Export Administration report to
Congress, April 1979?September 1979; issued by the Industry
and Trade Administration, Department of Commerce; Export
Administration annual report fiscal year 1980, issued Febru-
ary 1981, by International Trade Administration, Department
of Commerce; Export Administration annual report fiscal year
1981, issued February 1982, by the International Trade Ad-
ministration, Department of Commerce 97
5. Memorandum from Sharon R. Connelly, Director, Compliance
Division, to William V. Skidmore, Director, Office of Export
Administration, on "Administrative Enforcement Activity in
the Compliance Division in Fiscal Year 1981 Compared to
Prior Years," October 5, 1981 97
6. 198L summary of work of Facilitations Branch of Compliance
Division_ 97
7. S. 206, 96th Congress, Office of Strategic Trade Act of 1980,
introduced on April 24, 1980, by Senator Garn ; floor remarks
of Senator Garn; and May 8, 1980, "Dear Colleague letter"
regarding legislation__97
8. Letter to the Speaker of the House and the President of the
Senate transmitting a report from President Carter, "Ship-
ments of Agricultural Commodities to the Soviet Union,"
January 2, 1980_ 97
9. Report by the Comptroller General of the United States,
"Lessons To Be Learned From Offsetting The Impact Of The
Soviet Grain Sales Suspension," July 27, 1081, -U.S. General
Accounting Office. 97
10. Memorandum from William Green, Deputy Assistant Com-
missioner for Border Operations, Customs Service, to Robert
L. Kench, Associate Deputy Attorney General and Chairman
of Inter-agency Working Group on Export Control, October
20, 1980 97 97-99
11. Los Angeles Times article, "4 Accused of Exports for Soviet
Bloc Nations," August 20, 1981, p. 1 97 *
12. Indictment, United States v. Werner J. Bruchhausen, Anatoli
Tony Maluta, Sabina Dorn Tittel; and Dietmar Ulrichshofer;
U.S. District Court for the Central District of California 97
13. Information, United States v. Anatoli Tony Maluta, U.S. District
Court, Central District of California 97
14. Stipulation of Facts and Exhibits re: trial of Anatoli Tony
Maluta, United States v. Anatoli Tony Maluta, October 27,
1981, U.S. District Court, Central District of California_ _ _ _ 97
15. Memorandum re: Sentencing; Exhibits; Declaration of Theodore
W. Wu, United States v. Anatoli 7'. "Valuta and Sabina D.
Tittel, U.S. District Court, Central District of California 97
16. Commerce Department press release of April 3, 1981, an-
nouncing that the Department had denied all U.S. export
privileges to Anatoli Maluta, Sabina Dorn Tittel; and Werner
J. Bruchhausen and three firms associated with them; and 16
more Commerce Department press releases relating to actions
taken in connection with alleged violations of export laws
and regulations in 1980 and 1981 97
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EXHIBITS?Continued
Intro-
duced Appears
on page on page
17. Commerce Department press release of September 8, 1980
in which Commerce Secretary Philip M. Klutznick and
Attorney General Benjamin Civiletti announced that Pres-
ident Carter had directed formation of an interagency work-
ing group chaired by the Justice Department 'to examine
ways to improve compliance with the export control laws."_ _ _
18. Commerce Department press release of January 11, 1980,
announcing, 'Commerce Secretary Denies $1 Billion Plus
In Export Licenses for Soviet Union"
19. Volumes 4, 7, 8, and 11, reporter's transcript, U.S. v. Spawr,
Optical Research, Inc., Walter J. Spawr, Frances Spawr,
November 13, 24 and 25 and December 3, 1980, U.S. District
Court, Central District of California
20. Qualification standards and position discriptions on? GS-1811
Federal criminal investigation issued by the Office of Per-
sonnel Management
21. Speech by Senator Henry M. Jackson on "Technology Transfer
Policy?The High Stakes," in Senate, February 11, 1982 _
22. Congressional Research Service report entitled, "Foreign
Espionage and U.S. Technology," prepared at the request of
the Senate Permanent Subcommittee on Investigations by
Mark M. Lowenthal, Foreign Affairs and National Defense
Division; and George Holliday and Lawrence Evans, both
of the Economics Division; August 12, 1980
23. Statements of Lawrence J. Brady, Assistant Secretary of
Commerce for Trade Administration, before House Sub-
committees on Science, Research and Technology and on
Investigation and Oversight, March 29, 1982; and before
Senate Subcommittee on International Finance and Monetary
Affairs, April 14, 1982
24. Commerce Department April 1982 biography of William V.
Skidmore, Director, Office of Anti-Boycott Compliance;
and Acting Director, Compliance Division
25. New York Times editorial, "Smothered By A Security Blanket,"
April 12, 1982
26. Letter from Frank Carlucci, Deputy Secretary of Defense
to William D. Carey, Executive Officer and Publisher of
Science magazine, printed under the heading, "Scientific
Exchanges and U.S. National Security," in January 8, 1982
issue
27. Soviet Military Power, Department of Defense publication_ _ __
28. Letters from Chairman Roth and Senator Nunn to Commerce
and Treasury Departments requesting specific information on
export controls, September 21, 1981; April 14 and 16, 1982__
29. Sworn affidavit of John Rennish
30. Sworn affidavit of Michael Dolphin
31. Sworn statement of Charles McLeod
32. Freedom of Information Act (S. 1751), and a section by section
analysis, submitted by Mr. Van Cook
33. Briefing on duel-use technology prepared by Col. Kenneth
Evans, U.S. Army
34. Statement prepared for the subcommittee by the American
Society for Industrial Security
35. Prepared statement submitted to the subcommittee by the
Computer ?Sz Business Equipment Manufacturers Association..
36. Prepared statement submitted by the Electronics Industries
Association
37. Prepared statement submitted by the Scientific Apparatus
Makers Association
38. Court exhibits, documents and related material
97
97
97
97
*
97
*
97
*
97
*
97
97
*
97
*
97
*
97
*
277
278
277
283
277
287
191
*
296
*
296
*
296
*
296
*
296
*
296
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VI
APPENDIX
Asselin, Fred, investigator, Permanent Subcommittee on Investigations.
Prepared statement, including a summary written by Mr. Asselin on the Page
CTC case 366
Baker, Dr. Lara H., Jr., assistant office leader, Los Alamos National Lab-
oratory, "Talking Notes"' of Dr. Baker; his submitted r?m?a memoran-
dum dated April 16, 1982, which contains Dr. Baker's response to the
Customs Bureau regarding the CTC case 338
Brady, Lawrence, Assistant Secretary of Commerce for Trade Adminis-
tration, Department of Commerce, prepared statement 596
Bryen, Dr. Stephen D., Deputy Assistant Secretary of Defense, Inter-
national Economics, Trade and Security Policy, Department of Defense,
prepared statement_ 583
Buckley, James L., Under Secretary of State for Security Assistance, Sci-
ence and Technology, Department of State, statement with related mate-
rial and attachments_ 533
Cohen, Senator William S., prepared statement 313
Fry, Glenn W., staff investigator, Permanent Subcommittee on Investi-
gations, prepared statement 426
Greenberg, Theodore, assistant U.S. attorney, Eastern District of Virginia,
prepared statement 432
Inman, Adm. Robert R., Deputy Director, Central Intelligence Agency,
prepared statement_ 577
Jackson, Senator Henry M., prepared statement; letters to President
Reagan dated March 8, 1982, and November 14, 1980, relating to the sub-
committee's investigation; a newsletter by Senator Jackson dated
February 11, 1982, on the subject matter_ 315
Lecht, Charles, former president and chairman of the board, Advanced
Computer Techniques Corp., statement 570
Lorenzo, Michael, Deputy Under Secretary of Defense, International
Programs and Technology, Department of Defense, prepared statement;
copy of speech dated March 11, 1982, to the George Washington Univer-
sity on Military Transfer Technology_ 552
Southard, Douglas, deputy district attorney, county of Santa Clara, Calif.,
prepared statement 475
U.S. Department of Commerce: Inspector General's Report of Inspection
of the Export Administration's Compliance Division 606
Wu, Theodore Wai, assistant U.S. attorney, Criminal Division, Central
District of California, prepared statement (did not testify) 510
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TRANSFER OF UNITED STATES HIGH TECHNOLOGY
TO THE SOVIET UNION AND SOVIET BLOC NATIONS
TUESDAY, MAY 4, 1982
US. SENATE,
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
OF THE COMMITTEE ON GOVERNMENTAL AFFAIRS,
Washington, D.C.
The subcommittee met at 10:10 a.m., pursuant to call, in room 3302,
Dirksen Senate Office Building, under authority of Senate Resolution
361, dated March 5, 1980, Hon. William V. Roth, Jr., presiding.
Members of the subcommittee present: Senator William V. Roth,
Jr., Republican, Delaware; Senator William S. Cohen, Republican,
Maine; Senator Warren B. Rudman, Republican, New Hampshire;
Senator Henry M. Jackson, Democrat, Washington; Senator Lawton
Chiles, Democrat, Florida; and Senator Sam Nunn, Democrat,
Georgia.
Members of the professional staff present: S. Cass Weiland, chief
counsel; Michael C. Eberhardt, deputy chief counsel; Katherine Bid-
den, chief clerk; Eleanore J. Hill, chief counsel to the minority;
Gregory Baldwin, assistant counsel to the minority; Jack Key, Glenn
Fry and Fred Asselin, staff investigators to the minority; and
Kathleen Dias. executive secretary to the minority chief counsel.
[Members of the subcommittee present at convening: Senators Roth,
Nunn, Jackson, Cohen, Chiles, and Rudman.]
Chairman ROTH. Today the Permanent Subcommittee on Investiga-
tions opens 5 days of in-depth hearings into the loss of U.S. technology
to the Soviet Bloc countries. At the very outset, I want to congratu-
late you, Senator Nunn, and your staff for the excellent work in put-
ting together this series of very important hearings.
As chairman I am, of course, cognizant of the accomplishments of
the subcommittee under you, Senator Jackson, on this subject during
the mid-seventies and fully support the tvne of investigation that has
led to the presentation of evidence we will begin to hear today.
The issues that will be addressed here in the next two weeks are of
great concern to me and should be fully understood so that the Ameri-
can people can better appreciate the extent to which our sensitive tech-
nology is finding its way into the Soviet Union and its bloc nations.
There is no question that the Soviets have undertaken a massive, *ell-
financed, expertly coordinated program to systematically acquire as
much as our high technology as they can steal, purchase through mid-
dlemen or otherwise appropriate. And all because they are unable to
produce that technology themselves. So they are left to copy ours and
use it, no to make life more comfortable for their citizens, but
to advance their numerous weapons systems and overall military
capabilities. -
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It is of the utmost importance, therefore, that our Federal law
enforcement and intelligence agencies work closely with representa-
tives of private industry in identifying and protecting those sensitive
items and processes which are the targets of Soviet operatives. But in
so doing we must remain committed to our great tradition of Ameri-
can competition in the world marketplace. A balance must be struck
between our legitimate effort to curtail any assistance to Soviet mili-
tary buildup on one hand, and our promotion of free, enterprise in
the world market on the other hand.
This is no easy balance to strike, but hopefully our hearings will
identify the issues that we must address if we are to succeed in both
of these goals.
One key factor to success will be the assurance that our Federal
intelligence agencies are interacting with Federal enforcement agencies
to identify those types of sensitive technology most desired by the
Soviet Union. This is where our e:mphasis on control must lie, not with
items of little or no priority to the Soviets.
Furthermore, much of the technology developed here in the United
States is also being developed by other Western nations for sale over-
seas, while our allies readily trade away sensitive information to the
Soviet bloc. We must, therefore, work together with our friendly
neighbors to establish carefully conceived important programs aimed
at specific types of technology.
Clearly, effectiveness depends on multilateral enforcement.. Where
that cooperation is lacking, we must build incentives to achieve them;
and where there are presently treaties in effect, we must insure that
there is a sufficient commitment to their vigorous enforcement.
I look forward to the next several days of hearings and again want
to thank Senator Nunn for his efforts.
Senator Nunn.
OPENING STATEMENT OF SENATOR NUNN
Senator Nuiciv. Thank you very much, Mr. Chairman. I want to
thank you, Mr. Chairman, and the entire majority staff for your
splendid cooperation during the course of this investigation and in
plans for these hearings. We have had the minority staff working on
this problem now for about 15 months and during the entire course of
that investigation, we have had splendid and total cooperation from
the majority, which we appreCiate very much.
The subcommittee today begins its evaluation of the effectiveness of
the executive branch in enforcing exPort controls, particularly with
regard to transfer of technology to the Soviet Union and other Warsaw
Pact nations.
The subcommittee has received information indicating that the exec-
utive branch has devoted insufficient attention and resources to enforc-
ing export controls on high technology. When I say the executive
branch during the course of these hearings. I want to make it absolutely
plain I am talking about the executive branch that exists now and the
one that existed before. This is a bipartisan thing and this is not aimed
at any particular administration. This problem transcends any admin-
istration or any leadership.
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For this Nation to neglect export controls is to assist the Soviets in
carrying out their global designs. They have stated often their goal to
achieve superiority in science and technology. We are mistaken not to
take them at their word.
Since the end of World War II, the Soviets have made great strides
in building their military prowess. Our own security analysts admit to
the increased level of deployed Soviet military technology. We have
relied on our technological superiority to offset the Soviet Union's
commitment to have more of everything, more men in arms, more
armor, more aircraft, more ships at sea. Kowever, the United States'
advantage in basic military technology is being challenged. Today the
Soviets have more of most things military. They are also closing the
gap technologically in many fields.
In modernizing their military capabilities, the Soviets first had to
modernize their industry. In that pursuit, they relied to an important
extent on technology from the United States.
According to American defense analysts, the United States has been
the source of much of the Soviet Union's electronic and computer tech-
nology and advanced manufacturing capability. Some of this ex-
pertise was given or sold to the Soviets willingly. Some of it the
Soviets obtained illegally.
The Soviets have come to view our technology as their technology, to
be obtained whenever they need it. As a consequence, we are in the posi-
tion of supporting our own costly national security apparatus, and
indirectly helping them to build theirs.
Since 1970, the Western democracies and Japan have supplied the
Soviet industrial sector with millions of dollars' worth of efficient
machine tools, chemical plants, precision instrumentation, and associ-
ated technologies. Western goods and technologies have played a major
role in the modernization and expansion of Soviet industry. The use of
the technology embodied in the Western equipment has enabled the
Soviet Union and the Warsaw Pact countries to achieve industrial
growth at a faster rate than would have been possible with their own
resources.
Our purpose in these hearings is to identify the principal vehicles
the Soviets use to obtain high technology from the United States and
to examine our ability to halt the technological drain.
Imagine for a moment an office in the Kremlin where senior Soviet
officials decide what kind of technology they need from us and then
devise their efforts to obtain it.
The Kremlin office, a composite of several Soviet departments, re-
sponds to the law of supply and demand. The demand is reflected in
the needs of military and industrial planners. The planners give the
"Technology Transfer Office" a shopping list of desired high technol-
ogy components and knowledge. The composite Soviet officers in charge
of obtaining American technology surveys his resources.
Generally speaking, he has seven basic approaches he can utilize.
First, there are the KGB and the GRU, the spy organizations which
practice traditional hand-in-the-safe information gathering crafts.
Their tactics range from bribery to blackmail to extortion.
Second, the Soviets rely on information published by the U.S. Gov-
ernment and made available by Federal agencies.
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The subcommittee will examine information indicating that too
much data about our military programs may be being made public. The
Soviets draw heavily on the Government's Public documents.
Third, the Soviets promptly translate U.S. technical journals and
distribute them among their scientists and engineers. There is nothing
the United States can do to stop that. However, the subcommittee will
examine the procedures with which the Government decides to make
heretofore sensitive information available.
Fourth, the Soviets promote information exchanges as ways to es-
tablish improved relations between the two countries. But information
exchanges may serve the Soviets in other ways.
The subcommittee will examine information indicating that the So-
viets exploited such exchanges for their own benefit and the United
States gives up more information than it receives.
Similarly, the subcommittee will examine information indicating
that the Soviets exploit the so-called student exchange program with
the United States. Sources indicate that the Soviets send to American
universities established scientists to learn at our Nation's centers of
high technology studies. In return, the United States usually is repre-
sented by college-age students whose interests are literature, art, or
history.
Fifth, the Soviets and their surrogates form marketing and manu-
facturing companies in this country which serve two purposes for
them. They buy high technology and munitions for illicit export to
the Soviet Union. Second, they use their facilities in the United States
as havens for spies. Both these techniques will be examined in the
hearings.
Sixth, the Soviets turn to agreements in which American companies
and consortiums build factories in the U.S.S.R.
Seventh, the Soviets employ business intermediaries in the United
States and foreign countries. Using false shipping documentation and
other illegal practices, business intermediaries buy high technology
components and knowledge and send them to the Soviet sphc?re.
It is important to note that in these hearings we have special
interest in so-called "dual-use" technology; that is to say, technology
developed or manufactured in this country primarily by the private
sector and primarily for commercial purposes. It is termed "dual use"
because in the hands of the Soviets or another adversary, the tech-
nology can have military applications that can be used against the
United States.
Such technology cannot be exported legally without a validated
license from the U.S. Department of Commerce.
The Commerce Department's Office of Export Administration,
known as OEA, has the responsibility of enforcing export controls
under the Export Administration Act. Investigation of alleged viola-
tions is conducted by 0EA's Compliance Division.
Our preliminary investigation has raised serious questions about
the ability of the, Commerce Department to enforce effectively those
U.S. export laws governing technology transfer.
The subcommittee will examine carefully allegations that from as
early as .1963, the Compliance Division has been undermanned and
undertrained as a law enforcement organization. By contrast, the
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Soviets have become increasingly adept in their ability to secure our
high technology.
In that context, the subcommittee intends to examine the mecha-
nisms both on the statutory and agency levels, which the United States
has developed to implement a strong policy aimed at halting the tech-
nology drain. We will weigh the testimony and evidence to determine
what can be done to improve the ability of the executive branch to
enforce export controls.
The transfer of technology to the Soviet Union is one of our most
important national security problems. It is a national security issue
that deserves the most responsible and thoughtful scrutiny.
I want to stress fiat a primary consideration of this subcommittee's
inquiry is to enable the private sector of our economy the opportunity
to export with as few regulations and controls as possible. One point
has come through clearly in the preliminary investigation. It is that
the way high technology export controls are administered now, too
many items are controlled, and because the Government tries to control
too many commodities, it fails to keep track of those products the
Soviets desire most. So, in the effort to broaden and have a comprehen-
sive list, we end up uncovering more and more. An improved system
of export regulations would focus on those high technology items the
Soviets must have.
This so-called Soviet shopping list, based on sound intelligence esti-
mates, will enable our Government to safeguard the most critical as-
pect of our technology and we hope also eliminate some of the regula-
tions and controls that cause American businessmen to complain bit-
terly about wasteful Government redtape.
The result, if it can be implemented, will be an improved enforce-
ment effort and an improved balance of trade.
What Chairman Roth pointed out at the beginning of these hearings
is very important. It is extremely difficult for an open society to have
restrictions on technology transfer. We have to arrive at a balance.
The openness of our society is one of the strengths that we have in de-
veloping new technologies. It is also apparent that the Soviet Union
has a distinct advantage in developing technology because they have a
closed society. So we certainly have to keep that balance in mind.
Mr. Chairman, I think it is appropriate at this point to express my
respect and admiration for our colleague on this subcommittee, Sena-
tor Jackson. who was one of the first to speak out on the importance
of the technology transfer issue.
As early as 1974, Senator Jackson. then chairman of this subcom-
mittee, convened hearings on this subject and helped focus needed at-
tention on a subject that was much in need of congressional oversight.
Senator Jackson's work in this area provided an accurate and com-
prehensive foundation for the investigation we launch today. So I
want to commend you, Senator Jackson, for your longstanding leader-
ship in this field and as I have said so many times in the post, you know
and understand national security matters very well?with one or two
poc-sible exceptions that we can -discuss later on.
In addition, Mr. Chairman. I want to point out that in this prelimi-
nary investigation, the minority staff has coordinated its efforts with
the staff of the Senate Select Committee on Intelligence. We have re-
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6
ceived complete cooperation and assistance from select committee staff
and I myself have benefited greatly from the generous guidance of my
distinguished colleagues, Senator Goldwater, the chairman of the
select committee, and Senator Moynihan, the vice chairman.
Our staff has provided thorough briefings to the select committee
staff and I have kept members of the select committee advised of our
progress as well.
In concluding my opening statement, Mr. Chairman, I request that
you order printed in the record at this point an assessment of the tech-
nology transfer problem regarding diversions to the Soviet Union.
The assessment prepared by national security specialists in the execu-
tive branch was made available to me through established procedures.
Chairman ROTH. Without objection, it will be so printed.
[The document referred to was marked "Exhibit No. 1," for refer-
ence and follows:]
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7
EXHIBIT NO. 1
Soviet Acquisition of
Western Technology
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8
Contents
Page
Introduction
Soviet Acquisition of Western Technology: A National-Level Program
Soviet Mechanisms for Acquiring Western Technology 2
Soviet Acquisitions and Benefits 5
Outlook for the 1980s 11
Appendix
Projected Soviet Technological Needs and Acquisition Targets 13
Through the 1980s
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Soviet Acquisition of
Western Technology
Introduction
The United States and its Allies traditionally have
relied on the technological superiority of their weap-
ons to preserve a credible counterforce to the quanti-
tative superiority of the Warsaw Pact. But that
technical superiority is eroding as the Soviet Union
and its Allies introduce more and more sophisticated
weaponry?weapons that all too often are manufac-
tured with the direct help of Western technology.'
Stopping the Soviets' extensive acquisition of mili-
tary-related Western technology?in ways that are
both effective and appropriate in our open society?is
one of the most complex and urgent issues facing the
Free World today.
This report describes the Soviet program to acquire
US and Western technology, the acquisition mecha-
nisms used, the spectrum of Western acquisitions that
have contributed to Soviet military might, the project-
ed Soviet priority needs for Western technology, and
the problems of effectively stemming the transfer of
Western technology that could someday find applica-
tion in weapons used to threaten the West.
Soviet Acquisition of Western Technology:
A National-Level Program
Since at least the 1930s, the Soviet Union has devoted
vast amounts of its financial and manpower resources
to the acquisition of Western technology that would
enhance its military power and improve the efficiency
of its military manufacturing technology. Today this
Soviet effort is massive, well planned, and well man-
aged?a national-level program approved at the high-
est party and governmental levels.
? While there are numerous interpretations of "technology" for
weapons, it is defined in this report as the application of scientific
knowledge, technical information, know-how, critical materials,
keystone manufacturing and test equipment, and end products
which are essential to the research and development as well as the
series manufacture of modern high-quality weapons and military
equipment. Western technology is defined as that technology
developed by the Free World.
1
9
This program accords top priority to the military and
military-related industry, and major attention is also
given to the civilian sectors of Soviet industry that
support military production.
The Soviets and their Warsaw Pact allies have ob-
tained vast amounts of militarily significant Western
technology and equipment through legal and illegal
means. They have succeeded in acquiring the most
advanced Western technology by using, in part, their
scientific and technological agreements with the West
to facilitate access to the new technologies that are
emerging from the Free World's applied scientific
research efforts; by spending their scarce hard curren-
cy to illegally purchase controlled equipment, as well
as to legally purchase uncontrolled advanced Western
technologies having military-industrial applications;
and by tasking their intelligence services to acquire
illegally those US and Western technologies that are
classified and export controlled.
The Soviets have been very successful in acquiring
Western technology by blending acquisitions legally
and illegally acquired by different government organi-
zations. The Soviet intelligence services?the Soviet
Committee for State Security (KGB) and the Chief
Intelligence Directorate of the Soviet General Staff
(GRU)?have the primary responsibility for collecting
Western classified, export-controlled, and proprietary
technology, using both clandestine and overt collec-
tion methods. They in turn make extensive use of
many of the East European Intelligence Services (see
inset, p. 2); for their efforts in acquiring Western
technology, these countries are paid in part with
Soviet military equipment and weapons.
Clandestine Requisition of the West's most advanced
military-related equipment and know-how by the
KGB and GRU is a major and growing problem.
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East European Intelligence Services Acquire
Technologies for the Soviet Union
In the late 1970s a former East European intelligence
officer revealed organizational and targeting details
related to Soviet-directed acquisitions of Western
technology by East European intelligence services
particularly military-industrial manufacturing-
related technologies that were given the highest prior-
ity for collection by at least one East European
intelligence service. Many technologies were acquired
through dummy firms established in Western Europe
that were successful in securing some of the most
advanced technologies in the West, including com-
puter, microelectronic, nuclear, and chemical
technologies.
In microelectronics, for example, many US firms
were targeted through their affiliates in Western
Europe; scientists, technicians, and commercial rep-
resentatives also were successfully recruited to pro-
vide information during their trips to Europe. Al-
though most of the military and defense-industrial
information acquired by East European intelligence
services went to the Soviets, much of it was used by
the East Europeans themselves to benefit their ntili-
tory and civilian industries. The computer, micro-
electronic, and photographic areas were priority tar-
gets. The East European countries benefited con-
siderably from microelectronic acquisitions, and
could not have achieved the present level of develop-
ment in their computer industry without illegal
acquisitions of Western technology
These intelligence organizations have been so success-
ful at acquiring kVestern technology that the man-
power levels they allocate to this effort have increased
significantly since the 1970s to the point where there
arc now several thousand technology collection offi-
cers at work. These personnel, under various covers
ranging from diplomats to journalists to trade offi-
cials, are assigned throughout the world.
Soviet foreign trade organizations, or enterprises,
although quasi-independent entities, are partially sub-
ordinated to the Ministry of Foreign Trade, and their
activities are closely coordinated by this Ministry.
10
They have major responsibilities for Both legal and
illegal acquisitions and purchases; they work closely
with the KGB and GRU in arranging trade diver-
sions. East European trade companies assist them in
clandestine and illegal acquisition operations.
Official Soviet and East European science and tech-
nology (s&-r) organizations also play a major role in
both open and clandestine acquisition of Western
technology. The Soviet State Committee for Science
and Technology (GKNT) is the key player in arrang-
ing government-to-government science and technol-
ogy agreements to facilitate access to and the acquisi-
tion of established as well as new technologies,
including those just emerging from Western universi-
ties, laboratories, and high-technology firms. It is the
GKNT that oversees the allocation of scarce Soviet
hard currency for the legal purchase by various Soviet
organizations of selected Western technology for So-
viet military purposes. If the GKNT is unable to
acquire the necessary technology by open or legal
means, it tasks Soviet intelligence to clandestinely
acquire the technology.
It is the well-organized and well-coordinated use of all
these organizations that has made the Soviet program
to acquire Western technology so successful. As a
result, the Soviets have acquired militarily significant
technologies and critically important industrial West-
ern technologies that have benefited every major
Soviet industry engaged in the research, development,
and production of weapon systems.
Soviet Mechanisms for Acquiring Western Technology
Soviet acquisition mechanisms include: legal means
through open literature, through legal trade channels,
and through student scientific and technological ex-
changes and conferences; illegal means through trade
channels that evade US and Western (i.e. CoCom)'
export controls, including acquisitions by their intelli-
gence services through recruited agents and industrial
'Thu Coordinating Committee (CoCom) was established in 1949 to
serve as the forum for Western efforts to develop a system of
strategic export controls. It is composed of the United States, the
United Kingdom, Turkey, Portugal, Norway, the Netherlands,
Luxembourg, Japan, Italy, Greece, France, the Federal Republic of
Germany, Denmark, Canada, and Belgium.
2
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espionage. While a large volume of technology is
acquired by nonintelligence personnel, the overwhelm-
ing majority of what the United States considers to be
militarily significant technology acquired by and for
the Soviets was obtained by the Soviet intelligence
services and their surrogates among the East Europe-
an intelligence services. However, legal acquisitions
by other Soviet organizations are important since it is
often the combination of legally and illegally acquired
technologies that gives the Soviets the complete mili-
tary or industrial capability they need.
Because of the priority accorded to the military over
the civilian sectors of the Soviet economy, Western
dual-use technology?i.e., technology with both mili-
tary and civilian applications?almost always finds its
way first into military industries, and subsequently
into the civilian sectors of industries that support
military production. Thus, Soviet assurances that
legally purchased dual-use technology will be used
solely for civilian applications can seldom be accepted
at face value.
Legal acquisitions generally have their greatest im-
pact on the Soviets' broad industrial base, and thus
affect military technology on a relatively long-term
basis. The Soviet Kama Truck Plant, for example,
was built over some seven years with massive imports
of more than $1.5 billion worth of US and West
European automotive production equipment and tech-
nology. Large numbers of military-specification
trucks produced there in 1981 are now being used by
Soviet forces in Afghanistan and by Soviet military
units in Eastern Europe opposite NATO forces. Simi-
larly, large Soviet purchases of printed circuit board
technology and numerically controlled machine tools
from the West already have benefited military manu-
facturing sectors.
The Soviets give priority to those purchases that meet
the direct needs of the Soviet military-industrial
complex by paying for them in hard currency. Over
the past 10 years, the Soviets legally and illegally
purchased large quantities of Western high-technol-
ogy microelectronics equipment that has enabled
them to build their own military microelectronics
industry in a short time. This acquired capability in
11
microelectronics is the critical basis for the present
wide-ranging enhancements of Soviet military sys-
tems and for their continuing sophistication.
Acquisitions through illegal trade channels often have
both industrial and military applications, and thus are
important in the near term. Illegal acquisitions of
technology fall into two general categories, both of
which are extremely difficult to detect and monitor.
One is the diversion of controlled technology from
legitimate trade channels to proscribed destinations.
This is done through US and foreign firms that are
willing to engage in profitable impropriety; through
agents-in-place in US or foreign firms or foreign
subsidiaries of US firms; through Soviet- and East
European?owned firms locally chartered in the
West; and through foreign purchasing agents (includ-
ing arms dealers). For instance, to evade the US
embargo on microelectronic technology exports to the
Soviet Union, the Soviets and their surrogates have
set up dummy corporations in the West that purchase
sophisticated microelectronics manufacturing equip-
ment. This equipment is then shipped and reshipped,
sometimes with the knowledge of individuals in the
companies, to disguise its ultimate destination?the
Soviet Union or Eastern Europe. Both the Soviet and
Warsaw Pact intelligence services are in the main-
stream of this illegal technology trade flow. The other
type of diversion is an in-place diversion, in which
legally acquired technology and equipment?in the
computer area, for example?are put to military end
uses not authorized in export license applications.
The acquisitions that most directly affect Soviet
military development have come from intelligence
collection and related illegal trade diversions. Soviet
Bloc intelligence services have concentrated their
effort in the United States, Western Europe, and
Japan. These services target defense contractors and
high-technology firms working on advanced technol-
ogy (both classified and unclassified), foreign firms
and subsidiaries of US firms abroad, and internation-
al organizations with access to advanced and/or
proprietary technology, including access to computer
data base networks throughout the world.
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Table I
Major Fields of Technology of Interest to
Soviet and East European Visitors to the United States
Computers
Materials
Architecture
Automatic Control
CAD (Computer-Aided Design)
Cybernetics/Artificial Intelligence
Data Bases
Image Processing Design
Image Processing/Retrieval
Amorphous
CAD
Composites
Cryogenics
Deformation
Memories
N/C (Numerically Controlled) Units
Networks
Pattern Recognition
Programming
Robots
Software
Metallurgy
N/C Machine Tools
Powder Metals
Superconductors
Testing/NDT (Non-Destructive)
Semiconductors
CAD
Circoits
Defects
Devices
Design
Ion Implantation
Production Technology
SAW (Surface Acoustic Wave) Devices
Commun(cations, Navigation,
and Control
Antennas
Microwave/Millimeter Waves
Radio Wave Propagation
Satellite Communications
Signal Processing
Telecommunications
Vehicular/Transportation
Laser and Optics
Marine Systems
Shipbuilding
Fiber Optics
Gas Lasers
Optics
Tunable Lasers
Nuclear Physics Cryogenics
Fusion
Materials
M111) (Ma g n etohydrodyna m ics)
rvIicrobiology Genetic Engineering
Reactors
Structural Designs
Superconductors
Both legal and illegal acquisitions of US and Western
technology and equipment are coordinated with infor-
mation obtained through the complex network of
international governmental scientific and technical
agreements and exchanges that the USSR maintains
with the advanced industrial nations. These include
know-how, equipment, and computer data base collec-
tion activities of Soviet scientists and engineers who
participate in academic, commercial, and official
S&T exchanges. Visiting Soviet and East European
technical and student delegations to the United States
generally consist of expert scientists, many of whom
arc connected with classified work in their home
countries. Such was the case with the Soviet scientist
who managed to get assigned to fuel-air explosives
work. When he finished his US study programs, he
almost certainly returned to the USSR to work on
related weapons. Other Soviet and East European
scientists have come to the United States to work in
the aerohydrodynamic, cryogenic, optic, laser, com-
puter, magnetic bubble computer memory, nuclear,
microelectronic, and structural and electronic materi-
al areas. Given the military importance of these fields
to the Soviet Union, it appears likely that a high
percentage of these scientists will work on military-
related programs in these areas after they return
home.
From the beginning, Soviet candidates in various
academic and scientific exchange programs have
nearly always proposed research activities involving
technologies in areas that have direct military appli-
cations and in which the Soviets are technologically
deficient. Table I provides a list of the key high-
technology fields that Soviet and East European
4
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visitors come to the United States to study, research,
or discuss, many of which are on the US Militarily
Critical Technology List today. In each of the past
two years, more than a third of the 50 program
proposals offered under the Graduate Student/Young
Faculty Program of the International Research and
Exchanges Board (IREX) has been completely un-
acceptable in terms of prospective technology loss,
and many other programs needed to be modified or
have access constrained before the exchanges could be
allowed.
The Soviets correctly view the United States and
several other Western countries as a continuing
source of important and openly available scientific
and technical information, which they take every
opportunity to-obtain access to. Some of the unclassi-
fied documents so acquired are previously classified
materials which had been downgraded to unclassified
through US procedures providing for automatic de-
classification after a stipulated period. When collect-
ed on a massive scale and centrally processed by the
Soviets, this information becomes significant because
it is collectively used by Soviet weapons designers and
weapons countermeasure experts.
The Soviets also regularly attend high-technology
trade shows, and attempt to visit commercial firms in
the West, particularly small and medium-sized firms
that are active in developing new technologies. These
apparent trade promotion efforts often mask Soviet
attempts to acquire emerging Western technological
know-how before its military uses have been identified
and government security controls have been applied.
Emerging technologies are particularly vulnerable to
foreign collection efforts of this type.
Soviet intelligence continues to place a high priority
on the collection of S&T information on genetic
engineering and futuristic weapons such as lasers and
particle beam weapons. The Soviets have been step-
ping up their efforts to acquire new and emerging
technologies such as very-high-speed integrated-cir-
cuit (VHS1C) and very-large-scale integration (VLSI)
technology from Western universities and commercial
laboratories for both military and commercial
applications.
5
13
Over the past few years there has been an increased
use of Soviet- and East European?owned firms locally
chartered in the United States and abroad to exploit
Western-controlled and military-related technology.
There are more than twenty Soviet- and East
European?owned firms in the United States, and near
the end of the 1970s there were more than 300 similar
firms in Western Europe. In addition to the United
States, heavy concentrations are in the United King-
dom, Sweden, the Netherlands, Italy, the Federal
Republic of Germany, France, Canada, Belgium, and
Austria. These firms are avenues for Soviet acquisi-
tion of advanced Western technologies, as was shown
when the US engineer arrested in late 1981 was
charged with selling US secret documents to an East
European intelligence officer employed by a Polish-
owned firm chartered in Illinois (see inset, p. 6).
Furthermore, firms chartered in the United States
can legally purchase controlled US technology and
study it without actually violating US export controls
unless they attempt to export the equipment or related
technical data from the United States without a
license.
Soviet Acquisitions and Benefits
Today's recognition of the crucial role of Western
technology in the development and production of
Soviet weapon systems and related military equip-
ment is not unique. Soviet dependence on Western
technology was visible and clear-cut in the years
immediately after World War II, when the Soviets
stole Western nuclear secrets leading to their develop-
ment of a nuclear weapon capability, and copied a US
bomber in its entirety leading to production of their
TU-4. To achieve major improvements in their mili-
tary capability quickly, they exploited captured scien-
tists and industrial plants and resorted to a combina-
tion of espionage, stealing, and copying Western
systems.
Since that early period of near-complete reliance in
the 1950s, the Soviets' dependence on Western tech-
nology to develop their weapons has decreased. Nev-
ertheless, despite several decades of Soviet priorities
focused on science, technology, and weapon systems,
the Soviets, because of their inability to be innovative
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US Radar Expert Passes Over 20 Significant Classi-
fied Reports on Future US Weapon Systems to Intel-
ligence Agent
William II. Bell, a radar project engineer for a high-
technology US defense firm was recruited by an
intelligence officer who operated under cover as a vice
president of the Polish firm called Polamco. This
firm iso subsidiary of the Polish Government Corpo-
ration and is incorporated in Illinois and Delaware. It
began as an importerlexporter of machinery, parts
and tools and as a consultant to firms exporting these
products to Poland. The recruitment began as a
simple friendship between neighbors with mutual
sporting interests, grew quickly to include their fam-
i:ies, then to proving Bell's credentials by showing a
classified document to the agent, and then to passing
microfilm copies of classified reports at meeting
places in the US, Switzerland, and Austria. Mr. Bell
was in financial straits and was easily influenced by
the cash proffered?a total of 5110,000 over a three-
year period. In all, over 20 highly classified reports
on advanced future US weapon systems or their
components were passed to the Polish Intelligence
Service and probably eventually to the Soviet Intelli-
gence Service.
Among the classified reports, those of prime impor-
tance to the West included the F-1.5 look-down-
shoot-down radar system, the quiet radar system for
the 81 and Stealth bombers, an all-weather radar
system for tanks, an experimental radar system for
the US Navy, the Phoenix air-to-air missile, a ship-
borne surveillance radar, the Patriot surface-to-air
missile, a towed-array submarine sonar system, a
new air-to-air missile, the improved HAWK surface-
to-air missile, and a NATO air-defense system. The
information in these documents put in jeopardy exist-
ing weapons and advanced future weapon systems of
the United States and its Allies. The acquisition of
this information will save the Polish and Soviet
Governments hundreds of millions of dollars in R&D
efforts by permitting them to implement proven de-
signs developed by the United States and by fielding
operational counterpart systems in a much shorter
time period. Specifications on current and future US
weapon systems will enable them to develop defensive
countermeasure systems.
14
and effectively apply new technology to weapons
developments, still depend on Western technology and
equipment to develop and manufacture some of their
advanced weapon systems more quickly.
Today, Soviet military designers carefully choose the
Western designs, engineering approaches, and equip-
ment most appropriate to their deficiencies and needs.
These needs are still substantial and pervade almost
every area of weapons technology and related manu-
facturing equipment. Table 2 lists classes of Western
technology acquired by the Soviets and East Europe-
ans and illustrates the wide range of Soviet military
technology needs. In the following paragraphs of this
section, Soviet Bloc acquisitions have been grouped
according to their likely applications: strategic sys-
tems, aircraft systems, naval systems, and tactical
systems. Also cited are acquisitions in the microelec-
tronic and computer areas that have broad application
to military and industrial programs. In certain of
these areas, notably the development of microelec-
tronics, the Soviets would have been incapable of
achieving their present technical level without the
acquisition of Western technology. In other areas,
acquisitions have allowed the Soviets to reduce the
indigenous effort they would otherwise have had to
expend.
The Soviets' strategic weapons program has benefited
substantially from the acquisition of Western technol-
ogy. The striking similarities between the US Minute-
man silo and the Soviet SS-I3 silo very likely resulted
from acquisition of US documents and expedited
deployment of this, the first Soviet solid-propellant
ICBM. The Soviets' ballistic missile systems in par-
ticular have, over the past decade, demonstrated
qualitative improvements that probably would not
have been achieved without Western acquisitions of
ballistic missile guidance and control technology. The
most striking example of this is the marked improve-
ment in accuracy of the latest generation of Soviet
ICBMs?an improvement which, given the level of
relevant Soviet technologies a decade ago, appears
almost certainly to have been speeded by the acquisi-
tion of Western technology. Their improved accuracy
has been achieved through the exploitation and devel-
opment of good-quality guidance components--such
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Table 2
Selected Soviet and East European Legal and Illegal Acquisitions
From the West Affecting Key Areas of Soviet Military Technology
Key Technology Area Notable Success
Computers Purchases and acquisitions of complete systems designs, concepts, hardware and software, including a
wide variety of Western general purpose computers and minicomputers, for military applications.
Microelectronics Complete industrial processes and semiconductor manufacturing equipment capable of meeting all
Soviet military requirements, if acquisitions were combined.
Signal Processing Acquisitions of processing equipment and know-how.
Manufacturing Acquisitions of automated and precision manufacturing equipment for electronics, materials, and optical
and future laser weapons technology; acquisition of information on manufacturing technology related to
weapons, ammunition, and aircraft parts including turbine blades, computers, and electronic
components; acquisition of machine tools for cutting large gears for ship propulsion systems.
Communications Acquisitions of low-power, low-noise, high-sensitivity receivers.
Lasers Acquisitions of optical, pulsed power source, and other laser-related components, including special
optical mirrors and mirror technology suitable for future laser weapons.
Guidance and Navigation
Acquisitions of marine and other navigation receivers, advanced inertial-guidance components, including
miniature and laser gyros; acquisitions of missile guidance subsystems; acquisitions of precision
machinery for ball bearing production for missile and other applications; acquisition of missile test range
instrumentation systems and documentation and precision cinetheodolites for collecting data critical to
postflight ballistic missile analysis.
Structural Materials
Propulsion
Acoustical Sensors
Electro-optical Sensors
Radars
Purchases and acquisitions of Westcrn titanium alloys, welding equipment, and furnaces for producing
titanium plate of large size applicable to submarine construction.
Missile technology; some ground propulsion technology (diesels, turbines, and rotaries); purchases and
acquisitions of advanced jut engine fabrication technology and jet engine design information.
Acquisitions of underwater navigation and direction-finding equipment.
Acquisition of information on satellite technology, laser rangefinders, and underwater low-light-level
television cameras and systems for remote operation.
Acquisitions and exploitations of air defense radars and antenna designs for missile systems.
as gyroscopes and accelerometers. The quality of
these instruments, in turn, depends to a considerable
degree on the quality of the small, precision, high-
speed bearings used.
Through the 1950s and into the 1960s, the Soviet
precision bearing industry lagged significantly behind
that of the West. However, through legal trade
purchases in the 1970s, the Soviet Union acquired US
precision grinding machines for the production of
small, high-precision bearings. Similar grinding ma-
chines, having lower production-rate capabilities,
were available from several foreign countries. Only a
few of these machines, either US or foreign, would
have been sufficient to supply Soviet missile designers
with all the quality bearings they needed. These
purchases provided the Soviets with the capability to
manufacture precision bearings in large volume soon-
7
er than would have been likely through indigenous
development. The Soviets probably could have used
indigenous grinding machines and produced the re-
quired quality of bearings over a long period by
having an abnormally high rejection rate.
While some of the Soviet acquisition in the aircraft
area appears directed toward the development of
countermeasures against Western systems, the Soviets
appear to target data on Western aircraft primarily to
acquire the technology. Furthermore, while the Sovi-
ets have acquired a large amount of hardware and
data from planes downed or captured in Vietnam and
elsewhere, they continue to attempt to acquire the
most advanced technologies through both legal and
illegal transactions with the West. Assimilation of
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Western technology has been of great benefit to both
their military and commercial aircraft development
programs?to the extent that aircraft from certain
Soviet military design bureaus are to a significant
degree copies of aircraft of Western design. Soviet
military aircraft designers have "ordered" documents
on Western aircraft and gotten them within a few
months, including plans and drawings for the US
C-SA giant transport aircraft early in its development
cycle; these plans, although dated now, have contrib-
uted to current Soviet development of a new strategic
military cargo plane. Designers were in particular
need of data on US technological advances, but more
importantly, they needed information on aerospace
manufacturing techniques.
Soviet aircraft designers have been interested in US
military transports and wide-body jets and probably
have managed to accelerate the development pro-
grams for their IL-76 Candid and :IL-86 transports.
The IL-86 looks much like the Boeing 747 and the
IL-76 resembles the C-141. Neither system is an
identical copy.
The IL-76 also is used by the Soviets as the platform
for their new AWACS (Airborne Warning And Con-
trol System), which is expected to be operational in
the mid-1980s. This system will provide the Soviets
with a major improvement in attacking low-flying
missiles and bombers. The Soviet AWACS is striking-
ly similar in many ways to the US AWACS, and is a
major improvement over their old AWACS.
The Soviets' acquisition effort in the naval systems
area reflects well the two major factors that motivate
their requirements: the acquisition-of technology not
readily available to them?yet critical to their pro-
grams?and the acquisition of equipment which,
while producible in the Soviet Union, allows them to
divert resources to more pressing naval programs. The
Soviets appear to have concentrated their acquisitions
in areas related to aircraft carriers, deep sea diving
capabilities, sensor systems for antisubmarine warfare
and navigation, and ship maintenance facilities. In the
maintenance area, two huge floating drydocks pur-
chased from the West for civilian use by the Soviets
have been diverted to military use. Drydocks are
critical for both routine and fast repair of ships
damaged in warfare. In 1978, when th,e Soviets took
possession of one of the drydocks, they diverted it to
the Pacific Naval Fleet. The other was sent to the
Northern Fleet in 1981.
These drydocks are so large that they can carry
several naval ships. More importantly, they are the
only drydock facilities in either of the two major
Soviet fleet areas?Northern or Pacific?capable of
servicing the new Kiev-class V/STOL aircraft carri-
ers. Soviet advanced submarines carrying ballistic
missiles, Soviet Kiev aircraft carriers, and Soviet
destroyers were among the first ships repaired in these
drydocks. It is important to note that the drydocks
themselves are so large that no Soviet shipyard would
have been capable of accommodating their construc-
tion without major facility modifications, associated
capital expenditures, and interruptions in present
weapons programs. Their importance will be even
more pronounced when the Soviets construct the still-
larger carriers (for high-performance aircraft) project-
ed for the 1990s. The Soviets even have acquired
Western aircraft carrier catapult equipment and doc-
umentation for this larger carrier; catapult technol-
ogy, though relatively common in the West, is outside
the Soviet experience.
Within the past few years, the USSR also has con-
tracted for or purchased foreign-built oceanographic
survey ships equipped with some of the most modern
Western-manufactured equipment. In place of US
equipment that was embargoed, other Western equip-
ment has been installed on the ships. This moderniza-
tion of what is the world's largest oceanographic fleet
with Western technology will help support the devel-
opment of Soviet weapon system programs and anti-
submarine systems against the West.
Although the Soviets have a strong indigenous tech-
nology base that could support the development of
much of their tactical weapons systems, this does not
prevent them from maintaining an ambitious program
for acquiring and benefiting from Western technology
in this area. In some cases, their acquisitions satisfy
deficiencies in Soviet technology; smart weapons tech-
nology and electro-optical technology are examples of
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Table 3
Microelectronic Equipment and Technology
Legally and Illegally Acquired by the Soviet Bloc
Equipment or Technology Comments
Process Technology for
Microelectronic Wafer
Preparation
The Soviets have acquired hundreds of specific pieces of equipment related to wafer preparation,
including expitaxial growth furnaces, crystal pullers, rinsers/dryers, slicers, and lapping and polishing
units.
Process Technology for
Producing Circuit Masks
Many acquisitions in this area include computer-aided design software, pattern generators and
compilers, digital plotters, photorepeaters, contact printers, mask comparators, electron-beam gener-
ators, and ion milling equipment.
Equipment for Device
Fabrication
Many hundreds of acquisitions in this area have provided the SoOets with mask aligners, diffusion fur-
naces, ion implanters, comers, etchers, and photochemical process lines.
Assembly and Test Equipment
Hundreds of items of Western equipment, including scribers, bonders, probe testers, and final test
equipment have been acquired by the Soviets.
this. Signal and information-processing technology,
particularly for Soviet air defense systems, is another.
More often, however, technology is exploited to speed
up a developmental program or to improve upon
original Western designs in an expeditious manner.
The Soviets appear to have concentrated their tactical
systems acquisitions on Western tank, antitank, and
air defense?related technology and equipment in or-
der to derive concepts and know-how to benefit their
weapons programs and to design countermeasures to
the Western systems. The Soviet SA-7 heat-seeking,
shoulder-fired antiaircraft missile contains many fea-
tures of the US Redeye missile. Such acquisitions
have enabled the Soviets to obtain advanced tactical
weapon capabilities sooner than otherwise would have
been possible.
Western equipment and technology have played a
very important, if not crucial, role in the advancement
of Soviet microelectronic production capabilities. This
advancement comes as a result of over 10 years of
successful acquisitions?through illegal, including
clandestine, means?of hundreds of pieces of Western
microelectronic equipment worth hundreds of millions
of dollars to equip their military-related manufactur-
ing facilities. These acquisitions have permitted the
Soviets to systematically build a modern microelec-
tronics industry which will be the critical basis for
enhancing the sophistication of future Soviet military
9
systems for decades. The acquired equipment and
know-how, if combined, could meet 100 percent of the
Soviets' high-quality microelectronic needs for mili-
tary purposes, or 50 percent of all their microelec-
tronic needs.
Table 3 identifies the microelectronic production-
related equipment that has been acquired by the
Soviet Bloc. These acquisitions have been grouped
into areas related to the four steps required to produce
a microchip: wafer preparation, circuit-mask making,
device fabrication, and assembly and testing.
Soviet computer technology has long been limited by
fabrication and production technology problems and
by difficulties in software development. Since 1969
the USSR and East European countries have been
developing a family of general purpose computers
known as the Ryad series. These computers, which
make up virtually the total Soviet and East European
effort in large general purpose computers, have been
and will continue to be used in a wide variety of civil
and military applications. Western technology has
been important to development of the Ryad series by
providing proven design directions both at the system
and component levels. The architectural designs of the
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R>ad computers, for example, arc patterned after
those of the highly successful mass produced IBM 360
and 370 series, computers that are used in a wide
range of applications and are highly serviceable in the
field.
With this approach, the Soviets and East Europeans
eliminated many of the risks involved in undertaking
the development and production of a new series of
general purpose computers, and saved considerable
amounts of manpower and time. Since the early 1970s
the Soviets and East Europeans have legally pur-
chased ,ore than 3,000 minicomputers, some of
which now being used in military-related organi-
zation, Furthermore, they are also developing mini-
computers that are direct copies of Western models.
Soviet and East European development of computer
systems has been aided by all available means?legal
and illegal, including clandestine--for acquiring the
needed technical know-how.
Thus, the Soviets and their Warsaw Pact allies have
derived significant military gains from their acquisi-
t'ions of Western technology, particularly in the stra-
tegic, aircraft, naval, tactical, microelectronics, and
computer areas. This multifaceted Soviet acquisitions
program has allowed the Soviets to:
? Save hundreds of millions of dollars in R&D costs,.
and years in R&D development lead time (see inset).
? Modernize critical sectors of their military industry
and reduce engineering risks by following or copy-
ing proven Western designs, thereby limiting the
rise in their military production costs.
? Achieve greater weapons performance than if they
had to rely solely on their own technology.
? Incorporate countermeasures to Western weapons
early in the developmentiof their own weapon
programs.
These gains are evident in all areas of military
weapons systems. While difficult to quantify, it is
clear that the Western military expenditures needed
to overcome or defend against the military capabilities
derived by the acquisition of Western technology far
outweigh the West's earnings from the legal sales to
the Soviets of its equipment and technology.
Soviet Intelligence Officer Reveals
Technology Acquisition Saved Soviet Military
Hundreds of Millions of Rubles
A former Soviet intelligence officer revealed that
information on Western military-related technology
acquired by the Soviet intelligence services saved the
Soviet military industry hundreds of millions of
rubles. The acquisition of Western technology oper-
ationally was assigned the highest priority for collec-
tion by local residencies in key West European
countries because of the relatively easy access to
much US and Western technology in Europe and the
praise being received by the services for their acquisi-
tion efforts.
These acquisitions were directed by the military
manufacturing industries under the Council of Minis-
ters, and there was intense competition between the ?
intelligence services to acquire Western technology
needed for weapons development programs. Of par-
ticular need by Soviet weapons designers has been the
acquisition of knowledge on special materials, nota-
bly the weaving of carbon filaments in a three
dimensional configuration which the services were
tasked to acquire. The end products from this 3-D
carbon-carbon weaving technology are useful for ab-
lative heat shields for high velocity reentry vehicles -
(the warhead part of ICBMs and SLBMs) and for
other portions of rocket motors for large missiles.
The Soviet acquisition of some of this technology is
likely to enable them to eventually gain a capability
for increased military options against the West?a
capability that otherwise would have taken them
several additional years to develop themselves. The
intelligence services also worked closely with scien-
tists from the Soviet military manufacturing indus-
tries and even planned joint operations against West-
ern Trade and Equipment Fairs in order to acquire
needed Western technology.
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Outlook for the 1980s
The Soviets military R&D and weapon test-and-
evaluation efforts are continuing at a rapid pace.
Several hundred development projects for weapons
systems and major system elements are now under
way, and it is expected that through the 1980s the
number of new or modified advanced Soviet weapon
systems emerging from these projects into production
and deployment will remain at the high levels of the
last two decades?some 200 weapon systems per
decade.
Soviet military manufacturing capacity increased by a
significant 80 percent during the 1960s and 1970s,
and new plant expansion now under way at one-fourth
of their key weapons manufacturing facilities will add
considerably to their capabilities. These new facilities
will be ready to produce weapons in the next four to
10 years. Plant expansion is in the following areas:
ground warfare vehicles, including new tanks; avi-
ation, including facilities for a new B-1-type bomber
and a new long-range military transport aircraft
having strategic airlift capabilities; naval shipbuild-
ing, including submarines for ballistic missiles and
cruise missiles, as well as full-size aircraft carriers for
high-performance aircraft capable of competing with
the United States in global operations; and electronic
and microelectronic manufacturing facilities through-
out the USSR. The development and production of
new Soviet weapons at these facilities is sure to be
more complex and costly than during the 1970s.
All of this military development and plant expansion
activity, however, is taking place at a time when the
Soviet economy has reached its lowest level of growth
since World War II. Soviet annual GNP growth may
well be limited to an average of Ito 2 percent by the
mid-1980s. Stagnation in industrial sectors that are
key to both the civilian and the military sectors will
make it increasingly difficult for the Soviets to satisfy
the needs of both. Thus, Soviet leaders will have to
make tough choices among defense, investment, and
consumption; the competition among rival claimants
for resources will become intense. Under these condi-
tions, it may be impossible for the Soviets to maintain
current growth in military production without hurting
the civilian economy.
11
19
?
Despite these economic difficulties, there are no signs
that the Soviets are shifting resources away from the
military sector or slowing down development of weap-
on systems that will be entering the production stage
by mid-decade. New generations of Warsaw Pact
weapons will require selected critical component and
modern manufacturing technologies. It is in these
areas that Soviet illegal acquisitions of Western tech-
nology, complemented by legal acquisitions, are most
likely to be concentrated over the next five to 10
years.
Among the more important technologies are micro-
electronics, computers, and signal processing. Micro-
electronics will play a very significant role in advances
in computers and signal processing, and all of these
technologies will be important in developing advanced
Soviet missile, aircraft, naval, and tactical weapon
systems, and associated detection systems. Additional
projected Soviet technological needs related to such
systems are presented in the appendix.
As the result of both tactical and strategic force
modernizations, Soviet and Warsaw Pact military
manufacturers are increasingly pressed by large-scale
production requirements and the related need to
control manufacturing and materials costs. Thus,
particularly critical for the 1980s are Soviet needs to
improve their manufacturing capability. To a large
extent, the level of manufacturing technology in Sovi-
et plants determines the Soviets' capability to move
new technology from R&D into military applications.
Manufacturing technologies play a significant role not
only in the development of advanced component tech-
nologies, such as microelectronics and computers, but
also in the actual production of modern military
systems.
Future Soviet and Warsaw Pact acquisition efforts?
including acquisitions by their intelligence services?
are likely to concentrate on the sources of such
component and manufacturing technologies,
including:
? Defense contractors in the United States, Western
Europe, and Japan who are the repositories of
military development and manufacturing
technologies.
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? General producers of military-related auxiliary
manufacturing equipment in the United States,
Western Europe, and Japan.
? Small and medium-size firms and research centers
that develop advanced component technology and
designs, including advanced civil technologies with
future military applications.
The combination of past Soviet acquisition practices
and projected Soviet military needs indicates that the
United States and its Allies are likely to experience
serious counterintelligence and related industrial se-
curity and export control problems over the next five
to 10 years.
The task of stopping Soviet Bloc intelligence oper-
ations aimed at Western military and industrial tech-
nologies already poses a formidable counterintelli-
gence problem, both in the United States and abroad.
But that task is likely to become even more difficult in
the future as several trends identified in the 1970s
continue into the 1980s:
? First, since the early 1970s, the Soviets and their
surrogates among the East Europeans have been
increasingly using their national intelligence ser-
vices to acquire Western civilian technologies?for
example, automobile, energy, chemicals, and even
consumer electronics.
? Second, since the mid-1970s, Soviet and East Euro-
pean intelligence services have been emphasizing
the collection of manufacturing-related technology,
in addition to weapons technology.
? Third, since the late 1970s, there has been increased
emphasis by these intelligence services on the acqui-
sition of new Western technologies emerging from
universities and research centers.
The combined effect of these trends is a heavy focus
by Soviet Bloc inteliigence on the commercial sectors
in the West?sectors that are not normally protected
from hostile intelligence services. In addition, the
security provided by commercial firms is no match for
the human penetration operations of such foreign
20
intelligence services. But the most alarming aspect of
this commercial focus by Soviet Bloc intelligence
services is that as a result of these operations the
Soviets have gained, and continue to gain, access to
those advanced technologies that are likely to be used
by the West in its own future weapons systems.
The Soviet intelligence effort against Western defense
contractor firms poses a serious problem in itself.
With more than 11,000 such firms in the United
States and hundreds of subsidiaries abroad, US coun-
terintelligence efforts are stretched thin. Protection of
US firms abroad from hostile intelligence threats is
the responsibility of host governments, but they too
are feeling the burden of well-orchestrated Soviet
Bloc efforts. The Soviet intelligence threat and the
illegal trade problem appear to be severe in Japan. It '
appears that Western industrial security?both de-
fense and commercial?will be severely tested by the
Soviet intelligence services and their surrogates
among the East European intelligence services during
the 1980s.
Western industrial nations also can expect increased
Soviet Bloc intelligence activities directed at the
acquisition of their key industrial technologies. West-
ern export controls are presently being updated and
broadened; the CoCom allies have recently agreed to
strengthen controls and to enhance their enforcement.
Moreover, serious hard currency shortages, along with
generally increased restrictions on Soviet S&T visitors
to the United States, will make the Soviets even more
dependent on intelligence and other illegal efforts to
acquire the goods and equipment they will need.
The massive, well-planned, and well-coordinated So-
viet program to acquire Western technology through
combined legal and illegal means poses a serious and
growing threat to the mutual security interests of the
United States and its Allies. In response, the West
will need to organize more effectively than it has in
the past to protect its military, industrial, commercial,
and scientific communities.
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Appendix
Projected Soviet Technological
Needs and Acquisition Targets
Through the 1980s
Given the dynamic nature of their collection program,
it is expected that the Soviets will continue their
attempts to acquire a broad range of Western technol-
ogies. Certain areas, however, represent priority col-
lection targets for them; these areas are critical to the
Soviets' enhancement of their weapons capability.
Over the past decade, the Soviets' most pronounced
improvements in strategic weaponry have been in the
development of a MIRV ballistic missile capability
and a significant improvement in the accuracy of their
ICBMs. The former capability was made possible
largely through the introduction of onboard digital
computers and the latter through the improvement in
the quality of the missile guidance systems and the
procedures used to calibrate them. Technology acqui-
sitions from the West contributed significantly to
these improved capabilities.
The Soviets probably will continue to make their
highest priority the acquisition of Western microelec-
tronics and computer technology for in-flight guid-
ance computers. This acquisition effort will be moti-
vated by a desire to overcome reliability problems and
also to provide the on-board processing capability
required for the development of new guidance options
with the potential for extremely high accuracies.
The Soviets will also give top priority to acquiring
information on the latest generation of US-inertial
components upon which the MX ICBM and the
Trident SLBM guidance systems are based. Despite
the past accuracy improvements of Soviet ICBMs,
these two US systems incorporate technologies be-
yond present Soviet technological capabilities. More-
over, their SLBM accuracies are significantly behind
those of US systems. In addition to information on
hardware, the Soviets are expected to seek calibration
software algorithms which, as the guidance instru-
ments themselves reach their practical performance
limit, would allow for continued improvement in
weapon system accuracy.
13
21
Western solid rocket propulsion technology also will
be a high-priority Soviet acquisition target in the
1980s. While the Soviets have vast experience with
the liquid-propellant systems which represent the bulk
of their ballistic missile force, they are shifting their
emphasis to solid propulsion systems, which have
practical advantages over liquid systems in a variety
of applications. At the fame time, the Soviets have
had only limited success with the progress of their
solid-propulsion program. They probably will pursue
the acquisition of information on solid-propellant pro-
duction procedures, and propellant grain design, mo-
tor case, and rocket nozzle technologies.
The Soviets' ABM R&D effort has continued apace
since the 1960s. As a result, they have gained consid-
erable expertise in the development of large fixed-site
radars for early warning, tracking, and engagement,
and their interceptor technology has also improved
substantially over the years. Areas remain, however,
in which the Soviets will still seek and would benefit
from sophisticated Western ABM technology. These
include signal processing for detection, discrimina-
tion, target assignment, and sensor technology, par-
ticularly in the long-wave infrared portion of the
electromagnetic spectrum applicable toward improv-
ing their launch detection capability.
Priority Soviet targets in the aircraft area will include
Western materials technology, particularly composite
materials to allow weight-efficient designs. The Sovi-
ets would also benefit from the acquisition of certain
engine technologies, in particular those critical to the
development of high-bypass turbofans for large strate-
gic airlift type of aircraft. While, in general, Soviet
avionics technology appear adequate, the Soviets have
yet to demonstrate a capability to deploy reliable,
accurate airborne inertial navigation systems for long-
range navigation and weapons delivery. Thus, while
long used in the West, these systems are still prime
candidates for acquisition.
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Very high priority probably will be given to the
acquisition of computer-aided aircraft design technol-
ogy, an area in which the Soviets are clearly im-
pressed by US progress. In general, they also will
continue to benefit from the acquisition of efficient
aircraft production technology from the West to
reduce costs.
While the Soviets have a strong indigenous air defense
radar and missile technology, their general lag in
microelectronics and microprocessing will direct them
to attempt wherever possible in the West the acquisi-
tion of advanced signal-processing hardware and
software.
The Soviets will continue to emphasize the acquisition
of naval-related technologies applicable to improving
their antisubmarine warfare capabilities, an area in
which much Western technology is superior to theirs.
Thus, a significant effort to acquire acoustic sensor
technology can be expected, in particular that tech-
nology applicable to the development of large towed
aconstic arrays that would assist the localization of
Western submarines in open waters. They probably
will also target the acquisition of Western signal-
processing hardware and software required to fully
exploit the detection capabilities of these sensors.
Another critical problem area to which the Soviets
will direct acquisition is that of submarine quieting.
Here also the Soviets lag the West significantly. As a
result, not only are their submarines more vulnerable
to detection, but the self-generated noise reduces the
effectiveness of their own acoustic sensors.
An area in which the Soviets have historically lagged
behind the West is precision submarine navigation?
in particular, in the development of submarine inertial
navigation systems. The need for improvements here
will become more pressing as the Soviets develop long-
range cruise missiles for land attack which require
precise knowledge of launch location.
The Soviets also will continue to target technologies
related to the design and construction of large aircraft
carriers (for high-performance aircraft) to reduce the
likelihood of p,or design choices that would arise in
what is for them an entirely new type of construction
program.
22
Much of the Soviet acquisition effort in the area of
tactical weapons is likely to be targeted against seeker
and sensor technology for tactical missiles and preci-
sion-guided munitions. The Soviets will apply consid-
erable effort in particular to acquiring advanced
Western electro-optical technology including that re-
lated to antitank weapons. As in other weapons areas,
the signal processing and microelectronics technol-
ogies supporting tactical weapon systems will also be
priority acquisition targets. Technical documentation
on entire weapon systems, if obtained, will be u.ged to
develop countermeasures.
In the microelectronics area the USSR is now at the
stage of implementing its LSI (large-scale integration)
technology to high-volume production. Despite the
large acquisitions of Western technology and produc-
tion equipment over the past 10 years which have
brought them to the LSI level, additional acquisitions
from the West are needed for the more sophisticated
weapons projects of the future. Ever-increasing needs
for higher precision Western equipment will extend at
least through the 1980s.
In addition, the Soviets will require considerable
expansion of their microelectronic material base to
support continued expansion of integrated-circuit pro-
duction. In this regard, the USSR is seeking Western
help to build two or three poly-silicon plants that will
more than double current Soviet capacity for military
applications. Also, with increasing advances in the
technology, the USSR already will be seeking addi-
tional Western assistance in key complementary tech-
nologies such as packaging and printed circuit board
production.
The USSR is expected to focus its future acquisitions
efforts on the emerging technologies related to very-
high-speed integrated circuits (VHSIC) and very-
large-scale integration (VLSI). It is important to note
that, while VHS1C is thought of as a military devel-
opmeut program, and VLSI as a civilian technology,
there is little difference between the two as far as
Soviet production needs are concerned. The same
materials, production, and test equipment will be used
to produce both. In both of these technological areas,
the USSR has developed effective means for illegally
acquiring Western advanced products.
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Prime Soviet collection efforts in computer technology
through the 1980s are likely to include large-scale
scientific computers such as the US-built CRAY-I
Computer. Computers of this class offer significant
improvements over Soviet models in weapons-systems
design and simulation and in the processing of nu-
merical data for many military applications. Other
hardware targets will include: very dense random-
access memory chips; high-capacity disk drives and
packs; the so-called "superminicomputer" class of
machines; and the latest in general purpose computer
technology. All of the above targets offer opportuni-
ties for significant performance improvements and
represent technologies of substantial Soviet lag.
In computer software, the Soviets will continue to
attempt to collect IBM programs and programs of
other vendors written for these machines because of
past Soviet decisions related to copying IBM comput-
ers. The large and growing number of IBM-compati-
ble computers in the USSR means that collection
activity in this area can be expected to increase. The
compelling attraction of computer networks also
should spur great Soviet interest in acquiring net-
work-control software and other programs related to
networking.
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Chairman ROTH. Senator Cohen.
Senator COTTEN. Mr. Chairman, I have a prepared statement which
I would ask your permission to insert in the record.1
Chairman ROTH. Without objection.
OPENING STATEMENT OF SENATOR COHEN
Senator COTTEN. I agree with Senator Nunn that while he and
Senator Jackson may have some dispute on strategic airlift, there
is no dispute about the strategic vulnerabilities brought about by
our lack of control over the export of technology to the Soviet Union
and to other Warsaw Pact countries.
The subcommittees interest in this issue has been a bipartisan
effort. As Senator Nunn pointed out, Senator Jackson began the
investigation in the early seventies and as a member of the subcom-
mittee. I can recall, he also had a series of hearings in 1980. One of
the issues that has been of great importance to me is one touched
upon by Senator Nunn in his opening remarks; that is academic
exchanges. It makes very little sense to me to undertake a program
of controlling the flow of goods and materials to the Soviet Union
and their Warsaw Pact countries, if, in fact, we allow them into our
universities and colleges to obtain the information itself. It is for
that reason that I asked Dr. Perry during those hearings in 1980
for a list of all the U.S. students studying in the Soviet Union and
a corresponding list of those Soviet students who were studying in
the United States.
It is contained in this record of our hearings, February 20, 1980.
I will just take a moment to cali attention to the disparity that cur-
rently exists. For American students studying in the Soviet Union,
I will just list three or four topic areas: Ideas about the Russian
east in the 19th century Russia and the role of p-eographical science
in shaping them; debates of democratization of the military from
1866 to 1881; the musical genres in Russian music from the last half
of the 16th century to the first half of the 18th century: administration
of the Russian Empire under Catherine the Great, 1762 to 1796; and
a study of the linguistic basis of Pushkin's Iambic Tetrameter.
It is interesting to note the comparison of what the Soviets are
studying here,. There are some 45 listed, so T will only list one or two:
Research in the theory and applications of measuring computing sys-
tems for automation of scientific experiments and testing power engi-
neering objects; research of the effect of various technological and
constructive parameters on the properties of thin film covers: research
of interaction of ions and plasmas to solid surfaces, especially with
compound surfaces which are used as construction material for vacuum
chambers of fusion devices; research in the field of automatic control
as applied to space ships; and development of recurrent methods for
navigation in space and optimal filtration of hindrances; and the list
(roes on and on. You can see there, is in fact a double standard that is
practiced ITS far as acquisition of information concerning our respec-
tive societies. I would submit this is an area where we ought to focus
more seriously as we proceed with these hearings.
See p. 313 for the prepared statement of Senator Cohen.
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Thank you very much, Mr. Chairman.
Chairman ROTH. Senator Jackson.
Senator JACKSON. Mr. Chairman, I would like to ask consent to have
my entire statement in the record together with two letters, a letter to
President Reagan on March 8 and a letter to President-elect Reagan
on November 14, 1980, together with a speech that I made on February
11 of, this year, at an appropriate place in the record and that my
statement be included as read.'
Mr. Chairman, I want to commend you as chairman for following
through on the excellent work that Senator Nunn was able to accom-
plish as the previous chairman of this subcommittee, pursuing this all-
important area of technology transfer.
Senator Nunn played a critical role in the evolution of the studies
and investigations that are now underway.
I. would point out that documents and other information made
available to the Senate by the Select Committee on 'Intelligence, of
which. I am a member, as is the distinguished chairman of the sub-
committee, Senator Roth, established that the Soviets are pursuing
a purposeful and determined campaign in this field. Their activities, as
the chairman knows and members of the subcommittee know, are
diverse, numerous, and well funded, and they have in too many cases
been successful.
We now know, and I believe these hearings will further demonstrate
that in many ways the United States has in effect, been supporting the
metastasizing power of the Soviet Union. As I stated in remarks to
the Senate several weeks ago, there is no longer doubt that our tech-
nology has materially aided Soviet expansion. It has improved Soviet
weapons. intelligence devices and economic leverage. The need for a
clear and comprehensive technology transfer policy is urgent. Yet our
Government still has a long way to go. And I want to reiterate what
Senator Nunn said, and that is that this is a bipartisan problem. It is
a problem that has been present in previous administrations as well
as a problem for the present administration.
And may I just conclude on one point here that I think is vital. Our
President is going to be sitting down with Mr. Brezhnev, or an ap-
propriate designee, we hope very shortly, in negotiations of strategic
consequence. One of the tragedies is that our President will not at this
time be able to say to President Brezhnev, "We will be glad .to help
make for a more peaceful world. We will help make it possible for
your country to enjoy some of the benefits of our technology if you
will only cooperate in these other areas." In other words, our President
will not have the bargaining power, the leverage which he should
have in negotiations, because the Soviets have been able to obtain our
technology by larceny, where they are not able to get it openly. This
gives them an enormous edge both economically and militarily over
what they could accomplish otherwise. This should not be the case,
and I do want to emphasize the timeliness of this hearing and the
importance of this investigation as we deal in the broad strategic area
affecting negotiations between the two countries. We have lost a very
valuable bargaining chip worth billions of dollars in commercial terms
but of even bigger consequence in terms of diplomacy, in terms of
I See p. 315 for the prepared statement of Senator Jackson along with the two mentioned
letters and copy of Senator Jackson's speech of Feb. 11, 1982.
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national security and in terms of trying to reach an agreement that
will make for a more peaceful world.
Chairman ROTH. Thank you, Senator Jackson.
Senator Rudman.
Senator RITDMAN. Thank you, Mr. Chairman.
I don't have an opening statement this morning.
Chairman ROTH. Senator Chiles.
Senator CHILES. Mr. Chairman, I would like to ask permission to
put my opening statement in the record.
Chairman ROTH. Without objection.
[The statement follows:]
OPENING STATEMENT OF SENATOR CHILES
Senator CHILES. I do want to take this opportunity to thank Senator
Jackson who started calling attention to this problem a number of
years ago and to thank Senator Nunn and his staff. They did a tre-
mendous amount of work to get prepared for this hearing.
I think this hearing is something we have needed to do for a long,
long time. We have been allowing our technology to go to the Russians.
It allows them to take a shortcut, and to be able to use their money
and to put their money into developing technology for weapons and
some of the other items and even using the technology they are getting
from us, even in the weapons field, but to cut across and not to spend
tho research and development money, and that is something that has
been going on for a long time.
We have known that technology was leaving this country. At the
same time, so far we have done very little about it. One example of
Soviet bloc efforts to obtain U.S. technology for military purposes
took place in my home State. A Federal grand jury in south Florida
indicted a Mr. Carl Heiser and another man and charged them with
acting as agents for the Soviet Union and East Germany. He was con-
victed of conspiring to export, without licensing and authorization,
an inertial navigation system and a large capacity advanced com-
puter. Both of those products have directed military applications and
although both men were found guilty in a jury trial, they were able
to overturn their convictions on appeal. This particular case is only
one example of Soviet efforts to obtain our most advanced technology.
I think while there are some laws on the books, enforcement has
been very lax and the Commerce Department have not taken the kind
of steps we have needed. I hope that these hearings are going to lead
to a new policy and to a tightening of controls so that we are not ex-
porting this technology. I am delighted to see these hearings are being
held.
Chairman ROTH. Thank you, Senator Chiles. We will now call our
first witness, Joseph Arkov. He is a former Soviet engineer now living
in the United States.
Mr. Arkov, under our rules, we require each witness to take the
oath. We will not require you to stand, but if you will raise your right
hand.
Do yon solemnly swear that the testimony you give before this sub-
committee will be the truth, the whole truth, and nothing but the truth,
so help you God?
Mr. ARKOV. I do.
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TESTIMONY OF JOSEPH ARKOV (ASSUMED NAME FOR FORMER
SOVIET ENGINEER)
Chairman Rani. You may now proceed.
Senator NuNN. Mr. Chairman, may I make a brief statement on this?
Our first witness is Joseph Arkov, the assumed name of an emigre
who, as an engineer in the Soviet Union, worked on various projects
to copy or use American technology.
Mr. Arkov is testifying behind a screen because he is concerned about
his relatives still living in the Soviet Union. I want to stress Mr.
Arkov is here voluntarily. When subcommittee staff contacted him
early this year, he was cooperative and forthright and said he would
try to assist us in any way he could.
Mr. Arkov, I want to thank you on behalf of every member of the
subcommittee for being here and testifying and I want to make it plain
that he is using an assumed name for his family's protection.
Chairman ROTH. Please proceed.
Mr. ARKOV. My name is Joseph Arkov. I am a Russian emigre who
currently resides in California. I have been in the United States for
2 years. I am employed as an engineer.
I make this statement gladly as a demonstration of my wish to co-
operate with the Congress in gathering information about the Soviet
Union's efforts to obtain, duplicate, and utilize high technology ma-
chinery and information from the United States. At my request, my
true name, as well as specific references to my life in the Soviet Union
have been deleted from this statement, in order to protect my true
identity and to prevent possible harm to my family or me.
I was born and raised in the Soviet Union. My first 8 years of edu-
cation were spent in ordinary public elementary schools. In my ninth
year of education, when I was about 14 years old, I came to the atten-
tion of my teachers as being gifted in science and engineering. I was
then enrolled in a special school sponsored by the department of phys-
ics at a well-known university in the Soviet Union. Following that 1
year program of study, I was allowed to attend an engineering school.
I was a student in the engineering school for 6 years. During this
period, I was also required to receive military training in a program
similar to ROTC studies offered college students in the United States.
After graduation from the engineering school in 1970, I went to
work in a research institute. A primary ajective of the research in-
stitute was to develop highly sophisticated cameras for use in military
applications. The institute's activities are examined closely by the So-
viet defense ministry. I worked in the institute for about 6 years, from
1971 to 1977.
In 1977, I was assigned to work in another research institute. In this
plant, as in many other engineering research and development facil-
ities in the Soviet Union, the major emphasis is on military pursuits.
i
However, there often s a small section of the military-related in-
stallation set aside for the development of civilian and commercial
products. Civilian and commercial product development sections are
not high priority projects.
If, for example, a new American computer has been obtained by the
Soviets, they will make a military application of it, rather than a
civilian application. The institute used a sophisticated American com-
puter in its military operations. Officials at the institute were very
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proud of it and even provided tours for employees to see it. It was in
such a civilian and commercial section where I was assigned to work.
The Soviet Government wants to develop its own ability to produce
high technology equipment similar to that manufactifted: hi the West
and Japan. But once such products are made in the Soviet Union,
the people of the Soviet Union still do not have confidence in them.
They prefer goods from the West.
A special premium is placed on products produced in the United
States. Goods made in Japan also are considered particularly desir-
able. Given the choice, the people of the Soviet Union do not prefer
their own country's products. There is no patriotism in department
stores.
The Soviet Government wants more high technology from the
United States. Each technical institute is allocated a certain amount of
money to be used for the purchase of "Western, particularly, American
technology.
The Soviet Union has two goals in mind when it seeks to obtain high
technology machinery from the "West. One objective is to study the
equipment with the intention of imitating or duplicating it.
The second objective is to use the machinery, particularly to use it in
the manufacture of other high technology components. The second
goal?the use of the machinery?is, by far, the most important to the
Soviets.
In my work in the second research institute, I had the assignment of
copying Western and Japanese high technology. One of my tasks, for
example, was to develop a system design for the production of color
television cameras for video tape recorders. In this pursuit, my super-
visors made no attempt to be deceptive about what they wanted me to
do. I was not to conduct any original research and development. I was
given television components produced in Japan and I was told to copy
them.
The Soviet Government benefits to a certain extent from its pro-
grams aimed at duplicating Western technology. But the results have
been, and will continue to be, limited. Soviet authorities have come to
the realistic conclusion that their country's level of technology is too
far behind the "West for them to make great strides through copying.
They do not have the human resources or the fine-tuned equipment
required to produce the high technology machinery they try to copy.
Once they know what makes a given piece of machinery work, they
find that they do not have ,the technical know-how and equipment to
produce the product themselves. That is why they want Western high
technology machines that will enable them to produce the products.
And the Western products they desire the most are those produced in
the United States. That is why they want American high technology
machines with which they can produce the components for high tech-
nology products.
By using?not copying?the American high technology products,
they move closer to their goal of technical self-sufficiency. Whether
they will ever become self-sufficient in high technology is a debatable
point. My own view is that this course of action gives them quick gains
but, over the long run, it will result in their being permanently behind
the United States, forever having to rely on American products to
manufacture their own.
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However, being behind us in technology is a relative condition. The
Soviets can make progress in a technical sense and, at the same time,
trail the United States but, by their standards, they will have achieved
much. Their accomplishments will have been made with limited cost to
them because the basic research and development will have been paid
for by the Americans.
To repeat, then, the Soviet strategy in obtaining American high
technology products includes efforts to copy and duplicate but the
Soviets' primary objective is to obtain machinery which they can use in
the manufacture of their own high technology equipment.
This distinction?the difference between copying of technology and
the use of it?is an important one because it provides the United States
with a key insight into which products the Soviets are the most anxious
to obtain. It also can influence American policymakers in deciding
which products the United States can afford to sell the Soviet Union,
and which components should not be sold to them.
Soviet strategy in using American products can be seen in the fol-
lowing illustration. Let us say, for example, that the Soviets have 100
plants involved in producing components for use in space flight. Each
of the plants could use a certain kind of American computer. But they
cannot obtain 100 computers; that is, one for each plant. Instead, they
are able to obtain three or four American computers of the desired i
type. They use the computers as best they can n those three or four
plants where they can do the most good. They are not inclined to use
them as nonproducing models to be studied in a laboratory for the
purpose of copying.
Moreover, if the American product obtained in another transac-
tion?if, for example, the product is a sophisticated oven used in the
heating of microchips?then they are even less interested in copying or
imitating. They will use the oven to produce microchips. There is no
civilian use for equipment used to manufacture integrated circuits or
semi-conductors.
The Soviet Union obtains American high technology in ways other
than copying or utilizing machinery. The Soviets make the most of
American technical journals and Government documents.
In the free society of the United States, there is not much that can
be done to prevent the Soviets from getting hold of technical journals
and other private publications. But it is my opinion that the U.S.
Government is following an unwise policy in making public as much
military data as it does.
rAt this point, Senator Jackson withdrew from the hearing room.]
Mr. Amoy. From my own personal experience in the research in-
stitutes, I know how the Soviets wasted no time in distributing infor-
mation from the U.S. military. In a military refresher course fol-
lowing my graduation from college, I was part of a group that was
shown films of U.S. military equipment such as tanks, artillery, and
amphibious vehicles. One film showed the internal layout of one such
vehicle. The blueprints revealed their publication date, a time only
2 months prior to the date of the refresher course. That indicated to
me that the Soviets had obtained and made informational use of the
design of the vehicle before it went into production. In addition, one
of my duties in the research institute was to read American technical
journals and U.S. Government publications. A special team of Eng-
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lish- speakingSoviet linguists was employed to provide us with prompt
translations into Russian of the journals and documents.
In most fields of technical research, development and production
which I am familiar with in the Soviet Union, the overwhelming
majority of resources are invested in military applications. If, in the
area of high technology obtained from the United States, one much
prized oscilloscope is obtained from the United States, it will be turned
over for military application in virtually every instance. This strength-
ens the position of the U.S.S.R. armed services but it is done at the
expense of the civilian sector.
The oscilloscope might have been used in the development of a con-
sumer product but rarely are such high technology devices ever utilized
to benefit the Soviet citizen as a consumer.
As a matter of fact, the Soviet industrial capacity is so completely
overburdened with military production that the Soviets could not make
a civilian or commercial application of certain high technology prod-
ucts even if they wanted to.
For example, there is almost no possible way the Soviets could make
a civilian application of laser technology. Any laser component they
obtain from the United States will go into the military sector. The
Soviets have no other use for it. There is no commercial market for
high technology equipment to the U.S.S.R. People cannot afford such
luxuries yet the Government displays it for propaganda purposes.
Most equipment is used by the Soviet military industry.
In my engineering jobs in the Soviet Union, I frequently was as-
signed to attend trade fairs where Western nations, including the
United States, displayed their high technology equipment. I was seen
as a potential buyer. But, in fact, I was not there as a would-be con-
sumer. I had not been sent to the trade fair to buy anything. I was
there to obtain information about Western technology concerning air-
craft and missiles as well as other technical areas. I discovered many
valuable technical ideas at trade fairs and reported on them to my
supervisor back in the Soviet Union.
Aside from learning and inspecting the wares displayed in trade
fairs, Soviet visitors have been known to steal products and their com-
ponents. I know a man in Russia who had been assigned as a security
guard at a trade fair in Moscow. This assignment was the turning
point of his career. In league with the KGB, the man used his position
as security guard to steal several pieces of high technology equipment.
He was rewarded handsomely for his thievery. Not an especially
intelligent man, he could never have earned on his own the Ph. D.
degree he subsequently was awarded. He was then made director of
a department in a research institute, a position for which his training,
experience, and ability left him totally unqualified.
Senator NuNN, Might I interrupt while you are taking a break.
You are saying this individual stole equipment from a trade fair
where he was a security guard and he was rewarded for that with a
Ph. D. degree?
Mr. ARKOV. Yes.
Senator NuNN. Was it an honorary degree or do they have such a
thing in the Soviet Union?
Mr. ARKOV. It is an honorary degree and it is awarded not only aca-
demically, but materially.
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Senator Ntrisrisr. It is an honorary degree for thievery?
Mr. ARKOV. Yes.
Senator COHEN. It is called the "Peter Principle" in this country.
Mr. ARKOV. In my college days, neither I nor any of .my fellow
students were given the opportunity to study in the United States
under a student exchange program. Normal students were never con-
sidered for such programs. Those who got to study in the United
States usually were not even students in the usual sense of the word.
They were much older than we were and often they were well estab-
lished in their technical or scientific fields. Frequently they were
professors who had already obtained their Ph. D. degrees.
One of my supervisors at a research institute visited the United
States to work with the National Aeronautics and Space Administra-
tion in Houston on the Apollo space program. His duties at the
institute related to its military operations and I am sure that he was
instructed by Soviet officials to obtain and bring back any information
he learned while working on the space program.
The Soviets considered college age students to be too young and
unpredictable to be trusted to attend universities in the United States.
Equally important, we had not yet advanced far enough in our studies
and knowledge to obtain the high level of information Soviet authori-
ties desired.
Soviet authorities selected participants in the student exchange
programs from science and engineering. Conversely, American
exchange students might be from the humanities; they might come
to the Soviet Union to study Dostoyevski. But the Soviet students did
not go to the United States to study Faulkner. Their purpose in the
United States was to obtain American technology. In the engineering
classes I took in college, I met students from Cuba, North Vietnam,
and Hungary but no Americans.
As a youth, I was fascinated by Marxist ideology and believed in
the society the Soviets were trying to build. But by the age of 19, I
was becoming disillusioned. What contributed to my growing disen-
chantment with Soviet life was my realization of the extent to which
the government put out false or distorted information.
In the Soviet Union, the government has a monopoly on truth.
Officials lie about so many things that it is possible to slip into a frame
of mind in which nothing the government says is believed.
Senator NuisTN. Mr. Chairman, may I ask one other question at this
point?
Do you think you were the exception in this regard in distrusting
the government or was this pervasive in the young people of your age?
In other words, were you one person who was skeptical? Were there
a lot of people skeptical about the Soviet propaganda?
Mr. ARKOV. Yes; that is true. There are a lot of people who are
skeptical but not everyone.
Senator Nuivisr. Could you hazard a guess? What is the order of
magnitude of people who really believe their own government is lying?
Mr. ARKOV. I would say most of the population feel that what gov-
ernment says is not true. But they don't have the source of other in-
formation and they cannot compare it.
Is it true or not? The Soviets have, a feeling that it is not true, but
they don't know what the truth is.
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Senator NuNN. Are you saying a very large percentage?
Mr. ARKOV. Very large, most of the population.
Senator Ntrxx. More than half the people are really skeptical?
Mr. ARKOV. Yes; especially young people.
Senator NUNN. Young people particularly?
Thank you.
Mr. ARKOV. Besides my objection to the many official lies, I was also
deeply troubled by the relatively low income I was receiving and could
hope to receive in the future. While engineers enjoy a social status of
some consequence in the U.S.S.R., they are paid very poorly. It is an
odd contradiction on Soviet society that the government wants very
badly to compete technologically with the West but rewards with
meager pay the engineers whose job it is to make the country competi-
tive. Moreover, the fact that I am Jewish was an additional barrier to
any improvement in income.
All these factors?the official lies and distortions, the lack of pro-
fessional opportunity, the anti-Semitism and, most important of all,
the absence of freedom?combined to lead me to conclude that I had
had enough of the oppressive Soviet regime. In the late 1970's, I con-
cluded that I had no choice but to try to get my family and myself out
of the country.
I applied for an emigration visa. I knew that authorities might
quickly take punitive steps against me. I have a friend in Russia who
applied for an emigration visa. A trained engineer, my friend was
promptly fired from his technical job and was never given permis-
sion to leave the Soviet Union. Unable to find another professional
position, he was forced to take any job that came along. The last I
heard of him he had been reduced to working as gatekeeper.
I do not know why some applications for emigration visas are ap-
proved and why others, such as that of my friend, are consistently
denied. But some applications do get through and, for reasons un-
known to me, my family's and mine were approved. Although I was
immediately fired from my job when I petitioned for the visa, after
a wait of 4 months, we received permission to leave the country.
We have settled in Los Angeles County and I have found satisfying
employment as an engineer in an optical firm. Things have worked out
in a satisfactory manner for my family and me. We are thankful and
proud to be living in this great nation.
Thank you.
Chairman ROTH. Thank you, Mr. Arkov.
I, too, want to join Senator Nunn in thanking you for your willing-
ness to come before us and your fine cooperation throughout the
hearing.
The subcommittee will limit the first round of questioning to 5 min-
utes. I would point out to my colleagues that we have, I think, five wit-
nesses this morning so that it is important that we move as expedi-
tiously as possible.
Mr. Arkov, what would you consider to be the most important steps
for the United States to adopt to prevent the flow to the Soviet Union
of modern technology and equipment.? Would you list several meas-
ures that you think are important to protect our valued secrets?
Mr. ARKOV. It is a difficult question.
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First, we have to study thoroughly what kind of fruits the Soviets
obtain from the information and technology supplied to them. We have
to analyze all of the information published.
Chairman ROTH. Why do you think that the U.S.S.R. prefers to
obtain Western technology rather than concentrate more on research
and development whether intended for commercial or military
purposes?
Mr. ARKOV. Trying to obtain Western technology, they don't dismiss
conducting their own research. They would rather try to be independ-
ent in their own way.
Chairman ROTH. Do the Soviets have the talent to advance in tech-
nology like the United States and other Western nations?
Mr. ARKOV. They do have an intellectual potential, but in most cases
they are limited in the technological support in which to yield the
high quality and quantity of products. There is also a lack ,of organiza-
tion within the government system which prevents them from pur-
suing high quality achievements.
Chairman ROTH. Do you know a any instances where the U.S.S.R.
obtained Western technology from U.S. allies or from Eastern Block
nations?
Mr. ARKOV. Yes; the U.S.S.R. received a vacuum coating technology
used in optic filters from Lichtenstein. The institute and the U.S.S.R.
who received this sophisticated technology did extensive military
research.
Chairman Rom. Senator Nunn.
Senator NuNisr. Thank you, Mr. Chairman.
What particular areas of technology and information were consid-
ered most important by the Soviets based on your experience?
Mr. ARKOV. Semiconductors, solid state devices, microelectronics,
fiber optics, systems of communication, space technology, subsea
technology, and surveillance and detection systems.
Senator NuNN. Where would you go in our society to obtain critical
use technology
Mr. ARKOV. First. I would try to establish contacts with people
involved in the business of my interest. The best places to do this
are at technical symposiums and meetings where people are less formal
and more willing to talk.
Senator NurN-N. Do you believe that the United States is putting
too much emphasis on technology transfer to the Soviet Union? Do
you think we are engaging in a degree of paranoia?
Mr. ARKOV. No, not at all. You should take first steps to prevent
our technology from slipping to the Soviet Union.
Senator Nuismt. How do you gage the United States and the
U.S.S.R. in terms of technological advance? Are we far ahead of
the Soviets? Are we somewhat ahead of the Soviets? Or are they
gaining on us?
Mr. Amoy. I feel that they are behind us but they can gain a lot
using our technology if they can obtain it. And even then, they try
to reinforce their labor force and manpower used for military
purposes.
Senator NUNN. You understand we are an open society and that is
one of our strengths. When you look at what the Soviets' obtained
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from us in technology and look at our open society, how do you
balance those two in terms of importance?
Mr. ARKOV. I wouldn't trade anything for freedom but it is very
difficult to analyze how to trade them. It is a very difficult question.
Senator NUNN. It is a difficult tradeoff. You understand that one
of the strengths of our technological development is that we do have
an open society, freedom of exchange, and so forth with our
information.
Let me ask you another way:: Do you think the Soviets closed
society actually impedes their technology development?
Mr. ARKOV. No.
Senator NuNN. You do not?
Mr. ARKOV. I do not.
Senator NuNN. What is the major problem with the Soviet technol-
ogy? Why aren't they further ahead than they are with the Soviet
technology?
I am speaking in terms of the commercial and industrial sectors, not
just the military.
Mr. ARKOV. First of all, it is a lack of organization.
Senator NUN N. A what?
Mr. ARKOV. A lack of organization. They cannot organize the society
as well as the United States. But they do have intellectual potential.
They have some smart people.
Senator NUNN. You say they do have intellectual potential?
Mr. ARKOV. Yes; but they do not have the organization which can
help them to utilize the intellectual potential.
Senator NUNN, Mr. Chairman, I will come back after Senator
Cohen.
Chairman ROTH. Senator Cohen.
Senator COHEN. I just have one or two ouestions. Your statement
concerning the comparison between studying Dostoyevski and Faulk-
ner, I think, is a good one. It reminded me of the double standard that
we have even in our athletic competitions.
For example, our amateur, at least, true amateurs in this country,
have to compete against what I believe to be true pro ressionals in
the Soviet Union for the Olympic games. Unfortunately, that is the
way the rules are written. But it seems to me drawing from your state-
ment about the disparity of students studying in this country and our
students studying in your country or former country, that the Soviets
are never going to allow our students to study anything much beyond
the humanities.
Is that a fair statement?
Mr. ARKOV. Yes, very fair.
Senator COHEN. It is also clear that the Soviets are never going to
allow young Soviet students to come to this country to study humani-
ties or even physics or any other courses because they are considered to
be too unprofessional, too unskilled for the purposes for which the
Soviet Union would seek to use them.
Mr. ARKOV. Yes; this is true, especially the analogy of Faulkner is
very good.
Senator COHEN. What is the option open for the United States? Is
it to bar Soviet students from studying subjects which could be con-
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verted to military purposes, or useful in developing military tech-
nology?
What is the option for a free society such as the United States?
Mr. ARKOV. I think that is a great idea to let our students study
around colleges but they should let their own Soviet students to study
the same things here, but not in high technology.
Senator COHEN. So we should have a so-call two-way street that
since we allowed to study Soviet Russian culture, Soviet students
should be allowed to study American humanities?
Mr. ARKOV. Yes; it should be done on an equal basis.
Senator COTTEN. That is all I have, Mr. Chairman.
Chairman ROTH. Senator Rudman.
Senator RUDMAN. Thank you, Mr. Chairman.
Mr. Arkov, I notice in your statement that you spent 6 years work-
ing in what was called a research institute dealing with optics and
cameras and used by the Soviet military, is that correct?
Mr. ARKOV. Well, it's correct.
Senator RtumA-N. Did that institute, have any great independent
research arm of its own or was it mainly aimed at obtaining tech-
nology from the Far East and from this country and essentially copy-
ing their technology to develop products that the Soviets would use in
their military forces?
Mr. ARKOV. Well, the task of copying Western technology?it is part
of the job they assign to them. The major application of their assign-
ment was for military. Is that the question?
Senator RUDMAN. Yes; let me just follow that up. You spoke in your
prepared statement about the use of sophisticated American com-
puters in various Soviet military operations, and also about the use
of semiconductor technology. There are those in this country who
feel that had we not transferred that technology legally to the Soviet
Union?we sold them certain semiconductor technology and certain
sophisticated computer technology in the late sixties and early seven-
ties?the Soviets would not have achieved the advantages in mis-
silery which they have made in terms of the enormous throw weight
and precision of their guidarce systems. Do you agree with that as-
sessment? Do you think that the sale of those semiconductors and
those computers has given them a tremendous step forward in their
technology in the defense area from your background and your
knowledge?
Mr. ARKOV. Yes; I think so. I can't tell exactly. It's hard to estimate
the degree of advantage they got. But they gained there using Ameri-
can computers and American semiconductors.
Senator RUDMAN. In your research institute, I assume you had
computers. Were there computers in the research institute for your
use?
Mr. ARKOV. Yes.
Senator RUDMAN. There were computers. Were they Soviets com-
puters or were they American computers?
Mr. ARKOV. Most of them were Soviet computers, but they also did
have American computers and they used both and we tried to establish
computerized system resembling the American one.
Senator RUDMAN. Would you repeat the last part of that for me.
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Mr. ARKOV. They tried to copy a computerized, a test system, using
the American computer.
Senator RUDMAN. Did you find in your work in that institute, of
those Soviet computers and American computers that the American
computers were more advanced, easier to use, and could do more
things?
Mr. ARKOV. Yes, it was, especially the minicomputer and the Soviets
at that time didn't have minicomputers.
Senator RUDMAN. You are talking about microprocesses and mini-
computers?
Mr. ARKOV. Yes.
Senator RUDMAN. Thank you, Mr. Chairman.
Chairman ROTH. I have just one question. From your background
and experience, do you think people in the Soviet Union believe that
it is easier to secure technical information from the United States or
from Japan and Western Europe? Which area has possessed the best
security in protecting technological secrets?
Mr. ARKOV. I think, for instance Japan publishes less than the
United States.
Senator NuNN. Publishes?
Mr. ARKOV. Publishes less technical information. First, they publish
information in Japanese and maybe develop the same, but they really
publish less.
Chairman ROTE. I gather from your testimony that much valuable
information comes from military and Government journals themselves,
U.S. military journals?
Mr. ARKOV. Well, not only military but other professional
magazines.
Chairman ROTH. Other professional.
Senator Nunn.
Senator NUNN. You mentioned two or three times Soviets placed
their top priority in actually utilizing American technology as opposed
to copying it. Do they do both?
Mr. ARKOV. They do both.
Senator NuNN. But they actually utilize it. What happens when an
American cnmputer or other technology breaks down, if that computer
has been obtained by illegal means? How do they repair it?
Mr. ARKOV. They probably don't. They study it thoroughly trying
to copy it because they can't repair it. They don't have spare parts.
Senator Nu-NN. How good is the Soviet reverse engineering? How
good are they at copying or reverse engineering, taking American
pieces of equipment and then making their own?
Mr. ARKOV. There is a big gap between engineering knowledge
and?
Senator NuNN. Big gap between engineering knowledge and what?
Mr. ARKOV. Big gap between engineering knowledge and their man-
ufacturing ability. They do know how to make, but they cannot make
it because there is a lack of technology.
Senator NuNN. So they have difficulty with reverse engineering, is
that what you are saying?
Mr. ARKOV. That's right.
Senator NuNN. They do it, they work at it, they try to do it but it is
very difficult?
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Mr. ARKOV. Even if they do know how to make it, in many instances
they cannot make it. So they still would be trying to obtain more and
more technology.
Senator NUNN. Thank you,
Mr. Chairman.
Chairman ROTH. I want to thank you, Mr. Arkov, for coming before
us, for your loyalty to this country. I would say to our people attend-
ing this hearing that it will be necessary to clear the room to protect
the security of this witness. So I would ask the security people now to
clear the hearing room.
[Hearing room cleared at this time.]
Chairman Roam. The subcommittee will please be in order. I thank
the people attending the hearing for their cooperation.
At this time, we will call forward Mr. William Holden Bell. Mr.
Bell, please come forward.
Mr. Bell, will you please stand, raise your right hand. Do you
solemnly swear the testimony you give before this subcommittee will
be the truth, the whole truth, and nothing but the truth, so help you
God?
Mr. BELL. I do.
Chairman ROTH. Please be seated. Mr. Bell, you may proceed with
your testimony.
Mr. Bell is represented by an attorney who is out for just a moment
and will return.
Mr. BELL. Can I proceed?
Chairman ROTH. We will wait until your attorney comes in.
Senator NUNN. Mr. Chairman, while we are waiting, can I ask the
witness a couple of background questions to lay a foundation?
Chairman ROTH. Sure, please proceed, Senator Nunn.
Senator NUNN. Mr. Bell, are you now serving a prison sentence?
Mr. BELL. Yes, I am.
Senator NUNN. Where are you serving?
Mr. BELT, Sprinqfield Camp, Springfield, Mo.
Senator NUNN. What was the crime you were convicted of?
Mr. BELL. For passing defense data.
Senator NUNN. Mr. Chairman, Mr. Bell has an attorney here this
morning. According to our rules, he is permitted to consult with his
attorney at any point. I want to be sure, that he and his attorney recog-
nize that. He is entitled to consult with you if you would like.
Mr. KinsTn. Thank you.
Chairman ROTH. Mr. Bell is under oath. Please proceed.
TESTIMONY OF WILLIAM HOLDEN BELL, PRISONER, ACCOMPANIED
BY ROBERT LANDON KIRSTE, COUNSEL
Mr. BELL. Mr. Chairman, I am grateful for the opportunity to ap-
pear before this subcommittee and provide whatever information that
I can. I have worked in the international field for more than 20 years
and have first-hand experience in the transfer of technology to West-
ern Europe and to the Soviet bloc nations.
In the way of background. I was born on May 14, 1920, in Seattle,
Wash. After leaving school and working for my father as a teenager
to support the family, I joined the Navy at the age of 18'. The destroyer-
minesweeper to which I was assigned swept the channel at Pearl Har-
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bor during the attack on December 7 and was preshipped to sea. I also
participated in civil operations throughout the world and was hos-
pitalized following injury in an underwater explosion in Iwo Jima.
I married my first wife after receiving an honorable discharge. We
have two sons and one daughter.
I completed my high school education by correspondence school
while in the Navy. I attended the University of Southern California
and the University of California Los Angeles where I received a bache-
lors degree in applied physics. In 1950, I was employed by Hughes
Aircraft Co. as a test technician and the following year became ac-
cepted as an engineer and member of the technical staff.
During my 30 year career at Hughes Aircraft Co., I held a secret
clearance classification and had many technical and managerial posi-
tions. I continued my education through research, experiments, semi-
nars, symposiums, and constant reading of scientific literature. I was
and am an expert in the military application of radar in tactical op-
erations and weapons systems.
Since 1962, I have been directly concerned with the transfer of U.S.
technology to Europe and the Middle East. From 1962 to 1965. I was
manager of a European program for Hughes Aircraft Co. and from
1974 to 1976 I was manager of radar operriions for Europe and the
Mideast. In connection with these assignments and otherwise, I per-
sonally traveled extensively through Europe and the Middle East.
A number of personal events combined to set the stage for my re-
cruitment by the Polish Marion Zacharski, my overseas assignments
were financial nightmares, although they are touted as glamorous and
lucrative. My wife and I were divorced in an extended proceeding. My
assets were tied up and. I was paying her $200 a week alimony.
I was pursued by four separate IRS offices for back taxes on dis-
allowed deductions primarily arising out of my overseas assignments.
I returned from Europe to find a younger group at Hughes and I
shunted off to a quiet back room.
My youngest son, Kevin, to whom I was extremely close, died need-
lessly from burns sustained in a camping accident in Mexico. While I
waited with an ambulance at Los Angeles International Airport, a
Mexican Airlines pilot ejected him from the plane in Mexico prevent-
ing him from receiving prompt and adequate treatment.
I married a young Belgian citizen, Rita. We tried to build a new
life with her young son in her Playa del Rey apartment complex.
I was forced to file bankruptcy and name my employer on the
schedules, however. I continued to pay or reaffirm most of my debts.
Zacharski and his wife moved into the apartment complex and he
and I began to play tennis on a daily basis. He slowly became my
best friend. He was about the age of my oldest son who had been
close to his mother and quite distant from me since our divorce. When
you are sent to Europe, you are told to expect attempts by foreign
spies, but whoever would expect it to happen here at home?
Zacharski was the west coast manager of a Polish-owned American
company, Polamco, which is a Polish-American receiving company.
He had an extensive expense account and gave away various items
out of their public relations funds. He was interested in what I did
and enlisted my aid in making contacts in the industry for the possible
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sale of Polamco machine products. He suddenly delivered $4,000 to
me for my very minimal efforts in that regard.
He expressed an interest in having Polamco hire me as a con-
sultant after I retired from Hughes Aircraft Co. In order to impress
him I showed him a sample of some work I had done of which I was
quite proud. Although I showed it to him on the tennis court, he took
it to his apartment for reading. It was classified secret.
At this time, the apartments were being converted into con-
dominiums at the cost of over $80,000. Zacharski asked me if I were
going to buy one, as his company was buying his. He knew I didn't
have the funds. In view of my prospective employment by Polamco,
he thought he could help me. Subsequently, he appeared at my door
handing me envelopes of cash. With this money I paid the IRS and
made a down payment on the condominium. I signed a receipt for
the money and concealed the source from my wife.
Zacharski furnished me with a movie camera. He instructed me to
make a setup to photograph documents by using a single frame device.
He told me that we would be making a trip to Europe but when it
was time to go he did not accompany me. The primary purpose of the
trip was to negotiate.
Even as I went to Innsbruck, Austria, I was rationalizing and
kidding myself that the persons I would meet were representatives
of Polamco, that this was just the kind of industrial espionage that
goes on all the time.
This meeting started by my turning over film of documents that
I had previously shown to Zacharski. I was paid $5,000 in expenses
for the trip in cash. All of the cash that I was given was always
in $50 or $100 bills. I talked with two men the FBI had since referred
to as handlers. A man later identified as Paul and the younger guy
whose name I cannot recall. Under the guise of discussing methods
of payment to me, they took great care to describe where I lived
and shopped in frightening detail. They also showed me pictures of
my family, my wife and my young boy, and told me that there were
only six persons involved.
They told me that if anyone caused a problem, they would be
taken care of.
I was assigned the code name of Jackson and given a phone num-
ber in Poland. I signed a receipt for the money. There was no ques-
tion of what I was getting into. I made one more trip to Innsbruck,
another to Lintz, and a final one to Geneva, Switzerland. On the last
two trips, I traveled with films of American secret technology in
my luggage. They had provided me with black and white high-resolu-
tion film which had 8 to 12 feet of regular color home movie film
attached to the ends in case it was inspected.
A young guy asked me to design a low-level-based radar which
would detect planes coming into Poland from 200 meters above the
sea. Both Zacharski and my handlers gave me extensive lists of docu-
ments to be obtained. They knew exactly what they wanted?right
down to the company identification numbers. They even asked if I
could go to work for a different American company, DARPA, to get
what they wanted. DARPA, incidentally, is the Defense Advanced
Research Projects Agency, an organization funded directly by the
Department of Defense.
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They fund advance technical programs, technology programs, types
of things the military would ordinarily handle but they would have a
high payoff if they were successful.
Zacharski told me that he could go to any town in the United
States and the local chamber of commerce would direct him exactly
where to go and who to contact. He delivered additional cash in gold
coins to me at my condominium. It was always the same. He would
come to my door when I was alone, hand it to me with a smile and
walk away, or place it in my tennis bag as we walked to the tennis
courts.
He made constant trips to Chicago and in fact traveled extensively
throughout the United States for the company?Polamco.
My financial burdens, of course, were resolved overnight. However,
I was afraid when I could not, or would not, deliver more classified
documents I would be liquidated or, much worse, my family would
be endangered.
My third trip was to Lintz, Austria
Senator NuNN. Did he ever tell you that or was that something you
feared?
Mr. BELL. Yes, sir, I did. On one of my trips into Austria, on the first
trip and the second trip, a man by the name of Paul threatened me on
both trips. It was a very clear threat. He threatened me by showing
me pictures of my 8-year-old son, my wife's son, whom I raised since
he was 31/2. He showed me pictures of my wife. It was very clear there
were tenors of threat. Incidentally, it is a horrible feeling when you
are operating on the wrong part of the law.
I am sure it is horrible to anyone who has their family threatened,
but when you are on the wrong side of the law, it is horrible.
My financial burdens, of course., were resolved overnight. However,
I was afraid wl- en I could not or would not deliver more classified in-
formation, I would be liquidated.
My third trip was to Lintz, which is only 50 miles from the Czecho-
slovakian border. I was particularly frightened on this trip. I met the
young guy and walked with him to a small restaurant. There was only
one other patron, a roughly dressed man who appeared to be a laborer.
The weather was stormy and the city dark and foreboding. The young
guy seemed totally at ease. He took the film from me openly and dis-
appeared into the. kitchen. He returned and we drank coffee, making
small talk, then left and walked about 100 meters to another restaurant
where we drank more coffee.
Leaving the second cafe, we walked an inclined path lined with
hedges up into a wooded area. After we had gone up some distance and
stopped to talk, I suddenly saw the rouely dresed laborer which I
had seen earlier pearing over a hedge or bush. He ducked down as I
looked at him. I thought for a moment that I would be killed. The
young guy simply smiled about it and told me that it was his man
watching him because he carried a lot of money.
They constantly wanted me to go to Mexico City and I kept making
excuses. I knew a man at DARPA who I respected and trusted. I
thought if I could confide in him he might help me out of my dilemma.
On a trip east, I tried to see him but he was out. I don't know if I would
have actually had the nerve to tell him, but that was my intent. It is
the closest I ever came to giving myself up.
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Zacharski told me that he was being followed. From the way he
described it, I couldn't believe it. He claimed that he was being open-
ly harassed and I assumed it had something to do with some labor
union rather than the FBI or likewise. Or some problem with Polamco.
One day when we went to play tennis, he told me "There they are." He
pointed out two cars in the parking lot. I went back to my apartment
and got ,my camera. I photographed each of them, afterward laying
my camera on the ledge. Then I went to each car and confronted the
person in each car. I demanded to know who they were and what they
were doing. They refused to tell me anything and departed. When I
returned to the ledge, the camera was gone. To this day, I do not know
what became of it.
The FBI tapped Zacharski's phone. I was told they also tapped
mine. It didn't matter because Zacharski has told me never to talk on
the phone. Although I was unaware of it, I was also being followed.
On my final trip to Geneva, I took film of the LPIR or quiet radar.
I was followed all the way. When I arrived Geneva, an innocent
American in a turtle neck sweater engaged me in a conversation and
a drink at the hotel. He happened to b from my birthplace in Seattle,
Wash., and I understood that 6 months were invested in ascertaining
that he had nothing to do with me. I went to the Arizona Museum a
day early and noticed a man with a black hat, coat, and briefcase
wearing dark glasses, looking at me.
I walked to a newsstand or a moment and left. He walked to the
same newsstand. The FBI showed me/photos of these men. The fol-
lowing day I gave away the film on the quiet radar to my handler in
the elevator at the United Nations building. I was no longer being
surveiled when I did this.
On this trip, I was instructed to go to Mexico City on the next trip
and meet a new contact at another museum. I was to carry an airline
bag and respond to the code phrase "Are you interested in the Aztec
exhibit?"
By replying, "No, I'm interested in the Mayan calendar" I was
shown a key chain with a black medallion bearing a silver P for
Poland, which my contact would display. I never went. The FBI in-
terviewed me first. I told them everything. There is little left of my
life now but I feel I am freer in prison than I was with Zacharski.
I have set down the circumstances of my recruitment by Zacharski
in detail so that similarities of what goes on in industry can be recog-
nized. Within the avionics industry, it is a common practice for all
comprnies to obtain the secrets of their competitors by the same tech-
nique Zacharski used with me.
Senator NUNN. You mean by that that it is such a common practice
in the industry, that when industry people are approached, they are
not going to be assured if it is a Soviet company or American
company?
Mr. BELL. No, I?
Senator NI7NN. You were not under any impression this was another
American company?
Mr. BELL. Absolutely, yes, for the first 11/2 or 2 years. I considered
Polamco, it was a Chicago-based company operating in the United
States under the full support of the 'U.S. Government, under their
auspices. Yes, I considered them an American company but I certainly
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did not when I started to get into this, I certainly did not. When I
was offered a job as a consultant engineer for Polamco, I was inter-
ested in getting that job. It was a solution to all my problems.
They were successful, they were clever, very clever.
I sat down the circumstances of my recruitment by Zacharski in
some detail so that the similarities of what commonly goes on in the
industry can be recognized. Within the avionics industry, it is common
practice for all companies to obtain the secrets of their competitors by
the same technique Zacharski used with me.
An engineer from one company is interviewed by the management
of another. Considerable benefits are dangled in front of the engineer
in terms of increased earnings and better position. He is asked to pro-
duce samples of his work?do you want me to repeat?
Senator NUNN. That is all right. Please talk directly into the mike.
Mr. BELL. An engineer for one company is interviewed by the man-
agement of another. Considerable benefits are dangled in front of the
engineer in terms of increased earnings and better position. He is asked
to produce samples of his work and this is normally done without re-
gard to their security classification. He may also be asked to provide
specific documents directly. Sometimes the engineer is hired.
More often he is not. This is generally tolerated because, of course,
both companies are American. And they are in competition with each
other.
When American companies compete to make sales to friendly for-
eign governments, a considerable amount of technology is passed in
order to make the sale. The companies themselves classify the tech-
nology in many cases which they develop under the authority of the
Department of Defense. There is a clear conflict of interest between
the security responsibility of classifying technology and information
and the economic interest of the companies trying to market their
products.
A well-known example of this problem occurred with the inter-
national competition for the replacements of the aging F-104 NATO
tactical fighter aircraft. A memo of understanding was issued by our
Department of Defense at this time. It was largely considered by the
industry as a license to offer the highest American technology to the
Europeans in order to win the contract.
While I was in Europe, I became aware of the impact of the various
Communist Parties particularly in France and Italy. This dates clear
back to 1958, 1957. I passed through many picket lines of red flags to
reach my office at Dassault Aircraft Co. in St. Cloud, France. Many of
the employees there were quite frank to tell me that they considered
Americans as rabblerousers who had a mania about communism. I was
prevented from attending a meeting at the Sylvania facilities in
Naples, Italy, by a picket line of red flags. American technology passed
to European industries is most certainly the target of Communist
infiltration, as well as here.
[At this point, Senator Cohen left the hearing room.]
Mr. BELL. During the international fighter program, including
Hughes Aircraft Co., delivered 'hundreds of drawings, specifications,
photographs, and process specifications plus technical operation and
performance documents. Thousands of man-hours of technical engi-
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neering assistance was provided and teams of European specialists
were brought to California for briefings.
All of this transfer was done for the purpose of submitting a planned
purpose proposal in pursuit of the contract and to dazzle the Europe-
ans with their technology.
Look down-shoot down radar systems both by Westinghouse and
Hughes Aircraft Co. were proposed to the NATO countries, Sweden,
Switzerland, Spain, Iran, Israel, Turkey, and Saudi Arabia. Briefings
for the proposed sale and construction took place in 1974 through 1975
and following. This, incidentally, was more extensive than the infor-
mation I passed to Poland 6 years later.
I would like to add the F-14 look down-shoot down radar was de-
livered to Iran and is still there undoubtedly compromised to the
Soviet Union.
On other occasions, the Department of Defense is bypassed. Hughes
Aircraft Co., for example, invented a system for very accurate bomb-
ing through a TV camera system which could be locked onto a target.
This was sold to the U.S. Navy who rightly refused Hughes Aircraft
Co.'s application to export it to interested European buyers.
Martin-Marietta, for example, transferred comparable technology
to a French company for overseas productions and sales. I was told
this was managed by ignoring the Department of Defense and operat-
ing directly through the Department of State, after the fact, which
they were free to do since they did not have the Department of
Defense contract.
Polamco operates openly in the United States as do other Eastern
bloc corporations. Zacharski once told me he could ship a radar the
size of a small desk to Poland in a machinery case. Incidentally, this
is radar weighing 500 to 800 pounds. He had complete access to money
and traveled anywhere he wished. Although his phone was tapped and
he was constantly watched, the FBI agents never saw him do anything
more than run a red light and change lanes illegally.
In light of all my financial and personal problems and my friend-
ship with Zacharski, all of which the company was aware of, my se-
curity clearance surely should have been rejected or should have been
reviewed. In California, you must renew your driver's license every
3 years. My clearance was 28 years old.
It also seems to me that a random imprint of a coded line running
diagonally through a classified document could deter their reproduc-
tion. It would serve as a fingerprint to identify the person who is
charged out to it and could be read automatically. This certainly would
have deterred me. A security oriented classification review should be
imposed on the transfer of technology during the sales process. The
responsibility for security and profits should be effectively separated.
Every person employed in a security job should know what I did
to myself, my loved ones and my country and realized how easy it is
to get trapped.
Chairman ROTH. Mr. Bell, did Zacharski represent to you that Po-
lamco was a client of McDonnell-Douglas? If so, why?
Mr. BELL. Yes. Mr. Zacharski showed me a letter that he had on
McDonnell-Douglas stationery which was addressed to some sub-
contractors and I think to whom it concerned, which encouraged the
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subcontractors to do business with Polamco, to buy the machinery and
was a glowing report on Polamco, I might add that I learned later
that the reason for that letter was that McDonnell-Douglas was com-
peting to sell the DC-10 for LOTT Airlines which was a Polish air-
line. This was part of the sales campaign.
Chairman ROTH.. Were the Polish agents interested in the tech-
nology of any other Western nation?
Mr. BELL. Yes. I should add on the last one that Zacharski also had
access to the atomic energy facilities in Nevada and various naval
shipyards, all of which he had access to or installation of equipment,
large machinery, for maintenance of the machinery and for training.
Some of this was done through subcontractors, but his people from
Polamco had the access.
May I have the last question?
Chairman ROTH. Let me ask you a followup question.
So what you are saying is that despite the fact that it was common
knowledge that Polamco was a Polish-owned company, it was free
to compete in this kind of operation, even though it involved tech-
nical and classified information?
Mr. BELL. That is true. Polamco was operating in this country under
the auspices of the U.S. Government and they are still operating.
They have offices in Chicago, their main office, they have offices
in Detroit, they have an office on the west coast in the Los Angeles
area. They not only have the freedom to operate this way, it permits
them to have people travel under the Polamco treasury to wash the
money, if you will and it gives them access to various companies
around the country operating under the guise. of Polamco.
Chairman ROTH. So despite your experience with this organiza-
tion as far as you know, there has been no limitation or change in the
way Polamco operates?
Mr. BELL. As far as I know, that is correct.
Chairman ROTT-T. Were the Polish agents interested in the tech-
nology of any other Western countries?
Mr. BELL. Yes. They asked questions that were directed toward the
technology in West Germany.
I believe the reason for this was they told me that they considered
Germany as their historical enemy but also they were in economic
competition with them and they wanted to maintain a par with their
technology. They asked particularly about radar and weapons sys-
tems and my company developed and sold the large radar systems.
Chairman ROTH. Did Hughes Aircraft ever participate in joint
projects with companies of other nations involving technology trans-
fer? Was technology transfer an important consideration?
Mr. BELL. Yes. We had on many occasions. Probably the best ex-
ample of it would be the international fighter program that took place
in the 1974-75 time period in which they were looking for replace-
ment of the NATO F-104 fighter bomber aircraft. There were several
companies competing for that.
The U.S. companies were narrowed down to General Dynamics and
Northrop, the European companies were Dassault Aircraft Co. in
France, and one in Sweden.
There was a British company, also.
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As part of that program, there was a consortium established by the
Department of Defense which consisted of Norway, the Netherlands,
Belgium, and Denmark, and the United States, five-country consor-
tium. A memorandum of understanding was negotiated and issued
which guaranteed an offset program of 60 percent of the equipment
we manufactured in Europe and all of the technology. That is the
main point, all the technology would be transferred. This was taken
by the industry as a license to reveal all of our technology.
We were encouraged to dazzle the Europeans with our technology,
with our advanced technology.
Chairman ROTH. You were encouraged by whom?
Mr. BELL. We were encouraged by the prime contractors under the
full knowledge of the Department of Defense. I believe it was right
for us to interpret this as a license to move out and discuss our tech-
nology. I don't believe anybody?I think we all used integrity. They
didn't want to cause any harm. But when you get in the heat of com-
petition, engineers are engineers, they are proud of what they do.
They meet with their counterparts and they talk. They do talk. Much
data was transferred. There is a climate. In this case, a requirement
was to produce 60 percent of the system in Europe. Therefore, we
had to price it. We could not price it unless they had the information
to price. This required us to transmit a great deal of data and a great
deal of information to conferences and so on; not only by the winner,
but by the losers, as well, and all the subcontractors that were com-
peting to get the award for the airplane.
This was one example. There are many others. This is one example.
Chairman ROTH. Senator Nunn.
Senator NUNN. Mr. Bell, is Polamco still operating in this country?
Mr. BELL. They were operating before I came in mid-December.
I understand they are still operating here.
Senator NuNw. How many people do they have working for them?
Mr. BELL. They do somewhere between $30 and $50 million a year
in business. In the Los Angeles area I have met and seen perhaps
a dozen of their employees, anywhere from technicians up to senior
personnel. However, it is important to note that senior executives
from Polamco, people who traveled in the guise of senior executives,
came to the United States, the Los Angeles area, a guest of Polamco,
Polamco was their reason for being here. It was a gimmick to provide
direct access in this country for technical people in Europe.
As an example, a good example, I believe, early during the days,
perhaps a year and a half after I met Mr. Zacharski, he tried to
arrange for a meeting between me and the professor from the Uni-
versity of Warsaw. This meeting was to take place in Santa Barbara.
The meeting didn't take place. This didn't take place. I saw no reason
why I should meet with the professor from the University. I didn't
see how he would be associated with Polamco.
After I became involved, I was again requested on more than one
occasion by the agents overseas, they tried to set up a meeting with
the professor from the University of Warsaw. Incidentally, the data
that I provided, I was assured was going to be held in one place at
the University of Warsaw and would have, the access to it would be
limited to about six people.
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Chairman ROTH.. Do you consider Polamco a legitimate company
doing business in this country or do you consider it simply as a guise
for Soviet spy activities through their proxy?
Arr. BELL. My feeling from what I have seen is that both are true.
T think the most important one is this latter one. To me I was con-
vinced when I realized that Polamco was not, perhaps it is?well,
it is a Chicago-based company, but when T discovered absolutely for
certain that it was under the control of the Polish Government and
that they use it as a cover for their secret service operations, there is
no question in my mind what they are here for, what they are doing.
[At this point Senator Roth withdrew from the hearing room.]
Senator NUNN. Do you know of any action they have taken against
Zacharski since he was convicted of spying?
Mr. BELL. Polamco? Polamco, as a matter of fact, we just heard
recently, I heard it?as a matter of fact, through my attorney?is
that we have people that are in contact with Barbara, his wife, a
lovely lady. She is still receiving the Polamco paycheck.
Senator NUNN. In other words, a Polish company is licensed to do
business in the United States. One of their employees has been con-
victed of spying. He has gone to jail. Yet he is still on the payroll and
in iail. Is that true?
Mr. BELL. That is true.
I wouldn't want to restrict it to just one executive. I believe it is
deeper than that. As a matter of fact, one of the things which was
going to happen the week after Zacharski was arrested, he was going
to get me in contact with a follow-on contact. He was leaving for
Chicago, moving to Chicago, as president of the company. He was
g,omg to get me in contact with somebody who would replace him in
the Los Angeles area, which I assume?I, of course, cannot prove this,
but my thinking was he would be from Polamco. But certainly
Polamco was part of the whole thing.
Senator NUNN. I assumed Zacharski was not president. I-Te was
just an employee is that right?
Mr. BELL. Competition for presidency of that company to replace
the man that was president in the fall of last year took place in
Poland.
Zacharski was one of the competitors. There was one other man
competing. This took place in Poland. In talking to the agents in
Europe, I know that this discussion took place witl,in the government.
So the government is putting the executives into Polamco.
Senator NUNN. Are you saying the spying efforts of Polamco in-
clude people all the way to the top?
Mr. BELL. I am sure of it. Yes.
Senator NUNN. Did Zacharski have any knowledge of the internal
affairs of Hughes Aircraft separate from what you may have com-
municated to him?
Mr. BELL. Yes. I was surprised on several occasions he would know
things I didn't understand how he would know about his aircraft
company. Like for example, when my boss was changed, he knew that
I had a new boss. I don't know how he ever found that out. But more
important than that, that he would ask for data, drawings, and the
data would be identified in many cases by the identification numbers,
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through that identification number; not just Hughes, but one was from
another company, such as Westinghouse.
He would have the identification numbers there also.
Senator NuNN. So you knew precisely what they were
Mr. BELL. They knew precisely what they were. After I knew. They
asked me for things which was impossible for me to deliver. As a
matter of fact, most of the stuff I delivered was not asked for. I just
delivered stuff, things that were available.
Senator NuNN. What kind of technology were they most interested
in? What were the military applications?
Mr. BELL. The last thing, for the last few months they were very
much interested in the cruise missile; a particular piece of the cruise
missile.
I should say I don't know. I don't know anything about the cruise
missile. I can only surmise as an engineer. They were asking for what
they described as a video c,orrelator. I don't know if I should surmise
in this meeting, but except to say that I can see how it would be used
on the cruise missile if it is on it. But they were very much interested
in it, thinking it was at least a part of the cruise missile, and they
thought that maybe Hughes was a manufacturer of that missile equip-
ment.
I don't know if they were or not.
Senator NuNN. Did they ask you to seek employment in other firms
so as to broaden their source of information?
Mr. BELL. Yes, they did on more than one occasion, but especially
on one occasion. They asked me if I could leave my company and go to
work for another company in the United States. They mentioned
specifically not a company, but an organization within the Department
of Defense. I have already told you what DARPA is. It would be a
real key for them where they could have somebody in DARPA, where
all the advanced technology work is being done.
They also, on the companies involved, it is my understanding, from
previous conversations we had, conversations that led right into them
asking me what they were interested in?in the way of companies was
Boeing Aircraft Co. and perhaps Westinghouse.
Senator NUNN. Boeing and Westinghouse?
Mr. BELL. Yes. Boeing would be, I am sure, because of the cruise
missile. I am not sure why Westinghouse.
Senator NuNN. Did they ever ask you about your level of security
clearance
Mr. BELL. Yes, they did. As a matter of fact, they asked me if I had
a top security clearance. They have asked me more than once, but on
one occasion they asked me if I had a top secret security clearance and
I told them. Died to them. I said I did.
Senator NErNx. At that time, you did not, though?
Mr. BELL. I did not.
Senator N-uNN. Did you give them any information that was labeled
top secret?
Mr. BELL. No. I did not. I gave them some secret information on the
last two trips.
Senator NuNN. Did you ever turn over to them what is classified as
top secret information?
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Mr. BELL. No, I never did. It was not available to me. I suppose may-
be there is some way of getting it. I don't know. I never tried.
Senator NUNN. Did you try to go beyond your own clearance?
Mr. BELL. No, I did not.
Senator NUNN. Are you suggesting that if every piece of classified
information had some special designation Liat this would have a de-
terrent effect?
Mr. BELL. Yes, with modern coding techniques you could put ran-
dom vertical lines through the paper when you print it, before the
paper is delivered to the companies so they type on it.
Three or four lines, if they are randomly through there, then you
can identify each document with the counter, like you see in a depart-
ment store or a drug store, this scans over these lines and tells the ratio
of distance between them. So they would have a fingerprint. They
would know which document, the document signed out by me by the
Document Control Center, would have my fingerprint on it. If I tried
to pass it, I couldn't photograph it, there is no way of removing those
lines without removing the print, it doesn't matter if it is blown up,
made smaller, the ratio of distance between the lines still remain the
same. If I knew that, if the person knew that, he would think twice
before he would do something like this.
Senator NUNN. How would that work on the copies?
Mr. BELL. The same way. The copies, all that can happen is you
could make it bigger or smaller, 'but the ratio of the distance between
the lines remains the same.
Senator NUNN. Would you know where the copy came from in
terms of the original?
Mr. BELL. You would know where that particular copy came from.
I believe?I thought about it extensively?I believe it is something
that could be done economically. And I think it should be done.
Senator NUNN. Did you offer to obtain an entire radar system
for the Polish agents?
Mr. BELL. Yes, I did, in a sense. They were interested in obtaining
a TWT which is a special high-powered radar transmitter, anywhere
from 30 to 50 pounds in weight. They wanted one. They were going
to ship it back to Poland by machine crates. It has something to do
with the Polamco shipping plant, to move equipment back and forth.
So I offered them, just testing, to see what they can ship, "Could you,
would you be interested in a total system, which would weigh 500 to
800 pounds? It would be the size of a desk." They became very excited
about it. Yes, they could handle it. So it shows you the flexibility they
have and the power they have, having a company like that operating
in the States.
Senator NUNN. Did you carry through on that offer?
Mr. BELL. No; I never delivered any equipment.
Senator NUNN. Did they mention to you how they would handle
the equipment, how they would get it out of this country? Was there
any discussion of the mechanism if you delivered it, what they would
do with it?
Mr. BELL. We had some discussion around the subject where I know
they were talking about using Polamco shipping crates or the Polamco
shipping channels. Incidentally, this may not be directly associated
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here, maybe it is, but they were bringing in vodka and they are bring-
ing it in in the same way. They put it in the machinery. This gives
you an idea.
Senator Nurnc. Did they tell you how they repair equipment that
they may have gotten illegally from the United States or other West-
ern nations?
Mr. BELL. How they would repair it?
Senator Nurnsr. Yes.
Mr. BELL. No; they didn't.
But I could add a few lines on that if you don't mind.
Senator NuNic. Your opinion? Yes.
Mr. BELL. I know in transferring technology to Europe, any engineer
in the industry will verify this, in order to transfer technology to an
industry in Western Europe, I have to assume it would be more difficult
than Russia, or any Soviet bloc country. It takes thousands of draw-
ings, specifications, it takes a huge amount of data and that is to de-
liver enough data for them to reproduce it, put it in production. It
takes a huge amount of data. Not only that, it takes thousands upon
thousands of hours, man-hours of support once they have this data
to get the stuff in production. We have had much experience doing
this in Western Europe. How in the world the Soviet Union can put
something into production when they receive only small amount of
data on a sales brochure or even if they had all the drawings, I don't
see how they would ever get it into production in the Soviet Union
without having at least thousands of man-hours of support.
I believe that if you talk to anybody knowledgeable in this field?
Senator NtrNN. You say reversing engineering is very difficult and
time consuming even if they have the equipment itself, and all the
plans and specifications?
Mr. BELL. To put it in production. That is true. You can get a lot
of valuable information off of it. But to put that equipment into
production, even if you had what I said, they do not have the com-
ponents. That is the key to the whole thing.
The best system engineer in the world, that is what we do in system
engineering, is only as good as the elements he has to work with. They
do not have the components in the Soviet Union. I base that on two
things, on what I have seen in Western Europe, I conducted a survey
for Hughes Aircraft Co., throughout the industry in Western Europe,
and Australia in 1970. I know what they have. They are a generation
behind the United States, but they are coming up fast on Western
Europe.
I have seen the Soviet Trade Show in Los Angeles. I saw what they
had in the way of components and they were 2 years behind. This was
maybe 5 years ago. But I have no reason to believe that the Soviet
Union component technology is any further advanced than Western
Europe.
Senator Nuisrx. What do you think is the most damaging informa-
tion that you gave to them? How would you rate it?
Mr. BELL. The most damaging information I gave them was the
OPIR, quiet radar data. I gave them a brochure. We were developing,
not developing our radar, what we were doing, we had a radar
which Hughes has developed on their own money, which DARPA
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put money in to modify, to demonstrate the technology which is a
quiet radar technology. That is the radar that can operate without
being detected by another passive receiver. The document, the sales
document that went forward to get that contract I handed over on
the last trip to Europe. To me that was the most damaging one,
the one I am most ashamed of.
Senator NUNN. What steps would you recommend, based on your
own experience, for both Hughes Aircraft and for the Federal Govern-
ment? I say "Hughes," I don't mean them exclusively, but any com-
pany dealing in high technology? What steps other than the ones you
have now outlined about the fingerprints, and so forth, would you
recommend?
Mr. BELL. I think that when they have people that are in access to
classified material, at the level I was, that they should be reviewed
more often. I don't think they should be fired. Perhaps we can help
them with the problem, all the signals are there, everything. All the
classical reasons, a guy is in trouble. I had them. They knew about
them. I don't want to pick on Hughes Aircraft. It is a great company.
This is true throughout the industry.
Senator NUNN. You are saying the industry should do a lot more
themselves if they had more thorough periodic reviews of access?
Mr. BELL. Yes: I think yes: I definitely feel that is true. I believe on
the Government's side it is clear, you know. We don't want to be, as
Americans, suspicious of our neighbors. We certainly don't want to
do that, but gentlemen? the way things are going, if you don't have
more control of people coming in 7acharski was a good example. He
was given a visa in Poland in 1977, I believe it was. Given a visa when
I was told that they knew full well that he was a highly trained Polish
intelligence officer.
Senator NUNN. Who knew that?
Mr. BELL. The FBI knew that. They told me that the CIA knew it
and the visa was issued. Maybe they had good reason for it. Maybe
they wanted to follow it. That sure puts us at a disadvantage. He was
placed under surveillance the clay he arrived in the United States and
when he arrived in California, he was under continuous surveillance
there.
As a matter of fact, he was under surveillance before I was guilty,
before I had done anything, other than I was in the process of being
entrapped.
It would have been so much easier to warn me.
Senator NUNN. But you are saying this passing of very valuable
information took place right under the nose of our own law enforce-
ment agencies who had in effect targeted both Zacharski and yourself
before the information was passed. Is that right?
Mr. BELL. Yes.
Not only that, it took place over the period of time, on the last trip
to Geneva, where I carried the most sensitive data, they followed me.
They had a girl, FBI lady follow me into Paris. stay in Paris the few
days I was there. They had an agent pick me up in either Paris or in
Zurich, follow me to Geneva. But they lost me the day that the thing
went down.
Senator NUNN. Did you know they were following you? Did you
know they lost you?
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Mr. BELL. I only knew after the fact, after they told me. I believe I
mentioned two gentlemen they had pictures of, that took place the clay
before. I went up to the area where the contract was to be, just to look
it over, as I was concerned. I was really concerned about as soon as my
usefulness became negligible, that I would be eliminated. It is a nat-
ural, normal thing, and I was concerned about that. I wasn't particu-
larly concerned in Geneva. I didn't think they would do it there. But
I still went up 1 day ahead to look over the contract area. They fol-
lowed me on that. They had pictures of the two gentlemen.
Senator NuNN. But you didn't know at that time?
Mr. BELL. I didn't know at that time.
Senator RUDMAN [presiding]. Mr. Bell, although you haven't said
so in your testimony, you certainly, I think, have inferred that Polam-
co is something more than a commercial enterprise that recruited
you.
Mr. BELL. I will say it. If I didn't say it directly, I will say it now.
Yes. I am certain of that.
Senator NuNN. So it would be naive for this subcommittee or the
public to feel that because you were the only one who was apprehended,
you were the only one that they recruited?
Mr. BELL. When I was apprehended, they came to contact me about
Zacharski and I knew, like I say, other times I considered it myself,
I had to come to an end some way. I was concerned about doing it in
the Los Angeles area because of the rest of my family, because they
knew so much about where my family went to school, where we shop.
So when they contacted me, it took me a couple of hours to finally do it,
but then I told everything, I provided all the evidence, and so on. But
with the idea that we would go after the entire operation and shut
them all down. That was my understanding. I was assured that was
the understanding by some of the agencies I was working with. But
then at the last minute they decided because Zacharski was moving to
Chicago, he had been appointed, promoted to president of the company.
Senator NuNN. President of which company?
Mr. BELL. He had been promoted to president of Polamco. He was
moving. to Chicago to take over that position. He was already in Chi-
cago. He had been there for 2 weeks. He had come back on the week-
ends. His wife was packing up, everything was packed, she was plan-
ning on leaving in a week or two and Zacharski was going to come back
the following weekend and that would be his last trip when he lived
there.
He would be coming back.
Senator RUDMAN. That was at about the time he was apprehended?
Mr. BELL. That is when he was apprehended.
Senator RUDMAN. I would assume that the area you lived in, the
apartment complex that you and he chose to live in, housed many
employees of Aerospace Co.?
Mr. BELL. Yes.
Mr. Zacharski settled down in the Playla Del Rey apartment com-
plex, which has about 525 apartments in there. There are many em-
ployees of the defense industry in those apartments. I don't know all
of them. I know some of them. He was constantly trying to meet other
ones. I don't know if he was successful or not. I don't know if he moved
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in there, I have always thought about this. I would like to know some
day, whether he moved in there to get to me or whether it was an
accident. We happened to be living there.
Senator RUDMAN. I would assume it was no accident, Mr. Bell.
Mr. BELL. All the signals are there. In fact, when I discussed with
the agents in Europe, they were aware that I filed bankruptcy. They
had all the information.
Senator RUDMAN. That company is still operating as an agency of
the quasi-official agency of the Polish Government?
Mr. BELL. That is correct.
Senator RUDMAN. It has employees in Chicago?
Mr. BELL. That is correct.
Senator RUDMAN. It has employees in Los Angeles?
Mr. BELL. That is correct.
Senator RUDMAN. It has employees, I assume, in other major Ameri-
can cities?
Mr. BELL. In Detroit, for sure.
Senator RUDMAN. Do you know how many employees this Polamco
has?
Mr. BELL. No, I don't.
Senator RUDMAN. Would you assume they have a fairly large num-
ber or small number? Was it less than 100, do you know?
Mr. BELL. If I had to guess, I would say something over 100.
Senator RUDMAN. The president of this company was indicted,
convicted?
Mr. BELL. That is correct.
Senator RUDMAN. He presently is serving time in this country?
Mr. BELL. That is correct.
Senator RUDMAN. Yet, he has been replaced and to your knowledge
that company continues to operate?
Mr. BELL. That is correct.
Senator RUDMAN. It is your testimony here this morning, that in
addition to legitimate purposes of building markets for Polish prod-
ucts, machinery products in particular' that you believe that his com-
pany is devoted to industrial espionage?
Mr. BELL. Yes, they do. As a matter of fact, I may put that first.
Senator RUDMAN. So you think their primary reason may be indus-
trial espionage with the selling of legitimate Polish products and
the buying of legitimate American products to export to Poland as
being secondary?
Mr. BELL. That is what I believe.
Senator RUDMAN. That is your belief?
Mr. BELL. That is my belief.
Senator RUDMAN. You had more to do with them than anybody
else we could talk to. So your belief is important.
Mr. BELL. I want to add that doesn't mean every employee there
is involved in this. Certainly the company is the umbrella, is the
supperting element that makes it possible for them to do this.
It is under the control of the Polish Government.
Chairman ROTH. Zacharski is still on the payroll of that
government?
Mr. BELL. That is correct.
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Senator RUDMAN. By virtue of the nature of certain products that
they sell and under our country's policy of encouraging free com-
petition, they have access to a number of American defense contrac-
tors and in fact a number of American defense installations?
Mr. BELL. Any company which manufactures using machinery is
a potential customer to Polamco. They have a reason to go there and
to talk to them; to have cocktail parties, to do the things you do when
you are trying to talk them out of it.
Senator RUDMAN. It is bad enough that you might have a legitimate
Polish company infiltrated by their intelligence people who might
have access. We actually give access to a Polish-sponsored company
and by virtue of what they sell. They have access at some level to a
whole range of American companies?
Mr. BELL. I would certainly believe that to be true. Yes.
Senator RUDMAN. I would certainly say to Senator Nunn that that
is something which requires some further looking into.
Mr. BELL. I would, you know we are talking here about Polamco,
I would be surprised if it doesn't go further than Polamco.
Senator RUDMAN. I am sure every Soviet bloc country, in fact I
know of a number of them which have trading companies.
As a matter of fact, they are moving from the area of which we
are speaking. There are a number of other countries with trading
companies that do indulge in industrial espionage that has nothing
to do with national defense. It has to do with simply other trade
secrets. That, of course, is a well-known fact.
Mr. BELL. I believe anything to do with technology involves the
national defense, particularly component technology. I think that is
where our advantage is over the rest of the world, not just militarily,
but economically. We are the leading nation and the reason we are
the leading nation is because we have the technology, that is the
component technology; the tools of the trade.
Senator NUNN. I might add that tomorrow we will be getting into
other companies of this nature, including one Soviet company, direct
Soviet company. So it is not just the including
case that we are
dealing with. We are dealing with a good many of them.
Senator RUDMAN. I only have one other question unless Senator
Nunn has other questions, and after that we will probably dismiss
you as a witness today. You stated that companies tended to draw
on the employees of other companies in terms of seeking employment,
back and forth, and asked them to disclose documents that they had
worked on, process, procedures and in fact people would bring classi-
fied documents to show the kind of work that they did. Is that correct?
Mr. BELL. That is correct. I think it is well known.
Senator RUDMAN. Common practice even though theoretically the
whole security system is based on a need-to-know basis?
Mr. BELL. Right. This is not a?it is a violation of security, but not
necessarily illegal.
Senator RUDMAN. Did you have any problems whatsoever of bring-
ing documentation that was labeled secret out of your plant at Hughes
to your home for photographing?
Mr. BELL. I'm sorry?
Senator RUDMAN. Did you have any difficulty in removing it from
the premises?
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Mr. BELL. I did not.
Senator RUDMAN. Was that illegal
Mr. BELL. That is illegal.
Senator RUDMAN. You were not supposed to remove it?
Mr. BELL. Not supposed to remove it.
Senator RUDMAN. But you never were checked?
Mr. BELL. To be fair with the company, I was a trusted employee.
I had been there 30 years. I know I was never checked.
Senator Mammy. Obviously, it is the trusted employees that people
recruit because of the very nature of what you were doing.
Mr. BELL. Unfortunately.
Senator RUDMAN. Senator Nunn.
Senator NUNN. Thank you very much, Mr. Bell.
We appreciate your cooperation. I think you have made a major
contribution to these hearings.
Senator RUDMAN. Thank you very much, Mr. Bell.
The subcommittee now calls Dr. Lara H. Baker, Jr.
Raise your right hand. It is the policy of this subcommittee to ad-
minister the oath.
Do you swear the testimony you are about to give in the course of
this hearing shall be the truth, the whole truth, and nothing but the
truth, so help you God?
Dr. BAKER. I do.
TESTIMONY OF DR. LARA H. BAKER, JR., ASSISTANT OFFICE
LEADER, INTERNATIONAL TECHNOLOGY OFFICE, LOS ALAMOS
NATIONAL LABORATORY, UNIVERSITY OF CALIFORNIA
Senator Ittromu.r. Identify yourself and if yon would like to proceed
with a summary of your statement, all of which will be included in its
entirety in the record.
Senator NUNN. Mr. Chairman, I have a brief introduction of Dr.
Baker. Our next witness is Dr. Baker, who has just taken the oath.
He is employed by the Los Alamos National Laboratory. He is one
of our Nation's foremost experts on the subject of Soviet computing
and Soviet technology in general.
Dr. Baker gives advice to the U.S. military services and intelligence
agencies in technical matters. He teaches computer science at the grad-
uate level. He is certainly one of the most informed men in this country
on these technology transfer issues.
We are delighted to have him here this morning. We have a much
longer resume which I would ask to be admitted to the record.'
Senator RUDMAN. Without objection.
Dr. BAKER. Thank you.
In my testimony today, I would like to followup on Senator Nunn's
opening statement in which the Senator constructed, for purposes of
discussion, a composite of a department within the Kremlin whose
sole function is to obtain strategic and dual-use technology from the
United States, Japan, and from other Western democraeies.
See p. 338 for the statement of Dr. Lara H. Baker, Jr. His resume and related material
follow the statement.
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In an interview on March 8, 1982, the Director of Central Intelli-
gence, Mr. William Casey said:
We have determined that the Soviet strategic advances depend on Western
technology to a far greater degree than anybody ever dreamed of. It just doesn't
make any sense for us to spend additional billions of dollars to protect ourselves
against the capabilities that the Soviets have developed largely by virtue of
having pretty much of a free ride on our research and development.
They use every method you can imagine?purchase, legal and illegal; theft;
bribery; espionage; scientific exchange; study of trade press, and invoking the
Freedom of Information Act?to get this information.
We found that scientific exchange is a big hole. We send scholars or young
people to the Soviet Union to study Pushkin poetry; they send a 45-year-old man
out of their KGB or defense establishment to exactly the schools and the pro-
fessors who are working on sensitive technologies.
The KGB has developed a large, Independent, specialized organization which
does nothing but work on getting access to Western science and technology.
They have been recruiting about 100 young scientists and engineers a year for
the last 15 years. They roam the world looking for technology to pick up.
Back in Moscow there are 400 or 500 assessing what they might need and
where they might get it?doing their targeting and then assessing what they
get. It's a very sophisticated and far-flung operation.
Thus, Senator Nunn's composite is basically accurate. There are
offices and bureaus within the Kremlin, throughout the U.S.S.R. and
throughout the Soviet bloc, whose principal purpose is to transfer high
technology from the West to the Soviet sphere of influence.
I will describe several of the vehicles the Soviets use in their efforts
to obtain our strategic technology, and then give some examples of
how successful they are.
Classical espionage is one of those vehicles. The newspapers are full
of accounts of how Soviet and Soviet bloc individuals, some of whom
have diplomatic immunity, have been involved with traditional hand-
in-the-safe spy rings.
We live in a free society and are proud of that fact. One of our
greatest strengths is the information transfer that our Constitution
allows and that we encourage among our own people.
Tapping into this information flow is an extremely fruitful tech-
nique for the Soviets to use. Also of high importance is the fact that
they have been able to tie up a significant quantity of U.S. Government
resources. These resources are dedicated to answering Freedom of
Information Act requests, checking for downgrading and classifica-
tion of documents, and evaluating national security implications of
compilations of documents.
In our society, one of the most treasured freedoms is free speech.
This reaches its epitome in the freedom of organizations to produce
periodicals covering whatever they wish to talk about. Information
suggests that the Soviets place a very high priority on Western tech-
nical journals. We heard that this morning in the first testimony.
Consider the areas of student exchanges.
As part of the spirit of detente, the United States and the Soviet
Union entered into student exchange programs. This was a particular
coup on the part of the Soviets, since the best technology transfer
organization in the world is the U.S. university system. In the U.S.
universities, a very large number of highly qualified, highly moti-
vated, superbly trained people spend their working lives trying to
come up with better ways to transfer technology to their students.
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These people are called university professors. It's their job. and they
do it very well.
Currently, approximately one-half of the graduate students in the
United States are not U.S. citizens. The non-U.S. fraction for many
science and engineering programs is higher. This is particularly worri-
some when one considers the quality of graduate education available in
the United States.
While there are U.S. Government restrictions on Soviet participa-
tion in graduate programs, these restrictions are not applied as strin-
gently to Soviet bloc students, that is, Eastern European students.
Thus, the best in U.S. graduate studies is available, albeit indirectly,
to the Soviets. This helps alleviate the Soviet problems with training
really first-rate engineers.
At several U.S. universities, including MIT and Stanford, one can
start a particular program in electrical engineering with a blank note-
book; at the end of 1 year, the successful student will leave this par-
ticular set of courses holding in his hand a microprocessor chip, a
microprccessor being a computer on one integrated circuit.
During that year, the student will have used computer-aided design
to design the microprocessor, he will have used computer-aided layout
to lay out the processor on silicon, manufactured the chip either in
the laboratory or in collaboration with a manufacturer, tested the
circuit, packaged the circuit, mounted the microcomputer on a printed
circuit board, and made the resulting computer work.
Thus, in 1 year, the student will have been exposed to an intense,
carefully orchestrated program covering the U.S. integrated circuit
industry.
I find in teaching, many people are not familiar with integrated
circuits. I went out this morning to an electronic supply house in
Maryland and bought some. I have these available if the subcommittee
would like to take a lcok at them.
This particular kind of circuit is called an Erasable Programable
Read Only Memory circuits. If you look inside the window on top of
it, you see a three-sixteenths inch square piece of silicon. That square
is the circuit.
The small lines leading from that circuit out to the rest of the
package are gold wires. There are 24 of those wires bonded to that
circuit and bonded to the other end of these prongs.
As you handle these, be careful. 'The prongs are sharp.
In the area of foreign-owned corporations, the tangled web of
ownership of many U.S. corporations obscures the identity of their
true owners. Eastern bloc or Soviet-owned corporations can be recipi-
ents of U.S. technology without the donors of that technology realiz-
ing that the information is going to a foreign government.
In the area of scientific exchange, again, as part of d6tente, the
United States entered into several bilateral agreements with the Soviet
Union on various scientific and technical subjects. As part of these
agreements, the United. States furnished technical information and
equipment. such as a superconducting magnet for a Soviet magneto-
hydrodynamics?MHD system.
This magnet was Oroduced with state of the art U.S. .machining and
quality control equipment, and was far beyond anything the Soviets
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could build for themselves. It was loaned to the Soviets as part of an
exchange agreement in return for participation in the MHD experi-
ments.
The loan of the magnet to the Soviets was approved after review
by the DOD, the DOE, and various agencies.
[At this point, Senator Rudman withdrew from the hearing room.]
[The letter of authority follows:]
U.S. SENATE,
COMMITTEE ON GOVERNMENTAL AFFAIRS,
SENATE PERMANENT SUBCOMMITTEE ON INVESTIGATIONS,
Washington, D.C.
Pursuant to Rule 5 of the Rules of Procedure of the Senate Permanent Sub-
committee on Investigations of the Committee on Governmental Affairs, per-
mission is hereby granted for the Chairman, or any Member of the Subcom-
mittee as designated by the Chairman, to conduct open and/or executive hear-
ings without a quorum of two members for the administration of oaths and
taking testimony in connection with hearings on the Transfer of United States
High Technology to the Soviet Union and Soviet Bloc Nations, to be held May 4,
5, 6, 11, and 12, 1982.
Wxnuem V. ROTH, JR.,
Chairman.
SAM NUNN,
Ranking Minority Member.
Dr. BAKER. It was felt that the United States would acquire experi-
ence operating the magnet in a facility whose equivalent would not
exist in the West before 1986 or 1987. Since all of the U.S. technical
reviewers agreed that the Soviets could not reverse-engineer the mag-
net to acquire the critical manufacturing techniques, the loan was
approved.
We did receive return from the exchange but also provided a source
of technical equipment to the Soviets.
Business intermediaries: As an area for consideration, business in-
termediaries, that is, U.S. corporations that act as intermediaries for
bloc firms without the manufacturers being aware of such arrange-
ments, are a major source of Soviet covert technology acquisition. The
use of these companies provides an open conduit, lubricated by greed,
for transferring immense quantities of materiel and technology to the
bloc.
The best known?and certainly one of the most successful for the
Soviet Union, and perhaps one of the most damaging to the United
States?was a business intermediary syndicate headed by a 34-year-
old West German named Werner J. Bruchhausen.
I will refer to this as the Continental Technology Corp. or CTC
Organization. The CTC scheme was based on his ownership of more
than 10 electronics firms in southern California and West Germany
and his close ties to other firms elsewhere in Western Europe. The in-
dividuals involved would meet with Soviet and Soviet bloc high-tech-
nology customers, they would discuss what the Soviets needed, and
then would ship the goods, illegally, out of the United States into
Western Europe. From there, they were transshipped into the Soviet
sphere.
In 1981, part of the syndicate was immobilized and two of its prin-
cipals brought to trial.
Of particular interest to me in the Bruchh,ausen case is the informa-
tion it gives us about Soviet intentions. We delude ourselves if we
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think the Soviets enter the black market in search of strategic com-
ponents in a helter-skelter style, buying up dual-use commodities
without rhyme or reason.
The truth of the matter is that the Soviets and their surrogates buy
nothing they don't have specific, well defined need for. They know
exactly What they want?right down to the model number?and what
they want is part of a carefully crafted design.
Among the strategic components that Bruchhausen directed his
accomplices at the Continental Technology Corp. in southern Cali-
fornia to buy for the Soviets were the following:
The information on this laboratory memorandum, I believe' is
available. It was made available to your staff yesterday. Included on
this list is a summary of the information I sent to Customs.
The U.S. Customs Service and the U.S. attorney in Los Angeles
prosecuting the CTC case needed a technical expert to assist them.
They chose me. I sent them an expanded version, it turns out to be
GO pages, of this. The defendant's lawyer apparently felt he did not
want me on the stand because he stipulated to this information at the
trial.
Included in this description are microcomputer development sys-
tems, microcircuit test systems, microcircuits, as I have showed you,
that sort of thing.
Senator NUNN [presiding]. We will make that part of the record
without objection.1
It seems that the Soviets are highly organized in their overall
espionage, covert-type activities in securing American technology.
But we have heard testimony this morning that one of the big prob-
lems they have in producing their own technology is their lack of
organization.
How do you explain the ability of the Soviets to be well programed,
well-informed, know the details of everything they want, have a
master plan about how they are going to get it and yet they are not
capable enough in their own country of organizing, if that is true., to
pr(duce the technology themselves.
Dr. BAKER. I believe their problems in producing the technology in-
cludes organization, but I think their main problem is people. There
is no incentive in the Soviet bloc to produce quality products. Some-
one who works in a factory works to generate products; their quality
is of secondary importance.
For comparison purposes, the people in the United States who make
integrated circuits like this?I have been through their factories
where they work?those people are as close to fanatical about the care
and precision they use to do their job as any group I have ever seen. I
believe there may be basic cultural blocks in the Soviet Union that
prevent the motivation of large numbers of factory workers to take
this kind of care.
When I ask, how U.S. managers motivate these people, how much
they have to pay them, the U.S. mana-2;ers said it wasn't really money;
they said they had to find people who wanted to do a good job and get
out of the way.
I See p. 351 for the material referred to by Dr. Lara Baker, Jr.
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Senator NUNN. They must have some incentive systems with the
KGB Lecause they are pretty diligent in their work.
Dr. BAKER. The KGB are the elite, as far as I can tell. They get the
best people. They do motivate them. They do reward them and thereby
get the collection done very well. That is how. They find very good
people; they do reward them; that doesn't happen in the rest of the
bloc.
Someone who gets in the KGB is well rewarded with high privileges,
high status, everything.
Senator NuNN. If they had the incentive system for their engineers
that they have for the KGB, they would not have to steal as much tech-
nology and could develop their own.
Dr. BAKER. I think that is very true, Senator.
This list of Soviet acquisitions has 60 or so examples but is by no
means exhaustive. The equipment is a fraction of the exports; I ex-
amined about 400 air waybills. This is the result of 60 examinations.
The Soviets are having serious problems developing their integrated
circuit/microcomputer industry, mainly in the areas of process control
and quality assurance. The above-mentioned items significantly con-
tribute to the Soviet availability of hardware for developmental and
production systems.
There is no question in my mind that the major pieces of hardware
purchased from Continental Technology Corp. over the last 4 years
of the corporation's operation, taken together, include at least one
complete integrated circuit processing plant. This conclusion is in-
eluctable when you examine the totality of information available on
the case. The Soviets purchased everything they needed for such a
plant, including: saws for cutting silicon crystals, equipment for mak-
ing masks for integrated circuit production, plotters to draw the cir-
cuits, basic computer-aided-design systems for integrated circuit pro-
duction, scribers for separating integrated circuits on wafers, testers
for testing integrating circuits on wafers, bonding equipment for
bonding connecting leads to integrated circuits, and packaging equip-
ment for putting the circuits in final packages. As a result, they have
purchased clandestinely all the hardware they need for equipping a
good integrated circuit production plant. They showed no interest in
purchasing production equipment that .was not state of the art. They
showed very good taste.
High-quality integrated circuits are the basis of modern military
electronics. Integrated circuits form the basis for military systems
which are more flexible, more capable, and more reliable than systems
using discrete electronic components. The production tooling and
equipment obtained by the Soviets will significantly improve the
Soviets' capability to produce such circuits.
The Soviets purchased everything they needed for their plant. The
sequence in which they purchased things and the quantities indicate
the production plant would be of medium size and should be capable
of delivering a high-quality product.
Because of the CTC. the United States gave up technology, much of
which the Soviets could not have obtained elsewhere. It would have
taken them considerably longer to equip the plant, if they could have
equipped it at all, with indigenous capabilities.
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What is lost is lost; we cannot get it back. But there is a positive side
to the case: It is in what we can learn from it. There is a wealth of
intelligence to be learned from the Bruchkausen case. It tells us much
about Soviet shortcomings and Soviet strengths and their long-term
strategic objectives.
As background for this statement, I would like to talk about tech-
nology development.
In general, the development of technology can be broken into
several areas: Theoretical research, applied research, development,
and production.
I would like to look at those areas separately.
The Soviets have historically spent a large amount of their efforts
supporting theoretical research. As a result, they have the theoretical
basis for almost any technology they wish to exploit. ,
Experimental research has very slightly less support in the Soviet
Union than theoretical research but still, by 'Western standards,
extraordinarily good support. Like theoretical research, experimental
research in the West is done by people who are advancing the cause
of science and, for that and personal reasons, want to and do, publish
extensively. The Western literature is available to the Soviets.
Although their literature is carefully censored, much of it is avail-
able to us. In the theoretical and experimental research areas, to vary-
ing degrees, the two countries support each other.
In the area of development, this lead is enhanced by the flexibility
inherent in the Western political and economic system.
Western countries are encouraged, by tax advantages and simple
self-interest, to do research into appropriate areas in Oder to increase
their profits. In the Soviet system, on the other hand, the incentive
for doing broad-ranging and possibly risky research is low. The
penalty for failure is high. The penalty for failure in the United
States is economic and professional, at worst. It isn't always even
that, of course. The ready availability of components and technology
in the West encourages wide-ranging develo2mental efforts. There
is a true pyramiding effect?we build on eac.a other's work.
The Soviet system in preproduction can manage to produce a few
of almost any product they want, provided they are willing to devote
the resources to it. The best example of this would be the Soviet
"civilian" space program, in which they managed to put people in
orbit before the United States did, but at a high cost.
In the area of serial production, that is, the day-to-day production
of large quantities of a product, the differences between the two sys-
tems become most obvious. The United States is world renowned,
and justifiably so, for the quality of its serial production facilities.
Other parts of the world, notably Japan, are approaching the United
States quality and quantity in this area. The Soviet bloc, however,
is not.
Serial production is the Achilles' heel of the Soviet bloc. Especially
in high technology areas, the big problem the Soviets have is quality
assurance. As I said, they count products, not quality products. This
is the area where the Soviets exhibit weakness and need the most help.
As a secondary part of this, they have serious problems manufactur-
ing the tools to manufacture the equipment. This is what the CTC case
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helped alleviate by providing a full complement of high quality work-
ing production equipment.
In the area of available manpower, one of the serious problems af-
flicting the Soviet economy is the lack of qualified, highly trained,
technical people in the areas of computers and microelectronics. One
cause of this is the lack of enough computing and electronic equipment
to train the next generation of scientists and engineers. They simply
don't have enough equipment to allow students sufficient "hands-on"
practice at an early stage in their education. The Soviets are trying to
alleviate this problem by producing large, for them, numbers of
RYAD computers?copies of the U.S. IBM System 360's and 370's.
Many of the export license requests, both in the United States and
elsewhere, are for computer systems going to universities or scientific
research institutes in the Soviet bloc. It is difficult to turn such requests
down on the basis of end-user since such organizations support the
Soviet war machine only indirectly. Cases like the Bruchhausen orga-
nization are more obvious. Yet, when I brief various parts of the exec-
utive branch on Soviet bloc computing' I find a surprising lack of
knowledge of the CTC case. Thus, one of the few public examples of
effective compliance action is not widely understood.
Senator NuNN. What do you mean by "effective compliance?"
Dr. BAKER. This is a case where, someone actually was exporting
equipment, was caught, was convicted, and, most effectively, was put
in jail.
Senator Ntrxx. They did succeed in getting virtually everything
they wanted before that punishment took place, did they not?
Dr. BAKER. Yes and no. They got a complete plant, and I think they
got everything they asked for up to the time. As far as I know, at the
time the organization was shut down, the organization was still going
full steam ahead. There was no evidence the Soviets tapered off in
their attempts to acquire equipment through this firm. It just hap-
pened that the records we had information on-2 or 3 years?showed
a complete circuit plant.
Senator RUDMAN. You believe they are capable of maintaining and
repairing that equipment and keeping it operative?
Dr. BARER. For a time. I think they can maintain it, depending on
what goes on, for a while by putting very good engineers on it. They
are going to have a problem with spare parts. You might consider the
equipment as having a half life. That is, after a while, half the systems
in the field are going to fail.
Usually four of everything were shipped to the bloc. I suspect two
were used in production, two for spare parts. That will help in main-
tenance quite a bit because they have a working model to go from.
It is necessary that the U.S. intelligence community coordinate in-
formation derived abroad with data that surfaces here in the United
States. We can discern Soviet objectives in the area of strategic com-
modities. We can than product with a satisfactory level of accuracy
where the Soviets will be trying to tap into technology.
A recently formed interagency committee devoted to this problem
will assist in this area.
One cannot prevent the dissemination of data forever; one can only
slow down a transfer and thereby make it more expensive for the ad-
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versary to acquire the data. Eventually, the adversaries get any in-
formation they want badly enough.
In the United States, the most advanced technology is often used
in the civilian sector. Fielded U.S. military equipment is often many
years behind its civilian counterpart because of the need for greater
reliability, delays in the acquisition process, or for other reasons. On
the other hand, the Soviet military gets the best, most modern equip-
ment as soon as it is available. Thus delays in the transfer of high
technology to the Soviet bloc affects the military more seriously than
it affects the civilian sector. I -would like to emphasize that there
is no real civilian sector in the Soviet economy?it is all a state enter-
prise. The military gets the cream of all the production.
The fact that, in the long run, the information will be transferred
does not mean we should not control it. Any obstacle we can place
in the path of technology transfer increases the amount of resources
the Soviet bloc must devote to acquiring the information and de-
creases the total quantity of information they receive. Such increases
in demand on resources, albeit increases on the seemingly inexhaustible
resources of the Soviet intelligence apparatus, are a drain on the
Soviet system.
The Soviet system has difficulty in flexibly responding to new in-
formation. As a result, the longer information is delayed, the harder
it is for the Soviets to integrate it into their production cycle.
.Their planning goes on many years in advance, and the inclusion of
new technology does not automatically cause a revision in the plan.
It may cause an addition to the plan but not necessarily a reduction
in other, less productive areas. The highly structured environment in
the Soviet Union often has a self-defeating result: Factories or enter-
prises will produce obsolete equipment because they were ordered to
although they have the ability to produce more modern equipment
and know about the demand for that equipment but have no authority
to produce it.
When we know better what the Soviets are attempting to acquire,
we can more effectively prevent them from succeeding.
Senator RUDMAN. Again you are making an important distinction
in the Soviet system. You said that when they stole this equipment,
or detained it by covert means that they were going after state of the
art; they knew what they were going after, they had a list of it, they
had very good taste, in your words. But you are saying in their own
production, in their own capabilities internally, they are not going
after state of the art because the system just doesn't work that way;
is that right?
Dr. BAKER. Yes, that is my judgment, that is what I see in the open
literature and the other information. Serial production for the civil-
ian economy is very low on the totem pole and the military economy
suffers somewhat from the same inflexibility.
Many of our control efforts seem to be based on the assumption that
we can control everything. We cannot. A more thoughtful enforce-
ment approach is to decide which items are most important to the
Soviets and focus our attention and resources on those items.
A key ingredient in the Soviet acquired integrated-circuit manu-
facturing plant is a high-pressure oxidation system. One model of this
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kind of system is called by the trademarked name "Hipox." It pre-
cisely controls the atmosphere and temperatures involved in the con-
version of a wafer of crystalline silicon into a wafer containing
several hundred integrated circuits,
Most high-technology components wear out over time. This is where
I got my phrase in answer to your question a while ago, "half-life."
In general, the higher the technology involved in the system, the
shorter the half-life and therefore the greater the demand for spare
parts.
The Hipox systems, so essential to the new Soviet integrated circuit
factory, should be requiring parts by now. If this system and other
critical systems in the plant cannot be serviced the factory will be
slowed down or be otherwise negatively affected.
That tells us that the Soviets will soon be in the market for spare
parts for the Hipox systems, among others. Only a very few com-
panies in the world manufacture high-pressure oxidation systems.
They are all in the West. Each of these companies could be put on
notice to be on the alert for false documentation and other signs of
CTC type business in their intermediary business.
Senator RUDMAN. Do you see any sign that our Government has
organized to do this? You made two important points here, indeed
many important points, but two that stand out. You are talking about
instead of trying to control everything that involves high technology,
they try to have a select group of items they are most in need of and
really bear down on that.
Do you see any signs our Government is organized in that direction
to make that kind of effort?
Dr. BAKER. There are two encouraging signs in that direction. The
first is the Technology Transfer Intelligence Committee which was
formed to find out what their real problems are. The second sign is the
Militarily Critical Technologies List?MCTL?effort in the Depart-
ment of Defense, Department of Energy, and other agencies which is
an effort to put together a compilation of what technologies are, in
fact, critical to us so that we can be alert on what technologies they are
going to be after later. Also, later on the MCTL, we can find out the
so-called civilian uses, in our case real civilian uses, of certain tech-
nologies, and be on the alert for purchases of that kind of civilian
equipment which contains military technology. For example, very
small turbine engines are used in auxiliary power units for jet aircraft,
which is not in itself a critical area, but the technology is very similar
to that used on military small turbines.
I do not mean to imply by earlier remarks that many, or even more
than a few, of the U.S. industrial manufacturers are venal or unpatri-
otic enough to close their eyes to this kind of technology theft. How-
ever, they are very busy; given prima-facie evidence of respectability,
they do not often investigate further. I have every reason to believe
that, given a proper warning, the companies would report suspicious
inquiries promptly and effectively. In addition, suppliers to these com-
panies can be alerted to potential unusual requests.
This kind of precision targeting for export control requires the avail-
ability of accurate technical evaluations of the components and sys-
tems involved in an export or diversion. The expertise needed for these
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evaluations is a scarce commodity. It is for this reason that the De-
partment of Commerce continually calls upon technical experts from
other agencies to review complex export cases.
The Assistant Secretary for Defense Programs, Department of
Energy, provides technical expertise and policy guidance to other reg-
ulatory agencies with regard to export control matters; this service
was also provided by the DOE's predecessor agencies. For example, I
am the chairman of the technical task group that is responsible for re-
writing the -U.S. proposals to the coordinating committee for interna-
tional control of exports of computers. Other national laboratory ex-
perts chair other committees. My group is devoted to computers and
directly related items. Also, Department of Commerce licensing offi-
cers call laboratory experts, on a regular basis, to request technical ad-
vice on complex export cases.
In other forums, I have proposed the establishment of a center of
expertise to provide a source of technical information for the various
government agencies involved in technology transfer/export control
activities. This will go far to help alleviate the scarcity of available
technical expertise.
Senator NUNN. Where would that center be housed?
Dr. BAKER. I would like to see it housed in one of the national
laboratories which executive department is not critical as long as the
center is in a working, thriving, laboratory so the people involved
in making the export determination are in a state-of-the-art tech-
nical environment where they can maintain their skills and not become
technically obsolete.
Senator NUNN. How many people and how much money are you
talking about?
Dr. BAKER. The first estimate was on the order of 20 people, about
$5 million.
Senator NUNN. Per year?
Dr. BAKER. Yes, sir.
Senator NUNN. This would be the center where all the other de-
partments and agencies could go for their advice?
Dr. BAKER. The intent would be to set up a center that provided an
honest technical answer. It is not the intent to suggest the center would
answer policy questions. That is the. province of the executive depart-
ments themselves, but it would be 'useful if there were a place where
anybody who needed it, Customs, Commerce, Energy, Defense, could
pick up the phone and get an honest technical answer promptly.
With 20 people, there is no way you can cover the field of all dis-
ciplines necessary for that kind of a center but you can cover the field
well enough to find out who should be asked, so the Government can
call one spot and know that the question will be forwarded to the
proper person. For things like computers, lasers, the common ques-
tions, obviously people should be in the center itself.
In any decision to allow or prohibit the export of a piece of equip-
ment, or a technology, three factors come into play.
First, are the procedural considerations: Are the forms filled out
correctly? Are proper concurrences received? Are the overall charac-
teristics of the equipment within appropriate limits, et cetera?
Second, is the technical evaluation of the item to be exported. Is the
system truly appropriate for the stated end-use? Are the statements
about the end-use/end-user true?
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As I have previously stated, the technical evaluation of an export
case is a very complex task requiring a particular expertise. The tech-
nical evaluation is best made by an individual who is technically com-
petent in the field and who understands the state of the art in the West
and in the Soviet bloc. Such individuals are rare.
The third factor in implementing export controls is policy. The
policy sets the rules: What we are allowed to export, what we are not
allowed to export.
The key consideration among the three factors?procedure, techni-
cal, and policy?is the technical evaluation. In fact, policy is usually
the result of technical evaluation. For example, a policy that includes
a prohibition against the export of certain oscilloscopes is based on
the technical evaluation of what national security uses the adversary
could make of oscilloscopes. The United States is frequently criticized
for having a poorly articulated policy on export controls or, at best, an
uncertain policy.
The point may not be as clear as I would like to make it. Let me try
to say. it another way. I cannot overstress the importance of having an
effective system of technical evaluation. To achieve the goal of such an
effective evaluation we must optimize three functions.
First, we must be able to look closely at a commodity and be able to
assess its capabilities in both the commercial and the military sectors.
Obviously, the knowledge of its military uses is critical. That ques-
tion can be answered only by competent technical evaluation?imply-
ing an evaluation done by a technically competent analyst.
Second, we must decide whether or not the stated end-user is who
the purchase documents and export documents purport him to be.
For example, is the end-user really a tractor factory or is it a tank
factory? That question can be answered only with competent intelli-
gence data. The analysis of such intelligence data requires intelligence
expertise as well as technical expertise.
Third, we must assess the adversary's capability to use the commod-
ity in a manner that could harm us. That question can be answered
only with detailed technical knowledge and competent intelligence
data about the adversary's system.
I would like to conclude my prepared testimony with the recom-
mendation that, in evaluating export controls, the subcommittee take
into account the very important distinction between strategic and
dual-use equipment versus strategic and dual-use know-how.
Even if our investigative and enforcement capabilities were near
perfect, they would still be directed primarily against equipment. In
both the law and in the Federal regulations, controls should be
strengthened with reference to the know-how that accompanies a
product.
If the Soviets clandestinely acquire. a piece of equipment, and the
equipment works, they have acquired a capability that presumably
they did not have before. Along with that equipment, especially if it
is high-technology equipment, they need the technical data that goes
with it. They need the technical manuals that support the product;
they need the technical art that enhances the equipment.
In many ways it may be difficult to control the shipment of technical
manuals that accompany manufactured equipment. However, I believe
that we can control the art and the support that goes with legally ac-
quired equipment. Showing the Soviets how to make the rope with
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which to hang us does not strike me as a reasonable approach for the
United States to take.
I thank you very much for the opportunity to testify and I hope
that my testimony has been useful to you. I would be happy to try to
answer any questions at this time.
Senator NuNN. Thank you, very much. Your testimony has been
very useful and we thank you very much for your help.
John Marshall, who will testify after you, talks rbout the Soviets
first equipping the semiconductor plant with manufacturing equip-
ment in 1975.
Mr. Marshall says that by 1977, they will probably be ready to start
equipping or testing equipment. Does that square with what you
know?
Dr. BAKER. Precisely, sir. In the CTC invoices I saw for the 1978-
79 timeframe, they were requiring production equipment and in the
1979-80 time period, they were principally working on test equipment
such as complete integrated circuit test systems, handling complete
systems and equipment for the plant. Mr. Marshall's data is quite con-
sistent with my information.
Senator NUNN. Why did Assistant U.S. Attorney Wu and the U.S.
Customs Service seek you as a technical adviser in the Maluta-title
prosecution?
Dr. BAKER. I believe they sought me because of my technical exper-
tise and the fact that they needed help in a very short time. I was
called through unconventional channels on very short notice and asked
to help support the Customs people.
Senator NuNN. Does the Commerce Department have people avail-
able for this kind of technical advice?
Dr. BAKER. I believe so.
Senator NuNx. Was it your understanding that the prosecution's
inability to get the needed technical assistance what caused a serious
delay in the Government's efforts? Was that one of the reasons you
were called?
Dr. BAKER. I would recommend you ask that question of Mr. Wu
when he testifies. I was told at the time that they had a serious statute
of limitation deadline and were about to be unable to prosecute the
cases.
Senator NuNN. What kind of technical assistance was needed for
that prosecution?
Dr. BAKER. They needed really two kinds. First, they needed some-
one to go through the list of equipment that had been shipped over-
seas and determine which of them were, in fact, illegal shipments; that
is, which required licenses and which didn't. That is in essence a licens-
ing officer's kind of decision.
Second, they needed a decision as to the military importance of the
equipment being shipped. They needed to have someone who was
willing to say, and willing to testify in court to the fact, that a particu-
lar shipment or set of shipments was of military importance to the
Soviets and made a difference in their military capability.
Senator Num.r. What is the difference between the talents you
brought to that prosecution in terms of technical expertise and what
the Commerce Department could have brought today?
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Dr. BAKER. I can only answer that in terms of the Commerce De-
partment licensing people and experts I worked with and have worked
with for about the last 9 years. Those people are very good at making
decisions about whether or not something requires a valid export
license.
They could have done the first half of the evaluation quite well and
told the customs people which equipment was improperly exported and
which wasn't, which did or did not require a license.
For the second part of the evaluation, involved with the military
significance, I do not believe the expertise exists in the parts of Com-
merce I have seen.
To my knowledge, the people from the licensing branch could not
have answered that question.
Senator NUNN. Is it your opinion that there is no question as to
where the ultimate destination of that equipment was supposed to be
in the CTC case.?
Dr. BAKER. There is absolutely no question in my mind; it went to
the Soviet Union. My source for that kind of information was the
invoices I saw marked to the principal electronics import-export firm
for the Soviet Union in Moscow.
Senator NUNN. In the CTC invoice evaluations, you note the fact
that a piece of machinery is either ahead of the state of the art of the
Soviets or at least equal to what the Soviets have. What is the sig-
nificance of that?
Dr. BAKER. To me the significance is that they are buying equipment
that they cannot make themselves. They are buying equipment obvi-
ously to try to produce in this case integrated circuits, that their cur-
rent equipment will not make. They were trying to improve their long-
term capabilities, they were spending a large amount of very rare hard
currency to get the equipment.
It indicates to me that they were trying to improve the military
potential by acquiring the production line.
Senator NUNN. Dr. Baker' based on your experience working with
the Commerce Department, do you believe that they have access to
enough intelligence to properly perform their job?
Dr. BAKER. I would recommend that question be asked to the Com-
merce people, but the people I work with in Commerce do not have
access to all?source intelligence and do not, as a general rule, have
access to intelligence at all. I work with licensing people and people
who handle cases.
Senator NUNN. Are you familiar with the Commerce Department's
own intelligence group?
Dr. BAKER. This last weekend I was given an opportunity to read
the staff study before these hearings. Up until I read that staff study,
I had no idea Commerce had an intelligence group.
Senator NUNN. You follow this whole area very closely, do you not?
Dr. BAKER. Yes, sir.
Senator NUNN. Does that indicate that since you didn't know that
the Commerce Department had an intelligence unit in the compliance
division that most other people in this field probably aren't aware of
it either?
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Dr. BAKER. Certainly the people I work with in the export control
of electronics and computers do not or have shown no evidence of being
aware; I have never heard it discussed, mentioned, inferred, anything.
I was going to say I am also, as an employee of a DOE labora-
tory, part of the intelligence community. As a result, I work with
intelligence agencies and have never heard it mentioned there either.
Senator NUNN. Does that indicate that the intelligence unit itself
is so small or so unknown that it probably is not getting the kind of
information it needs from others to have that capability or would
you conclude that?
Dr. BAKER. It would appear that the intelligence unit needed to
gather information in this field should be larger than the one I saw
mentioned at Commerce. Again both CIA and DIA are putting to-
gether the units to study this problem.
Senator NUNN. You testified about the intelligence value of the CTC
Maluta case; that is, what the United States can learn from the con-
duct of Maluta and the others.
You are an expert on the technical considerations of the CTC
case.
Have you ever been approached by an intelligence person who
asked for an evaluation of the CTC case?
Dr. BAKER. No, sir.
Senator NUNN. Do you know anyone else who has? Do you know
whether they have really studied that case?
Dr. BAKER. No, sir.
Senator NuNN. If they have, you don't know about it?
Dr. BAKER. If they have, I don't know about it. As I say, I was
the technical expert for the U.S. Customs Service and U.S. attorney
in this case.
Senator NUNN. You are saving that that case has a wealth of
information for our own intelligence experts?
Dr. BAKER. I believe SO.
Senator NUNN. So you are certainly recommending that they study
that in detail?
Dr. BAKER. Yes, sir.
Senator NUNN. Do you know whether the Commerce Department
has had anyone studying that in detail?
Dr. BAKER. I don't know.
Senator NUNN. If they have, you don't know about it?
Dr. BAKER. Correct, sir.
Senator NUNN. Under the best of circumstances if our Govern-
ment were organized to make good use of technology transfer intelli-
gence, what should have happened as a result of that case?
Dr. BAKER. In the best of circumstances it would have been useful
if there were a place for a person like me to go, a single place to
explain what I thought had happened and to provide a way to get
this information down to the street level, enforcement agencies,
quickly in order to get things stopped and/or to draft my decision,
follow up a different way. But there was no place to go to that I
know of.
Senator NUNN. You referred to the half life of the Hipox oven
as being a clue as to when the Soviets expect to be back in the Hipox
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marketplace. When should they arrive and what should we do to
anticipate it?
Dr. BAKER. I think they ought to be here now. I expect they are try-
ing to get parts for it right now. I would think the best procedure
would be to notify the manufacturer and suppliers of that kind of
equipment to expect shipments to people they don't know. The inte-
grated circuit business is a surprisingly close knit group.
Most people in that group, because they attend the same parties, go
to the same beaches, that sort of thing, know who the suppliers are and
would know when the potential diversion could be occurring.
Senator NuNisr. Do we have anyone in Government now who is re-
sponsible for 'performing this task; that is, of anticipating what the
Soviets may be after next in dual-use technology? Do we have any-
body who is primarily responsible for that in Government who should
be informed about the CTC-Maluta case? Do you know of an agency
or group of people designated for that purpose?
Dr. BAKER. I am not aware of any.
Senator NuigN. That is what you are suggesting, are you not?
Dr. BAKER. Yes,
sir.
Senator NUNN. You are suggesting some reverse engineering in the
espionage area by the United States in the sense of determining in
advance what would be most useful for the Soviets, what they need,
what they are most likely to go after and disseminating that knowledge
to those who need to know?
Dr. BAKER. Yes, sir. That is a good way to put it.
Senator N-cricw. Is nuclear nonproliferation also one of your respon-
sibilities at Los Alamos?
Dr. BAKER. Yes, sir.
Senator NuNx. Has this half life concept worked in our efforts to
curtail potential nuclear proliferation problems?
Dr. BAKER. Yes, sir. In one particular instance we had reason to
believe that a country would be acquiring some commodities that would
be of use in their efforts. The Department of Energy went to the sup-
pliers, mentioned to them "if you get any strange requests for this
kind of commodity, please let us know.' The suppliers cooperated
beautifully. The equipment was not shipped.
Senator IsTuNN. Dr. Baker, you probably know as much about this
subject as anyone we will have before us, perhaps more than anyone.
In summary, what are we doing correctly as far as preventing or
delayinfr the amount of technology going out of this country to the
Soviet Union? Where would you give the Federal Government high
marks?
Dr. BAKER. I understand. A couple or three areas I would give the
highest marks to DOE's long-standing efforts in technology transfer
control, and the efforts by the CIA and DIA to get into the tech-
nology transfer arena much more strongly than they have in the past.
Again they are reflecting a requirement of the administration; they
work for it, the law requires it; they are going into this area very
well. I think they have very good people.
The above refer to analysis and forecasting. In the area of enforce-
ment, the efforts of the U.S. Customs Service, in cooperation with the
Justice Department, should be encouraged.
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Senator NUNN. CIA and DIM
Dr. BAKER. CIA, DIA, DOE, and other parts of the intelligence
community, are going into it and I think have good people working
on it. The militarily critical technologies list will be helpful to us
in trying to figure out what areas we need to pay most attention to on
our part. If the Soviets are going after something that we don't care
about, simply charge them a lot of money, and let them have it. If
they are going after something we do care about, we should protect it.
I think'' these hearings will be useful in publicizing the problem.
Most manufacturers I think will be quite interested and quite effec-
tive in helping control this problem but many, many people don't
believe there is a problem.
Senator NUNN. Where would you give us low marks? You have
already talked about your primary suggestion, but how else would
you summarize what the Government needs to do?
Dr. BAKER. I would suggest and again this is not my field, I am a
technologist, not a Government organization specialist. But working
in the field, the lacks I see are the lack of centralized technical support,
a lack of, a place to bcro to get prosecutions done in this kind of a case
easily, some place perhaps to gather the information for prosecutions
in cases like this and the lack of a mechanism whereby the information
that may become available through intelligence or other sources could
be quickly gotten to people who need it, to get something done effec-
tively.
Senator NUNN. SO it is lack of a concentrated pool of people who
have technical capability serving as a central source and as a primary
source and also as a clearinghouse source to point to where the knowl-
edge exists if they don't have it. Is that right?
Dr. BAKER. That is correct, sir, either in technology, or in prosecu-
tion, or in intelligence. As I say, the intelligence organizations are try-
ing to solve the problems on the intelligence side.
Senator NUNN. You are saying that one area that ought to be
looked at is perhaps a national laboratory like Los Alamos?
Dr. BAICER. Los Alamos has done a lot of work in the area; but there
are other laboratories who do work in the area. The main thing in
providing a technical center, is to get it out of Washington, into areas
where there is a high technology environment so you attract the people,
keep them busy.
Senator NUNN. Would there be approximately 20 new people and
approximately 55 million of new money per year?
Dr. BAKER. That is what I was anticipating. I would expect in the
long run that there would be no actual saving of money by the Gov-
ernment in doing this because the people involved in evaluating cases,
technically now, would begin evaluating them in their own specialties.
For example, the military who have to evaluate cases technically
could now not worry about that, but could worry about the military
implications.
Senator NUNN. Would there be a lot of people who could be able to
feed into this process who would continue in their existing jobs?
Dr. BAKER. That is correct, sir.
Senator NUNN. So you would be having access to a lot more people?
Dr. BAKER. There would be access, more than that number of
people; yes, sir. Another reason for putting this center in something
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like a national lab, if you need an expert in a particular field, you
can go down the hall and get him. Again, this is simply having it away
from Washington.
Senator NUNN. Dr. Baker, thank you very much for being with us.
Thank you for your testimony and your splendid cooperation and we
hope we can continue to call on you as a resource as we frame our
recommendation.
Dr. BAKER. Thank you, sir.
Senator NUNN. Our next and final witness of the day is Mr. John D.
Marshall. We had planned to have staff statements today but the Sen-
ate is going into closed session on the military authorization bill at
2 :15, so we will defer our staff statements until tomorrow's hearing.
Mr. Marshall, if you will hold up your hand, I will give you the
oath. Do you swear the testimony you will give before this subcom-
mittee will be the truth, the whole truth, and nothing but the truth,
so help you God?
Mr. MARSHALL. I do.
Senator NUNN. Thank you. I know you have a statement. We would
like to get your statement. Could you give us a little bit of
background?
TESTIMONY OF JOHN D. MARSHALL, BUSINESSMAN, SANTA CLARA,
CALM
Mr. MARSHALL. I have been in the electronics business since 1961.
I am a chemist by education, I have been involved in the formation of
a number of businesses, both manufacturing of integrated circuits
and companies to build the equipment for the integrated circuit
industry.
Senator Ntricisr. Thank you.
Could we have the subcommittee room in order, please?
Mr. Marshall, if you would wait. In just a minute, we will have
quiet in the room and you can go ahead.
Senator Nrrimr. Mr. Marshall.
Mr. MARSHALL. I am a chemist and have been in business in Santa
Clara County in a variety of scientific and engineering pursuits since
the early 1960's.
One of the businessmen in Santa Clara County whom I had dealings
with was Carl Storey, president of II Industries. I had known Carl
since 1964. At the time, I had recently sold a business I owned, and
planned to start a new enterprise in the near future. But, when I met
Mueller, I was more or less between assignments and was supporting
myself by working for several firms as a consultant.
Storey told me that Mueller was setting up some kind of semicon-
ductor plant in Hamburg, West Germany. A short time la ter I learned
that Mueller was less interested in actually building a factory but that
his main goal was to sell equipment to European semiconductor com-
panies.
Mueller told me that he was doing business with the Soviet Union
in regard to equipment for electronic watch production.
In the winter of 1975, I made two trips to Moscow with Mueller. On
both trips, the Soviets treated Mueller with special deference. Clearly,
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he was someone they had had dealings with before and someone they
wished to cultivate.
On the first trip, Mueller and I met briefly with a Soviet named
Pavlov. It was hardly more than an introduction, however, and I did
not learn much about him. The trip was not very productive.
On the second trip, we met several Soviets who purported to be
technical people. They were not very well trained and were not famil-
iar with sophisticated technological thinking. But it was apparent to
me by the questions they asked and the subjects they discussed that
the Soviets had built a semiconductor manufacturing and assembly
plant and they were anxious to equip it. They wanted American semi-
conductor manufacturing equipment and they had detailed literature
on the precise kind of equipment they wanted. They also wanted me to
obtain for them certain semiconductor components. It was clear to me
that Mueller had deceived me as to the Soviets' intentions, that it was
not merely electronic watches that the Soviets wanted to manufac-
ture. It seemed to me they had in mind the manufacture of any num-
ber of high technology products, including computers.
I realized that for me to provide such equipment for them would
have constituted questionable or illegal conduct on my part. I wanted
to play no role in such activity and refused to participate further and
left.
Senator NUNN. Did they offer you money or were they just going to
use your services and pay you? What was the offer?
Mr. MARSHALL. They really didn't offer me money. Supposedly I was
Mueller's employee as a consultant. Mueller offered to pay me my
standard consulting fee.
Senator NUNN. You were actually working for him?
Mr. MARSHALL. I was working for Mueller.
Senator NUNN. Did he pay your expenses on the trips?
Mr. MARSHALL. He was supposed to. He didn't pay me.
Senator NuNN. He was supposed to?
Mr. MARSHALL. That's right, he was supposed to pay me and pay
my consulting fee. What I really learned through the whole thing,
Mueller was trying to prove to the people there that he had some tech-
nical expertise and when they started going into areas that were defi-
nitely sensitive and I got the drift of really what was going on., I told
him I wanted no part of it. And got out.
In addition to the questions the Soviets asked me' I began to better
understand certain conversations I had overheard between Mueller
and persons he was meeting with during our trips to Moscow. It be-
came apparent to me that Mueller and these persons were involved
actively in a relatively substantial effort to buy American semiconduc-
tor manufacturing equipment for illegal shipment to the Soviet Union.
Among the persons I met during this association with Mueller was
another West German named Volker Nast, who was introduced to me
as being one of Mueller's partners. I met Nast in Germany as we were
enroute to Moscow. In Hamburg, I met an English or Canadian sub-
ject whose name I cannot recall whose mission was to supply the So-
viets with semiconductor technology; that is to say, he was to show
them how to make integrated circuits and how to use properly the
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equipment they would be obtaining. In Moscow, I met a woman who
spoke English with a German accent who was planning to ship certain
American-made photolithographic materials to the Soviet Union via
East Berlin. I do not remember her name.
In 1975, the United States was preeminent in the field of semi-
conductor technology. It is my view that the Soviets had built their
manufacturing plant, or plants, to specifications for American-made
equipment-_for the manufacture, assembly and testing of integrated
circuits. Now that the facilities were constructed, they were, in the
winter of 1975, confronted with the next step, which was to equip the
facilities.
In 1975, their primary interest in equipment would have related to
the manufacture and assembly phases of semiconductor production.
By 1977, they would probably have been ready to begin equipping the
facilities with the test equipment; and with software development
equipment.
Senator Numsr. Thank you very much, Mr. Marshall. We appreciate
your being here and your cooperation. We also appreciate your being
alerted to what was about to go on and getting involved in that. That
is a good example for a lot of other business people who may be exposed
to the same thing. Do you know whether Mr. Mueller was ever charged
with any crime in this country?
Mr. MARSHALL. I believe he was charged with a crime. In fact, as I
mentioned, the gentleman that introduced me to Mr. Mueller was sub-
sequently brought to trial for shipping equipment illegally to the
Soviet Union.
Senator Nuismr. Is that Mr. Nast?
Mr. MARSHALL. That was Mr. Storey.
Senator NUNN. Mr. Storey, so Mr. Storey was actually indicted and
tried?
Mr. MARSHALL. And tried.
Senator N17NN. Was he convicted?
Mr. MARSHALL. I testified at his trial, he was convicted. Apparently
there was an incompetent reporter at the trial and so, I guess they
negotiated a plea after that. They went to retry. He was convicted at
the trial.
Senator NuNx. How about Mr. Mueller, he never has been?
Mr. MARSHALL. Mr. Mueller, I think is a German citizen. I believe
he has been indicted but I don't think he is going to come back into
the country and I guess you can't extradite from Germany.
Senator NuNN. How about Mr. Nast?
Mr. MARSHALL. Same situation.
Senator NuNN. Indicted?
Mr. MARSHALL. I believe so.
Senator NuNN. In other words, we can't extradite them on those
charges as far as you know?
Mr. MARSHALL. In fact that is the information I got from your
investigators because I asked these questions of them. They are very
aware of the situation.
Senator Nuicx. Mr. Asselin, are you familiar with this or Glenn
Fry? How about taking the stand and let's complete this part right
now.
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TESTIMONY OF GLENN W. FRY, STAFF INVESTIGATOR, PERMA-
NENT SUBCOMMITTEE ON INVESTIGATIONS
Hold up your right hand, do you swear the testimony you give in
this case will be the truth, the whole truth, and nothing but the truth,
so help you God?
Mr. FRY. Yes.
Senator NUNN. State your name and present position.
Mr. FRY. My name is Glenn Fry, staff investigator for the minority.
Senator NUNN. How long have you been investigating this case?
Mr. FRY. Approximately 1 year.
Senator NuNN. Would you tell us what the status legally is of Mr.
Mueller we heard testimony about and Mr. Nast?
Mr. FRY. Richard Mueller is a West German and he initially started
to procure American equipment as early as 1974.
Senator NUNN. I don't believe that mike is on. I can't hear you.
Mr. Fay. Is this all right?
Senator NUNN. That is better.
Mr. FRY. Richard Mueller is a West German who as early as 1974
was attempting to procure semi-conductor manufacturing equipment
from the United States, specifically two companies on the west coast,
II Industries and Kasper Electronics. He tried at first through an in-
dividual in Germany named Luther Heidecke who worked for Honey-
well A.G. in West Germany. His attempts in this area failed. The next
time he was heard of was when he was dealing directly with II Indus-
tries and Kasper Electronics.
Senator Ntri.tx. Did he get indicted in this country?
Mr. FRY. Yes; he did.
Senator NUNN. Has he ever been tried?
Mr. FRY. No; be hasn't.
Senator NUNN. Why riot?
Mr. FRY. He and Volker Nast both flew to Germany.
Senator NUNN. Both been indicted?
Mr. FRY. Both hove been indicted.
Senator NUNN. Has our Government tried to extradite him?
Mr. FRY. There is no way to extradite him for these charges.
S-nator NrrNN. Why is that?
Mr. FRY. The West German Government is just not sympathetic.
Senator NUNN. Let's say he was a murderer in the United States,
what would happen if he fled to West Germany then?
Mr. FRY. I am not that familiar with the extradition laws, but I
assume something of that severity
Senator Ntrivx. I ask you to have the staff look into this as soon as
possible and get us the status of the law as to why this is not an ex-
traditable offense. Your understanding is that it is not an extraditable
offense?
Mr. FRY. This is the information we received from Justice and
Customs.
Senator NuNx. And the offense he was charged with was violation
of the U.S. Export Administration Act?
Mr. FRY. Yes, sir,
Senator NUNN. What about espionage, would that have been an
extraditable offense? If you don't know, you can furnish it in a
memo
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Mr. FRY. I don't know.
Senator NuNN. I would like to have that in the record. You are
going to be testifying tomorrow. Perhaps you can get it by then.
Mr. FRY. All right.
Senator NuNN. We are engaged in a military alliance with West
Germany as one of our prime partners. We are spending billions and
billions of dollars. The efforts that were being made in this case that
you related, Mr. Marshall, were aimed at improving the Soviet mili-
tary capability. We charge people involved with the crime and they
flee to one of our prime allies that we are helping to defend against
the Soviets and we can't get them back. Does that strike you as being
somewhat of a paradox?
Mr. MARSHALL. It certainly does. I was dumbfounded with the fact
we couldn't do anything because I went to the Custom's people and
cooperated with the Custom's people in prosecution of this case and
found out at that time, too, there was nothing they could do to Mueller.
Another thing I found out during the same time was apparently
the Russians are also getting a lot of semi-conductor integrated circuit
technology from Japan and apparently there is no problem in them
obtaining this very sensitive technology from the Japanese and now
the Japanese have made very, very substantial strides over the last
10 years and now are just on about a par with our existing technology
and seems to me if the Russians want something they can go to the
Japanese and get it, no questions asked.
Senator NuNN. Another one of our allies.
Mr. FRY. Japan?
Senator N-uNN. Yes.
Mr. FRY. It is.
Senator NUNN. In the defense budget on the floor today, we are
spending so much money on our own allies, yet we didn't exercise
much effort in terms of agreeing to extraditable offenses with them.
If we have I don't know about it. I would like a staff analysis of that.
[At the request of the subcommittee, Dr. Edith Palmer, a senior
legal specialist in the European Law Division of the Library of
Congress, prepared a report on "Problems of Enforcement of National
Security Export Controls Involving Illegal Conduct Abroad." The
report follows.:]
PROBLEMS OF ENFORCEMENT OF NATIONAL SECURITY EXPORT CONTROLS INVOLVING
ILLEGAL CONDUCT ABROAD
Diversions of controlled technology are at times carried out through compli-
cated schemes involving interim exports to West European countries, particularly
the Federal Republic of Germany, in conjunction with various forms of transit
through neutral countries such as Austria and Switzerland before the goods
reach their final destination in the Soviet Bloc.
These schemes hamper enforcement of our national security export controls in
two major ways. First, they often involve the participation of forcign nationals
operating from abroad who cannot be brought to justice beciuse they are neither
extradited to this country nor punished in their home countries. Second, they
make discovery of illegal conduct very difficult in that the cooperation of several
European countries is required in investigating the facts. This cooperation works
well with regard to the Federal Republic of Germany, but the Swiss authorities
have in such cases refused assistance. It is also questionable whether coopera-
tion could be obtained from Austria.
An example of the impunity 'with which foreign nationals violate our export
controls is the ease of Volker Nast, a national resident of the Federal Republic
of Germany. In April of 1976, Volker Nast was indicted by a Federal grand jury
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in San Francisco for violation of 18 U.S.C. ? 371, conspiracy to violate the Ex-
port Administration Act.' Even though his conspirators in the United States were
prosecuted and convicted, Volker Nast could not be brought to trial because his
extradition was not obtained.
In 1980, Volker Nast again participated in a scheme of illegal exports of 'U.S.
technology in violation of the Arms Export Control Act.' Through the diligent
efforts of the U.S. Customs Service, the illegal export of the controlled item, a
Microwave Surveillance Receiver System, was forestalled. Two co-conspirators
in this scheme, one a U.S. citizen and the other a German citizen, were appre-
hended in New York City and were tried and convicted. On May 26, 1981, Volker
Nast was charged with a two-count indictment in Baltimore, Maryland, for con-
spiracy in violation of 18 U.S.C. ? 371, and with aiding and abetting an attempt
to violate the Arms Export Control Act, in violation of 18 U.S.C. ? 2 and 22 U.S.C.
? 2778. But because of his German residence he could not be tried.' Given Volker
Nast's conduct to date, it is foreseeable that he may continue his profitable activi-
ties unless ways and means can be found to deter him in the future.
The most effective deterrent for offenders like Volker Nast would be to obtain
their extradition to the United States. However, this often will not be possible
for various reasons, the most compelling being that the offender is a national of
the country that is requested to extradite. In fact, in the Federal Republic of
Germany, the extradition of a German national is ba-red by a constitutional pro-
hibition.' This constitutes a preclusion of law justifying the refusal of extradition
as provided in Article 7 of the Extradition Treaty between the United States and
the Federal Republic of Germany.5
Aside from the issue of German nationality, it is not clear to what extent the
Federal Republic of Germany under the Extradition Treaty now in force would
grant extradition of a U.S. citizen or a citizen of a third country to the United
States for violations of U.S. export controls. If the offender were a U.S. citizen,
the issue would turn on a finding of double criminality for the conduct.
The intent of the parties is to interpret the Extradition Treaty broadly in
order to avoid any possible gaps in the prosecution of crimes." The Treaty
obligates the Federal Republic of Germany to grant extradition for any Federal
offense under U.S. law that is punishable in the United States and in the Federal
Republic by imprisonment for more than one year.' It would seem that a good
faith interpretation of ?the Treaty would warrant a German finding of double
criminality because German export control laws make the unauthorized export
of certain controlled materials punishable by imprisonment up to three years.'
However, it is by no means assured whether or not a German court invoked to
examine the allowability of extradition would come to this conclusion, since
German export control laws are not nearly as comprehensive as those of the
50 U.S.C., app. 2401-2420.
18 U.S.C. ? 2; 22 U.S.C. ? 2778.
Affidavit of April 5, 1982, of Michael Dolphin, Special Agent. U.S. Customs Service,
stating these facts to Glenn Fry and Jack Key of the Senate Permanent Subcommittee on
Investigations, Committee on Governmental A `fairs.
4 Art. 16, para. 2, of the Basic Law of the Federal Republic of Germany (Grundgesetz fur
die Bundesrepublik Deutschland vom 23. Mai 1949, Bundesgesetzblatt [official law gazette
of the Federal Republic of Germany. BGB1.], p. 1.
5 Treaty Between the Federal Republic of Germany and the United States of America
Concerning Extradition [US-FRG Treaty], signed at Bonn. June 20, 1978, entered into
force August 29, 1980, T.I.A.S. 9785.
6 H. Grtitzner and P. Piitz, Internationaler Rechtshilleverkehr in Strafsachen H V 10,
p. 26. note 2 (Hamburg. 1955- ).
'Articles 1 and 2, US-FRG Treaty- Article 2 also incorporates as extraditable an enum-
eration of offenses contained in the Appendix. In the German interpretation of the Treaty,
this enumeration prevails only for requests from the United States that are based on of-
fenses under state law, whereas for offenses under the Federal laws of the United States,
extraditability is determined by double criminality plus the punishment threshhold. The
numerated offenses, however, are indicative of the intent of the Treaty as to the types of
crimes covered. Number 27 of the Appendix specifically includes :
(a) Offenses against the laws relating to importation, exportation, or transit of goods,
articles, or merchandise.
(b) Offenses relating to willful evasion of taxes and duties.
(c) Offenses against the laws relating to international transfer of funds.
The only category of offenses that is excepted from extradition is that of political
offenses. According to Article 4 of the Treaty, the requested State determines whether or
not an offense is political. While a German finding of political intent with regard to U.S.
export control violations would seem unlikely, given the obvious commercial motives under-
lying such transactions, violations of U.S. espionage laws would almost certainly fall under
the political offense exception.
Sees. 34 and 7, Aussenwirtschaftsgesetz vom 28. April 1961. BGB1. 1. p. 481, as
amended, in conjunction with secs. 5, 38. 40, 45, and 70, Aussenwirtschaftsverordnung vom
22. August 1961, BGB1. I, p. 1381, as amended.
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United States. Criminal sanctions in the German export control system are
viewed as exceptional, in view of the free-trade orientation of German foreign
economic relations legislation, and most infractions of it are punishable merely
by administration fines.'
If the United States were to request the extradition of an offender who is a
national of a third country for U.S. export control violations, the Federal Repub-
lic might refuse extradition if tl-e illegal conduct occurred entirely outside the
territory of the United States, since the Treaty, with regard to non-nationals
of the requesting country, requites that the requested country must in its own
laws have jurisdiction over the type of offense when committed extraterritori-
ally." German criminal law, however, does not list export control violations
among the offenses for which it prosecutes foreigners for acts committed
abroad."
With regard to persons who are not German nationals, the United States
might at times succeed in obtaining extradition when the violators of the U.S.
export control laws commit other offenses as well that are extraditable under
the Extradition Treaty with Germany. Fiscal offenses and perjury might fall
into this category. However, the rule of specialty would limit U.S. prosecution
to the offenses for which extradition was granted."
The refusal to extradite nationals is a concept that the Federal Republic
shares with many European countries," and this principle is frequently defended
by its proponents with the argument that these countries will exercise jurisdic-
tion over their nationals for offenses committed either in their territory or
abroad and that they will punish them according to their domestic laws." How-
ever, this argument fails to be convincing when, as in the case of export viola-
tions, the ccnduct of the person whose extradition is sought is not punishable
in the requested country.
It is a well-recognized principle in international law that a state refusing to
extradite a criminal should punish him according to its municipal laws. This
principle has been expressed in numerous international conventions dealing with
the suppression of crimes, and these agreements frequently contain clauses ob-
ligating the member countries to make the reprehensive conduct punishable ac-
cording to their own laws and to establish jurisdiction in their laws over offenders
whose extradition is refused.' Whereas these conventions deal with universal
crimes for which there is a broad consensus that they need to be suppressed, this
may not be the case with regard to U.S. export controls. However, the protection
of these controls might well constitute an obligation among the members of the
North Atlantic Treaty " to protect their mutual security by adopting laws to
enforce these controls.
The difficulties of investigating violations of U.S. export controls abroad be-
came especially apparent in 1980, when Theodore Wai Wu, Assistant United
States Attorney, traveled to West Germany and subsequently to Switzerland to
Investigate massive schemes of diverting U.S. controlled technology to the Soviet
Bloc involving exports to the Federal Republic of Germany and various forms
Aussenwirtschaftsrpcht 1975, at 33 (Frankfurt, 1975).
"Art. 1, US-FRG Treaty.
"Sees, 5 and 6 of the German Criminal Code, i.e., Strafgesetzbuch in der Fassung vom 2.
Januar 1975, BGB1.. p. 1, as amended.
la Art. 22, US-FRG Treaty.
13 Austria bars the extradition of nationals by a constitutional provision: sec. 12,
Auslieferungs- und Rechtshilfegesetz vom 4. Dezember 1979, Bundesgesetzblatt [official law
gazette of Austria], No. 529/1979. Switzerland bars the extradition of nationals by legisla-
tion: Art. 7, Rechtshilfegesetz vom 20. Marz 1981, Bundesblatt [official law gazette of
Switzerland] I, p. 791.
'1l. Wise, "Some Problems of Extradition," 15 Wayne Law Review 715 (1969).
"Obligations to provide Jurisdiction and criminal provisions to punish offenses for which
extradition is not granted are contained In: Convention for the Suppression of Unlawful
Seizure of Aircraft, done at The Hague, December 16, 1970, entered into force for the
United States October 14, 1971, T.I.A.S. 7192, the Convention for the Suppression of
Unlawful Acts Against the Safety of Civil Aviation, done at Montreal, September 23,
1971, entered into force for the United States January 26, 1973, T.I.A.S. 7570; Con-
vention on the Prevention and Punishment of Crimes Against Internationally Protected
Persons Including Diplomatic Agents, done at New York, December 14, 1973, entered into
force for the United States February 20. 1977, T.I.A.S. 8532; Single Convention on Nar-
cotic Drugs, done at New York, March 30, 1961, entered into force for the United States,
June 24, 1967, T.I.A.S. 6298. Most European countries are also bound by such an obliga-
tion according to the European Convention on the Suppression of Terrorism, done January
27, 1977, BGB1. 1978. II. p. 321.
la Arts. 3 and 4, North Atlantic Treaty, signed at Washington, April 4, 1949, entered into
force for the United States August 24, 1949, T.I.A.S. 1964.
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of transit through Switzerland and Austria." The West German authorities were
very cooperative and their assistance, granted under a bilateral customs agree-
ment,' was instrumental in discovering the complex schemes of diversion. But
the Swiss authorities denied assistance on the grounds that the country's political
neutrality barred assistance for U.S. export control enforcements that are viewed
by the Swiss as involving political considerations. They also denied it on the
grounds that the Swiss business secrecy laws prohibited certain inquiries. Mutual
assistance in criminal matters is granted to the United States by Switzerland
under the Mutual Assistance Treaty of 1973." Whereas this U.S.-Swiss Treaty
contains broad obligations of assistance, refusals of the type described above
are possible because of discretionary clauses contained in its Articles 3 and 10.10
Mutual assistance between Austria and the United States is granted on the
basis of reciprocity in the absence of a treaty. It is possible that the Austrian
authorities would also refuse assistance to the United States for the investigation
of export control violations, since the Austrian Law on Extradition and Mutual
Assistance contains a general reservation precluding assistance when it would
violate essential Austrian interests.' Austrian neutrality and business secrets are
prime examples of such protected interests in the intent of the Austrian
legislature.'
National security export controls of the United States cannot be enforced
effectively as long as these difficulties in prosecuting foreign offenders and
investigating operations abroad continue to exist. These factual problems and
the legal situations on which they are based should be taken into consideration
by the U.S. Secretary of State in consultation with the Secretary of Defense, the
Secretary of Commerce, and the heads of other appropriate departments and
agencies when negotiating with other countries regarding cooperation in restrict-
ing the export of goads and technology under the Export Administration Act, as
provided in 50 U.S.C., app. ? 2404 (k ).
Senator NUNN. Mr. Marshall, during your exposure to Richard
Mueller, can you recall the circumstances that led you to believe he
was illegally diverting United States technologies to the Soviet
Union?
Mr. MARSHALL. While I was with him I began to overhear a lot of
conversations he was having with other people and conversations he
was having on the telephone which definitely indicated that he was
doing this. In fact, as I mentioned, I was a witness for the prosecution
of the people in the Ii Industries case because I had sonic direct knowl-
edge and I guess it was my testimony that was key in getting a con-
viction.
Senator Nui.rx. Did Mueller appear to know exactly what United
States technology he was to obtain for the Soviets?
Mr. MARSHALL. I believe so.
Senator NUNN. How do you gather that?
Mr. MARSHALL. He was after certain things. In fact, during this time
he wanted me to get involved, he was trying to get me to supply, or
wanted me to supply some very sophisticated maskmaking equipment.
I told him he was nuts, but it was some very sophisticated equipment.
He was saying he was going to buy it from West Germany and then
move it from West Germany into the Soviet Union.
17 Statement of Theodore Wal Wu. Assistant United States Attorney, Criminal Division.
Central District of California, before the Permanent Subcommittee on Investigations, United
States Senate. May 5, 1982.
18 Agreement Regarding Mutual Assistance Between the Customs Services of the United
States and the Federal Republic of Germany, signed at Washington. August 23, 1973, en-
tered into force June 13. 1975. T.I.A.S. 8098.
10 Treaty Between the United States of America and the Swiss Confederation on Mutual
Assistance in Criminal Matters, signed at Bern, May 25, 1973, entered into force Janu-
ary 23, 1977, T.I.A.S. 8302.
20 Article 3 of the Treaty gives the requested state discretion to refuse assistance that is
likely to preiudice its sovereignty, security, or similar interests. Article 10 makes the dis-
closure of business secrets by Switzerland subject to the approval of the Swiss Central
Authority.
.1 Sec. 2. AHRG. supra note 13.
28 R. Linke and H. Epp, Internationales Strafrecht 19 (Wien, 1981).
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Senator Ninrx. He was making no bones about that?
Mr. MARSHALL. That's right.
Senator NUNN. Did he tell you it was illegal?
Mr. MARSHALL. It was obviously illegal.
Senator NUNN. He knew it was illegal and no question about it?
Mr. MARSHALL. Sure.
Senator NUNN. Did he mention whether money was available for
this purpose?
Mr. MARSHALL. Not really. He mentioned they wanted the equipment
and I guess he was being rewarded very handsomely by the Russians.
He was spending a lot of money, bought two new Mercedes, was in the
process of building a very large home in the countryside around Ham-
burg. So he obviously was doing very well financially.
Senator NUNN. Did he do other things or was he primarily engaged
in trying to obtain equipment for the Soviets?
Mr. MARSHALL. I think that was his major job. What he was doing
was trying to work under the guise of being a manufacturer's repre-
sentative for some sophisticated equipment in Europe, and using that
as really a guise to obtain the equipment to ship to the Soviet bloc.
Senator NUNN. You gave testimony in a trial involving II Indus-
tries and Kasper Electronics, two Silicon Valley firms which pled
guilty to violations of the Export Administration Act. Were you
familiar with the nature of the equipment that was being shipped for
the Soviets?
Mr. MARSHALL. Yes, I was.
Senator NUNN. What was it to have been used for in your opinion?
Mr. MARSHALL. It would have been used for the production of the
integrated circuits. It was part of the photolithography process used
to make integrated circuits.
Senator NUNN. What about the military applications?
Mr. MARSHALL The circuits certainly have military application; the
equipment has no military application.
Senator NUNN. This is primarily industrial? -
Mr. MARSHALL. For production circuits used to print the patterns,
the microscopic patterns on the silicon?
Senator NUNN. Does that mean once they produce these they would
have been using it for commercial purposes?
Mr. MARSHALL. Commercial Or military.
Senator NuNrr. Or military?
Mr. MARSHALL. Yes.
Senator NUNN. Members of the minotity staff showed you a list of
equipment that has been illegally exported to the Soviets over the pe-
riod 1976 to 1980; is that correct?
Mr MARSHALL. Yes.
Senator NUNN. These illegal exports were valued at about $10 mil-
lion. Have you looked at that list?
Mr. MARSHALL. I have seen the list; yes.
Senator Nuisrx. What type of equipment was this and how would
it have been used, in your opinion?
Mr. MARSHALL. Most of the equipment there really broke down into
two categories. One category was mainly test equipment, for testing
integrated circuits. Another area was software development for de-
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veloping software for a particular microprocessor chip, 8080 micro-
processor chip. There was, I guess, one piece of equipment there that
would be used for the processing of the integrated circuits which was
really more advanced than anything that existed during 1975 when
Mueller was talking to me. This is a relatively new piece of equipment,
the Hipox machine.
So it sounds like maybe they, have something going and they are
continuing to facilitize it and update it with modern equipment just
like a U.S. manufacturer would.
Senator NuNN. Mr. Marshall, based on your experience, do you have
any suggestions for the Federal Government as to how to curb tech-
nology transfers to the Soviet Union and the Eastern bloc?
Mr. MARSHALL. I listened to Dr. Baker's testimony and his idea
about limiting, taking key segments away from them and spare parts
for those segments just would be. I think, a very effective way to con-
trol it because I think with the proliferation of semiconductor tech-
nology as exists in the world today it would be hard to control every-
thing, but I think there are a few key areas that if controlled it would
seriously limit their ability to continue to modernize the technology.
Senator NtrNN. So you agree with Dr. Baker's suggestions in that
respect?
Mr. MARSHALL. Yes, sir.
Senator NuNN. Is there anything else you would like to offer to the
subcommittee this morning?
Mr. MARSHALL. No.
Senator NUNN. We appreciate very much your cooperation, Mr.
Marshall. Thank you.
The hearings of the Senate Permanent Subcommittee on Investiga-
tions on Technology Transfer will continue on Wednesday, May 5,
which is tomorrow, at 9 a.m. We will start at 9 o'clock in the morning
and catch up with some of the additional information from the staff.
We will hear from Jack Vorona,, Director, Scientific and Technical
Information, DIA; Theodore Wu, assistant U.S. attorney, Central
District of California; John Maguire, president of Software A.G.,
Reston, Va.; Theodore Greenberg, assistant U.S. attorney, Eastern
District of Virginia; and Douglas Southard, assistant district attor-
ney, county of Santa Clara, Calif.
We will start with our own staff which has an important analysis of
their investigation.
The subcommittee will adjourn.
[Whereupon, at 1:30 p.m. the hearing was recessed, to reconvene at
9 :05 a.m., Wednesday, May 5, 1982.]
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TRANSFER OF UNITED STATES HIGH TECHNOLOGY
TO THE SOVIET UNION AND SOVIET BLOC NATIONS
WEDNESDAY, MAY 5, 1982
U.S. SENATE,
PERMANENT SUBCOMMLL IEE ON INVESTIGATIONS
OF THE COMMIrrLE ON GOVERNMENTAL AFFAIRS,
Washington, D.0 .
The subcommittee met at 9:05 a.m. in room 3302, Dirksen Senate
Office Building, under authority of Senate Resolution 361, dated March
5,1980, Hon. Sam Nunn presiding.
Members of the subcommittee present: Senator Sam Nunn, Demo-
crat, Georgia; and Senator William S. Cohen, Republican, Maine.
Members of the professional staff present: S. Cass Weiland, chief
counsel; Michael C. Eberhardt, deputy chief counsel; Katherine Bid-
den, chief clerk; Eleanore J. Hill, chief counsel to the minority; Greg-
ory Baldwin, assistant counsel to the minority; Jack Key, Glenn Fry,
and Fred Asselin, staff investigators to the minority; and Kathleen
Dias, executive secretary to the minority chief counsel.
[Senator present at time of convening: Senator Nunn.]
[The letter of authority follows:]
U.S. SENATE,
COMMITTEE ON GOVERNMENTAL AFFAIRS,
SENATE PERMANENT SUBCOMMITTEE ON INVESTIGATIONS,
Washington, D.C.
Pursuant to Rule 5 of the Rules of Procedure of the Senate Permanent Sub-
committee on Investigations of the Committee on Governmental Affairs, permis-
sion is hereby granted for the Chairman, or any Member of the Subcommittee as
designated by the Chairman, to conduct open and/or executive hearings without
a quorum of two members for the administration of oaths and taking testimony
in connection with hearings on the Transfer of United States High Technology
to the Soviet Union and Soviet Bloc Nations, to be held May 4, 5, 6, 11 and 12,
1982.
WILLIAM V. ROTH, JR.,
Chairman.
SAM NUNN,
Ranking Minority Member.
Senator NUNN. The subcommittee will come to order.
Our first witnesses this morning will be Mr. Fred Asselin, staff in-
vestigator, and Mr. Glenn Fry, staff investigator.
If you all would take the stand.
Mr. Fry has been sworn but let's both take the oath again.
Do you swear the testimony you give before this subcommittee will
be the truth, the whole truth, and nothing but the truth, so help you
God?
Mr. ASSELIN. I do.
Mr. FRY. I do.
(81)
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TESTIMONY OF FRED ASSELIN AND GLENN W. FRY, STAFF IN-
VESTIGATORS, PERMANENT SUBCOMMITTEE ON INVESTIGA-
TIONS
Senator NUNN. I believe both of you have statements this morning
and we will ask you to proceed with those.
Mr. ASSELIN. Mr. Chairman, I Am Fred Assel in. I am an investi-
gator on the minority staff of the Senate Permanent Subcommittee on
Investigations.
I have shortened considerably my prepared statement. I request that
my entire 32-page statement be printed in the hearing record.'
Senator NUNN. Without objection, your statement will appear as if
read.
Mr. ASSELIN. I also have a summary of the CTC-Maluta case that I
would request be inserted in the ?hearing record.
Under the Export Administration Act, the U.S. Department of
Commerce, through its Office of Export Administration, has juris-
diction over most nonclassified exports from the United States.
Enforcement of the Export Administration Act is carried out by
the Compliance Division of the Office of Export Administration.
The Compliance Division has three Branches?Investigations, In-
telligence, and Facilitation?Inspections.
The minority staff of the subcommittee has made an evaluation of
the effectiveness of the Compliance Division. An assessment of Com-
pliance Division resources and procedures was made. The minority
staff interviewed current and former executives of the Division, and
current and former special agents of the Division. Also interviewed
were law enforcement personnel from other agencies, Government in-
telligence officials and officials of agencies whose mission brings them
in contact with the Compliance Division.
Uppermost in mir minds as we made this evaluation were the na-
tional security implications of the responsibility vested in the Com-
pliance Division. The Export Administration Act itself spells out that
national security responsibility.
The minority staff also evaluated the Compliance Division in terms
of its being a law enforcement entity.
The information that; the minority staff has gathered about the Com-
pliance Division was compared to official pronouncements which the
Department of Commerce has made about the Division in testimony
before Congress and in annual renorts to Congress.
The investigation, which lasted more than 1 year, resulted in a series
of preliminary findings. which are now submitted to subcommittee
members for their consideration. It is our recommendation that subse-
quent witnesses to these hearings from the law enforcement and
national security fields be asked tocomment on the minority staff's
preliminary findings wherever appropriate.
In reports to Congress, the Commerce Department has portrayed
the Compliance Division as if the Division were competently organized
See p. 366 for the prepared statement of Fred Asselin.
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and adequately staffed to enforce the Export Administration Act
export controls provisions. By contrast, our investigation found that
the Compliance Division is not effective. It is an understaffed and
poorly equipped and, in certain instances, undertrained and unquali-
fied investigative and intelligence unit.
According to Commerce Department congressional testimony,
Department officials "regard the enforcement program as an integral
part of the export control system," and say their policy is to "marshal
our limited resources to exact maximum compliance with the law."
It is useful to note the reference to limited resources because the
staff also will underscore the limited nature of the Commerce Depart-
ment's commitment to enforcing export controls. Moreover, the staff
inquiry concluded that the Department's commitment to export con-
trols enforcement is so limited, in fact, that it is impossible to expeet
"maximum compliance with the law." It is optimistic to expect very
much compliance at all.
Our staff investigation revealed the number of inspectors for the
entire Nation is five or six?and five of them are located at the John F.
Kennedy International Airport in New York. On a rotating basis, one
of the five inspectors is on travel much of the time, trying to conduct
inspections for the rest of the Nation. Some airports and seaports never
are visited by Commerce Department inspectors in the course of a year.
Other exit ports are visited 1 week a year. A sixth inspector is in the
Washington, D.C. area.
The Commerce Department's testimony provided this description of
the Intelligence Branch of the Compliance Division:
The Intelligence Branch is staffed with criminal investigator intelligence
reporting officers and other support personnel who develop and maintain intel-
ligence information regarding possible export control violations. Branch per-
sonnel review all incoming allegations, voluntary disclosures and referrals from
the Facilitation Branch to determine whether referral to the Investigations
Branch is warranted.
The testimony suggests a much larger operation than actually exists.
The Intelligence Branch has a Chief, a Deputy Branch Chief, two full-
time professionals and one detailee from the Drug Enforcement Ad-
ministration.
The Intelligence Branch Chief, who is unique among the three
Branch chiefs because of his considerable background in law enforce-
ment, told the staff in a prehearing interview that his office is so over-
whelmed with its workload and so understaffed that it is impossible
for him to provide the kind of intelligence analysis needed for the Di-
vision's national security and law enforcement mission.
The Intelligence Branch is supposed to be able to process and assess
sensitive information. Yet, the Branch has no secured telephone. None
of its professionals has access to sensitive compartmented information;
that is, sensitive intelligence data.
Intelligence Branch personnel often are bogged down in relatively
insignificant assignments and do not have the time to collate and syn-
thesize information in an effort to anticipate violations.
In its testimony before the House Committee, the Department went
on to describe the Investigations Branch of the Compliance Division
by saying it "is also staffed with criminal investigators and conducts
full-scale investigations into alleged violations.'
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The use of the adjective full scale to describe investigations suggests
a substantive effort. However, the subcommittee staff was informed
by the Chief of the Investigations Branch and by a former Director
of the Compliance Division that a full-scale investigation can be a
phone call or a letter.
Both, the fiscal year 1980 and 1981 reports to Congress, speak of "full
field investigations."
In 1980, Compliance Division special agents conducted 61 full field
investigations; and in 1981, an undisclosed number of full field in-
quiries were made, according to the two reports to Congress. The
Branch has abvut eight investigators. With such limited resources at
its disposal, the Compliance Division would be very Lard pressed to
conduct 61 full field investigations in a 12-month period.
The Chief of the Investigations Branch told the subcommittee staff
that 61 full field investigations might not have been the meaning that
the report to Congress intended to convey and that there might have
been a misunderstanding due to poorly constructed writing in the
report.
The testimony also noted that "A principal focus of the Investiga-
tions Branch is preventive enforcement. -We try to thwart illegal trans-
actions before they occur to avoid possible irreversible harm to na-
tional security."
Our investigation revealed that, preventive enforcement is far re-
moved from the realistic objectives of the Investigations Branch. The
Branch has about eight special agents, some formerly trained in tradi-
tional law enforcement, some untrained. Most of their work they do
on the telephone or by mail. There is some travel but the bulk of the
work is done in the Washington headquarters of the Commerce De-
partment. Investigative support is provided by a three-man field office
in New York.
In law enforcement, the term "preventive enforcement" suggests
something quite different, than an eight-member Investigations Branch
that does most of its work from the office. Preventive enforcement
means sending agents into the field, staving in close and frequent con-
tact with the many segments of the affected community.
Senator NUNN. Let me ask you a question right there. You talked
about several different branches. You mentioned the Inspection
Branch. Is that one separate branch?
Mr. ASSELIN. Yes, it is known formally as the Facilitation Branch.
Senator NUNN. Intelligence Branch is another branch?
Mr. ASSELIN. Yes, sir.
Senator NUNN. That is two separate ones there?
Mr. ASSELIN. And Investigations is a third.
Senator NuNN. There is an Investigations Branch?
Mr. ASSELIN. Yes.
Senator NUNN. How about a Compliance Branch?
Mr. ASSELIN. That's it.
Senator NUNN. It's all under one?
Mr. ASSELIN. The Compliance Division has the three branches?in-
vestigations, intelligence, inspections.
Senator NUNN. How many people are in the Intelligence Branch?
Mr. ASSELIN. They have a chief, a deputy chief, two full-time ana-
lysts and one detailee, so that's five.
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Senator NUNN. How many people are in the Intelligence Branch?
Mr. ASSELIN. That's five.
Senator Nu/cc. Inspection Branch?
Mr. ASSELIN. They have a chief and a deputy chief here in Wash-
ington. They have five or six inspectors' five at JFK in New York.
Senator NUNN. How many is that all together, eight or nine?
Mr. ASSELIN. Eight or nine professionals.
Senator NUNN. How about the Investigations Branch?
Mr. ASSELIN. Approximately eight. There is also a three-man in-
vestigations office in New York.
Senator NUNN. Which one of those branches is responsible for goods
that are going out of the country at the point of departure, like the
terminals, the airlines?
Mr. ASSELIN. Inspections presumably, but they are only located
at one airport.
Senator Ntrivx. Are they working with Customs, is Customs sup-
posed to feed information to them?
Mr. ASSELIN. From time to time,
they have had a working agree-
ment with Customs. One year they had two Customs people assigned
to them. I think that contract has terminated. I think now they are
back on their own again. They are supposed?
Senator NUNN. That is patently absured to believe eight or nine
people can
Mr. ASSELIN. It is. It is also absurd to locate them all at one airport.
Senator NUNN. What possible good can you do to visit an airport
once a year?
Mr. ASSELIN. That is a very good question. I don't know what they
expect to achieve with these random visits.
Senator NUNN. Is it a public relations visit, what is it?
Mr. ASSELIN. We weren't able to establish that, sir, what it is they
do when they go to these places.
Senator NUNN. They do not tell you what they do? When you ask
the question, what is it you do when you go to the Atlanta Airport
or the Miami Airport once a year, what is it you do there?
Mr. ASSELIN. They are supposed to go through shippers' export
declarations. They are supposed to carry out?
Senator NUNN. Those that have already gone or those that are
going?
Mr. ASSELIN. Those that are going at that moment.
Senator Nurrx. That day?
Mr. ASSELIN. Right.
Senator NUNN. It's a random sample, then?
Mr. ASSELIN. Yes, they claim they saw, and it's apparently a viable
statistic 230,000 in fiscal year 1981, which sounds like a lot, but it
isn't when you consider there are 9 million SED's filed a year, which
means they are missing 8.7 million they do not see.
They see 230,000 and they do not see 8.7 million.
Senator NUNN. That is the written paper, the shipper's export
declaration, right?
Mr. ASSELIN. Yes, it's one sheet. It is possible for 5 to 7 men to go
through 230,000 of those a year, I guess. They say it's possible and
other people have said it's possible.
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Senator NUNN. Do they have a computer operation that that is run
through, that triggers----
Mr. ASSELIN. hey thumb through them. They go to the site and
they thumb through them.
Where we wondered about the validity of that figure is in this
regard: They also claimed that in fiscal 1981, they found 10,000 dis-
crepancies in those 230,000 SED's. Of the 10,000 or so discrepancies,
they actually opened cargo on about 10,000 discrepancies. To do that,
they have to first of all call back to Washington to establish whether
or not a validated export license is needed?in other words, they have
to do some inquiry to check on why there is a discrepancy. Then you
begin to wonder how they did 230,000 because it comes down to about?
you start dividing 5, or 7 persons into 230,000, you get an awful la
of individual shipper's export declarations they went through and at
the same time opening up 10,000 pieces of cargo. So they are a very
busy group of people.
It is also interesting to note two or three of them are working 32-
hour weeks. They are not full-time employees. I don't doubt their
statistics. It just seems to me they work terribly hard, those inspectors.
They are grades 5, 7, and 9. Another statistic that may be useful is that
50 percent of the cargo in this category goes out of JFK, which means
50 percent of the Nation's exports in this area are not being seen to
the extent that 50 percent at JFK are being seen.
Senator Nu/sr'," Go ahead.
Mr. ASSELIN. In law enforcement, the term "preventive enforce-
ment" suggests something quite different than an eight-member in-
vestigations branch that does most of its work from the office. Pre-
ventive enforcement means sending agents into the field, staying in
close and frequent contact with the many segments of the affected
community. Preventive enforcement is aggressive policework.
Equally important, preventive enforcement means having an imagi-
native and resourceful intelligence capability as well. The Compliance
Division has none of these.
The official pronouncements of the Commerce Department reports
to Congress and congressional testimony are sharply different from
the views expressed by experienced law enforcement personnel who are
familiar with the operations of the Compliance Division.
One special agent currently employed in the Compliance Division
had served for more than 20 years as an Army criminal investigator
and has well established credentials as an agent. He said the Com-
pliance Division is totally ineffective in preventing dual-use tech-
nology from being shipped to the Soviet Union. He said the Kremlin's
spy organization, the KGB, could not have organized the Compliance
Division in a way more beneficial to Soviet interests. This agent's view
was not contradicted by persons in the law enforcement and national
security field. Unfortunately, it was virtually impossible to persuade
these persons to speak for attribution.
Senator NUNN. Why is it you have a department that seemingly does
not have the personnel, has been given a vary large mandate, an ad-
ministration that is very concerned about this problem and yet they
do not seem to be willing to admit they have a problem ?
Mr. ASSELIN. They won't admit it and it's the worst kept secret in
the executive branch.
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Everybody knows the inadequacies of the Compliance Division, yet
no one will come forward and tell the Congress and speak for attribu-
tion in this regard.
As I note later on. we asked the preeminent law enforcement orga-
nization in the United States, the FBI, to please help us evaluate this
organization. The FBI refused. As recently as last night we asked the
Justice Department to please assist us in evaluating this organization.
The Justice Department refused. They even insisted on not even being
asked the question in open session. I 'don't know why, to answer your
question.
The result of this reluctance to criticize constructively the Com-
pliance Division in public session leads to the current situation in
which the only evaluation the Congress hears is from the Commerce
Department, which houses the Division and which is less likely to make
a candid and forthright evaluation of the shortcomings of one of its
own components. For that reason it seemed important the minority
staff that Congress be informed of the widespread dissatisfaction that
exists in the executive branch concerning the Compliance Division
and the principal reasons for that dissatisfaction.
The Department of Commerce has as its major focus the promotion
of domestic and international trade. It is the finding of the minority
staff, based on interviews with officials of the Department and other
agencies, that Commerce is not comfortable with the task of limiting
the sale of anything, whether it is dual-use technology or some other
commodity.
The Commerce Department has devoted insufficient resources to the
Compliance Division. In 1961, for example, the intelligence branch of
the Division had six or seven professional analysts. Today-15 years
later?the intelligence branch has two analysts and one detailee from
another agency.
The Department of Commerce, therefore, has reduced its commit-
ment of resources in the intelligence field at the very time when the
problem of technology diversions has become more pressing for the
country.
Senator NuisTN. The Reagan administration and high levels of gov-
ernment are complaining about this problem and saying they are going
to really begin to restrict it. Doesn't it seem to be a paradox that the
agencies responsible for carrying it out are not able to tell the top peo-
ple in the Government, including the congressional committees that
they have a major problem when the President, their executive branch
leader, is apparently very concerned about this problem, very inter-
ested in trying to do something about it
Mr. ASSELIN. Yes, I agree with that and, as I will note later on in
the testimony, this has real consequences when a President thinks he
has the capability, as we will see on the grain embargo section of this
presentation.
The highest leaders of our Nation are led to believe we have an
export control capability when, in fact, we don't ard they make policy
based on a mistaken premise we have the capability, yet we don't
have the capability. I will get to that in a moment.
The minority staff is not the only entity that has questioned the
depth of the Commerce Department's commitment to regulating tech-
nology transfers. In introducing legislation to create an Office of
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Strategic Trade, Senator Garn said the Commerce Department can be
criticized for its work as "lead" agency in combating diversions. Sena-
tor Garn said the Commerce Department has shown itself to be pre-
occupied with the goal of more and more trade with the Soviets to such
an extent that the Department has become blind to national security
considerations stemming from the sale of certain kinds of high tech-
nology data and machinery.
The result of the Commerce Department's inadequacies in control-
ling diversions has been a historic erosion in American technological
preeminence, Senator Garn said.
The Commerce Department has limited tradition and limited ex-
pertise in traditional law enforcement. Yet the Compliance Division
is perceived and described by the Department as being a law enforce-
ment organization. Its personnel include special agents, whose titles
alone suggest law enforcement assignments. The special agents are
classified as series 1811 Federal criminal investigators.
The Compliance Division asserts its "lead" role in enforcing export
controls for the entire Government. The Division undertakes exercises
requiring specialized law enforcement skills and capabilities such as
the conduct of surveillances of suspected export controls violators.
But, because of its lack of tradition and expertise in law enforce-
ment, the Commerce Department does not require that its special
agents meet established standards of formal training. "On-the-job"
training is common at the Commerce Department; yet there is no re-
quirement that newcomers to the investigative ranks undergo formal
training in the enforcement of export controls or in the most funda-
metal aspects of police work.
The Agent's Manual is a basic instructional document in most law
enforcement organizations. Each agent is given a copy of the Agent's
Manual and is expected to study it and be fully and currently
informed about it.
The Agent's Manual describes proper procedures for the agent in
every aspect of his professional life?on points ranging from proper
dress to the opening and closing of cases to the writing of reports
of investigation.
We asked for a copy of the Compliance Division's Agent's Manual.
Its status is not clear. We asked the Acting Director of the Division if
we could see it. He gave us a bulky, loose-leaf binder arid explained
that it was the only such document in the building. We did not think
that it was suitable for distribution to and retention by his Special
Agents for frequent referral and updating; he concurred.
Another executive of the Division, asked if there was an Agent's
Manual, described it as "a semblance of an Agent's Manual."
The absence of a comprehensive, compact and readily available
Agent's Manual is reflective of a procedurally uncertain law enforce-
ment environment in the Compliance Division.
Executives in the Compliance Division have had insufficient law
enforcement background and training to be supervising investigators
on how to proceed in their inquiries.
The Director of the Compliance Division from 1963 to 1979 was a
former Customs Appraiser in Chicago with limited experience and
limited formal training in law enforcement before he got the job.
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He told the minority staff that he did not believe experience or formal
training were required for law enforcement work.
He was replaced in the Office of Director of the Compliance Divi-
sion by a person who also had limited traditional law enforcement
experience.
At this time, the position of Director of the Division is formally
vacant. It is being filled on a part-time basis by William Skidmore,
whose permanent position is Director of Anti-Boycott Compliance.
Mr. Skidmore has limited traditional law enforcement experience.
The former Director of the Compliance Division told the minority
staff that on several occasions from 1979 through the first quarter of
1982, she recommended to senior officers of the Commerce Department
that steps be taken to increase the effectiveness and numerical strength
of the Division. The Department rejected many of her recommenda-
tions, she said.
Compliance Division inspectors have limited resources at airports
and seaports to detect the export of controlled high technology com-
modities. The chief of the facilitation branch told the subcommittee
staff that the number of inspectors?five or six?was insufficient.
Compliance Division inspectors are not authorized to search and
seize suspected cargo. They must rely on U.S. Customs service person-
nel. Similarly, unlike Customs agents and inspectors who have kindred
and formalized working relationships with Customs employees
throughout many parts of the world, Commerce inspectors have no
counterparts on any foreign soil.
Compliance Division Special Agents working in the investigations
branch are not required to have any formal training in investigative
techniques, law enforcement or the Export Administration Act.
The approximately eight professional members?the Special
Agents?of the investigations branch have varying degrees of law en-
forcement background. Some have extensive law enforcement back-
ground. That would number about three of them. Others have limited
background in law enforcement. One Special Agent's previous job ex-
perience was secretarial.
Most of the investigative work of the investigations branch is done
in the office. Agents are expected to conduct inquiry on the telephone
and by mail. The most frequent response to allegations of violations of
the Export Administration Act is to send the alleged violator a letter
of warning.
The subcommittee staff tried to find out the size of the branch's back-
log. That was not possible. The chief of the investigations branch
said he was not sure how large it was. The previous Director of the
Division said the backlog was possibly as large as 300 or 400. The new
acting director said he thought it was about 200 cases.
The staff inquiry concluded that a backlog of 200, 300 or 400 cases
with an investigative staff of 8 agents seemed to be inordinately
large. So many cases hanging over a relatively small investigative staff
could create pressure on Special Agents to close cases without sufficient
inouiry.
The intelligence branch also has a significant backlog of unfinished
business. The chief of the intelligence branch said he had a backlog of
about 600 cases. He said that by the end of the calendar year, he could
have a backlog of 1,000 cases.
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He told the minority staff that he did not believe experience or formal
training were required for law enforcement work.
He was replaced in the Office of Director of the Compliance Divi-
sion by a person who also had limited traditional law enforcement
experience.
At this time, the position of Director of the Division is formally
vacant. It is being filled on a part-time basis by William Skidmore,
whose permanent position is Director of Anti-Boycott Compliance.
Mr. Skidmore has limited traditional law enforcement experience.
The former Director of the Compliance Division told the minority
staff that on several occasions from 1979 through the first quarter of
1982, she recommended to senior officers of the Commerce Department
that steps be taken to increase the effectiveness and numerical strength
of the Division. The Department rejected many of her recommenda-
tions, she said.
Compliance Division inspectors have limited resources at airports
and seaports to detect the export of controlled high technology com-
modities. The chief of the facilitation branch told the subcommittee
staff that the number of inspectors?five or six?was insufficient.
Compliance Division inspectors are not authorized to search and
seize suspected cargo. They must rely on U.S. Customs service person-
nel. Similarly, unlike Customs agents and inspectors who have kindred
and formalized working relationships with Customs employees
throughout many parts of the world, Commerce inspectors have no
counterparts on any foreign soil.
Compliance Division Special Agents working in the investigations
branch are not required to have any formal training in investigative
techniques, law enforcement or the Export Administration Act.
The approximately eight professional members?the Special
Agents?of the investigations branch have varying degrees of law en-
forcement background. Some have extensive law enforcement back-
ground. That would number about three of them. Others have limited
background in law enforcement. One Special Agent's previous job ex-
perience was secretarial.
Most of the investigative work of the investigations branch is done
in the office. Agents are expected to conduct inquiry on the telephone
and by mail. The most frequent response to allegations of violations of
the Export Administration Act is to send the alleged violator a letter
of warning.
The subcommittee staff tried to find out the size of the branch's back-
log. That was not possible. The chief of the investigations branch
said he was not sure how large it was. The previous Director of the
Division said the backlog was possibly as large as 300 or 400. The new
acting director said he thought it was about 200 cases.
The staff inquiry concluded that a backlog of 200, 300 or 400 cases
with an investigative staff of 8 agents seemed to be inordinately
large. So many cases hanging over a relatively small investigative staff
could create pressure on Special Agents to close cases without sufficient
inouiry.
The intelligence branch also has a significant backlog of unfinished
business. The chief of the intelligence branch said he had a backlog of
about 600 cases. He said that by the end of the calendar year, he could
have a backlog of 1,000 cases.
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The agent said that for the most part, the majority of his investiga-
tive work was from the office, as he relied on long distance telephone
calls, cables to American Embassies overseas and assistance from the
USDA and Customs.
Senator NUNN. You mean to testify that based on your investigation,
the grain embargo that resulted after the Soviets invaded Afghanistan
had one person in the Commerce Department checking on violations?
Mr. ASSELIN. Yes, sir.
Senator 1I7NN. Was any other agency responsible for checking on
violations?
Mr. ASSELIN. I spoke with the Agriculture Department official who
was chairman of the high level interagency group which monitored
the agricultural exports during the grain embargo. He said the group?
was formed early in 1980 when it became apparent that the Commerce
Department was committing insufficient resources to assembling infor-
mation about compliance and investigating allegations of violations.
He said it was his understanding that "one or two" persons were
representing the Commerce Department in this task and that he saw
that as a "terribly limited" dedication of personnel. He said informa-
tion assembled by the high level interagency group reflected a much
broader base than the Commerce Department could supply. He said,
however, that "the hard core business of proving violations"?that is,
the actual investigation?was the responsibility of the Commerce
Department.
He said members of the interagency group he chaired talked openly
of the unsatisfactory commitment of resources by the Commerce De-
partment. He said he recalled that the Commerce Department sent
representatives to the interagency group meetings whose security clear-
ances were not high enough to enable them to be there. He said in
certain instances the Commerce Department representative had to
wait outside the room until more sensitive issues were discussed.
Senator NUNN. So you have a major decision by the President of the
United States on a major foreign policy issue involving the United
States and the Soviet Union, involving all our allies, involving the
credibility of our foreign policy and economic policy around the
world and you have the Commerce Department assigning one indi-
vidual for enforcement purposes.
Mr. ASSELIN. That's right.
Senator NUNN. And that individual didn't have security clearance
high enough to even get in the room when they were talking about
high level classified information.
Mr. ASSELIN. He had a secret clearance.
Senator NUNN. He was not cleared for top secret information?
Mr. AssEu/sr. No. In fact, the first person Compliance sent over was
a Deputy Director of the Division. They refused to even let him in
the room until he got a higher clearance.
Senator NUNN. Who is they, the other people?
Mr. ASSELIN. The people at this high level group. The minority staff
inquiry found that the inadequate response of the Compliance Divi-
sion in enforcing the grain embargo demonstrates the serious govern-
ment operations problem in which the most senior officers of the
executive branch, from the President on down shape policy and pro-
mulgate directives on the mistaken premise that the affected agencies
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have the necessary means to turn the policy and directives into reality.
Senator NUNN. That really means that the grain embargo in effect
was a voluntary program and it was enforced virtually on the honor
system, was it not?
Mr. ASSELIN. To the extent it was enforced. I don't mean to suggest
there were not USDA and others monitoring, but they found no viola-
tions, no one was prosecuted, you had 100 percent compliance in a
sense with the grain embargo.
Senator NUNN. If they found a violation, if anybody found it, it
would have been up to the Commerce Department to investigate it and
they had one person to investigate the whole Nation.
Mr. ASSELIN. Yes; that is the point. And the Commerce Depart-
ment's commitment was so inadequate right from the very start that
that led USDA and others to take a more aggressive role because they
were unsatisfied with what Commerce was doing.
President Carter's grain embargo speech might have been received in
a different light had he also announced the Commerce Department
would assign one man--a GS-12 in the Compliance Division?to in-
vestigate alleged violations.
Senator NuNN. Did you find any evidence that the Agriculture De-
partment or the Commerce Department or anyone had informed Presi-
dent Carter that this was the degree of priority Commerce Department
was giving the grain embargo?
Mr. ASSELIN. I don't think Presidents are ever told things like that.
Senator NUNN. It's like President Reagan now, when he starts talk-
ing about the export of technical equipment that aids the Soviet Union,
nobody tells him that they have eight inspectors covering all the air-
ports and ports of the country in enforcing the Export Adminis-
tration Act; do they?
Mr. ASSELIN. This is precisely the point. The very existence of a
Compliance Division sounds as if somebody is there to do the work.
Senator NUNN. Would you say the Commerce Department is fair to
both Republican and Democratic Presidents, they treat them pretty
much alike?
Mr. ASSELIN. Yes; of course, this goes back about 30 years, that the
Compliance Division has been in operation. We have had Presidents of
both parties in that period.
Senator NcrNN. Of course, you had a great emphasis on it in the last
4 or 5 years. You had two Presidents who expected their major for&gn
policy decisions would be eminent; have you not?
Mr. ASSELIN. Yes; in fact, the grain embargo was a debated issue in
the last Presidential campaign. GAO found that the Soviet Union was
largely inconvenienced by the grain embargo. That would be about
the extent of it.
Senator NUNN. So really now today we do not have anyone in the
Government, any agents in the Government, who can tell us whether
the grain embargo was complied with by exporters or not.
Mr. ASSELIN. I think we had 100 percent compliance according to
the statistics.
Senator NUNN. But no one was exporting any grain they weren't
supposed to.
Mr. ASSELIN. According to the statistics, yes. The agent had 17 cases
he looked into. I think there may have been one or two letters of
warning.
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Perhaps the Commerce Department can fill us in on the extent of
the violations, but we found no criminal violations of the embargo.
A lack of close cooperation existed between the Compliance Division
and the U.S. Customs Service. The result was that effective enforce-
ment was reduced.
In Customs and in other offices of the executive branch?both in law
enforcement and in national security affairs?there is an unwillingness
to say anything critical in public about the effectiveness of the Com-
pliance Division. The reluctance to criticize the Compliance Division
exists amid a widespread sense throughout affected areas of Govern-
ment that the investigative capabilities of the Compliance Division
are inadequate.
The failure not to criticize the Commerce Department ignores the
fact that because of the inadequacies of the Compliance Division sig-
nificant amounts of dual-use technology that contribute to Soviet mili-
tary strength are being shipped to the Soviet bloc.
The minority staff should not be the only entity to make an evalua-
tion of the effectiveness of the Compliance Division. It was our hope
that other law enforcement organizations would come forward and
critique the Division in a constructive and professional manner. In this
pursuit, we were met with resistance. Working agents and senior offi-
cials alike would be candid, while insisting on their anonymity.
As I said, we asked the FBI to help us, they are the preeminent
law enforcement organization in the United States, their views would
be most helpful. The Bureau refused. they even insisted on the ques-
tion not being asked in open session. They said for the Justice De-
partment to answer it. So we asked the Justice Department, "Will you
evaluate these people for us?" "No; it's not for us." That is as recently
as last night, Senator. So there you are, we are stuck with it. We
welcome the opportunity. But the professionals in the field should be
asked to make a contribution, too.
Senator NuNN. So the attitude generally is what the President of
the United States doesn't know about the inability of his Commerce
Department to carry out his own policy doesn't hurt him, right?
What the Congress doesn't know doesn't hurt them.
Mr. ASSELIN. That is a fair surmise, yes, sir,
The subcommittee staff did obtain a:copy of a memorandum writ-
ten by a senior Customs Service officials who was critical of the Com-
pliance Division's procedures. The memorandum. written by William
Green, Deputy Assistant Commissioner in the Office of Border Opera-
tions, was critical of the Commerce Department on several points, in-
cluding alleged lack of trained personnel and an alle,ted counterpro-
ductive determination to involve itself in customs work overseas.
The many shortcomings of the Compliance Division as a law en-
forcement organization are apparent in the investigation of a syndi-
cate of businesses, known as the CTC group. owned, controlled, or
utilized by a West German named Werner J. Bruchhansen. Mr. Chair-
man, I have prepared a summary of the CTC ease which was drawn
from information provided the minority staff by Commerce Depart-
ment agents, Customs Service agents, the Department of Justice, and
other sources.
It is rather lengthy. I request that it be printed in the hearing
record as if read and that I be allowed to give a brief description of
what occurred in the CTC case.
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Senator NUNN. Without objection, it will be printed as if read.1
Mr. ASSELIN. From 1977 to 1980, the CTC network of companies
in the United States and Western Europe bought dual-use technology
under false pretenses in the United States and then exported it to the
Soviet Union and Warsaw Pact. As has been shown in yesterday's
testimony by Dr. Lara Baker, the CTC syndicate of companies was not
buying up high technology equipment at random. They had been given
a precise shopping list by the Soviets. As Dr. Baker pointed out, the
equipment the CTC syndicate bought was for the specific purpose of
building and equipping a semiconductor plant in the Soviet Union.
Testimony will show that as early as 1975 such a semiconductor plant
had been built in the U.S.S.R. and the Soviets were in the process of
equipping it with American-made machinery.
The existence of the CTC network of companies was first brought to
the attention of the authorities in 1977 and 1978 when two anonymous
letters were received at the American Consulate in Dusseldorf. The
State Department translated the letters into English and referred
them to the Compliance Division in Commerce. The letters were re-
ceived by the Compliance Division in 1978 and insufficient effort was
made to investigate the allegations.
After receipt of the letters, two U.S. producers of dual-use tech-
nology reported to the Commerce Department that they were suspici-
ous of the CTC companies. Insufficient inquiry was conducted in re-
sponse to the first letter.
A Commerce Department special agent did interview CTC's prin-
cipal executive in Los Angeles, a naturalized Russian-born American
citizen named Anatoli Maluta, also known as Tony Mainta and Tony
Metz. Maluta told the special agent from Compliance that he did not
know anything about export controls, or the need to have validated
export licenses to ship certain controlled commodities. But, Maluta
said, because of the agent's interest, he was canceling the suspicious
order.
No further investigation of the CTC network was conducted until
a second letter arrived at the Compliance Division, this time from
another high-technology producer who also voiced suspicions about
the CTC companies.
'Early in 1980, a second Compliance Division agent, Robert Rice,
was assigned to the case and conducted the kind of comprehensive
preliminary inquiry that was called for. Rice, the most senior agent in
the Division, came upon considerable information indicating wide-
spread violations of export controls.
He presented the evidence to the Office of the U.S. attorney in Los
Angeles in March 1980. A major inquiry was begun by the U.S. attor-
ney's office, under the direction of Assistant U.S. Attorney Theodore
W. Wu and the U.S. Customs Service. Customs ultimately assigned
about 15 agents to the case in California, Texas, New 'York, and
Western Europe.
Compliance Division Special Agent Rice was the only Commerce
Department representative assigned to the case on a regular basis.
Indictments were brought against Bruchhausen and Dietmar
Ulrichshofer, both of whom remained in Europe and are fugitives
I See p. 390 for the summary prepared by Fred Asselin on the CTC case.
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from American justice, and two Los Angeles accomplices?Maluta
and Sabina Dorn Tittel. Maluta and Tittel both were convicted.
The CTC case demonstrated technology diversions of about $10
million and is considered by law enforcement and national security
specialists to be one of the most important export control cases ever
brought to trial.
The inquiry showed that:
First, the Compliance Division did not move quickly to establish
the value of the anonymous letters.
Second, the Compliance Division did not connect the anonymous
letters to the allegations that were reported by two U.S.
manufacturers.
Third, when Compliance Division Agent Rice turned over the
results of his inquiry to Assistant U.S. Attorney Wu in Los Angeles,
it was apparent to Wu that considerable expenditures of resources
would be needed. Trained investigators would be required to conduct
interviews, evaluate shipping documents, surveil suspected violators,
and carry out other aspects of a traditional law enforcement full-scale,
full field investigation.
Commerce's contribution to that effort was Agent Rice, a competent
investigator in whom Wu had confidence. But he needed more than
one agent. He enlisted the assistance of the Customs Service. Later
assistance was provided by trained criminal investigators from the
IRS.
Senator Numv. So the individual Commerce had working on this
was according to all the opinions, a competent, good investigator?
ASSELTN. Yes; according to all reports he is one of their best,
if not the best.
Senator Nuisrx. What is his name?
Mr. ASSELIN. Robert Rice.
Fourth, at an early point in the inquiry it was necessary to seize
shipments. Commerce had neither the authority nor the manpower
to seize shinments, Customs did it.
Fifth, at another point in the inquiry it was necessary to search the
premises of CTC companies and the quarters of certain of its em-
ployees in the United States and Europe. The Compliance Division
had insufficient resources to implement simultaneous search warrants.
The Compliance Division had no law enforcement capabilities in
Western Europe to work with German customs in coordinating the
searches abroad. Customs executed the warrants in the United States
and, through its agreements with West German customs, arranged for
the execution of the warrants in Germany.
Sixth, to substitute sand for one of OTC's shipments to Moscow, a
sizable expenditure of funds was needed. The Compliance Division
balked at the shipment substitution strategy and refused to pay the
cost of recrating the sand and airfreight. Customs officials approved of
the substitution and agreed to pay the cost.
Seventh, extensive overseas coordination, in addition to the search
warrants was called for with West German Customs and other
foreign Officers. Commerce Department's Compliance Division had no
overseas law enforcement contacts. U.S. Customs' contacts were used.
Eighth, extensive surveillance was necessary. Armed Customs
agents and armed Internal Revenue Service criminal investigators
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and an unarmed Compliance Division Special Agent Rice provided
it. Two suspects under surveillance had firearms in the back seat of
their car. The firearms were not used. But it was an important law
enforcement advantage for the agents on surveillance to be armed
as well.
Ninth, experienced supervisors with law enforcement background
and training were needed to direct the inquiry in the field. The Office
of the U.S. Attorney for the Central District of California, working
with supervisorial personnel in the Customs Service, provided the
needed direction. Contact with supervisorial personnel in the Com-
pliance Division' who remained in Washington, was made on the
telephone and the persons who worked on the case in California did
not consider such communication to be satisfactory.
Tenth, When the appropriate time came to apprehend Anatoli
Maluta and Sabina Dorn Tittle, IRS agents made the arrests. Customs
agents, like the trained IRS criminal investigators, are authorized to
make arrests. Even had the Compliance Division dispatched sufficient
numbers of agents to assist in the inquiry, they could not have
arrested the suspects.
The CTC case does not qualify as a Commerce Department investi-
gation. Customs Service agents did most of the work; and executive
supervision was provided by Assistant U.S. Attorney Theodore Wu
and Kenneth Ingleby, the Chief of the Customs Service Investiga-
tions Office in San Pedro.
In participating in the inquiry on a full-time basis and in conduct-
ing himself in a competent, professional manner, Compliance Division
Special Agent Robert Rice was handicapped in not being able to do
the things Customs agents can do routinely?search and seize suspi-
cious freight, make arrests, and carry a weapon.
Capable and resourceful as he was, Rice cannot be considered to
have been essential to the CTC inquiry. It could have succeeded with-
out him. It could never have succeeded without the Customs Service.
Customs contributed necessary manpower and fundamental law
enforcement tools. Commerce's contribution was Robert Rice.
After the CTC case was brought to Wu, the Compliance Division
played no essential role in the inquiry. That recognition leads to the
minority staff's final finding, which is that the Commerce Department
should not have the enforcement function under the Export Adminis-
tration Act.
It is the finding of the minority staff that the national security im-
plications of enforcement of the Export Administraticn Act are too
important to be entrusted any longer to the Commerce Department as
presently organized.
For three decades the enforcement function has resided in the Com-
merce Department?through administrations controlled by Democrats
and Republicans.
Three decades is sufficient time to allow reasonably capable officials
to perfect the most challenging task. But serious procedural and oper-
ational problems still exist in the Compliance Division. We find the
conclusion inescapable, therefore, that effective enforcement of the
Export Administration Act is beyond the institutional capabilities of
the Commerce Department. Moreover, from a Government operations
and executive organizational standpoint, the mere existence of the
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Compliance Division is an impediment to efficient and effective en-
forcement cf the act.
[At this point Senator Cohen entered the hearing room.]
Mr. ASSELIN. Understaffed, flagrantly short of resources, the Divi-
sion cannot do the job effectively; but, by its presence, prevents other
components of Government from taking on the task.
It is our view that two solutions?one short term, one long range?
are available.
Immediate relief could be found if the Compliance Division were
abolished and all its functions placed in Customs. This action would
insure that competent, professional agents, trained in formal, tradi-
tional law enforcement procedures, would be assigned to investigate
alleged violations of the EAA ; that they would work under the super-
vision of executives who also would have formal, traditional law en-
forcement backgrounds; and, perhaps most important of all, the entire
function would exist in a Cabinet-level Department with lcng-time
experience in and commitment to traditional law enforcement. It is the
staff's recommendation that subcommittee members consider that con-
cept as an immediate solution as these hearings proceed.
In addition, in terms of longer range considerations, it is our recom-
mendation that subcommittee members consider the proposal put
forward by Senator Garn to create an independent Office of Strategic
Trade that, in summary, would absorb the Commerce Department's
Office of Export Administration and its components.
Mr. Chairman, that concludes my portion of the staff presentation.
I have a series of 27 documents I request be received as exhibits. They
start with exhibit 2. I request exhibit 10 be printed in the record.
Senator NuNN. Without objection.
[The documents referred to were marked "Exhibits 2 through 28,"
for reference, and may be found in the files of the subcommittee. Ex-
hibit 10, as requested, follows:]
EXHIBIT 10
DEPARTMENT OF THE TREASURY,
U.S. CUSTOMS SERVICE,
October 30, 1980.
MEMORANDUM
To: Robert L. Keuch. Associate Deputy Attorney General, Chairman, Inter'
Agency Working Group on Export Control.
From: Deputy Assistant Commissioner, Office of Border Operations.
Subject: Response to Request for Assessment of the Inter-Agency Working Group
on Export Control (WGCE) Subcommittees' Reports.
In your memorandum dated October 10, 1980. you requested the various WGCE
members to comment on the four subcommittee reports which were attached.
Given below are my comments, together with some general remarks on particular
export control matters which you may wish to consider.
Concerning the subcommittee reports. I have no comments concerning the
Intelligence Coordination and Prosecutive subcommittee's reports; except to
say that I believe they fairly portray the present situation. I am in agreement
with the conclusion and recommendations. The Administrative and Regulatory
Procedures subcommittee report also. I believe, fairly portrays the current situ-
ation and I support their recommendations. I would, however, like to add two
further recommendations. I recommend that a review of the present Arms
Export Control Act of 1976 be made with the view in mind of recommending an
increase in the penalty provisions and secondly, an addition to the Act empow-
ering Customs officers to make warrantless arrests for export violations.
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The present statute provides for a maximum penalty of $100,000 and/or 2 years'
imprisonment. Since most of the more sophisticated investigations involve viola-
tors who are major corporations, agents of unfriendly foreign powers, inter-
national munitions brokers, or members of revolutionary/terrorist groups, the
maximum penalty is far too lenient to match the possible severity of the crime.
For example, a member of a terrorist group who exports explosives to his com-
patriots is only subject to 2 years' imprisonment, even though the explosive could
cause loss of life and bring about dire political consequences.
Addressing the question of warrantless arrests for export violations, at the
present time Customs officers do not have Federal warrantless arrest authority
for export violations but must depend on the various state citizens arrest statutes.
Fortunately, there is judicial precedence for these warrantless arrests (citizen
arrests) for export violations. However, if the authority existed by statute, it
would eliminate suppression hearings and result in a savings of time in connec-
tion with prosecutions involving warrantless arrests by Customs agents.
It should be noted that both of the above points were discussed in the Ad Hoc
(0'Mally) Committee final report and it was recommended that appropriate
lobbying for legislative action should take place.
Concerning the final report prepared by the Law Enforcement Coordination
Subcommittee, I again find that generally the report fairly portrays the existing
situation. There are, however, several observations I would like to make concern-
ing the current enforcement program of the Export Administration Act of 1979.
Throughout the report reference is made to the lack of present-day coordina-
tion and the need to improve same. What is particularly significant is Com-
merce's (CEA/CD) continued action to impede cooperation in investigations
even while it states that it wishes to fully participate in all cooperative ventures.
Commerce continues to take unilateral and uncoordinated action concerning
either joint or Customs initiated investigations by requesting foreign inquiries
through various U.S. embassies and consulates without consulting with either
Customs Attaches or Headquarters. Such action is causing serious problems.
These problems are not limited to hampering instant investigations, but also the
compromising of U.S. Customs and foreign government sources, damaging the
previously close and long relationships between U.S. Customs and their foreign
counterparts, and directly impacting on national security.
These unilateral actions taken by Commerce are not limited to investigations
initiated solely by Commerce and being worked only by them; but more impor-
tantly, include investigations initiated by Customs and now being either jointly
worked by both agencies, or by Customs alone. What is particularly significant
is that these unilateral actions have taken place while the Law Enforcement
Coordination Subcommittee deliberated and even after the final report was pre-
pared. Attached as an appendix are representative examples of Commerce's
action.
While Customs acknowledges that, under the Export Administration Act of
1979, OEN/CD is the agency primarily responsible for administration and en-
forcement of the Act, 0EA/CD is not at this time adequately staffed to enforce
the Act. CEA/CD has stated that it is planning to establish foreign offices, to-
gether with adequate staffs, and assume those duties related to export control
enforcement which the EDO's and Customs Attaches now perform. Once again,
OEA/CD is not adequately staffed to assume these duties and does not have ex-
perience concerning the conduct of investigations abroad. OBA/CD is also at a
distinct disadvantage in that they have no foreign counterparts with whom they
can relate and/or work. They will not have access to Customs mutual assistance
agreements on which they can rely to gain access to investigative data and/or
other desirable information. nor is it anticipated they will be able to establish
such agreements. The U.S. Customs Service is in a much better position to con-
duct export control investigations and inquiries abroad because we do have for-
eign counterparts with whom we work and relate: we do have formal and in-
formal agreements with our foreign counterparts; we have established foreign
offices with a staff of experienced investigators and have conducted export con-
trol investigations and inquiries abroad since at least before 1900.
Finally. Customs has maintained a neutral position over the past 2 years on
the question of who should assume primacy in the export control enforcement
field. It was Customs position that should they state they could do the job better
than another agency, the deliberations between the various agencies may de-
generate. However, neither Customs nor Treasury ever stated they would be
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unwilling to assume additional duties in the export control enforcement area.
In fact, Deputy Secretary of Treasury Carswell, in a memorandum to Mr.
Brzezinski on February 8, 1980, in response to the Ad Hoc NSC Technology
Transfer Group, states ". . . Ideally, a single agency should have all the respon-
sibility and resources for administering the Export Administration Act, includ-
ing strong enforcement of its criminal provisions. Under current law, this would
be the Commerce Department. If, however, the United States desires to intensify
and improve criminal enforcement of this statute, then it must look to an agency
with worldwide posts and substantial criminal investigative resources already
established. Customs has these capabilities. It has offices with investigators in
eight major foreign cities; it has experience in performing this function for the
State Department under the Arms Export Control Act; and it has a widely
dispersed group of agents in the United States For these reasons, transferring
the criminal enforcement functions under the Act to Customs is the most realistic
alternative if we want to enhance performance in this area, at least as it relates
to high technology exports. . . ."
Before any final recommendation is submitted to policy bodies, such as the
NSO, concerning who should do what in the field of export control enforcement,
I would like to offer several points for thought:
1. Is Commerce (OEA/CD) really equipped today or will they be in the
future if they receive their requested additional slots, to conduct sophisticated
investigations involving critical technology transfer? Are their investigators
trained and as experienced as Customs special agents? Perhaps more important,
how long will it take to train them to bring them up to the level that now exists
at Customs?
2. Does Commerce contemplate asking for legislative authority to give them
powers to arrest, to execute search warrants, to make seizures, and to conduct
Customs searches? As you are aware, they do not have such powers now and
must rely on Customs.
3. Does Commerce anticipate opening offices in most major cities, which Cus-
toms has presently established, so they can quickly respond to matters ccncerning
export control?
4. Would it not be wiser and would it not be more efficient for government
operation, to transfer the enforcement functions of the Export Control Act of
1979 solely to Customs, with the licensing and administrative provision remain-
ing with Commerce?
This is not a new concept to Customs as it already does the enforcement duties
for the Arms Export Control Act of 1976. State Department (Office of Munitions
Control) administers the Act.
The only answer is a single-agency concept for all export control enforce-
ment. While not faulting Commerce in its attempt to increase its enforcement
posture, it should be noted that Customs already has the necessary authority,
has a foreign presence that has been in place for at least 80 years, has over 60
domestic offices, has over 500 experienced criminal investigators, and has had
experience in export control matters since early in the history of our country.
Concerning additional resources, it has been stated that if Customs should
assume the entire export control enforcement program it would need approxi-
mately 25 additional slots. While this figure may change due to exigencies such
as workload, source development, and foreign liaison, it should be noted that any
new personnel gained because of the resource increase would not be initially
assigned sophisticated critical technology cases, but would be assigned to experi-
enced investigators. The new agents would take up the slack caused in lesser
areas of the Customs enforcement program.
WILLIAM GREEN.
Senator Nuisrisr. Does Senator Garn's bill, the Office of Strategic
Trade, set up a separate department for that or is it under an existing
department?
Mr. ASSELIN. As I understand it, sir, it would be comparable to
Office of Special Trade Representative. It would be independent. It
would not operate within an agency.
Senator NUNN. So what you are saying is, the Commerce Depart-
ment as the agency to carry out the enforcement of the Export Admin-
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istration Act has proved itself inadequate for the task over a long
period of time?
Mr. ASSELIN. Yes, sir. As will become apparent when we hear from
Commerce and others, they are now opening an office in Los Angeles
and an office in San Francisco, each of them to have six slots with
supervisors. So they are adding 12 or 13 personnel. That will help.
Tile same people who gave us the Compliance Di vision as presently
organized are the same people who are giving us the two offices in Los
Angeles and San Francisco. I think that is a cosmetic attempt to look
as if they are enlarging and expanding their capability when it is still
inadequate.
Senator NuNN. If Customs took this on, would they have to have a
whole new group of people or could the same people in Customs that
are working now with some organization also have this responsibility?
Mr. ASSELIN. According to the Green memorandum of 1980, that we
read into the record this morning, Customs would have to add 25
persons. They will have to add more than that. However, the capa-
bility is there. That is the point, the law enforcement capability. How-
ever, they have overseas people, they have trained investigators. 'rhe
cost will never be the same, will never equal the amount Commerce
SenatorNuNic. In other words, if Commerce were to do this job
right, they would have to add hundreds of people, they would have
to add administrative staff that knew about law enforcement, they
would have to have top people in the Commerce Department who were
trained for law enforcement which is not the case now. You are simply
saying the Customs agents and Customs Service can do it much more
effectively and sufficiently and utilize what they already have out
there now?
Mr. ASSELIN. Yes, sir, everywhere you have to put this enlarged
Commerce operation, Customs is already there. You would have to
put Commerce people overseas.
Senator NUNN. So Commerce would have to duplicate Customs
to?
Mr. ASSELIN. Almost in every instance. Where there is a Customs
man now, you would have to have Commerce. Why do you have two
agencies in the field even if they were doing a good job, when one
agency would suffice?
Senator NuNN. You are saying there are some good people in the
Commerce and Compliance Division that could be shifted over?
Mr. ASSELIN. Yes; that is certainly true and Rice is certainly one of
them. He would be a good contribution to customs.
Senator NuNN. Senator Cohen; we just had a complete staff state-
ment which is very explicit on the problems in the Commerce Depart-
ment in enforcing this act with a recommendation from the minority
staff the Compliance Division be abolished and put in the Customs
Service. Do you have any questions or observations?
Senator COHEN. What are the total number of inspectors we have
available now?
Mr. ASSELIN. In Commerce?
Senator COHEN, In Commerce.
Mr. ASSELIN. Five.
Senator COHEN. Five inspectors.
Senator NuNN. I think you ought to make a distinction now be-
cause there are three separate parts of the Compliance Division.
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Mr. ASSELIN. The Compliance Division has three entities in it. It has
an Inspections Branch which has five or six. It has an Investigations
Branch which has 8 to 11 persons and it has an Intelligence Branch
which seems to have 3 to 5. That is the extent of the professional en-
forcement capability of the Commerce Department.
Senator NUNN. Five or six of all their inspectors are in New York.
Mr. ASSELIN. At the JFK airport.
Senator Ntri.mr. The others they don't visit other ports?
Senator COHEN. How many exit points do we have in the United
States?
Mr. ASSELIN. I don't know, Senator. It is more than they could ever
handle with five.
Senator Cousiv. I understand. I am trying to draw it in its
dramatic?
Mr. ASSELIN. I don't know the answer to that.
Mr. FRY. The customs started a program called Exodus to enforce
violations of the Export Administration Act. It is my understanding
they have a minimum of 7 to 10 special agents at the 10 major ports
throughout the United States assigned to this type of operation. I am
not certain as to the number of inspectors but the inspectors are per-
manently located at these 10 major ports.
Senator COHEN. How many international airports, for example, do
we have?
Mr. ASSELIN. I don't know. I do know these figures: They say 50
percent of the traffic goes out of JFK, so it is not surprising they put
their principal focus at JFK. But they cover no other airport.
Senator NuNN. You have more international airports now than you
did. They are expanding. A lot of international flights go out of At-
lanta, out of Boston, they are out of Dulles, they are out of San Fran-
cisco, Los Angeles, and Chicago.
Senator Con-Eisr. Bangor.
Senator N-crmsr. Bangor is next on the list.
Mr. ASSELIN. There is a paragraph I deleted in shortening my
statement, if I may read it. The Acting Director of the Compliance
Division acknowledged to us there were problems in the operation of
the Division. He said the problems could be corrected but that such a
process takes time. Elaborating on this point, he said the Government
has slowly changed. He said the Compliance Division was organized
more than 30 years ago at the time when the challenge of export con-
trols is not as great as it is today. But he said as export controls became
more of an urgent problem to the United States in recent years, the
Compliance Division tended to remain about the same.
We asked the Acting Director if the Nation could afford to wait
while the Commerce Department and its Compliance Division adjusted
to the new challenges in export controls. He had no answer to that in-
quiry but he did say it was a valid question. So it is true, the problem
has risen and gotten much bigger but Commerce has not risen with the
problem.
Senator NtmTN. Senator Cohen, one other interesting thing I found
astounding when I first heard about it several months ago and I kept
asking the staff to check on it and check on it because I couldn't believe
it. Staff testified today that the Commerce Department, which was re-
sponsible for investigation of violations of President Carter's grain
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embargo, had one person working on that and it turns out there was
100 percent compliance with the grain embargo according to statistics.
If we could get that one guy over there in the Internal Revenue
Service, we could balance the budget.
Senator ConEN. Well, he may have had the same inflated reporting
system we have as far as projecting what the inflation is, I believe. Let
me just ask one other question since I don't know whether the staff
covered this in your presentation, are there any restrictions on what
can be labeled as protected under diplomatic pouch?
Mr. ASSELIN. Senator, we didn't get into that. I don't know the an-
swer to that.
Senator COHEN. It seems to me I have been seeing some reports
about how easy items can be shipped under the protection of diplo-
matic pouch. I just wonder if you had any information on that?
Mr. AssEinic. I don't know the answer, sir.
Senator COHEN. That is all.
Senator NUNN. Mr. Fry?
Mr. FRY. Mr. Chairman, my name is Glenn Fry, staff investigator
for the minority. I would like to summarize my statement if I could
but I would request the entire statement be entered into the hearing
record as if read.'
Senator NUNN. Without objection.
Mr. FRY. The Commerce Department's ineffective response to the
challenge of technology transfer is an illustrative example of the fail-
ure of the Government, in general, to organize itself effectively to
remedy this national security problem.
We have learned of the shortcomings in the Commerce Department's
efforts to investigate violations of the Export Administration Act
thereby causing a serious deficiency in its abiity to enforce the statute
and its regulations. The law enforcement effort, although critical, is
only a part of the overall effort to prevent the harmful flow of U.S.
technology. Even if the law enforcement operation were professionally
administered with sufficient resources, its effectiveness would continue
to suffer due in part to deficiencies within other executive branch
agencies.
The Commerce Department is mandated to administer and enforce
the Export Administration Act; however, matters concerning this act
which involve national security interests, require the consultation of
the Department of Defense, and the intelligence community as well as
Commerce. Ineffective control of the transfer of U.S. technology and
the enforcement of export laws will prevail if the Department of De-
fense and the intelligence community continue to provide less than
their best efforts to support this national security mission. Despite
several previous congressional investigations and hearings conducted
on these matters, dating back to 1974, the responsible executive branch
agencies continue to have difficulty in organizing an effective
operation.
Technology transfer can occur through the illegal export of con-
trolled or embargoed commodities; however, it can also occur with
See p. 426 for the prepared statement of Glenn W. Fry.
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equal damage, because of inadequate control and protection of critical
information and through ineffective handling of legiLimate export
licensing cases. The minority staff has made preliminary findings that
the technology transfer programs of the Department of Defense and
the Intelligence Community contain basic deficiencies which impair the
Government's overall effort to control the flow of critical American
technology.
The following are areas within the Defense Department's program
that demand attention and ultimate resolution if the Government
intends to control the flow of U.S. technology:
First, the Freedom of Information Act is a legal tactic available
to U.S. citizens, foreigners, and even Soviet surrogates to obtain
critical dual-use technology. Dual-use technology, which can be used
commercially and militarily, is not excluded from Freedom of In-
formation Act requests. There is no protection or means to control the
harmful transfer of technology that does not fall within the exclusions
prescribed by the Freedom of Information Act.
Second, there have been instances where classified information has
been prematurely declassified in accordance with an automatic declas-
sification schedule. In other instances, critical technologies which
have military significance are never classified. In either case, the end
result is that such information, although not readily distributed, be-
comes available to anyone.
The Department of Defense's Office of Research and Engineering
and International Security Policy are responsible for the review of
export licensing requests for national security interests. Presently,
Defense reviews predominantly those export cases involving the
Soviet Union or Warsaw Pact nations. There is very little review of
free world license requests except for cases involving very advanced
computer technology. The program presently administered within
the Department of Defense suffers from several fundamental
deficiencies.
First, on August 26, 1977, the Secretary of Defense issued an
interim policy statement for the export control of U.S. technology.
Today in 1982, there has yet to be any followup to this interim
policy. This is representative of the weak overall priority afforded
the technology transfer issue throughout Government. Sources within
Defense has indicated that there is ambiguity regarding which DOD
office has overall accountability for technology transfer decisions.
Second, the Office of Defense Research and Engineering does not
have an adequate number of permanent staff specialists to effectively
conduct its technology transfer mission. Temporary personnel have
been assigned to this office; however, there is an annual turnover.
Consequently, much valuable time and resources are continually used
to train and familiarize new personnel rather than attend to its
primary responsibilities.
Third, military and Department of Defense research laboratories
who are tasked by Defense Research and Engineering to review licens-
ing cases lack a charter delineating export control or techifology
transfer responsibilities. There is also no specific funding for this type
of operation. Consequently, technology transfer issues are not a prior-
ity and do not receive appropriate attention.
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Fourth, there is no adequate data base of information available
to all participants in the technology transfer program within our
Government. This deficiency is analogous to prosecutors working with-
out the benefit of a legal library. There has to be a centralized reposi-
tory of information that maintain available data relevant to the deci-
sions to grant exports.
Fifth, the Department of Defense does not review a sufficient num-
ber of free world export license cases. Exports to free world nations
many times are improperly or illegally reexported or diverted to East
bloc nations. This has been demonstrated by recent export violations
involving nations such as Switzerland and West Germany that were
used as conduits for the illegal reexport of high technology commod-
ities to the Soviet Union. The United States trades with many nations
such as India and Pakistan who have open trade policies with the
Soviet Union. To blindly export critical technologies to nations such
as those without the benefit of the DOD's review could run the risk
of having U.S. technologies end up in the Soviet Union.
Sixth, Defense Research and Engineering has not devoted sufficient
resources to the program which reviews foreign technical visitor pro-
grams. Defense Research and Engineering is responsible for determin-
ing militarily critical technology that requires export control. This
effort is being done in concert with U.S. industry. In this light, De-
fense Research and Engineering has devoted tremendous resources to
the development and understanding of new dual-use technologies;
however, there is not an adequate operation within D.R. & E. to assess
what areas visitors are concerned with and what technology is ob-
tained by these visitors. Therefore, due to this inadequate oversight,
Defense Research and Engineering has little control over the potential
loss of U.S. technology. Consequently, there is no way to assess what
critical technologies have been obtained by our adversaries thereby
making it virtually impossible for the intelligence community to
determine how the loss impacts on our national security.
The effective control of critical dual-use technology is largely
dependent on the proper gathering, dissemination, analysis, and use of
intelligence. It is the view of the minority staff that the Soviets, in
many cascs, are precise about what technology and equipment they
want from the United States. It follows then, that if the United States
can determine what the Soviets desire, where they are deficient, what
they need and what direction their technological efforts are aimed, we
are in an improved position to prevent them from obtaining our tech-
nology which may meet their needs.
At the very least the United States could create delays in the Soviets'
efforts which will impede their progress and maintain our lead time in
critical areas of technology. Testimony will be given which describes
the Soviets as having an enormous, systematic and organized effort to
obtain United States and other Western technology. The United
States, however, does not have a mechanism equal to the Soviets' task.
There has been no overall coordinated, systematic and organized pro-
gram in the United States to effectively prevent loss of our technology
to the Soviets.
Intelligence is the key to anticipating the technology on the Soviets'
"shopping list." U.S. law enforcement authorities can mount effective
enforcement strategy directed toward illegal exports when they are
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apprised of what the Soviets are looking for. Department of Defense
and Commerce representatives who review export licensing cases would
be in a better position to render proper decisions based on national
security interests if they had the most available intelligence. But, after
reviewing information obtained from law enforcement and technology
specialists in the executive branch, the minority staff has reached the
preliminary finding that the U.S. intelligence effort regarding export
controls is insufficient. Coordination among affected agencies is inade-
quate. Commitment of needed resources is lacking. The intelligence
community is not organized to use information to block prohibited
diversions.
Specifically, the minority staff found the following deficiencies
within the intelligence operations of the technology transfer control
effort:
First, the Export Administration Act mandated Commerce to deter-
mine the foreign availability of critical dual-use technologies. The
foreign availability of technologies is an important ingredient in the
decisionmaking process for granting or denying export licenses. How-
ever, authorities within the executive branch assert that current for-
eign availability determinations are not adequate.
Second, the intelligence community has not been utilized sufficiently
by either Commerce or the Department of Defense. Sources within the
intelligence community state that they have virtually no communica-
tion with Commerce's Compliance Division regarding ongoing inves-
tigations of export violations. One representative of the intelligence
community indicated that there is little feedback from Commerce
regarding the intelligence information it provides. The information is
submitted to Commerce's Office of Intelligence Operations and it is not
known whether it is disseminated to the Compliance Division or other
divisions as well. Conversely, the Compliance Division rarely seeks the
expertise of the intelligence community regarding investigations.
Moreover, once the intelligence apparatus is strengthened, then
methods should be devised that enable sensitive information to be sani-
tized and passed on to law enforcement personnel in a form that will
assist them. Several experienced law enforcement investigators pointed
out that frequently intelligence on technology transfers has such a
high classification that many agents working export controls cases
cannot set it.
Third, Defense Research and Engineering tasks the Defense In-
telligence Agency to conduct end user investigations. Essentially, De-
fense Intelligence Agency is to determine whether the end user of an
export is not a national security risk. Defense Intelligence Agency per-
forms this task as a support function to Defense Research and Engi-
neering?its license review procedures. Historically, DIA has been
utilized infrequently in this capacity. Within the last 18 months DIA
has been tasked more frequently; however, it does not have sufficient
resources to conduct end user determinations that are necessary.
Fourth, there is no mechanism or organized program which con-
ducts followup investigations of foreign exports or reexports of U.S.
technology. In fact, there is no adequate system to accurately deter-
mine what has been exported, reexported, where it is used, and how
it is used. There is no way to accurately determine the adverse impact
to the United States of that dual use technology that has been obtained
by our adversaries.
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Officials working in the technology field are troubled by the fact
that our Government has difficulty determining a current assessment
of the state-of-the-art of American technology. Given such a fact, the
difficulty in assessing what technology has been lost and its impact
on U.S. national security seems almost insolvable given the current
resources and policy.
In summary, the U.S. Government, at present, has no high level in-
teragency task force or entity comprised of senior Cabinet-level of-
ficials addressing the problem of export control and technology
transfer. All past and current efforts along this line have been done
by lower echelon Government officials who can merely make recom-
mendations rather than needed changes.
Senator NUNN. Thank you very much, Mr. Fry.
I want to thank you and Mr. Asselin for not only your testimony
this morning but your investigative efforts over a long period of time.
You have both done an excellent job. We appreciate it very much.
Senator Cohen, do you have any questions?
Senator COHEN. Just one question.
Has anything at all been done since we held the hearings on Sen-
ator Garn's bill on September 24, and 25, 1980? It seems to me, Mr.
Chairman, we are going over the same issues time and time again for
the past 3 or 4 years. We keep talking about it, but nobody does any-
thing about it.
Mr. FRY. Senator, that was our finding, that very little has been
done. They have made some efforts. The interim policy, to the credit of
theD i
epartmentof Defense, is the only policy n this area of export
control technology transfer put out by any executive agency.
However, it is still an interim policy.
Senator COHEN. Do you come to the conclusion that we ought to
create a separate office of strategic trade, an independent power such
as the Federal Reserve Board?
Mr. FRY. I think it is a viable alternative.
Senator COTTEN. Because the essence of that is, as far as Senator
Garn is concerned, that there is a tremendous bias within Commerce
to promote exports and sales. The State Department has its own diplo-
matic or political biases or preferences that it might seek to achieve
and then you have the responsibility of the Defense Department.
So, we have three major departments each having perhaps a differ-
ent objective. If you left it up to DOD, they may say don't export
anything.
If you left it up to the State Department to have the final decision,
they would say it depends on what we are trying to achieve in a period
of detente or no detente.
If you leave it up to the Commerce Department, then you would
promote the sales in order to invigorate our own domestic industry.
It seems to me that our whole process is caught in a crossfire between
these three separate departments with Congress sort of on the side-
lines having some interest, but only peripheral at best, in terms of be-
ing able to do anything about it. So, I would think, based on what I
have heard, Senator Nunn, that something ought to be done in terms
of consolidating the responsibility of the jurisdiction in one office that
can weigh the conflicting pressures that are inherent in our system.
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Frankly, this whole issue of dual use goes back to the Kama River
Plant, in terms of whether or not that sale should have been author-
ized. I am sure you can certify that practically any item that is subject
to classification under this act you can be excepted based upon foreign
availability. Given these problems, I would suggest that some initia-
tive ought to be taken to consolidate responsibilities into one office and
perhaps really enhance and increase the enforcement capability of
that office.
Senator NUNN. We need to look at the licensing function in a dif-
ferent vein from the enforcement. I think there is real merit in creat-
ing a strategic trade office and Mr. Asselin had the recommendation
that the Gain bill be considered. Is that what you recommended?
Mr. ASSELIN. We recommended that members of the subcommittee
certainly consider that. As a long-term solution, it is the best thing
we can think of.
Senator NuNN. But you also are saying, from the way I read your
conclusions, that we may very well want one group to do the licensing
and another group to do the enforcement. If Customs already is out
there in every port of exit in the United States, the question must be
asked of whether it makes sense to have anybody else out there en-
forcinfft' the law. Enforcement and licensing are two different func-
tions. Under the Arms Export Control Act, the State Department
does the licensing, Customs does the enforcing. It seems to me there
is a real case to be made for the approach like Senator Gam has, in
the case of the licensing and have the Customs agency do the enforce-
ment.
Does that make sense?
Mr. ASSELIN. Yes, sir. It was our recommendation that for the short
term, the problem is serious and requires immediate relief. It will take
some time if the Congress in its wisdom Wants to create the Office of
Strategic Trade.
In the short term, the problem is serious enough. That is why we
recommended for immediate relief that the Compliance Division be
abolished and the Customs have the enforcement function very similar
to what they have in the Arms Export Control Act.
Senator NUNN. But until something like a Garn bill passed, you
would recommend that the Commerce Department still do the licens-
ing? Somebody has got to do the licensing?
Mr. ASSELIN. Yes; that is the point. That will leave the licensing
in the Commerce for the time being.
Senator NUNN. Temporarily unless something like the Gam bill
passes?
Mr. ASSELIN. Yes; I don't think Customs wants the licensing func-
tion.
Senator NUNN. You are also implying congressional wisdom takes
time; right?
MT. ASSELIN. Yes, sir.
Senator NUNN. What is the day of the Gam hearings?
Senator COHEN. The days of the Garn hearings were September 24
and 25, 1980.
Mr. ASSELIN. I spoke with a member of Senator Garn's staff who
said the Senator was planning to reintroduce the bill sometime either
95-999 n _ P9 _ p
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just before our hearings or sometime after them. I don't know if he
has done it yet.
Senator Nurric. The problem is always whether you need to create
a new agency and the proliferation of agencies, you run into that
argument over and over again. The question is whether there is any
other logical thing to do.
Senator COHEN. The other issue you raised during those hearings,
as I recall, is that if we don't have a fundamental restructuring of the
classification system, a definition of exactly what we are about, it
doesn't make any difference if we create a new office. With all of the
same conflicting standards and rules and exceptions, you really have
not accomplished anything other than consolidating the mess all in
one place.
It seems to me we have got not only to have a new structure institu-
tionally but we have got to define classification.
Senator Nunn, you mentioned this yesterday how we classify items,
how we determine which ones will in fact be put on a list. Should
we have the Cocom list, for which historically the United States
has requested more than 50 percent, closer to 60 percent of all the
exceptions for Cocom.
So we can hardly expect our European allies to be following a
hard line and not exporting items of national security importance
to the Soviet Union and Warsaw Pact countries.
The other issue is, should we include all Warsaw Pact countries if
we are going to prohibit the sale and distribution to the Soviet
Union; does that not include by necessity putting a restriction on all
countries under the Soviet bloc?
Senator NUNN. I guess the other question that I would like to get
your opinion on here, Mr. Asselin, and Mr. Fry, what about putting
the export licensing function under the State Department? State
already has arms export licensing. In other words, put both licensing
functions in the same agency.
Mr. FRY. I don't want to address that.
Senator NUNN. Do you have any idea about that? If you don't
just say so.
Mr. ASSELIN. No; I would be against that. I think Commerce is the
proper place for the licensing function if the Department were prop-
erly organized. But we interviewed the present Acting Director of the
Compliance Division. He was formerly the Chief of the Office of Ex-
port Administration for 1 year. His name is William Skidmore. He
admitted that there were problems in the Compliance Division.
He acknowledged, yes; there are problems there but when he was
head of 0EA, he spent all his time trying to straighten out the licens-
ing section. Our staff didn't look into the licensing section. All we
looked into was the Compliance Division. We found that to be inade-
quate, to say the least. If he felt his real problems were in licensing and
he thought it was more important to straighten out licensing than it
was Compliance, then that gives you an idea what an inadequate oper-
ation licensing possibly may be.
Senator NUNN. Even under the best of circumstances as Senator
Cohen pointed out, licensing is always difficult because you have dif-
ferent views. I think the point that was made yesterday about having
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an assessment of what the Soviets are really after is the beginning
point.
It seems to me that your policy needs to be driven somewhat by that.
We are right now trying to review everything, instead of going down
the list to those items they really need in their technology. As the wit-
ness testified yesterday from Los Alamos, the technical capability to
really analyze what it is the Soviets need weuld be a good starting
point for aLy licensing procedure.
Mr. ASSELIN. Yes. Dr. Baker made quite a point of the fact that the
Commerce Department is very good in licensing to this extent. They
are very good at saying whether a particular piece of equipment needs
a validated export license. Where they are not very good, were they
are not very adequately trained is in the determination of what uses
that piece of equipment can be put to overseas in the hands of an ad-
versary. That is where the technical expertise falls short in Commerce.
That was his basis for his recommendation for that center of technical
expertise.
Senator COHEN. Along those lines, given the jurisdiction to the
State Department over arms sales, what would be done about ceramic
tiles, for example? Ceramic titles might seem fairly innocuous and
have a nice household use. The first witness yesterday, however, indi-
cated that very little if any technology that is transferred to the Soviet
Union ends up in the household. Ceramic tile is also important in terms
of the Epace shuttle.
To what extent could you put a prohibition?I see a gmtleman in the
audience shaking his head. But the fact of the matter is we have some
rather extensive improvements in the field of ceramic tiles which
Rockwell does in fact use for the space shuttle.
It is very difficult to classify that as being an item of strategic value
in the abstract. So I think it lends more support to what can in fact
be converted because almost any item that we export could be con-
verted to another use.
Senator N17NN. I certainly agree.
Whatever the situation is with licensing, you have concluded with-
out any doubt that compliance is beyond the Commerce Department
institutional capability?
Mr. ASSELIN. Yes; very definitely.
Senator NuNisr. Do you agree with that?
Mr. FRY. Absolutely.
Senator NUNN. Thank you both.
Our next witness is Dr. Jack Vorona, Director, Scientific and Tech-
nical Information, Defense Intelligence Agency, Department of
Defense.
Dr. Vorona, we appreciate your being here. We swear all of our
witnesses in.
Do you have anyone accompanying you?
Dr. VORONA. Alone.
Senator NuNN. Will you hold up your right hand?
Do you swear the testimony you will give before this subcommittee
will be the truth, the whole truth, and nothing but the truth, so help
you God?
Dr. VORONA. Yes, sir.
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TESTIMONY OF DR. SACK VORONA, DIRECTOR, SCIENTIFIC AND
TECHNICAL INFORMATION, D:EFENSE INTELLIGENCE AGENCY,
DEPARTMENT OF DEFEASE
Senator NUNN. Dr. Vorona,, why don't you go ahead?
Dr. VORONA. Thank you, Mr. Chairman.
I welcome this opportunity to talk to the issue of technology trans-
fer and its principal beneficiary, the Soviet Union. Because truth like
beauty is in the eyes of the beholder, I will say at the outset that my
views are conditioned by over 20 years in scientific and technical intelli-
gence, most of which time was devoted to assessing Soviet military
capabilities.
One of the basic tenets of my profession is never to mirror image?
unless, of course, all else fails. That is, one must refrain from a mind-
less attribution to others of capabilities developed and sought by the
United States. What is becoming more apparent, however, is the delib-
erate, massive, and longstanding effort by the U.S.S.R. to acquire
Western technologies for direct incorporation into their military and
defense-related industry.
It would appear they are hardly at all afflicted with the not-in-
vented-here syndrome, but, on the contrary actively seek out, acquire
and implement our developments to a degree, even today, not fully
appreciated.
If I were to characterize the Soviet effort to acquire U.S. technology,
I would say that it enjoys very high priority, is centrally directed,
specifically targeted, and employs every collection means imaginable.
All in all, a very comprehensive program.
Seen on this chart is the organizational structure of Soviet R. & D.
at the all-union level. 1 hose organizations marked in red are directly
involved in technology transfer.
[The chart referred to follows:]
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State
Construction
Committee
Communist
Party of the
Soviet Union
USSR
Council of
Ministers
State
Committee for
Science and
Technology
ORNT
State
Planning
Committee
GOSPLAN
USSR
Supreme
Soviet
,IMMININ=MMMM???????????111?0
State
Security
Committee
KGB
Higher
Attestation
Commission
State
Supply
Committee
Ministry of
Finance
Military-
Industrial
Commission
VPI(
Presidum of
USSR
Academy of
Sciences
State
Inventions
Committee
Ministry of
Defense
GRU
Defense
Industrial
Ministries
Civilian
Industrial
Ministries
USSR
Academy of
Sciences
USSR Ministry
of Higher and
Specialized
Secondary
Education
R&D Performer Organizations
Institutes
IResearch Higher Schools I Design Bureaus
Industrial Plants
ORGANIZATION STRUCTURE OF SOVIE; RaD
AT THE ALL-UNION LEVEL
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Niel'
II
III
IV
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Senator NuNN. What do you mean by "the all-union level"?
Mr. VORONA. At the national level, sir. You see that they reach the
highest political levels?a fact which underlines how importantly
Western technology is viewed from Soviet eyes.
I would like now to describe for you this program's basic modus
operandi. First comes their exploitation of the world's open scientific
literature. This involves tha annual acquisition and translation of about
35,000 publications from 125 different countries in 65 different lan-
guages?roughly 1.5 million articles. This massive effort clearly serves
as an excellent guide to the world's technical state-of-the-art, where it's
being done and by whom.
This data is at the disposal of the State Committee for Science and
Technology or GKNT---the organization responsible on the one hand
for ascertaining Soviet technological and industrial weaknesses, and
on the other, for their remedy. Thanks to the open literature, the
GKNT knows exactly where to go to overcome their deficiencies.
The open literature itself answers some of their needs; many others
are met by legal purchase. But they also invoke a wide variety of il-
legal maneuvers. These include evasion, diversion and the use of U.S.
chartered but Communist-owned firms to acquire material normally
denied them under export control laws.
Espionage is yet another tool--not only are the KGB and GRU
heavily involved in acquiring our technology, so are the intelligence
services of the pact nations, all centrally directed by the Soviet Union.
I would also mention the role of the Soviet Academy of Sciences in
this beautifully orchestrated effort to acquire critical U.S. and West-
ern technologies. There should be no doubt that this prestigious aca-
demic organization is a key and willing participant which, via such
mechanisms as scientific and student exchanges, contributes signifi-
cantly to the total take.
The Soviets in the post World War II period began a huge effort
to acquire the industrial and technological wherewithal to support
their military ambitions. For example, the impressive Soviet radar ca-
pabilities of today had, their genesis with World War II lend-lease
equipment sent them by the United States.
This along with the unclassified MIT radiation laboratory volume
on radar theory were the basic ingredients for the early generations of
Soviet radar design.
The Soviets are excellent radar theorists and have since added their
own refinements. I would note, however, that the acquisition of U.S.
microcircuitry very probably enabled them to package sophisticated
radar concepts into a weight and volume suitable for the militarily
critical airborne application.
I specifically refer to their look-down/shoot-down interceptor, the
modified Foxbat, whose entry into the Soviet inventory was no doubt
expedit ed thanks to acquisition of embargoed U.S. microelectronics.
Of course, we haven't begun to see the repercussions of the recent
espionage case involving Mr. Bell and the Polish Intelligence Service.
The classified data transmitted is no doubt right now being investi-
gated to further Soviet radar capabilities and countermeasure our
own.
Their initial chemical warfare capability came from Germany after
the war. They simply transported two nerve-agent factories from Ger-
many back to the Soviet Union.
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Their TU-1 bomber was a direct copy of our B-29. Their first jet
engine was from Rolls-Royce?the Nene?it powered their MIG-15
fighter.
The U.S.S.R. and East European family of general purpose com-
puters known as the RYAD series are based substantially on IBM
3ti0 and 370 computers that were illegally diverted into the U.S.S.R..
Their decision to emulate U.S. computer design eliminated the time
and risk associated with indigenous development.
It had the equally important effect of making available to them a
tremendous library of computer software that was RYAD compatible.
Since the early seventies, the Soviets and East Europeans have
legally purchased more than 3,000 microcomputers, some of which
are being used in military-related organizations. They are also pro-
ducing minicomputers that are direct copies of Western models.
Nuclear weapons design information clandestinely provided them
by Klaus Fuchs was undoubtedly a key ingredient in their achieving
workable weapon designs as early as they did. When the Soviets were
unable to produce the fissionable material, U-235, in the post World
War II period owing to inferior gaseous diffusion technology, they
brought in a German scientist, Peter Thiessen, who was able to rectify
their problem.
As a result, they were able to detonate their first 11-235 bearing
weapon years earlier than if left to their own devices.
These, and numerous other examples, we considered as but stop-gap
measures by the Soviets?until their burgeoning indigenous R. & D.
resources were able to pick up the slack. hat we are coming to rec-
ognize, however, is a continuing and deliberate program to acquire
Western technology which is integrated with or used in lieu of their
own.
The acquisition of Western technologies and developments is thus
a conscious Soviet policy which, in my estimation, has been extra-
ordinarily successful. They have derived significant military gains
from these acquisitions particularly in the areas of computers, micro-
electronics, signal processing, manufacturing, communications, guid-
ance, and navigation, structural materials, radars and sensors of
various types.
The extensive Soviet acquisition program has allowed them and
their allies to save untold hundreds of millions of dollars in R. & D.
costs alone and years in R. & D. development lead time, to reduce
engineering risks by copying proven western designs, and to develop
countermeasures to U.S. and western weapons, in some cases before
our weapons have been fielded.
Most of the technology of direct and immediate military conse-
quence has been clandestinely acquired by Soviet intelligence assets
and their East European surrogates. However, the bulk of their
acquisitions fall under the heading of dual use technologies, that is,
technology having both military and civilian applications.
Because of the primacy of Soviet defense industry over the civilian
sector, there is no doubt who will be the ultimate recipient, despite
Soviet assurances to the contrary. By purchasing these capabilities,
the Soviets are able to focus their own resources upon the strictly
military undertakings.
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For example, the Soviets recently bought two huge floating dry-
docks from the West which have already been put to use servicing
their Kiev-class aircraft carriers as well as nuclear submarines.
Senator NUNN. Were those bought from Japan?
Dr. VORONA. One was from Japan, sir, and one was from Sweden.
They are negotiating for others from those two countries.
Senator COHEN. I am sorry?
Dr. VORONA. They are negotiating for other drydocks from those
two countries.
Senator COHEN. I was under the impression that Japan had learned
the lesson about, on the one hand, complaining to the world that
they are concerned about the Soviet buildup off their shores and, on
the other, they have been providing them with the kind of assistance
that will allow them to have those ships off their shores.
Dr. VORONA. One of these 1,000-foot-long drydocks is in the North-
ern Fleet, one in the Pacific Fleet. There is no doubt they themselves
could have designed and constructed such a structure, but it would
have taken longer and used resources that could otherwise be devoted
to other needs.
However, despite their notable successes in acquiring Western tech-
nology, the Soviets for some time to come will be hard pressed to main-
tain their relative position to the West in the technical sophistication
of their weapons.
Therefore, they will continue to seek Western technology. The Soviet
Union will especially need equipment and technology for their elec-
tronics, aerospace, and shipbuilding industries. Future Soviet and
Warsaw Pact acquisition efforts are likely to concentrate on the sources
of such component and manufacturing technologies, including defense
contractors, general producers of military-related auxiliary manufac-
turing equipment, and small and medium size firms and research cen-
ters that develop advanced component technology and designs.
I believe this last category of small companies to be a specially en-
ticing target because it is where many of the emerging technologies are
first discovered. Because of their newness they have not yet been in-
corporated into military programs and are thus unclassified and
vulnerable.
In my estimation, the United States R. D. establishment is viewed
by the Soviets as a mother lode of important and very frequently,
openly available S. & T. information.
In fact, they tap into it so frequently that one must wonder if they
regard U.S. R. & D. as their own national asset. They have enjoyed
great success in this endeavor with minimal effort, primarily because,
as a nation, we lack the awareness of what they are about.
Senator NUNN: Let me ask you one question there.
Suppose we did have, let's say, reverse engineering on the Soviet
espionage, overt and covert efforts to acquire 'Western technology.
In other words, we had a group of scientific experts within the Gov-
ernment who sat down, looked at what we had, looked at what was
being developed, looked at what the Soviets had, their needs, spare
parts, so-called half life, things they have already gotten from us and
so forth and drew up a rather tight list of high priority items and sup-
pose the Government went out and, first of all, distributed those lists
within the. agencies and, second, went out on a periodic basis and dis-
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tributed those lists to the small businesses, the technical industries of
the country.
Don't you think that that in itself would alert a whole lot of Ameri-
can businesses who are basically honest and patriotic as to what kind
of technology would be most suitable to the Soviet Union?
Dr. VORONA. Yes. I certainly do. And, as a matter of fact, such an
effort is already underway.
As you are well aware, the Congress directed the Department of
Defense to develop a militarily critical technology list. This has been
done. I cannot say exactly when, but I suspect in the very near term it
will be distributed to people such as you just mentioned. This fist
should give them a (rood appreciation of what technologies are mili-
tarily critical to the '-'United States. Conversely, I would note that this
list also reflects what the Soviets are targeting.
Senator NUNN. Is that going to be a standing effort by the Depart-
ment of Defense to do this on a periodic basis to keep it updated or
is that a one-time effort?
Dr. VORONA. It will be periodically updated.
Senator NUNN. Does this include dual use technology or is it mili-
tary technology mainly?
Dr. VORONA. I believe it is primarily dual use technologies.
Senator NUNN. Dr. Baker from Los Alamos yesterday testified that
he thought it would be a good idea to put a permanent standing group
of 25 people at a cost of $4 million or $5 million a year in one of our
labs for highly technical evaluations that would do this on a continu-
ous basis.
Do you think that suggestion has merit?
Dr. VORONA. I would think that it ought to be done through a com-
bination of efforts involving the intelligence community and the De-
partment of Defense.
I cannot imagine a group of 25 people or so becoming expert in all
the fields necessary for this.
Senator NUNN. He wasn't suggesting that. He was suggesting it
was a clearing house a central location so that all the defense intel-
ligence community fed into there and that any inquiry, anything that
people asked for, they would either be able to produce it there or be
able to know where to get it.
In other words, a clearinghouse, not a comprehensive group.
Dr. VORONA. I would have to look at this proposal further, sir, to
look into its ramifications. However, I believe we will soon have this
capability within the intelligence community.
Senator NUNN. We would like to get your opinion on that as we
deliberate some of these suggestions.
Thank you.
Dr. VORONA. We know the Soviets receive each of the 80,000 Govern-
ment reports deposited with the National Technical Information Serv-
ice?NTIS--of the Department of Commerce-75 percent which are
from the DOD, DOE, and NASA.
In addition, classified Government research reports are subjected td
automatic downgrading and declassification, so that, barrin7g addi-
tional caveats, they are fully declassified in 6 to 8 years, inUnediately
sent to NTIS and released with no consideration given to the possi-
bility the report may still be of military significance.
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The recent Executive order will substantially rectify this situation
? by giving to the report originator the ability to determine whether or
not release should be made.
I should like to offer perhaps a less well known example, but one
which both highlights the lack of awareness issue and Soviet ability to
take advantage of it to our national detriment.
Specifically, two Soviet Embassy officials in 1979 went to the public
library in Milan, Tenn., to reproduce pages from an environmental im-
pact statement on file there concerning Government construction of a
plant to manufacture military explosives, in particular, RDX/HMX.
As a result of this episode, an investigation was conducted to deter-
mine what the Soviets might have gleaned from the environmental
impact statement. It was found that the document contained a wealth
of technical detail which, when combined with already published ma-
terial, would allow them to duplicate the entire manufacturing process.
This was clearly not the intent of writing the environmental impact
statement. However, an awareness of the efficiency of the Soviet tech-
nology vacuum cleaner could have precluded such an occurrence.
In the past several hundred years, the Russians have upon various
occasions imported "Western technology. These were sporadic attempts
to create an economy capable of supporting their foreign policy ambi-
tions. But these efforts were not sustained and the economy lapsed into
relative backwardness. Such is not the case today. The huge military
R. & D. infrastructure they are creating, expressed both in terms of
facilities and technically trained manpower, already the world's larg-
est pool of scientists and engineers, indicates they are in this for the
long haul.
And as the infrastructure matures, it becomes increasingly capable
of extracting from and building upon Western developments, not to
mention their own. For this reason, I believe it erroneous to conclude
as some have, that Soviet efforts to acquire our technology somehow
relegates them to a position of inferiority.
In closing, I would simply say that the Soviet leadership appre-
ciates and has ofttimes noted tile casual relation between science and
technology and strategic superiority. To them, technology transfer is
an important means to that end.
Mr. Chairman, this concludes my statement.
Senator Nuivi.r. Thank you, very much, Dr. Vorona.
We appreciate all of your cooperation and we hope to keep in touch
with you as we try to develop our recommendations growing out of
these hearings which I hope will be in the very near future.
Senator Cohen.
Senator COHEN. Thank you, Mr. Chairman.
I assume you consider U.S. technology to be a national asset and
that you have indicated, I think, even beyond that that the Soviet
Union probably considers it to be their national asset as well.
Dr. VonoxA. That is correct.
Senator COHEN. What is your evaluation of the U.S. leadtime of
the Soviet Union in the area of technology?
Dr. VORONA. I believe in general the United States leads the Soviet
Union in technology and has a distinct advantage, measured in years,
in certain very critical military technologies, specifically computers,
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microelectronics, signal processing and in general, production know-
how.
This has to be maintained. Unfortunately, the Soviets through the
various mechanisms we talked about have made significant inroads
into this lead and one of these days we are going to find that the
technological superiority which we have taken for granted is no longer
going to be there.
Most importantly, once they acquire a technology, it is immediately
incorporated into their military forces or defense-related industry.
So, measured in terms of which sides military forces have the
superior technology our lead is diminishing even more rapidly and
might even reverse in some instances as we go into this decade.
Senator COHEN. There is an old expression that a pigmy standing
on the shoulders of a giant can see further than the giant. And, of
course, that expression has been used in the past in terms of each of us
being able to stand upon the accumulated body of wisdom from gener-
ations in the past. Therefore, we do not have to repeat the same errors
and mistakes or learn the same lessons of the past and are able to
look further into the future as a result of the benefit of collective
experience. And what you are suggesting is that this is being trans-
lated into a new dimension, namely that the pigmy is now standing on
the giant's shoulders, the giant being the U.S. technological develop-
ment and capability and will be able to see that much further into the
future by combining it with their own indigenous assets and
development.
Dr. VORONA. Precisely.
Senator COHEN. What in addition to the list that is being put
together, or has been put together, by the Defense Department can we
do to alert the private sector about the dimensions of the problem
and the extent to which they may be unwittingly contributing to it?
Dr. VORONA. As DIA's effort in that direction, Senator, we have
since 1977 given 220 briefings to various groups throughout the coun-
try, including those in the Department of Defense, Department of
Commerce, academic and industrial organizations. This was done in
the hope of increasing their awareness of just how serious the Soviets
are in this effort, how vulnerable we are, and the wide variety of mech-
anisms used by the Soviets to aquire our technology.
I believe that this effort has had some salutary effect.
Senator COHEN. The agencies who now have the responsibility for
managing our export control operation, what sort of a data base. do
they have, what sort of corporate memory do these agencies maintain?
Dr. VORONA. I am not at all sanguine about the comprehensiveness of
the data base resident in any particular agency concerning technology
transfer.
I believe this is one of our serious shortcomings. However, we are
making significant strides within the intelligence community and the
Department of Defense to rectify this very shortfall. But unless and
until we have the kind of data base to which you refer, any truly mean-
ingful assessment of technology transfer and its impact on the Soviet
military posture is merely arm waving.
Senator COHEN. What assessment do you make of our efforts to in-
vestigate the end users of the exports?
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Dr. VORONA. This may be contrary to the conventional wisdom or
some of the things that you have heard but in my estimation, our abil-
ity to determine whether or not dual-use technologies are being di-
verted for military purpose in the Soviet Union or in any closed society
is woefully inadequate.
Furthermore, I am not at all optimistic that even with additional
resources, could we significantly redress that situation.
Senator COHEN. Let me take it one step further.
Assuming you had the resources, significant resources to make that
kind of determination, in your judgment, would it make any
difference?
In other words, suppose you were to tell other countries, including
our own exporters, that this technology would have a dual use.
Whether it is the Kama River Plant, the Brazil plant or whatever it
might be, do you think that would really be an inhibiting factor to a
nation selling such technology to the Soviet Union?
Let me use Japan by way of example.
Do you think there is any doubt in the minds of the Japanese as to
what use the Soviets will put to that large drydock?
Dr. VORONA. I'll probably never know the answer. I do know that
the Soviets specified it was going to be for civil purposes. Of course
they immediately diverted it for military purposes.
Senator COHEN. Now you are telling me that the Japanese and the
Swedish Governments are considering selling even more?
Dr. VORONA. At least the Soviets have made overtures to them. I
Senator COHEN. guess what I am asking you is when it comes
down to the choice between profits and national security, what has
been the history that we have witnessed to date?
Dr. VORONA. It has not been terribly reassuring?it has been a
concern.
Senator COHEN. It is all well and good for us to sit up here and
talk about how we are going to possibly create a new agency to con-
solidate all the functions of analyzing the export value, commercial
value, the diplomatic value and the defense value for a particular
item. Then we talk about alerting the business world to the conse-
quences of allowing that technology to be exported beyond our own
boundaries. Then we have a more fundamental problem; that is, how
do we weigh that against the experience of nations in the clear face
of demonstrated conversion to military purposes since the motive for
profit for export has overwhelmed whatever doubts may have been
held by that particular firm.
I know time after time when Members of Congress have raised
concerns about sale of computer technology to the Soviet Union, those
companies will come to me and to others and say, how can you do
this? How can you prohibit the sale of this particular computer
technology to the Soviets where if we don't do it, the Japanese will
do it or the Germans will do it, the British, surely the French, who-
ever has an opportunity to start a stampede for this technology, will
pick it up. We will lose the profits from the sale of this system, the
profits of which we could then reinvest into greater R. & D. to keep
5 or 6 years ahead of the Soviet Union?
How are we going to measure up to that particular problem?
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Dr. VORONA. I don't know, Senator Cohen, but I would hope that
in making countries aware of what the Soviets are about and how the
technologies that they acquire are in fact enhancing Soviet military
posture would have some sobering effect.
Senator NuNN. Senator Cohen, on that point, I don't think there is
an easy answer to that. I think you put your finger on a very difficult
question. But I do believe within the NATO structure itself, the mili-
tary side of it, they ought to have a small group of people that inter-
relate to the backhome group so that NATO, when there is an impend-
ing sale, would be able to comment on it.
It is handled more or less at the Cocom level and it is not working.
I think the same thing; we have a standing group with the United
States-Japanese defense treaty of people that are in charge of making
planned programs there.
I think we need a smaller group there, that don't do anything but
alert the two nations. They have got to raise it to a decision level at an
early stage. But right now,/he Cocom arrangement simply isn't
working.
Senator COHEN. I agree with that, Mr. Chairman. I am not trying to
undermine the effort. I think you ought to be commended and I want
to support every effort that can be made to change the way in which
we do business. In another context, I am also perhaps realistic
enough?perhaps even cynical enough?to look at what is taking place,
for example, with the pipeline, which has nothing to do with the crit-
ical technologies list.
In my judgment, there is a classic case of where our European allies
are undertaking a venture which is going ultimately to be detrimental
to their future security because I believe that pipeline will be used as a
lever against NATO taking any trade action, diplomatic action or
potential military action. I have said this before and tried to pose it in
deliberately dramatic terms, but it is my judgment that our European
friends are marching toward the Berlin Wall with their eyes closed.
I think if we continue to follow the procedure they have, they will be
behind the Berlin Wall with their hands up.
That is the direction, I think, they are going. To me the Yamal pipe-
line closes in this most dramatic form exactly the point I am raising,
namely providing technology to the Soviet Union which it doesn't
have. Then you have to ask the question, why is the West 15 years
ahead of the Soviet Union in oil drilling or gas drilling capabilities
and technology?
The answer is pretty simple; they have been putting 15 percent of
their money into military uses. And so what we are doing in effect is
subsidizing their own domestic deficiencies or inefficiencies, allowing
them to continue to spend the money for drydocks or for SS-18's,
whatever it might be, while we supply the technology to ease their par-
ticular commercial difficulties. And I think given that sort of formula,
then there is little prospect of the United States breaking out of this
force which is almost centrifugal in the way in which it operates, pull-
ing all of the technology into the Soviet Union.
Let me ask you, Dr. Vorona, what is the working relationship that
you have, DIA and the Commerce's Office of Intelligence Operations?
Dr. VORONA. We do have a good working relationship with them,
although it's essentially a one-way street. We provide them with what-
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ever information they ask for. On the other hand, we have had precious
little interaction with the Compliance Division.
Senator COHEN. How many times have you been called upon to use
your own expertise with Commerce, Customs, or FBI to deal with
export cases?
Dr. VERONA. To my knowledge, once, and that was to provide an
analyst as an expert consultant to the Justice Department in the Spahr
Optical case.
Senator COHEN. Before I go any further, I would just like to clarify
something with respect to my comments about our European allies.
I don't think the United States, frankly, myself included, is in any
position to lecture the Europeans since we ourselves should b3 charged
with the same sort of avarice. or greed for consideration of our own
national markets. I point specifically to the grain embargo as an exam-
ple. It is very difficult for me to go to any of our allies in Europe and
say you are making a fundamental mistake building the pipeline when
in fact we are unwilling to forego the same sort of profits that we our-
selves are seeking.
I don't think I am in the position to lecture the Europeans when
we ourselves are unwilling to bear some of the pain that is necessarily
involved in dealing with the Soviet Union. It is still my opinion that
even if we were to shut off our supplies of grain, which I would sup-
port, that the Europeans at this point are still going to be buying gas.
I think that is almost irreversible at this point.
Had different action been taken earlier, we might have diverted that.
Any nation willing to feed the Soviet Union cannot lecture anyone
who wants to derive gas from them.
Senator NUNN. Thank you, Senator Cohen.
In an editorial of April 12, 1982, the New York Times commented
on technology transfer to the Soviet 'Union. The Times expressed the
opinion that lowering the barriers to the flow of technology to the
U.S.S.R. is not necessarily a bad thing. The Times editorial put it
this way, and let me quote directly from that:
A more relaxed policy would serve the West's best interests because a steady
supply of foreign technology saps the Soviet Union's incentives to develop its
own. It is better to have the Soviets stealing, copying and following a few steps
behind than working independently in becoming able to deliver a technological
surprise.
What is your response to that opinion in the editorial?
Dr. VORONA. Mr. Chairman, in a nutshell I think it is divorced from
reality. The Soviets are bent upon achieving world preeminence, domi-
nance, if you will, in science and technology and are building a huge
R. & D. infrastructure with that goal in mind. The technology they
are acquiring from the West is an important input to that process be-
cause it allows them to compare and build upon the best of both worlds,
and they do.
A more relaxed export policy, rather than condemning them to sec-
ond place as the editorial seems to imply, would only hasten their
achieving world class status.
As a separate but related matter, I would again point out that our
technological advantages may or may not find their way into military
hardware but you may rest assured that if the Soviets go to the trouble
to acquire a particular technology, it will post-haste be translated into
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a military capability. As a result, the technological superiority we en-
joy in the civil sector is significantly eroded when military hardware
is compared. The concept proposed by the Times would exacerbate
that situation as well.
Senator Ntrismr. Thank you very much, Dr. Vorona.
Senator COHEN. Yesterday, Dr. Vorona, I mentioned my unhappi-
ness with the kind of rules under which we have to operate in terms
of international athletics, specifically that our amateur athletes have
to go up against the Soviet professionals, because they are, in fact,
professional athletes in the Soviet Union and Warsaw Pact coun-
tries. They are supported by the state whereas our own athletes do
come out of college and go into professional basketball or whatever
the sport might 13'3 and support themselves through their contracts.
It was suggested yesterday by our first witness that the Soviets also
have professional students who come into this country. You touched
upon this just briefly in your own testimony. In other words, we send
our amateur students to the Soviet Union to study humanities and the
classics while they send professional students, people who are mature,
would not be so taken in by what attractions our society might offer.
Furthermore the students and that they already are well trained
and are looking for certain technology.
Would you agree with that assessment, that in essence what they
are sending here are professional students who are interested in ac-
quiring the information from an academic institution that otherwise
might be prohibited for sale or distribution or export to the Soviet
Union?
Dr. VORONA. Yes, Senator, I completely agree with that assessment.
Senator COHEN. Thank you.
Senator NuNisr. Thank you very much. We would like to be able to
pose other questions to you for the record, if we may?
Dr. VORONA. Certainly, sir.
Senator NuNN. Thank you very much, Dr. Vorona.
Our next witness is John Maguire, president of the Software AG,
Reston, Va.
It is the Custom of this subcommittee to swear all witnesses appear-
ing before it.
Do you swear the testimony you give before the subcommittee will
be the truth, the whole truth, and nothing but the truth, so help you
God?
Mr. MAGUIRE. I do.
TESTIMONY OF JOHN MAGUIRE, PRESIDENT, SOFTWARE AG, OF
NORTH AMERICA, INC.
Senator NuNisr. I know you have a statement. Thank you for all your
cooperation. We appreciate you being here today. We look forward to
hearing your statement.
Mr. MAGuirtE. Mr. Chairman, Senator Cohen, as a member of Amer-
ica's high technology industrial community, I note with great interest
the subcommittee's concern over the increasing loss of American tech-
nological know-how to the Soviets. I am pleased to be here this morn-
ing to share with you my personal experiences in confronting this
problem in the computer software industry.
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I am currently both president and chairman of the board of Soft-
ware AG of North America, Inc., located in Reston, Va. Our company
focuses on the production and sale of computer software, as opposed
to computer hardware. Computer hardware, including microprocessor
chips, can be and has been reverse engineered. As a result of Soviet use
of that technique, Soviet hardware technology is now nearly equivalent
to U.S. hardware technology.
By contrast, software cannot be so easily deciphered and duplicated.
Software remains the key to future computer development as opposed
to hardware where Jordan is even ahead of us now. Yet given the
inability to reverse engineer, current Soviet efforts at software devel-
opment are antique by comparison to those in the United States.
Even the Japanese are many years behind the United States in devel-
opment of computer software. Last year I met with the Minister of
Information for Japan. I don't know how you would measure it, it is a
figure of 8 years behind the United States in computer software.
The United States undoubtedly has both an enormous investment
and a substantially important national resource in its technology lead
in the software field.
In that context, my company has proven itself as a leader in the
software field. Specifically, we have been responsible for the develop-
ment and manufacture of ADABAS, a Data Base Management Sys-
tem, we use the expression DBMS, which constitutes the present state-
of-the-art for this very important aspect of software technology.
DBMS is the implementation tool used by programers to implement
computerized information systems?with an increase in productivity
of approximately 1,000 percent?as compared to conventional com-
puter software technology. Between 1960 and 1980 I estimate over $1
billion has been spent on hundreds of projects to solve the DBMS
problem. The current ADABAS source code represents the highest
level of sophistication yet achieved in DBMS technology. It now
includes over 200,000 detailed instructions.
Like other software, ADABAS is not susceptible to copying by the
technique of reverse engineering. By analogy, one might consider
ADABAS as the Coca-Cola formula of the computer software in-
dustry. It is, deservedly, a closely guarded secret: Possession of the
source code, like the Coca-Cola formula, could only be obtained by
competitors by the quirk of an identical, independent invention, sale,
or theft of that source code itself.
Unfortunately, our task in guarding the source code as a private
company does not stem only from the economic rigors of the com-
petitive domestic marketplace. The most blatant and obvious attempts
to secure the secrets of ADABAS have come, not from our American
competitors, but from the Soviet Union.
Although the ADABAS source code is not classified, it is considered
to be sensitive technology requiring a validated license for export. My
story to you this morning will detail not one, but two, focused
attempts to secure our computer software know-how for use in the
Soviet Union.
In 1979 a Belgian national by the name of Marc DeGeyter con-
tracted our marketing representative in the State of California.
DeGeyter wanted the name of the most technologically expert individ-
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ual in our company. He was referred to Jim Addis of our Reston,
Va. office. Jim is one of two individuals in our company who have
access to the ADABAS source code. DeGeyter personally approached
Addis, offering him $150,000 cash for the purchase of the ADABAS
source code on behalf of the Soviets. Addis told DeGeyter that he
would have to discuss the offer with his superiors. When Addis told
me about the approach by DeGeyter, I immediately contacted the FBI.
At their request, I agreed to cooperate by personally dealing with
DeGeyter. As part of that cooperation. I agreed to the tape recording
of my conversations with Addis, DeGeyter contacted me, confirming
the original offer of $150,000 for the source code. He told me that he
had many business dealings with the Soviets in their country; in
order to insure continued good business dealing with them on other
matters. he needed to obtain the ADABAS source code for them.
Working with the FBI, I negotiated with DeGeyter for a period
of approximately 7 months. finalizing arrangements whereby I would
transfer the source code to him for a price of $150,000. During those
months. I had numerous telephone and personal discussions with
DeGeyter. I personally met with him in Washington, as well as tele-
phoning him in Belgium and vice versa.
There were a lot of calls around the United States?California, St.
Louis, Silicon Valley area. I spent a lot of time there.
I recall that, in at least one conversation, DeGeyter told me that
the Soviets had approached him with a specific "shopping list" of
technological items needed from American sources. He told me that,
as early as 3 years previously, they had included the ADABAS
DATA Base Management System on that list.
Since he could not at first figure out a way to obtain the code, De-
Geyter had initially bypassed it and gone after other technolocry items
on the list. The Soviets had evidently changed their priorities and
were now insisting that DeGeyter secure ADABAS on their behalf.
My own knowledge of DeGeyter was consistent with his description
of his efforts for the Soviets. I knew that DeGeyter had personally
approached software expert Charles Matheny- some 2 or 3 years pre-
viously, attempting to hire him to steal selected IBM technology on
his behalf. I later learned from a software representative in Amster-
dam that DeGeyter had been caught stealing trade secrets and prints
from their Belgian plant several years -earlier. DeGeyter had taken
the items while employed at the plant. Although he had been initially
charged in the Belgian courts, he was never convicted of the offense
in that country.
I also know that DeGeyter moved constantly in high technology
circles. During my negotiations with him, he traveled in and out of
California's Silicon Valley on numerous occasions. Certainly Silicon
Valley might well have been the home of many of the items on the
requested shopping list. When DeGeyter was eventually arrested at
Kennedy Airport, Federal agents searching his briefcase found, among
other things. numerous telexes from DeGeyter to individuals and com-
panies in Moscow.
One such telex dealt with a payoff to DeGeyter. In connection with
the payoff, the telex included nomenclature assigned to a new micro-
processor chip in the process of development at Intel in Silicon Valley.
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The chip was not, of course, publicly marketed at that time. In his
conversations with me, DeGeyter made no bones about his technology
efforts on behalf of the Soviets. He told me that he was not alone in
doing so; rather, technology transfer was simply their?the Soviets?
way of doing business.
In discussing the sale of ADABAS source code, I voiced to De-
Geyter my concerns that the source code might eventually be disclosed
to our American competitors, in addition to the Soviets. In the contest
of a highly competitive American market for computer software, it
was certainly realistic to treat the threat of American companies ac-
quiring ADABAS source-code knowledge as more economically
frightening than Soviet development.
DeGeyter assured me that the source code would not be coming back
to the States or to American competitors anywhere. He told me that
he was purchasing the code on behalf of Techmash Import, a Soviet
trading company and that the Soviets had no interest in furnishing
the code to my competitors.
During the course of my negotiations with DeGeyter, I attempted
to arrange for the delivery and sale of ADABAS source code to him
in the United States. A planned delivery in this country was necessary
in order to successfully prosecute DeGeyter under our export laws.
Unfortunately, he insisted that I fly to Brussels for delivery of the code
where he would make arrangements for payment of the cash price
through a Swiss bank account. When I voiced hesitation to him about
delivery abroad and, consequently, the entire transaction, DeGeyter
upped the case price from $150,000 to $200,000 plus some California
real estate, and later to $450,000. Of course, by comparison to the U.S.
investment of $1 billion in DBMS technology over the years, the So-
viets were still talking in terms of "bargain basement" prices.
Eventually, our negotiations broke down, due to his unwillingness
to agree to delivery in the United States. DeGeyter later contacted
Charles Matheny, the owner of a computer company in our building,
and asked him if he knew of any other way to secure the ADABAS
code on DeGeyter's behalf. The FBI again stepped in and, through
the use of undercover operatives, eventually arranged a planned de-
livery of a dummy source code in New York. As a result, DeGeyter
was eventually charged and sentenced for his efforts to steal the source
code. I understand that Mr. Greenberg, the Federal prosecutor in that
case, will describe that matter in detail for the subcommittee.
When the DeGeyter case ended, I assumed, perhaps naively, that
ADABAS was relatively secured from Soviet attempts to buy or steal.
In other words, keep it, in a 1,500-pound safe on the 11th floor of the
building out in Reston.
Senator COHEN. Don't tell us any more.
Mr. MAGUIRE. I forgot the combination.
The ADABAS was relatively secure from Soviet attempts to buy
or steal. In the spirit of American free enterprise, I even used the
fact of the Soviets' efforts for the potential economic advantage of
Software AG. We subsequently purchased magazine advertisements
boasting "ADAMS. The Russians weren't smart enough to invent
it?but they knew enough to want it."
A copy of that I will show you in a few moments.
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Senator NUNN. What would they be able to do with it once they
goi, it? You say reverse engineering is?
Mr. MAGUIRE. It is impossible. It hasn't been done yet. The source
code that the dttail micliine language and construction representing
the basic logic for handling automatically all the information in a
large data base, we take that source code and run it through the com-
puter, what is called an assembler process, to create the machine object
code which is just millions of bits and that is what we deliver, we sell
a license for that and it works and it runs on a computer but no one
can look at those millions of bits and figure out the logic.
What they wanted was the source code to understand the detailed i
logical steps n the logic, just like a chemical formula, the logic un-
derneath the technology. Once they understand that, they could bring
that logic to other computers or anything they want, but they would
learn what has evolved to be a very successful technology, a value, dual
use military and commercial.
Senator NuNN. Thank you.
Senator COHEN. It is subject to reverse engineering?
Mr. MAGUIRE. No, but you have to have the source code. You can
get a silicon chip and reverse engineer and just peel away those layers
and take a look at it with a microscope and there is the detail logic.
Senator COHEN. What the chairman was asking about, as I under-
stood it, is why would they want that if in fact they couldn't dupli-
cate it. If they get the source code which they attempted to pur-
chase, they could go back and reconstruct the formula and use it
to 'develop future systems.
Mr. MAGUIRE. It is worse than that. By having the source code, there's
the secret.
Senator NUNN. That is the formula?
Mr. MAGUIRE. That is the technology right there.
Senator NUNN. You say no reverse engineering is necessary if they
get back. What they can't reverse engineer, is what you sell?
Mr. MAGUIRE. That is correct.
Senator NUNN. Using the analogy of Coca-Cola, if you get the
Coca-Cola, you can't get the formula. If you get the formula, you
know how to make the Coca-Cola. Is that right?
Mr. MAGUIRE. Yes; we sell the license for $160,000 currently.
Senator NUNN. The FTC maybe ought to be called in on this. You
said $450,000. Your add says $500,000.
Mr. MAGUIRE. I was replaced by the F131 agent eventually and then
DeGeyter upped it up to $500,000. No; that is correct.
Unfortunately, despite DeGeyter's conviction, I soon discovered
that the Soviets still wanted ADABAS and our other software and
are, in fact, still trying to secure it. As with other technology com-
panies, Software AG participates in trade shows on a regular basis.
In 1981 a Russian diplomat named Georgiv V. Veremey visited the i
Software AG booth in at least two separate trade shows n the Wash-
ington area. Since he was registered with the show and also provided
us with his business card, we have a formal record of the trade show
contacts. In both instances, Veremey asked numerous questions con-
cerning ADABAS, internal logic of the system and the source code.
After the trade show contacts, Veremey personally visited the Soft-
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ware AG offices in Reston, Va. On September 25, 1981, Veremey
arrived, introducing himself as a member of the Soviet Embassy
stall in Washington, D.C., and requesting to see various documenta-
tion on our products. He spoke to Sunday Lewis, a senior executive at
the Reston office. He told Lewis that he wanted a complete bibli-
ography of all Software AG products and their documentation. He
disclaimed any particular purpose for the request, saying that he was
just interested. He was extremely vague about the nature of his work
with the Soviet Embassy. After Lewis gave him a standard bibliog-
raphy and an order form, he left.
On September 26, 1981, Lewis told me about the incident. I told
her that, as company policy, we would not sell products to the Soviet,
even the object code. Moreover, I told her that to do so without a
license was prohibited by Federal law.
On October '2, 1981, Veremey again arrived at the Software AG
offices. While waiting for Lewis to return from lunch, Veremey con-
tinually wandered in and out of the Software offices despite the recep-
tionist's request that he be seated. When Lewis arrived, Veremey gave
her an order for all of Software AG's documents. At a price of about
$400, the documents would fill about 12 boxes. This type of technical
documentation tells one how to use various systems produced by our
company. One would have no use for this unless you have the system
or are planning on acquiring it; or you are attempting to develop the
system via knowledge of user techniques.
In response, Lewis told Veremey that she could not sell him the
documentation. She added that, if he insisted, she would have to first
go to the appropriate Federal agency to secure the necessary licensing.
Veremey laughingly asked Lewis, "What license was issued for the
U.S.-U.S.S.R. wheat deal?" He left and, to my knowledge, has not
returned since.
Our experiences with both Mr. DeGeyt,er and, most recently, Mr.
Veremey, have increased my frustrations with the current lack of ade-
quate legal protections for American high technology. Despite the fact
that software technology is the recognized key to future computer
development?and we have the lead?the United States has no current
statute which, in my opinion, adequately protects this technology.
To the average businessman, the Export Administration Act and its
concomitant regulations are, simply speaking, a terrible hassle. Most
industry representatives know that a license is required for trade with
the U.S.S.R. Few, however, know which other nations, if any, require
export licenses from the Commerce Department. The U.S.S.R. is not,
of course, alone in efforts to transfer technology: Our own company
has also reecived inquiries on ADABAS from Hungary and Poland.
In both instances, we have declined to transact any business.
As for the controlling export lists, when approached by DeGeyter
I did not know if any of my products were specifically included on
those lists; I strongly suspected, however, that they might well have
been. The information currently available to business on U.S. export
laws, regulations, and policy in this area is negligible, despite the fact
that businessmen are the real key to detection and enforcement.
Senator NUNN. Based on your experience, do businessmen in this
area have much knowledge of what the Commerce Department is
doing?
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Mr. MAGUIRE. No; and I am very active in the Trade Association
and my knowledge is very limited but I deal with my peers and their
knowledge is negligible.
Senator NUNN. Do most of them know about the law limiting
export ?
Mr. MAGUIRE. Most of them. They know about the existence of a law.
While a few large firms like IBM may be extremely familiar with
the lists and regulations, those firms account for only 40 percent of a
software market of $2.5 billion annually?estimated 1985 sales of $8
billion?the remaining 2,500 companies have 60 percent of the market.
I suspect that representatives of most of those companies are no more
aware of these laws and lists than I was.
Last, when businessmen such as I do get involved in the enforce-
ment process, the results are oftentimes even more frustrating. In
the DeGeyter case I spent nearly 7 months dealing with a man openly
working for the case,
to purchase one of the most significant trade
secrets in the U.S. software industry. Despite that fact, he was even-
tually charged only with misdemeanors under commercial bribery
statutes. In my mind, it is entirely incomprehensible that the man was
finally sentenced to a jail term of merely 4 months.
By comparison, I read newspaper reports of a Celanese Corp. em-
ployee who in June 1979 was convicted and sentenced to a term of
40 years for selling trade secrets to Mitsubishi Plastics Co., a Japanese
competitor of Celanese. From the scant newspaper reports, I can
glean no evidence of national security interests or Soviet involve-
ment. In sum' a businessman receives 40 years for selling trade secrets
to a competitor while a Soviet agent receives 4 months for attempt-
ing to transfer one of our most guarded technology secrets to the
U.S.S.R. It is, indeed, a sad state of affairs if those cases accurately
reflect his country's priorities on technology transfer.
I would like to also point out in our industry the major trade
association is called the DAPSA and they have put together a paper
addressing the problem of trade secret protection and the difficulties
with the current U.S. Copyright Act. We are submitting that position
paper to the House Subcommittee on Courts and Civil Liberties, but
I would be happy to make it available to your staff also because I
think it is the kind of thing that we are looking for in terms of pro-
tecting?the basic problem is the new copyright law raises some issue
as to whether we really have protection under trade secrets and to
get a copyright we have to file the source card. Once you disclose,
then you lose your rights under the trade secrets laws.
I don't have it with me today but I will forward it.
Senator NuNN. We would like to see that. It will be very helpful.
Thank you very much, Mr. Maguire. You mentioned the Software
AG, your company, received inquiries on your source card from both
Hungary and Poland. Were those made after the DeGeyter incident ?
Mr. MAGUIRE. Yes. I have some thoughts on it. The Hungarian
attempts were threefold. Initially the Hungarian Embassy in Wash-
ifigton, D.C., contacted our Reston office. We declined their request to
purchase a license. I next learned that the Hungarian Diplomatic
Corps in Germany contacted our German branch. In Germany, the
Hungarians offered to pay up front the full license fee in advance for
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a copy for license of ADABAS. Our company refused to sell. Finally,
the Hungarian Embassy in Tokyo, Japan, contacted our Japanese
distributor and made the same request. The distributor, on my instruc-
tions, declined to sell.
.Senator NuNN. After that experience, was there any doubt in your
mmd the Soviets were working with the Hungarians and Polish in
this effort?
Mr. MAGUIRE. There is too much of a coincidence. In a concentrated
effort, this all happened within a period of 4 or 5 months, so when
we refused here, it popped up in Germany and a couple of months
later it popped up in Japan. The fact DeGeyter told me of the existence
of a priority list that the Soviets were after and the source code of our
program had been on there 3 years and the priorities just changed and
they were pressuring him.
Senator Nurric. Thank you very much.
Senator Cohen.
Senator Comic. Art observation, Mr. Chairman. What is so striking
about your testimony, Mr. Maguire, is that the fact the cynicism is so
deeply ingrained and almost richly deserved. Apparently the Soviets
and their agents, in this case, believed that you were prepared to sell
out your company in order to beat out your competition. In other
words, what I am saying is, you dangled out to Mr. DeGeyter the fact
you were concerned about not letting this information get out to your
competition. He apparently went along with you for some 7 months
during the negotiations under the belief that eventually you would
sell the ADABAS to the Soviet Union provided it wouldn't get out to
the competition in this country.
What I am suggesting to you is the cynicism is so deep in the Soviet
Union, to go back to the statement about they will sell us the rope to
hang us, it just struck me as I sat here listening to you. They were
under the belief that you would eventually sell out your country in
order to beat out your competition provided your competition didn't
get the system.
That is to me one of the most striking aspects of your testimony in
addition to your own honesty and patriotism which I commend you
for. We have seen, for example, another witness who did, in fact, sell
out his country in order to achieve some measure of personal gain and
you are to be commended for resisting that particular temptation.
Mr. MAGUIRE. Thank you.
Senator NUNN. Do you have any suggestions other than those you
have made in your testimony about how the Government can better
work with the private sector in protecting our technology?
Mr. MAGUIRE. The technology is changing very, very fast. It is very
difficult to keep up with it in spite of the discussion this morning here
about a group, a clearinghouse staying on top of it. But I think Gov-
ernment communication with high technology companies is the best
way to spread this information about the risk to the national security
and direct through trade organizations and specialized markets.
The computer industry happens?the ADAPS headquarters are
right over in Rosslyn. I doubt whether that headquarters has had any
dialog at all with Commerce.
Senator COHEN. I just make one other point, it is not only something
that afflicts small businesses within the field. If you really want an edu-
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cational experience, you ought to read the book called "The Snowman
and the Falcon" which details the activities of one Christopher Boyce
and friends of his who were successful in getting some of our most
treasured secrets. The Rhyolite and the the ARGUS, are two satellite
systems we spent a good deal of money on in terms of research and
development and they ended up in the hands of the Soviet Union
through their embassy in Mexico. That might be an educational ex-
perience to show you to what extent and how easy, how absolutely easy
it was to penetrate the so-called black vault at TRW, one of our major
companies in this field.
Mr. MAG calm. Thank you.
Senator NUNN. Thank you, Mr. Maguire. We appreciate all your help
and we commend you for your alertness and for your patriotism and
willingness to cooperate with not just this subcommittee but the execu-
tive branch in preventing this kind of transfer from taking place in
your case.
Mr. MAGI7IRE. Thank you.
Senator NUNN. Our next witness is Mr. Theodore Greenberg, Assist-
ant U.S. Attorney, Eastern District of Virginia, Alexandria.
Mr. Greenberg was the prosecutor in the DeGeyter case we just
heard about.
Mr. Greenberg, will you be accompanied by anyone else testifying or
just you?
Mr. GREENBERG. Yes. I have John L. Martin from the Internal Secu-
rity Section with me.
Senator NUNN. Of the Justice Department?
Mr. GREENBERG. Yes.
Senator NUNN. Will both of you be testifying? If so, I will have
both of you hold up your right hand.
Do you swear the testimony you will give will be the truth, the whole
truth, and nothing but the truth, so help you God?
MT. GREENBERG. I do.
TESTIMONY OF THEODORE GREENBERG, ASSISTANT U.S. ATTOR-
NEY, EASTERN DISTRICT OF VIRGINIA; AND JOHN L. MARTIN,
CRIMINAL DIVISION, U.S. DEPARTMENT OF JUSTICE
Senator NUNN. We heard about the DeGeyter case, and of course,
you were prosecutor in this case. I know you have got a long statement
which we will put in the record giving all the details on this case. We
would hope you would be able to summarize it, tell us what you know
about it, and then we will go to questions.1
Mr. GREENBERG. I have picked some significant parts of the state-
ment, Mr. Chairman, and I would like to point them out to you.
On May 22, 1979, the Federal Bureau of Investigation received in-
formation from John Maguire, president Software, A.G., Reston, Va.,
regarding the attempted bribery of one of his employees by Marc
Andre DeGeyter, a Belgian national, who stated that he was acting
on behalf of the Russian Government. DeGeyter wanted to steal Soft-
ware's trade secret, the ADABAS source code.
I See p. 432 for the prepared statement of Theodore Greenberg.
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An FBI investigation, which included the use of an undercover
agent and consensual monitoring, resulted in DeGeyster's arrest at
John F. Kennedy international Airport on May 18, 1980, when De-
Geyter gave an undercover agent a check for $500,000.
The investigation was monitored primarily by the Internal Security
Section of the Department of justice. Prosecution of the case was
directed jointly by the U.S. Attorney's Office for the Eastern District
of V.rginia, and the Internal Security Section.
The investigation was originally conducted as a foreign counterin-
telligence operation and then as a criminal investigation.
DeGeyter was indicted on June 9, 1980, for violating title 18, United
States Code, section 1952(a) (3), interstate and foreign travel in aid
of an unlawful activity; that is, commercial bribery, in violation of the
laws of the State of New York and the Commonwealth of Virginia.
Because of significant governmental considerations, DeGeyter was per-
mitted to plead guilty to misdemeanor violations of the Export Ad-
ministration Act and the Virginia commercial bribery statute. He was
incarcerated prior to the hearing in the Alexandria City Jail and
served his Federal sentence at the Federal Correctional Institution,
Petersburg, Va. He served a sentence of 4 months, was fined $500;
and as part of the plea agreement paid a $10,000 civil penalty to the De-
partment of Commerce.
Senator COHEN. Mr. Greenberg, we can almost get that amount of
fine and penalty for shooting a deer out of season in Maine.
Senator NUNN. I agree with that observation. You heard Mr. Ma-
guire's testimony about how frustrating it is to be working on this
problem for as long as he did, cooperating completely with the Gov-
ernment and DeGeyter ended up with a 4-month sentence.
We recognize there may be reasons that we do not know about in
that respect. Could you tell us what the reasons are for switching from
a felony to misdemeanor?
Mr. GREENBERG. There were significant governmental considerations
which I would be happy to disclose to the subcommittee in a closed
session.
Senator INTuNN. We will respect that and any further questions about
why we will go into closed session.
But I think it is very important for people like Mr. Maguire and
others who have cooperated to the maximum extent possible to know
what happened and whv. After all, they are out there protecting the
governmental secrets. He spent a lot of his time, and I am sure be felt
at certain periods of time it might have been at his own risk financially,
as well as otherwise, to bring this case. The Government has a lot of
interest. One area of overwhelming interest is to get businesses to
cooperate like Mr. Maguire did. So you have to weigh that against all
the interests that the Government has.
We certainly would be interested in hearing that in closed session
at the appropriate time.
Mr. GREENBERG. The interests were weighed. One of the things that
we look to, in prosecuting, is the sentence that is given; which in the
federal system is the sole prerogative of the district court. There was
a 1-year penalty which could have been imposed. The court declined to
do that. Nevertheless, there are other benefits from the prosecution.
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The public becomes aware of it. There is a deterrent effect arising
from the prosecution, and there is publicity and the public is
informed.
Senator COHEN. I am not going to delay this too long. I know we
have some time constraints. Frankly, I am aware of a young man
who is being charged with tampering with an automobile vehicle
right here in the District. He faces a $1,000 fine and 1 year in jail
just for taking a tire off an 'automobile. I would say there is a much
different level of threat to our society in terms of stealing an auto-
mobile tire and taking major trade secrets of this country.
You are not part of this, Mr. Greenberg, but Senator Nunn has
been sitting on hearings in front of this subcommittee for a number
of years now. We have had hearings on chop shops where we have a
vast network of organized crime operating in this eountry. We have
had hearings on illegal drugs coming into the country and we have
had hearings now on technology transfer and there is a commonality
of issues involved, Mr. Chairman, as you know. There is, very little
iisk of being detected, little risk of being apprehended in the com-
mission of a crime; even if you are apprehended and charged, there
is little risk of conviction; and when you are finally convicted, there
is very little risk of getting a substantial penalty, all of which has
contributed to the increase in crime in this country. It seems to me
we have the same situation here where you have got a major attempt
to acquire a very sophisticated system and you end up with a penalty
that is less than you would get for taking a deer out of season in
Maine.
Mr. GREENBERG. Senator, we share those concerns. The indictment
exposed Mr. DeGeyter to 40 years in prison, had he been convicted on
all counts, and a substantial fine.
As I indicated, in this case there were interests which required us
to dispose of the case other than through a trial.
Senator COTTEN. I understand. The same interests were also present
during Christopher Boyce's trial. There was very serious considera-
tion given to dismissing the trial altogether because they didn't want
to get into disclosing the ways in which they apprehended the individ-
uals. It is always the situation when you apprehend somebody who
is engaged in espionage in this country that you might disclose the
methods used to acquire that information. But it does not serve as
much of a deterrent I wouldn't think, to a responsible businessman
to spend 7 months, maybe more than 1 year of his time, cooperating
with the FBI. It would certainly be frustrating then to have this
individual who might have tempted somebody within his organiza-
tion or another company that had access to that software and to
realize that you can spend 1 year of your time and still see a fellow
come out of jail 4 months from now with a $500 fine. That is not much
of a deterrent.
Senator NUNN. Let me just add to that.
I agree with what Senator Cohen has said. I also recognize that in a
case like this the policy is made at higher levels and that you have your
own responsibility to comply with whatever the Department of Justice
decides.
I also recognize the Department of Justice has to coordinate with
other intelligence agencies.
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My frustration is directed toward the overall policy. When we get
into closed session, which we will, we will he looking very carefully at
that because I am sure that there are overriding reasons in many of
these cases involving perhaps sources, methods, and other things that
have to be kept secret. But if in the final analysis the citizens of the
country and the businesses of the country lose faith in the judicial
system then the damage done to the overall protection of America's
secrets and technology would probably be far greater than disclosure
of a particular classified bit of information at that time. So there has
been an overriding kind of protection of sources and methods or some
overriding intelligence reason in my view to warrant the kind of very
minimum sentence that came out in this case.
But again we repeat, .1 know that decision was not made at your level
and we will talk to you about it and we will trace it right on up the
line, see where the decision is made and we may agree with it when we
get through. But we very well may not. I think Congress has a role to
play in this overall kind of policy, too. Certainly not while the case
is going on, but certainly after it is over we do and as far as policy in
future cases.
Mr. GREENBERG. Senator, I would like to add, if I may, that there
was consideration given in our internal deliberations as to whether or
not the case should be dismissed in its entirety. We decided to proceed
as set forth in the plea agreement. So I guess on balance it is not a
total loss, as you would view it.
As I understand it, DeGeyter was the first individual to actually
serve a prison term for violation of the Export Administration Act.
Senator COHEN. If I had that choice, I would make it a tough one.
I would give him the maximum, just to make sure that the jail sen-
tence is a deterrent; don't give him a 4-month sentence, give him a
tougher one.
Mr. GREENBERG. The plea agreement did not permit the Government
to choose the sentence. That was left to the discretion of the court.
Senator NuNN. Speaking of that, what was the bail in this case? I
understand your original indictment was for a felony. Is that right?
Mr. GREENBERG. That is correct.
When DeGeyter was arrested in New York, the Government re-
quested that the New York magistrate set bail at $500,000. When he
was indicted in the Eastern District of Virginia, bail was also set at
$500,000. When DeGeyter was arraigned on the felony charges, that is,
the Travel Act, the bail was reduced over the Government's objection
to $100,000.
Senator NUNN. Would you give me the name of the judge in New
York? Was there a bail originally set in New York?
Mr. GREENBERG. Bail was originally set on the New York complaint.
Senator NuNiv. That was $500,{)00?
Mr. GREENBERG. Yes,.
That was set by a magistrate in New York, by the name of John L.
Caden.
Senator Ntricx. When bail was set, was it transferred to Virginia,
was this a separate account?
Mr. GREENBERG. In New York, they filed a Travel Act complaint. We
decided that venue was more appropriate in the Eastern District of
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Virginia; and we filed a complaint with the U.S. magistrate in Alex-
andria, Va. An arrest warrant was issued on that complaint; and bail
was set by the Virginia magistrate at $500,000. DeGeyter was afforded
a removal hearing in the Eastern District of New York; and ordered
removed to Virginia.
At arraignment on the indictment the U.S. district judged reduced
the bail upon motion of the defendant's counsel to $100,000.
Senator NUNN. Who was that judge?
Mr. GREENBERG. That was Judge Albert V. Bryan, Jr.
Senator NUNN. Was there a reason he gave for making that reduc-
tion to $100,000?
Mr. GREENBERG. He stated that the Government had not charged
DeGeyter with espionage and therefore he didn't feel that 000,000
was warranted.
Senator NUNN. What was the defendant charged with?
Mr. GREENBERG. The defendant was charged with eight counts of
interstate travel to carry on an unlawful activity, in violation of laws
of the State of New York and Virginia, that is, commercial bribery.
The underlying offense of commercial bribery in both New York and
Virginia is a misdemeanor. Nevertheless, the Federal statute provides
in part, that if you travel in interstate commerce to violate certain
State laws, including bribery, the travel constitutes a Federal felony.
We pointed out to the judge the circumstances of the arrest and the
fact that this individual was a foreign national with absolutely no ties
to the eastern district of Virginia or to any community in the United
States; and that he had no American national who would speak on
his behalf. Nevertheless, the judge made the determination that in his
view $100,000 was sufficient.
Senator NUNN. Did you reveal anything else to the judge?
Mr. GREENBERG. No, sir.
Senator Nu/cc. What is that?
Mr. GREENBERG. No. sir. Not at that time. Subsequent to the judge
setting the bail at $100,000 DeGeyter's attorney arrived, the actual
dates are set forth in the statement, arrived in the clerk's office with
a cashier's check for $100,000, just about the same time that I had re-
ceived information from the New York office of the FBI, that
DeGeyter had indicated that he was a KGB agent and that he would
flee the United States if he was able to raise bail money.
I went to the judge?
Senator NUNN. Where did you get that from?
Mr. GREENBERG. That came from the FBI, informant information
which was?the source of the information was never disclosed in court.
What I am telling you now is a part of the public record.
I arrived at the courthouse about the same time that the $100,000
check did. I asked the judge to hold what is called a "Nebbia" hearing.
Nebbia was a case decided by the Second Circuit Court of Appeals
which deals with a judicial inquiry by the court to determine the
sources of funds when cash is being used so that the court can assure
itself that the money is sufficient to insure that the defendant will
return for further proceedings.
The mere circumstances of somebody posting a large amount of cash
in an anonymous fashion raises questions as to whether or not he will
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flee the jurisdiction of the court. So there is a procedure to have a
hearing. We asked for the Nebbia hearing as well as an increase in
the bond.
The. judge denied our request for an increase in the bond and held
a hearing in winch he allowed Mr. DeGeyter to explain that he would
not flee the jurisdiction, but the judge would not permit me to make
the defendant prove what the source of his funds was.
All we knew is that it was cash.
Senator NUNN. What happened after he was told that you had the
informant or confidential source revealing DeGeyter himself was a
KGB agent?
Mr. GREENBERG. We had a hearing on that. I put on an FBI agent
who related that information to the court.
Senator NUNN. Before he got out?
Mr. GREENBERG. Yes.
DeGeyter took the stand, denied making the statement. The judge
let him go.
In this particular case DeGeyter remained within the jurisdiction
of the court and returned for further proceedings.
Senator NUNN. Are judges reluctant to grant those Nebbia hearings?
Mr. GREENBERG. It has been my experience in the Eastern District of
Virginia that the judges have not been granting our requests for full
Nebbia hearings.
Senator NUNN. Why is that?
Mr. GREENBERG. They don't feel that it is necessary. They really
don't give us a reason for the denials. But the Nebbia hearing is a good
idea. It would be my personal opinion?and the subcommittee might
want to study an amendment to the Bail Reform Act which would
require a judge to hold a Nebbia-type hearing where you have a foreign
national who may flee the United States. That is something you might
want to consider.
Senator NUNN. We certainly will consider that.
We have got a lot of legislation pending on that very subject. I don't
know whether you are finished summarizing or not. We interrupted
you.
Mr. GREENBERG. No; I didn't get very far. I wanted to set forth a
number of points which are in my statement. I will just go through
them quickly.
DeGeyter dealt both in the United States and outside of the United
States through a number of corporations; he primarily dealt with a
corporation called Commercial Engineering and Sales Agency, or
CESA. He listed himself as the president of the TVS Broadcast Sys-
tems. All DeGeyter's corporations, with the exception of two Califor-
nia cntities, which I will mention, are located at the same address in
Belgium.
So we have TVS Broadcast Systems; he listed himself as the presi-
dent of Afrabel, African-Belgium, a corporation from Brussels; man-
aging director of Softelectronics in Brussels, then in the United States
through investigation we determined that he was a partner in a joint
venture called In-Mark Associates, in Irvine, Calif., and another joint
venture called Invitee in Laguna Beach, Calif.
We have heard the testimony of Mr. Maguire. Just in summary, I
would say that DeGeyter constantly upped the ante, if you will, they
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started at $150,000, went to $250,000, talked about $400,000, DeGeyter
finally offered them $500,000. It is absolutely clear from reviewing all
of the evidence, including the transcripts of consensually monitored
conversations, that DeGeyter wanted Maguire to steal from his own
company and from himself a trade secret which we have determined
through discussions with Mr. Maguire was worth about $10 million.
For instance, on July 20, DeGeyter is talking with Maguire and
they are discussing how the payments should be made. He says "Want
a check in Zurich You got it. It's yours. I couldn't care less. I'm not
involved." Later in the same conversation, he says to Maguire, "It's
a one-time shot. No paper, no contract, nothing." Be straight, under
the table. What he was saying was that the source code was going to
Russia, that Maguire's competitors would never know about- it. He
insisted upon having the source code brought out of the United States.
He explained to Maguire that it would be examined or verd by a
Russian computer expert in Brussels, then the tape would be Sent to
Moscow.
Through subsequent investigation we determined that he said on
another occasion that he intended to give the tape either to a Russian
employee at the Embassy in Brussels or to an _Aeroflot employee for
direct transfer to Moscow.
He explained to Maguire that after the source code was verified
he would take Maguire to Switzerland and Maguire could have the
payment in any fashion he wanted it. He could put it in a bank
account, he could have cash, DeGeyter even suggested that he could
arrange for the transfer of land in California.
Anything that Maguire wanted, he would do. He suggested that if
Maguire wanted to, he could even negotiate through Techmashimport,
which is a Russian trade corporation which I will get into later, on
whose behalf DeGeyter said that he was dealing for.
Maguire constantly raised a concern about whether or not this was
a proper thing to do, the export of this source code and whether or not
it, could ever be traced to him. The transcript of one of the conversa-
tions, it is instructive on this point.
On August 7, 1979, there was a conversation between Maguire and
DeGeyter. Maguire says:
This source code, my understanding is that as far as moving something out of
the United States, you know is maybe an administrative technicality. Do you
know about the export licenses and everything? What if you get caught with that
source code?
DeGeyter responded:
I don't think there should be any problem in that. I would then take the whole
responsibility for that. You are not supposed to know where it goes to and what
I'm going to do with it.
MAGUIRE. OK, is there any way they can trace II
DEGEYTER. No.
MAGUIRE [continuing]. Back to us?
DEGEYTER. No, no way whatsoever. There is really no way, nothing. But you
know you have to trust me on it. I am telling you there is no way.
Then he goes on to say they will test it in Brussels and go to Zurich.
There comes a point in time where the negotiations between
DeGeyter and Maguire break down. This is toward the end of 1979.
The transaction is not going to take place. There is an impasse.
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On February 4 and 5, 1980, special agents of the Federal Bureau of
Investigation interviewed DeGeyter in his hotel room in New York
and told him that they were investigating possible violations of the
Foreign Registration Act.
Subsequent to that, DeGeyter changed his approach, if you will,
and he goes to an individual by the name of Charles Matheny, who is
in the same office complex as Maguire's software company. Matheny
is president, and chairman of the Board of CENTC, which is a Vir-
ginia corporation. Matheny immediately reports the contact to the
FBI. Like Maguire, he agrees to cooperate with our investigation by
recording conversations and meetings with DeGeyter. DeGeyter uses
a different approach this time. He now says that he is dealing with a
Saudi Arabian sheik, that he has become involved in an Arab bank,
and that they are going to implement a large-scale computer
operation.
Senator NUNN. Was this before or after ABSCAM ?
Mr. GREENBERG. This is before ABSCAM. In fact, there is no Arab
sheik. What he does is he changes his approach in order to mask his
efforts. He wants Matheny to act as a middleman. He wants Matheny
to go out and compromise one of Software's employees and he offers
Matheny a finder's fee, if you will., for doing that.
Matheny and Maguire sit down with the FBI and it is agreed that
an FBI agent by the name of Timothy Klund will pose in an under-
cover capacity as an employee of Software AG. Mr. Klund used his
own name, and posed as a computer expert working for Software.
Thereafter on April 16, 1980, April 18, and some additional dates,
Klund met with DeGeyter at various places in northern Virginia and
the same scenario, unfolds with Klund as had with Maguire. DeGeyter
starts to escalate the price, starting with $200,000, and as Klund indi-
cates his reluctance to go along, we finally have an offer of $500,000.
DeGeyter insists again that the transaction take place overseas. Klund
refuses.
It is finally agreed to meet in New York on May 18, at which time
DeGeyter is supposed to be arriving from overseas with $500,000 in
cash; although he had earlier expressed concern about coining through
customs with that much cash. But he tells Matheny that he will come
with the cash.
In preparation for that meeting, the FBI laboratory produced a
set of dummy computer tapes in order to make the exchange. On
May 18, DeGeyter arrived at JFK International Airport from
Brussels, Klund and DeGevter met. The meeting was surveilled by
other special agents of the FBI. The exchange was made, except in-
stead of $500,000 in cash, Mr. DeGeyter gave the agent a $500 000
check. Subsequent investigation showed that there was only $800 in
that particular account.
Again, a clear intent to steal, even from another thief, the source
code.
DeGeyter was arrested by the FBI and in my statement I set forth
the chronology of subsequent legal
Senator COHEN. Which account was that drawn on?
Mr. GREENBERG. That was drawn, it is attached as exhibit 1, I be-
lieve, to my statement., page 17. It was drawn on the Swiss Credit
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Bank and it is a personal check of Mark DeGeyter. He put a signature
across the front of the check to make it appear to be some sort of a
bank check or cashier's check. But it comes from his personal account
and when we made inquiries with Credit Bank's New York office, they
advised us that at the time of the transfer there was only $800 in the
account.
Senator Nuisrisr. I am going to turn it over to Senator Cohen.
I am going to have to break until 1 o'clock at which time L will come
back and Senator Cohen, if you could finish up Mr. Greenberg, what-
ever you would like to do, Mr. Southard is our next witness. I would
think if you have to leave at that time, it would be better if we could
come back at 1 o'clock for the next witness, Mr. Southard, deputy
district attorney from Santa Clara, Calif.
Just a couple of questions. Was the Commerce Department involved
in an investigation and prosecution of the DeGeyter case?
Mr. GREENBERG. No, Senator. They were not.
As I indicated before, the investigation was predicated first upon a
foreign counterintelligence interest; it then moved into criminal viola-
tions of the Travel Act and Registration Act. The Commerce Depart-
ment does not have jurisdiction under these criminal statutes. They did
not become involved until the plea was taken. The plea included a
provision for the Commerce Department to commence denial pro-
ceedings against DeGeyter.
Senator NUNN. Was the fine as part of the plea that Mr. DeGeyter
was supposed to pay, payable to the Commerce Department?
Mr. GREENBERG. Ultimately, yes. The plea agreement worked out
with the U.S. Attorney's Office, provided that he would pay a $10,000
fine. That was subject to the administrative mechanism of the Com-
merce Department, actually assessing that fine. He deposited with
the U.S. Attorney's Office a $10,000 check, payable to the Treasurer of
the United States. That was done in August. In December the Com-
merce Department formally assessed the $10,000 penalty pursuant to
their administrative regulations and the check was forwarded to
them.
Senator NUNN. So they did collect the money?
Mr. GREENBERG. Yes.
Senator NUNN. After how many months?
Mr. GREENBERG. Between December and?they collected it, I think,
December 24.
The money had been deposited, the actual documents are in my
statement, but my recollection is on or about August 1.
Senator NtrisTN. Did DeGeyter have to have an export license to
operate in the field he was operating in?
Mr. GREENBERG. It is my understanding that the source code would
have required a validated export license. It was not a classified item.
So he would not have needed a munitions control license to export.
But he would have had to check, because licensing is on an item-by-
item basis.
Senator NUNN. If a foreign citizen engages in the export, do they
have to get a personal account for an exporting license? Is he a licensed
export agent ?Js that the way he would be licensed, or is he licensed
at all?
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Mr. GREENBERG. I can't answer you directly, Senator.
Senator NUNN. Does the Commerce -Department have any kind of
list of export privileges.
Mr. GREENBERG. It is my understanding they have a published list of
people denied export.
Senator NUNN. For various reasons?
Mr. GREENBERG. Yes, sir. I never examined the list myself. I don't
know the form which it takes. I do know in this particular case, they
intended to put him on the denial list.
Senator NUNN. Do you know if they put him on the denial list?
Mr. GREENBERG. It is my understanding that as of April 22, 1982, he
has not been put on the denial list.
Senator NUNN. When was he co:avicted ?
Mr. GREENBERG. August 1, 1980.
Senator NUNN. That is what, a year and a half later?
MT. GREENBERG. Yes, sir.
Senator NUNN. And he is still not on the Commerce Department de-
nial list as of August 22, 1981.
Mr. GREENBERG. Yes, sir.
Senator NUNN. That means DeGeyter can come back into this coun-
try and begin doing business again, as far as you know?
Mr. GREENBERG. As far as I know, he could come back into the United
States. If he wanted to export something, he would have to apply for
an export license and he is not on the denial list so I assume they would
handle it in whatever procedure they follow.
Senator COHEN. What; if he just wants to steal something?
Mr. GREENBERG. If he wanted to steal something again?
Senator COHEN. Didn't you recommend he be deported from this
country?
Mr. GREENBERG. Yes, sir, I did.
Senator COHEN. What was the response to that?
Mr. GREENBERG. After he completed his sentence in Petersburg, he
was released to an Immigration and Naturalization detainer which had
been lodged because while he was incarcerated, his visa had expired.
I requested that he be immediately involuntarily deported. INS ad-
vised me that because he had been convicted of a misdemeanor offense,
not involving moral turpitude, that he was not required to depart the
country involuntarily.
Senator COHEN. And then reenter the country voluntarily.
Mr. GREENBERG. That is my understanding.
Senator NUNN. What is your experience in dealing with the Com-
merce Department in this whole area? Do you have any observations,
any personal viewpoint on that subject? Are they capable of handling
the Export Administration Act as now charged by law?
Mr. GREENBERG. I don't think I would be the proper one to answer
that, Senator. I just had the one case come up and I am currently
assisting on another Export Act case. I just don't have a sufficient
basis to answer that.
Senator NUNN. We have Justice Department representatives here
this morning. Does the Justice Department have any comment on
whether the Commerce Department is the right agency
Mr. MARTIN. No, MT. Chairman,
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Senator COHEN. Let me ask you what your experience is in dealing
with the Commerce Department as to whether the source code was even
on the list?
.No. 1, you were reluctant to prosecute the case under the Export
Control Act, weren't you?
Mr. GREENBERG. The initial decision to charge under the Travel? Act
was made because we felt that at that time it would give us the greatest
charging flexibility. During the course of the investigation, the penal-
ties under the Export Act changed. Part of the penalties changed from
a misdemeanor to a felony.
Senator COHEN. What did you originally charge him with initially?
Mr. GREENBERG. He was initially charged with violations of the
Travel Act which carries a penalty of 5 years imprisonment and/or
$10,000 or both. We felt at that time that gave us the greater flexibility
in terms of proving the case.
Senator COHEN. Why did you avoid proceeding under the Export
Administration Act?
Mr. GREENBERG. At the time the initial decision was made, we had
some concerns about whether or not there was a sufficient factual predi-
cate to show whether or not there was an export. As I say, the law was
changing, it was complex, we had a number of different factors going
at once and we just decided it was best to proceed under a different
statute.
[At this point, Senator Nunn withdrew from the hearing room.]
Senator COHEN [presiding]. Was there any question in the minds of
the Commerce Department as to whether or not the ADABAS source
code was on the list of controlled items?
Mr. GREENBERG. It is my understanding through the FBI, the Com-
merce Department had told us that?in order to export the ADABAS
source code, DeGeyter would have had to have a validated export li-
cense, and they make that determination on an item-by-item basis with-
in the broad rubric of the definition set forth in the Export Adminis-
tration Act which, as I recall, has a definition of technology, and so
they made a determination that the ADABAS source code was high
technology.
So to export it you would need a validated export license. If you look
down the list of things for which you need an export license, you don't
see the ADABAS source code, you see broad categories and then you
have to ask them to make a determination, licensing determination, if
you will.
Senator COHEN. Was there any hesitancy on their part to include the
ADABAS as part of the controlled items?
Mr. GREENBERG. I don't think there was.
Senator COHEN. So from the very beginning they said it was subject
to export license control?
Mr. GREENBERG. That is my understanding. When we in the investi-
gative family finally understood ourselves what the source code was,
the source code as opposed to the object code, the Commerce Depart-
ment indicated to us it would require a validated license.
Senator COHEN. As I understand it, the negotiations broke down on
the place of delivery, that it was to be delivered out of this country
rather than in this country. Obviously you had been in touch with Mr.
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Maguire to be sure he hesitated and refused to go along with that
aspect.
Why is that so?
Mr. GREENBERG. Once we decided that it should be pursued as a
criminal matter we made a determination that it would be necessary
to arrest him in the United States because if he left the United States,
we would then have to. deal with the problems of extradition; and
extradition would depend upon which country he went to and what
he was charged with. It is time consuming, and costs a lot of money to
get somebody back. The offense was complete when they met at the
airport and when the money was exchanged for the tape, we just de-
cided to arrest him at that time rather than chase him over Europe.
Senator COHEN. I think it has been said this morning that our export
laws are fairly outdated in view of today's level of technology. Spe-
cifically, it is very difficult to detect microchips. So assuming we create
a new Office of Strategic Trade, assuming we put the control for in-
spection in the hands of the customs officials, assuming we enhance our
inspection personnel at all exit points, what are the chances of those
personnel detecting something as small as this or the tape in the case
of Mr. Maguire?
Mr. GREENBERG. It is my understanding from talking with Maguire
and other computer experts that it would be virtually impossible for
anybody to detect the information contained in the computer tape
being taken out of the country. Obviously, if on exit from the United
States, a border officer opened the briefcase and saw the tape, he would
know that it was a computer tape, but he would have absolutely no
way of knowing what was on the tape. Even if he put the tape on a
computer, it still would have only shown him a series of numbers.
Senator COHEN. You seized some other items in Mr. DeGeyter's
possession indicating ties with the Soviet Union. What were those
items?
Mr. GREENBERG. I will submit Xeroxed copies to the subcommittee.
We seized, pursuant to search warrant, numerous items from his brief-
case. One including his Belgium passport which had a Soviet visa in it
which showed that he was traveling to the Soviet Union for commer-
cial purposes; that the agency sponsoring him was the "Ministry of
Internal Technology, Technical Machine Import," located in Moscow
and that it was valid until May 11,1980.
In addition to that, we found a number of telexes in his possession
mostly to an individual known as Bolshakov. in the Soviet Union.
Our understanding is that the telexes were directed to Techmash-
import.
For example, one of the telexes is,
Money has been received by my bank this morning. I need the money for
Item 6 as agreed in Switzerland no later than May 5th in order to guarantee
the replacements May 11. Best regards, Marc.
Another of the telexes sent to Mr. Bolshakov, read,
Dear Sir, due to the holidays your embassy will provide my visa only by May
14. I will arrive in Moscow on May 19. Hope to catch you for dinner as usual.
Best regards, Marc.
These were all in the time he was dealing with Maguire and Ma -
theny. Another telex, again to Bolshakov,
Dear Sir, 60 kilo samples will arrive May 15, flight."
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And he lists the flight number.
Freight to be paid by you. Best regards, Marc.
July 24, 1979, again to Bolshakov.
Dear sir, after my last visit to the supplier, could you agree to accept ilex
week? Release 3.1.4 regarding Item 4? Please confirm. Best regards.
And then there is one additional one, as I recall.
? We also seized from him a copy of a contract in English between
his company, CESA, on the one hand, and Techmashimport in Moscow
on the other hand, and it called for the delivery of certain pieces of
computer equipment. We seized from him what appears to be a credit
document from the Swiss Volksbank showing that on March 19, 1979,
in Zurich there was on deposit for his use $450,000 U.S. money.
We also seized from him what he called a "delivery acceptance
protocol" dated April 11, 1979, showing that certain items were de-
livered to Russia and that he was to be paid $250,000 for that.
We also seized from him a number of airplane tickets which con-
firmed his travel to Moscow. In fact, one dated April 15, 1980, showed
travel, Moscow to Vienna to Brussels to New York and to Washing-
ton.
Senator COHEN. Do you believe he was, in fact, a KGB agent?
Mr. GREENBERG. We will never know that, sir. All we know is what
the documents
Senator COHEN. I am just wondering. It seems to me kind of incon-
sistent, frankly, that any agent would be carrying these documents in
his possession.
Mr. GREENBERG. We know he was in contact with the Russians and
with this particular corporation. Exactly who or why they asked him
to get these items we were not able to discover.
Senator COHEN. What have you done with respect to the other com-
panies that are listed as his contacts?
Mr. GREENBERG. In going through his papers there were a number
of other corporations we discovered, in particular six.
Senator COHEN. Would you identify them?
Mr. GREENBERG. Tritel Corp. and Flair Leasing, formerly Compu-
file in Irvine, Calif. During the time of our investigation, DeGeyter
approached them and wanted to purchase what is called a Rolm,
R-o-l-m, computer which has been identified to us as a military specifi-
cation computer which is embargoed from export. He also wanted to
purchase a microprocessor chip, and was known by that company to
buy such things over the counter in cash, no sale was completed.
He approached Systems Magnetic Corp. in Anaheim, Calif., and
wanted to purchase from them magnetic tape recorders which we have
been told are used for satellite information retrieval. Each one of these
recorders sell for $90,000-some odd dollars. The sale was not completed
because the company was unsatisfied with his credit references.
He also approached a Keronix Corp. in Los Angeles, Calif. He ap-
proached Corland Corp. and Pay Television Corp. Both of those com-
panies cooperated. They immediately advised the FBI, cooperated in
our investigation and provided us with a taped conversation of a
meeting.
He also approached the Industrial Machinery Division of Pas-
sauant Corp. in Birmingham, Ala. That was for the purchase of a
magnetic tape slotting machine. My understanding is the corporation
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did sell that machine to the Soviet Union and one of their officials
traveled to Moscow and met with Techmachimport officials. DeGeyter
was not present at the meeting but received a fee. He also approached
the Intel Corp. in Norwich, Conn., and requested permission from
them to represent their corporation at a trade show in Moscow; they
declined.
Senator COHEN. With respect to each of those companies, I assume
you have since contacted them to alert them to further attempts by
people other than DeGeyter in contacting them for access to their
technology?
Mr. GREENBERG. Yes, sir.
Senator COHEN. In your dealings with those particular companies,
did DeGeyter indicate he was acting on behalf of the Soviet Union?
Mr. GREENBERG. He indicated he was acting for Techmashimport.
He was quite open about telling everybody that he was working for
this Russian corporation. What he made clear to Maguire, and I think
it is instructive, is that if Maguire did not deal with him, there would
be somebody else right behind him; somebody else coming along, and
dealing for the Russians, who wanted to buy the same things. De-
Geyter was saying, essentially, look, you might as well deal with me
because there is going to be somebody, next place, next time.
Senator COHEN. What seems too brazen about it all, why didn't he
just say he was representing a Belgium corporation or a Polish com-
pany or a Hungarian subsidiary?
MT. GREENBERG. I think what he wanted to do, especially with the
ADABAS code, about which he was talking about something that was
a priority item. It was clear there was no way Maguire was going to
release that thing in such a fashion so that it might fall into the hands
of his competitors. By playing upon the fact that he was taking it be-
hind the Iron Curtain, over to the Eastern Bloc, he sought to assure
Maguire that he didn't have to worry about it. I think that was his sell-
ing point. Look, fellows, you don't ever have to see this stuff again.
They are just going to use it over there and nobody will know about it,
because if it was thought it was Leing sold to one of -Maguire's com-
petitors, it is clear a deal wouldn't even have been a possibility.
Senator COTTEN. That is what I mentioned before about the cynicizan
being so deeply rooted that they would even approach it on this basis,
sell out your country to beat out your competitor.
Tell me quickly about the Techmashimport, is it? Are they regis-
tered with the Justice Department and bow does that operate?
Mr. GREENBERG. Yes, sir. Techmashimport is registered under the
Amtorg Trading Corp. The Amtorg Trading Corp. serves as an
umbrella for approximately 45 different Russian corporations.
Amtorg's head office is in New York City. Their most recent registra-
tion statement was filed in April 1974. That has been reported in the
Attorney General's submission to the Congress.
Techmashimport is listed on its registration statement as a foreign
trade corporation which imports equipment and machines of various
types. We can submit a copy of the registration statement.
Senator COHEN. Just for my own edification, are these private com-
panies or are they arms of the state?
Mr. MARTIN. They are Soviet corporations.
Senator COHEN. What does that mean?
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Mr. MARTIN. Corporations are independent entities formed under
the Soviet law, but for all practical purposes, they are formed by or
under the auspices of some of the ministries, the Ministry of Trade,
Ministry of Finance.
Senator COHEN. I was under the impression that accumulation of
capital wealth was not permitted in the Soviet Union.
Mr. MARTIN. I don't think they are capitalistic oriented, Senator.
They are entities for the purposes of carrying out business, such as the
export-import business.
Senator COHEN. But on behalf of the Soviet Union?
Mr. MARTIN. On behalf of the Soviet Union.
Senator COHEN. So, in fact, any company doing business with this
particular Soviet corporation or any one of the 46, whatever, should
be put on notice, in fact, they are doing business on behalf of theSoviet
State?
Mr. MARTIN. That's correct.
Senator COHEN. Those are all the questions I have, gentlemen. I am
just determining whether we need to hold you for any private briefing
of the staff or members on the plea bargaining aspect.
I am advised at some future time we would like to have the briefings
as far as the aspects involved in the plea bargaining but that won't be
necessary this morning.
The subcommittee is going to stand in recess until the hour of 1
o'clock.
[Whereupon, at 12:23 p.m. the subcommittee recessed, to reconvene
at 1 o'clock the same day.]
ATTER RECESS
[Member present after the taking of recess: Senator Nunn.]
Senator NuNN. The subcommittee will come to order.
Our next witness is Mr. Douglas Southard, deputy district attorney,
county of Santa Clara, Calif.
We appreciate you being here today. We appreciate all of your
help and all of your splendid work in this very important area.
I followed it with interest through the staff for some time. We
swear in all of our witnesses. So if you will hold up your right hand,
do you swear the testimony you will give before this subcommittee
will be the truth, the whole truth, and nothing but the truth, so help
you God?
Mr. SOUTHARD. I do.
TESTIMONY OF DOUGLAS SOUTHARD, DEPUTY DISTRICT ATTORNEY,
COUNTY OF SANTA CLARA, CALIF.
Senator Nuisrx. Thank you.
You have a statement.1 We will ask you to proceed.
Mr. SOUTHARD. Thank you, Senator.
My name is Douglas K. Southard. I am deputy district attorney for
the county of Santa Clara, Calif. I have been employed by the district
attorney's office, the chief prosecuting agency in that county, for a
period of 5 years. Prior to that I practiced general civil law for a
See p. 475 for the prepared statement of Douglas Southard.
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period of 2 years in a small law firm in the county. I am a graduate
of Stanford University with a degree in philosophy, and of Hastings
College of the Law, the University of California, having attained a
J.D. degree in 1975.
Like many people in law enforcement, I have no technical back-
ground in the area of semiconductor manufacture or electronics in
general, but have, of necessity, learned some of the basics of the indus-
try which was necessitated by my involvement in high-technology-
theft prosecutions.
In the district attorney's office, I have been assigned for a period
of 31/2 years to felony prosecutions. For the last 2 years, my primary
assignment has been high technology thefts, including trade secrets
thefts, integrated circuit thefts, electronic equipment thefts and the
investigation and prosecution of related criminal conspiracies.
In learning the technical necessities of this area, I have been greatly
assisted by numerous people in law enforcement and in the industry
itself; and particularly, have received training and assistance from
Intel Corp., Signetics Corp., National Semiconductor, Synertek Corp.,
Hewlett-Packard Corp., and the NBK Corp.
Investigation agencies with whom I have closely worked investigat-
ing and prosecuting these cases primarily have been the organized
crime and criminal investigation section of the Santa Clara County
Sheriff's Office, the Federal Bureau of Investigation, and the Santa
Clara County Police Department, with notable assistance from the Los
Angeles and Orange County Sheriff's Departments, U.S. Customs
Service and the Department of Commerce.
The preeminent police expert on these matters in our county is De-
tective Patrick Moore of the sheriff's office.
In the last 2 years, we have investigated literally scores of tech-
nology-related theft cases, resulting in numerous convictions, but also,
sadly, numerous unsolved thefts or thefts wherein the property was
never recovered.
Like you, we in local law enforcement are very concerned with the
national security implications of .the technology thefts that we have
seen. However, as our expertise Is in the field of investigating and
prosecuting these crimes, and not in the international ramifications
thereof, I will limit myself in my comments to the problem as seen by
the local investigator and prosecutor and some suggestions as to where
law enforcement has to go to help stem the tide.
Senator NUNN. I know we have Mr. Wu in the room. He has co-
operated with our staff. He was scheduled to be our witness. The prob-
lem is we have got to get out of this room at 1 :30. That means we will
not have another witness today.
I also understand the Justice Department has problems with cer-
tain questions that we had planned to ask Mr. Wu. For that reason,
I think what we will do is just put his statement in the record and we
will dismiss Mr. Wu from being a witness today or in this hearing.
Senator NUNN. We do appreciate your being here. We appreciate
your patience in waiting. I didn't want you to have to wait around
to no avail. I understand Mr. Wu just walked in. I was just saying
he was scheduled to be our next witness. We have got to give up. this
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room at 1 :30. Therefore, we will not have time to have but one wit-
ness and I understand .also the Justice Department had certain prob-
lems with questions we planned to ask Mr. Wu, particularly some of
his personal opinions.
I don't want to put him in an untenable position. This was contrary
to what my understanding was as far as his testimony. I think it is
also contrary to what we had discussed with the Justice Department
officials.
Nevertheless, I don't want to put Mr. Wu in that position. We will
put his statement in the record and we will not need him as a witness.'
Mr. MARTIN. Thank you, Mr. Chairman.
Mr. SOUTHARD. Senator, I assume that the subcommittee might like
to have some technical information regarding semiconductors devices.
I have included in my written statement the brief overview of the
processes.
For present purposes, however, I will omit that discussion. I would
however like to present to the subcommittee for their inspection a
board showing the brief example of the different types of materials
which are used in the integrated circuit manufacturing process.
I also have a photograph about 100 times magnification of a stand-
ard integrated circuit memory chip. I would point out to the Senator
the particular integrated circuit package that is in the bottom center
of that board. Significant numbers of these were stolen in a recent $3
million theft in Santa Clara County. Those particular parts are spe-
cifically made for military application.
The integrated circuit was invented in the late fifties and is a
uniquely American development. It was first marketed in 1961 com-
mercially and now the sales worldwide of this type of device are over
$5 billion per year.
Continued development of integrated circuit memory chips have
reduced the cost of information storage in computers 100-fold in the
last 10 years.
In the late 20th and early 21st centuries, integrated circuitry will be
as basic to industrial society as steel was in the 19th and early 20th
centuries. Leadership in this technology will be vital to any nation
who would seek to be a world leader of economic and military power.
In the wake of this new technology has sprung an industry centered
in what has come to be known as Silicon Valley, that is, Santa Clara
County, Calif., which is amongst the most fast moving and competi-
tive in the world.
An individual who can build a better electronic mousetrap using
this technology has potential immediate access to great wealth and
recognition. Companies oftentimes spring up overnight based on one
good idea and sometimes die just as quickly when that idea is overcome
in the marketplace.
In fact, the leading semiconductor manufacturers in this country
and in the world are often companies which didn't exist 15 years ago.
Now some are billion dollar corporations. 17p to now, in my view,
the rapid growth of these companies have prevented a proper assess-
ment of their security operations and has caused a substantial lag in
public and official appreciation of the national security implications of
the new technology.
2 See p. 510 for the prepared statement of Theodore Will Wu.
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According to the available evidence, in the past 5 years alone, a con-
servative estimate is that $100 million or more in electronic technology
and product has been stolen in the Santa Clara alone. We in law en-
forcement have only recently almost stumbled over the problem. At
the .time we were not totally prepared to deal with it. Now we are
beginning to make some headway.
Most of the thefts that we are talking about are perpetrated by or
with the assistance of employees. Cases we handle involve technicians,
inventory clerks, draftsmen and engineers. Quite commonly, security
personnel are involved. They steal circuit designs, process informa-
tion, precious metals and the chips themselves. There is also increasing
propensity finished goods such as computer disk drives and desktop
computers.
The modes of thievery are many. Sometimes burglary is resorted
to. Sometimes truck highjackings or even armed robberies. The most
common fashion is merely to walk out the door of one's company with
a tape or a set of glass plates upon which a chip designed is etched or
the chip themselves in one's coat.
The interesting thing here is that with, for instance, the reticles or
computer tapes, which depict these circuit designs upon them, a com-
pany or country which has not developed the technical expertise to
actually design these products effectively from scratch, such as Eastern
Europe, can get them by theft where otherwise, they would not be able
to make them at all.
The most common problem we have is much more crude and direct,
however, and this is the employee taking things out in his lunch bucket,
in the lining of the jacket or whatever. He sells to a marketplace which
has come to be known as the gray market. He can sell these parts that
are stolen from 5 to 50 cents on the dollar to numerous fly-by-night
independent distributors operating out of low-rent office suites, their
homes or even the back seats of their cars.
Usually, no questions are asked.
As often as not, the buyer purchasing the stolen parts is otherwise
respectable appearing businessmen. He uses his business as a front for
criminal activity or just cannot pass up the opportunity to make some
fast money.
In one recent case, in Santa Clara County, resulting in the convic-
tion of two persons, an u:ndercover officer offered to sell a local distribu-
tor purportedly stolen Intel memory chips which were in very high
demand.
The officer flat out told the businessman these chips were stolen.
After snapping up the parts for $10,000 in cash, which is the common
method of payment, the defendants in the same day shipped these
parts via air freight to Werner Bruchhausen, the nortorious interna-
tional chip broker.
The principle in this particular case is no back alley crook. He.is
the handsome three-piece suited president of a successful parts dis-
tribution firm and, all in all, a very typical American success story.
Yet here he was selling stolen integrated circuits to an internationally
known fence. The reason is the same as always, greed. Greed has
spawned what we think of as the gray market and to understand, I
think, briefly, we will talk about the hierarchy in electronics commerce.
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In between the manufacturer and the end user are middlemen.
Usually we are talking about franchised distributors which are rep-
utable firms dealing directly with the manufacturers but beneath the
franchise directors has grown a market populated by the independent
distributors.
They obtain their product either from a company which manu-
factures it when a surplus occurs or from franchised distributors or
even end users when they have surplus parts.
What is created by this system is an "anything goes" marketplace
where, especially in times of high demand and short supply, such as
occurred in the 1977 to 1980 time frame, speculation runs rampant.
It's really no different from pork belly futures. Brokers buy large
quantities of parts at fire sale prices, hoping to be able to turn them
over quickly if a need is found elsewhere. Numbers of these people
made a lot of money doing just this sort of speculation during the
parts shortage of 1977 to 1980.
An example of the gray market is a case which has been success-
fully prosecuted recently. This is the case of Larry E. Lowery. Larry
Lowery first came to the attention of law enforcement in January
1978. In that month an employee of TAM Electronics, a distributor,
was observed to steal $100,000 worth of late model circuits and trans-
port them to one, David Henry Roberts. Roberts in turn delivered
them to Lowery's house. Because of a series of miscues by law enforce-
ment, he escaped prosecution. But, again, in 1979, Roberts, the
middleman here was rearrested and convicted for two integrated cir-
cuit thefts. Again, he named Lowery as his instigator and fence but
the police were able to acquire evidence other than Robert's statement
with which to prosecute.
In April 1980, an undercover investigation was initiated which
ultimately led to the arrest of Lowery in the search of his premises.
Over 11,000 stolen integrated circuits valued at between $100,000 and
$150,000 was seized. Legwork and forensic examination disclosed that
the records that Lowery kept relating to his acquisition of these parts
were entirely phony. Handwriting experts determined that in fact
all the records were authored by the convicted thief, David Roberts.
While the prosecution was pending and just prior to a preliminary
i
hearing in the matter, a key witness n the prosecution was lured out
of his home, attacked and severely beaten.
Later on, the eve of the jury trial, Roberts himself, then under
subpena by the prosecution, was murdered execution style and his
body dumped in a shallow grave in the Santa Cruz Mountains.
Lowery was convicted in November 1981. Notwithstanding his
sentence to prison, however, while he was still out on bail pending
sentencing, another theft occurred from Monolithic Memories, Inc., in
Sunnyvale, Calif.
That theft occurred over Thanksgiving weekend in 1981?$3.4
million worth of late model high tech integrated circuits were stolen,
including a great number of the samples that you see on the board
before you. Senator.
Many of these circuits were specially designed units with direct
military applications. In all, about a ton of boxed, first line parts were
taken, necessitating at least two truckloads to make off with all the
booty.
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Ultimately, three subjects were arrested and evidence was seized
implicating both Lowery and his partner, Larry Kizer.
There was insufficient evidence to charge Kizer or Lowery.
The parts themselves have not been located or recovered and frankly
it is feared they have been already transported overseas, most likely to
a European location. It is worthy of note that Lowery had reportedly
bragged to associates of his .that he was the biggest fence in northern
California and the evidence suggests he also made new European con-
tacts with which to market his goods.
To date, the trial of investigation in this case is littered with dead
bodies, assault, sophisticated thefts, drug sales and more. Scores of
criminal conspirators appear to be involved. It represents the largest
case of consistent, habitual, organized criminal activity aimed at
Silicon Valley.
Another case worthy of note involves some characters already men-
tioned before to the subcommittee.
John Henry Jackson is a five-time convicted felon who, for the last
3 or 4 years, has been the proprietor of a P.C. board "stuffing" house
and aspiring computer maker, with a parts brokerage business in the
Santa Clara area.
Around November 1979, again, around Thanksgiving time, Intel
Corp., a maker of the state-of-the-art type products, suffered a million
dollar theft of approximately 10,000 units. These were state-of-the-art
memory devices in very high demand throughout the world at that
time.
After the theft, corporate inevstigators had no leads as to how these
items had been stolen but shortly thereafter, it came to their attention
a large number of these products had surfaced in Germany.
Specifically, Siemons A. G. of West Germany, a hugh electronics
manufacturer, and one of Intel's best customers, had apparently just
received a large shipment of 10,000 parts which were established to be
the stolen parts.
Siemons purchased approximately 10,000 parts from E.V.B. Corp. of
Munich, West Germany. E.V.B. received the parts from two sources,
Republic of Virginia, here in Arlington, Va., and another parts
broker, Mormac, Inc. of Torrance, Calif.
Each of these companies in turn purchased their portion of parts
from Space Age Metals in Los Angeles who obtained it from John
Jackson.
Luckily an employee of Jackson's came forward spurred in part by
continuing revelations in the press regarding the seriousness of the
stolen chip problem. The witness told, in a period of less than 11/2 years,
of having counterfeited tens of thousands of integrated stolen circuits
for Jackson, primarily, Intel products.
With the cooperation of this informant, an undercover operation
was instituted and eventually Jackson and one of his associates were
arrested. His associate had been an Intel employee.
Concurrent with these arrests, extensive search warrants were pre-
pared and served on various parties. In one business letter discovered
at Space Age Metals, a Republic vice president told a Space Age offi-
cial that he was amazed at the quantity and price of this product that
was being offered, given their scarcity in the marketplace, but that he
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wanted to close the deal and was not stupid enough to ask any dumb
questions.
The Jackson case points out the difficulty of proving knowing receipt
of stolen circuits, once we do uncover the theft case.
Although business records of the affected companies did indicate
transactions among them and the particular kind of product involved,
it is impossible to prove which particular items they sold to one another
and, therefore, the chain of circumstantial evidence is very strained.
The recordkeeping systems employed by the brokers are not suffici-
ently specific to be able to trace the particular part, nor are knowing
thieves likely to keep such records.
Another aspect of the theft problem which is potentially much more
serious for national security purposes is the trade secret thefts, since
such thefts provide the very means of obtaining the technology upon
which to establish an industry and develop competitive expertise. I
have heard authoritatively stated that the United States at one time
possessed a 10-year lead over the Soviet Union in microelectronics
technology, but that that lead has already shrunk to maybe 5 years
based primarily on the easy access the Soviets have to our technology.
I am not in a position to attest to the veracity of that proposition
but certainly what I have seen would not negate it. By their very na-
ture, trade secret theft is the most difficult type of theft to detect and
solve. What is taken is generally not a physical thing, but an idea.
Original documents, computer tapes, reticles, masks and technical
drawings can be easily copied by any number of photographic or
electronic means without anything corporeal ever being taken.
Hence, nothing is missed.
California, at least, is among the few States who have a criminal
trade secret theft statute. I set it forth in my statement but won't
repeat it here. I think it important to note a statute makes it a crime
either to take an article representing a trade secret or copy an article
representing a trade secret. It also makes it a crime to offer a bribe in
order to obtain a trade secret.
Unfortunately, very few States have criminal trade secret theft
laws.
I discovered that most of the Western States in this country where
significant semi-conductor and defense plants exist, have no trade
secret laws whatsoever.
I think this is a serious deficiency which perhaps can be addressed by
legislation.
An example of a trade secret theft case of some importance is the
case of Peter K. Gopal. Peter K. Gopal first came to the attention of
industry security personnel in approximately January 1978, in con-
nection with National Semiconductor Corp.'s unauthorized possession
of a computer data base tape containing the design for a late model
Intel microprocessor chip.
After an inconclusive investigation, the matter was put on the back
burner. Thereafter, however, in September 1981, one Andrew Moore,
an independent manufacturer's representative, indicated in conver-
sations to a national semiconductor employee that he represented a
principal who owned the original Intel design information available
for sale. The national employee immediately contacted his superiors
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and law enforcement authorities and an investigation ensued. During
undercover negotiations, Gopal indicated that he had past and con-
tinued access to proprietary Intel design via insiders within Intel
Corp. He stated he already sold his designs in Europe and customers
were quite satisfied with their performance and authenticity.
The undercover operation culminated in late September with
Gopal's arrest during a sale of Intel chip designs. Search warrants
were prepared and served leading to the seizure for Gopal's business
premises of hundreds of computer tapes, masks and other design
materials for Intel, National, Semiconductor, Zilog, and other
corporations.
The values of the items seized ran well into the millions of dollars.
Some of the items seized were still in the research and development
stage, and had never been marketed by their owners.
Also seized were personal and business record of Gopal's indicating
trips to Europe in 1977 and 1978, including trips to the Soviet Union
and Poland.
Business cards of numerous Soviet consular level and ministry offi-
cials dealing in technology exchange and purchase were found. I won't
try to list them all because they are contained in my statement on
pages 40 and 41. I will note there are two individuals there named
Pavlov, which is the same name mentioned yesterday. One card bears,
in Gopal's handwriting, the phrase: "Terms of contract negotiation."
Business records seized also indicated continuing international
transactions between Gopal and Austrian and Swiss firms. The pri-
mary Austrian firm, Sacher-Gesellschaft AG, of Vienna Austria,
was headed by Dr. Rudolf Sachem. He was also a one-half shareholder
with Gopal in Gopal's business, Semiconductor Systems, Interna-
tional, Inc. Subsequent investigation of the Swiss firms indicated they
were probably nothing more than shell corporations, serving as mid-
dlemen for the transactions in which they were involved. Efforts to
track the course of the transactions past the Swiss firms were fruitless.
Gopal has refused to cooperate with the authorities.
The investigation continued after Gopal's arrest, however, and a
business associate was located who told authorities that Gopal bragged
of having purchased certain integrated circuit testing equipment and
selling it to Poland via one of his Swiss intermediaries.
A check of business records confirms Gopal indeed acquired the
equipment in question and sold it, but it's ultimate purchaser could
not be determined,
My understanding is the Department of Commerce, after an investi-
gation, concluded that it was unable to prove a violation more serious
than a misdemeanor for which the only penalty was suspension of
export licensing privileges.
By that time, Gopal had been blackballed in the industry and his
license matter was rather moot.
Senator NUNN. Did Gopal ever go to jail?
Mr. SOUTHARD. He was convicted after a 6-month-long court trial.
He was sentenced to 2 years, 8 months in a State prison in California.
I might note his prosecution was unusually difficult. Neither the
prosecution nor defense was willing to risk a jury trial because the
issues were so complicated.
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At one point a judge threw out most of the physical evidence because
the police officer serving search warrants were so ignorant as to what
they were looking for they had to take technical people along with
them just to identify what was stolen and what was not. Thankfully,
the court of appeals reversed that, but the complexity of the case ne-
cessitated, for instance, actual court hearings and testimony being
taken in the computer room at National Semiconductor. We had to
adjourn and go to the massive rooms filled with computers just to view
the evidence.
He was sentenced to 2 years, 8 months in State prison. He is, how-
ever, currently free on bail pending appeal which does not seem to
be terminable in the foreseeable future. After a year and a half, the
court reporter hasn't even finished making the transcript.
I have addressed the suggested responses, some suggested responses
in my written statement, Senator. I won't reiterate those here except to
mention generally it is the feeling of myself, as a representative of the
law enforcement community in Santa Clara County, that we need in-
creased investigative personnel in export regulatory agencies and the
FBI to help us.
These matters are matters which are international in scope And just
are not appropriately dealt with by a local sheriff's office with its
limited background and limited resources.
I also believe the creation of a national regional high technology
crimes task force or at least the information clearinghouse would be
quite valuable in this context.
Senator NUNN. Do you agree with Dr. Baker's general suggestion
there or did you hear him testify?
Mr. SouTHARD. I did hear him testify and found his testimony very
enlightening and I do agree with his suggestion; yes.
I have also suggested a system of mandatory crime reporting which
would be similar to what currently exist in banking law as something
that might be helpful. I have noticed a reticence on the part of some
manufacturers to become involved in law enforcement.
Also, electronics broker regulation is a subject I think that should
be investigated, and the possible enactment of Federal trade secrets
laws to complement the Secrecy Acts, the Espionage Act. These, of
course, are suggestions on my part seen from my perspective. It is for
the subcommittee to put all the pieces of the jigsaw puzzle together
and come up with its recommendations.
Thank you.
Senator NUNN. Thank you very much. You have been helpful and
have a very impressive record in law enforcement particularly in this
area.
From what I am told, you have had probably more experience in
this area than most Federal people.
Mr. SOUTHARD. Unfortunately, I think that is true ? yes.
Senator NUNN. You are saying there really is clearly a Federal role
that is beyond the scope of what local law enforcement officials can
handle?
Mr. SOUTHARD. Absolutely. For instance, in the Jackson case, which
is still pending, if we were really going to go all the way to prove out
the chain of evidence, tracing the parts from Germany back to their
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theft source in California, it would require the exhaustion of entire
witness budget of my county for the whole year.
Frankly, the public, who is more concerned about violent crime,
doesn't want us chasing all over the world after white-collar crime.
Senator NUNN. Why would the mandatory crime reporting you sug-
gest be needed for the national clearinghouse? What would be the
advantage of this?
Mr. SOUTHARD. It is just a matter of gaining intelligence
information.
What we have found since we started an active investigative role,
which includes sting operations and continual undercover monitoring
efforts, is you have to establish patterns here and there to know what is
going on. I think it and mandatory crime reporting help us to estab-
lish patterns, recognize who the real thieves are, and therefore, estab-
lish priorities for enforcement.
Senator NUNN. How valuable and necessary is it for prosecutors,
Federal and State, to have a technological background when prosecut-
ing these advance technology type cases?
Mr. SOUTHARD. For someone in my position, it is not, certainly,
absolutely necessary. It might be desirable. I certainly would not have
the technological background. What you will find, however, is that
industry, once aroused, is very interested in helping and will provide
all of the training that is really necessary to understand what is basi-
cally a new vocabulary.
Senator NUNN. The general thievery amounted to $100 million in
the last 5 years in Santa Clara County from high technology firms?
Mr. SOUTHARD. That is correct.
.Senator NUNN. How much of it would you estimate comes from
foreign sources trying to gain access as opposed to just cutthroat,
unscrupulous competition of stealing secrets from competitors?
Mr. SOUTHARD. Frankly. I think most of the kind of thing over
which our county has jurisdiction comes from normal street level
thieves and a hierarchy of brokers who are criminally involved.
The important thing, however, is this provides a mode of acquiring
products for illegal export.
We have seen it on numerous occasions. Mr. Bruchliausen. for in-
stance, who was previously mentioned, had contact with three of the
people I previously mentioned.
Mr. Gopal was concerned almost exclusively with overseas export of
technology.
Senator NuNN. When you look at the overall problem. wouldn't it
be more effective to have a concentrated law enforcement effort at the
source, that is, at the manufacturer's level, rather than at the borders?
Mr. SOUTHARD. Obviously that would seem the simpler solution. We
have given a lot of criticism to industry in terms of the lack of self-
policing they have done. However, these products are designed for
the marketplace. They are going to get out into the marketplace one
way or the other. Therefore, if there were more security guards on the
doors of the manufacturers it wouldn't help.
We need an effort to keep these from going over the borders.
Senator NUNN. Is there any way businesses and companies can be
notified about people like Gopal, whose activities are known to law
enforcement and many times are not known to businesses?
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Mr. SOUTHARD. I think this is where the central clearinghouse or
task force idea will come in handy.
Of course, they can be notified. They have to be, discreetly. They
are not, so far as I know, on any regular basis.
Senator NuNN. What suggestions would you make to high tech-
nology businessmen who are patriotic and want to protect national
security?
Mr. SOUTHARD. I think we have seen some such businessmen testify
before this subcommittee.
You have got to question about the validity of the firm you are
dealing with, especially a foreign firm. Go to the FBI, ask questions.
The FBI has recently sought to publicize their efforts in this problem
in our particular area by putting up billboards similar to the World
War II type of thing about the walls having ears.
Senator Nuivrr. When you mentioned having an electronic broker's
license, what do you think the resistance level would be to this in
terms of business people saying this is just another Government
regulation, and so forth?
Mr. SOUTHARD. I'd sympathize with them if they said that. On the
other hand, the legitimate brokers are already doing business in a
proper fashion. I don't believe it would be unduly negatively influ-
enced by that kind of legislation.
What I am proposing is nothing different than the type of control
that is almost everywhere already imposed upon pawnbrokers. You
have to identify it as an area which is a type of enterprise which is
particularly easy to abuse. Once you have done that, I think you can
rationalize the controls.
Senator NuNisr. How does law enforcement have any way of protect-
ing lmowhow ? That being a very special part of what America has
today that the Soviets don't have, how in the world can you devise a
law enforcement mechanism or codify an overall approach to protect-
ing knowhow ?
Mr. SOTJTHARD. I don't know that law enforcement activity in that
particular area is what is most needed. In that particular area,
on-site
security by the manufacturers should be effective and, in fact, know-
how or trade secrets tend to be more closely guarded than actual phys-
ical product because you can insure the physical product against
theft. You can't insure the know-how. But the type of organization
proposed by Dr. Baker, I think, would be very helpful in giving the
Federal law enforcement community the appropriate technical input
to understand whether know-how is really involved.
Senator NuNN. Do you think the companies in the Silicon Valley
area are aware of the military significance of what they are developing
in most cases?
Mr. SouTHAan. I think somehow subliminally they are aware of it.
Frankly, most of the market is the commercial market.
Recently one of the leading minds and figures in the area, the vice
president of Intel was asked about that particular question, and his
basic response was, "Hey, we're in the chip-making business. That's
the Fed's problem to worry about where it goes afterwards." I was
kind of surprised at his relatively callous answer there, but I think
that may be somewhat representative of the field.
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Senator NUNN. What would the Soviet Union have done with the
technology Gopal was stealing? How would it be useful to them?
Mr. SOUTHARD. Nothing he had had direct military application.
The same kind of chip that can be used in a Pacman game can also
be used in a cruise missile. What was interesting about what he had
was lie had very voluminous design information about current memory
and microprocessor chips. What he had, if possessed by somebody else
with the appropriate equipment and process information that is the
chemical process type of magic that goes into making these chips?if
you had those two precursors and designs, you could have gone into
immediate mass production of these chips and modified them for spe-
cific military use.
Senator NUNN. You have been involved in this area a good bit. Have
you had any contact or liaison with the Commerce Department?
Mr. SouTHARD. Only with respect to the Gopal case. They sent an
agent out for a few days who went through records in my files. Evid-
ently he also made trips to Europe investigating the case, but they
were unable to find a felony violation.
Senator NuNN. Have they encouraged you to coordinate with the
internal information when you have it in this area?
Mr. SOUTHARD. There has been no encouragement other than this
one agent. There has been no communication officially other than that.
Senator NUNN. Mr. Southard, we really appreciate your good work
in this area. You are a credit to law enforcement; you are a credit to
prosecuting attorneys. You have been a great help to our subcommittee.
We appreciate the summary you gave considering the time elements
we were working against here today. We hope you will continue to
keep in touch with us and give us the benefit of your views.
Mr. SOUTHARD. I certainly will.
Senator NUNN. Thank you very much.
Mr. SOUTHARD. Thank you, Senator.
Senator NUNN. Tomorrow morning at 9 :30 we will resume the hear-
ing. At that time we will hear from the Honorable James L. Buckley,
State Security Assistance, Department of State; Edward O'Malley,
Assistant Director, Intelligence Division, Federal Bureau of Investi-
gation; Arthur Van Cook, Director of Information Services, Depart-
ment of Defense, Chairman of National Disclosure Policy Committee;
William Von Raab, Commissioner, U.S. Customs Service, accom-
panied by Mr. George Corcoran, Assistant Commissioner.
We will resume these hearings at 9 :30 a.m. tomorrow.
[Whereupon, at 1 :42 p.m., the subcommittee recessed, to reconvene
at 9:30 a.m., Thursday, May 6, 1982.]
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TRANSFER OF UNITED STATES HIGH TECHNOLOGY
TO THE SOVIET UNION AND SOVIET BLOC NATIONS
THURSDAY, MAY 6, 1982
U.S. SENATE,
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
OF THE COMMITTEE ON GOVERNMENTAL AFFAIRS,
Washington, D .0 .
The subcommittee met at 9:30 a.m., in room 3302, Dirksen Senate
Office Building, under authority of Senate Resolution 361, dated
March 5, 1980, Hon. Sam Nunn presiding.
Member of the subcommittee present: Senator Sam Nunn, Demo-
crat, Georgia.
Members of the professional staff present: Eleanore J. Hill, chief
counsel to the minority; Katherine Bidden, chief clerk; Gregory Bald-
win, assistant counsel to the minority; Jack Key, Glenn Fry, and Fred
Asselin, staff investigators to the minority; and Kathleen Dias, execu-
tive secretary to the minority chief counsel.
[Senator present at convening of hearing: Senator Nunn.]
Senator NuNN. The subcommittee will come to order.
[The letter of authority follows:]
U.S. SENATE,
COMMITTEE ON GOVERNMENTAL AFFAIRS,
SENATE PERMANENT SUBCOMMITTEE ON INVESTIGATIONS,
Washington, D.C.
Pursuant to rule 5 of the Rules of Procedure of the Senate Permanent Sub-
committee on Investigations of the Committee on Governmental Affairs, permis-
sion is hereby granted for the chairman, or any member of the subcommittee as
designated by the chairman, to conduct open and/or executive hearings without
a quorum of two members for the administration of oaths and taking testimony
in connection with hearings on the transfer of U.S. high technology to the Soviet
Union and Soviet bloc nations, to be held May 4, 5, 6, 11, and 12, 1982.
WILLIAM V. ROTH, Jr.,
Chairman.
SAM NUNN,
Ranking Minority Member.
Senator NuNN. Senator Roth is going to be coming in later this
morning. He asked me to go ahead and begin the hearings.
Mr. Secretary, we are delighted to have you this morning returning
to the Senate. We are pleased to have your associates.
If you plan to have testimony from all three of you here today, I
will ask all of you to rise and take the oath. We swear in all of our
witnesses before the subcommittee.
Do you swear the testimony you will give before the subcommittee
will be the truth, the whole truth, and nothing but the truth, so help
you God?
Mr. BUCKLEY. I do.
Mr. JOHNSTON. I do.
Mr. BRYANT. I do.
95-929 0 - 82 - 11
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TESTIMONY OF JAMES L. BUCKLEY, UNDER SECRETARY OF STATE
FOR SECURITY ASSISTANCE, SCIENCE AND TECHNOLOGY, DE-
PARTMENT OF STATE, ACCOMPANIED BY ERNEST JOHNSTON,
DEPUTY ASSISTANT SECRETARY OF STATE FOR ECONOMIC AND
BUSINESS AFFAIRS, AND CLYDE BRYANT, CHIEF, SUPPORT SERV-
ICES DIVISION, OFFICE OF MUNITIONS CONTROL, STATE DEPART-
MENT
Mr. BUCKLEY. Thank you, Mr. Chairman.
I will be the only one giving the statement, but Mr. Clyde Bryant on
my right is thoroughly familiar with the munitions control apparatus
and Mr. Ernest Johnston on my left is familiar with some of the
technical details of Cocom.*
Senator NUNN. Good.
I know you have a statement, so we will be delighted to receive it.
Mr. BUCKLEY. Mr. Chairman, it goes without saying that I am de-
lighted to have this opportunity to testify on the role of the State
Department in controlling the transfer of militarily critical tech-
nology to the Soviet Union and the Eastern bloc. Whatever the record
of prior administrations, Republican as well as Democratic, it is clear
that this administration has placed a very high priority on improving
the effectiveness of the executive branch in enforcing export controls.
It has launched important initiatives which we believe will greatly
improve their overall effectiveness while sharpening the focus on
those elements of advanced technology and process know-how which
are of the most critical importance to the Soviet bloc.
We freely acknowledge that much more needs to be done; and we
are actively working with other agencies to improve coordination over
a range of issues.
It will take time, however, for all these efforts to take hold in
particular areas, especially because of the large amount of new data
that has had to be gathered by various agencies.
In your letter inviting me to testify, you asked the State Department
to respond to six specific questions. I have done so in the attachment
to my prepared statement, which I would appreciate your including
in the proceedings.
Senator NUNN. Without objection, they will be admitted into the
record as if read.1
Mr. BUCKLEY. National security export controls are a basic element
in overall U.S. policy toward the Warsaw Pact countries.
To put it plainly, these controls are a recognition of the fact that
the global objectives of the Soviet bloc are inimical to our own, and
threaten every value for which our Nation stands. Therefore, it is sim-
ply harmful for us to provide those nations with Western, militarily
useful technologies, to be turned against us.
As most of these sensitive technologies are not within the sole con-
trol of the United States, it has been essential from the outset to achieve
among the major Western industrialized powers fundamental agree-
* COCOM stands for Coordinating Committee for Multi-Lateral Export Controls?to
which Japan and all NATO countries except Iceland belong.
1 See p. 533 for Secretary Buckley's prepared statement with attachments.
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ment as to what technologies are militarily critical and how their
transfer to the Soviet bloc should be controlled.
The instrument that has been developed for this purpose is the co-
ordinating committee for multilateral export controls, or "Cocom"
to which Japan and all NATO countries, with the exception of Ice-
land, belong.
Cocom was created in 1949 by informal agreement among its mem-
bers, and has thus been in existence for more than three decades.
Cocom has three major functions:
The first is the establishment and updating of lists of embargoed
products and technologies. Although Cocom lists are not published,
they become the basis for the national control lists administered by
each member government. The member governments are now prepar-
ing for a major review of these embargo lists, which will begin in
October.
Second, Cocom acts as the clearinghouse for requests submitted
by the member governments to ship specific items to specified end users
in the proscribed countries. ( The Cocom-proscribed countries are the
the Soviet Union, the other Warsaw Pact countries, China, and the
other Communist countries in Asia.)
Third, Cocom serves as a means of coordinating the administration
and enforcement activities of the member governments.
The Cocom lists set up fairly specific limits on the technical char-
acteristics above which member governments agree that they will pro-
hibit exports to proscribed countries, unless Cocom itself approves
exceptions.
In agreeing to a national request to export items on one of the con-
trol lists, Cocom works on the principle of unanimity. No application,
in short, is approved if any member state objects.
One of the evolved strengths of Cocom is that in over 30 years of
operations, there have been very few cases in which a government has
exercised its sovereign right to go ahead with exports over Cocom
objections.
Senator NUNN. Mr. Secretary, when you say no application, in short,
is approved if any member state objects. Does this mean that no tech-
nology is left off the excluded list?
In other words, there is no restriction unless everybody agrees, or
does it mean just the reverse?
Mr. BUCKLEY. It means once a technology is on the list, any one
member nation has a veto over its transfer to a proscribed country.
Senator NUNN. I see. So it is really a veto that protects the export of
technology?
Mr. BUCKLEY. That is right.
Senator NUNN. One country can block all the rest.
Mr. BUCKLEY. With respect to those items on the list.
Senator NUNN. The crucial thing is what is on the list?
Mr. BUCKLEY. Exactly, yes.
This self-discipline is all the more remarkable given the absence of
any treaty or executive agreement undergirding the organization.
Over those decades, Cocom has generally been successful in inhibit-
ing the overt flow of strategic technology to our adversaries.
During the 1970's, however, in the honeymoon days of detente, the
United States and the West relaxed controls over a number of em-
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bargoed commodities. It was believed that wide-ranging trade would
somehow alter the international behavior of the Soviets and moderate
their military investment.
During this period, the United States went from being the least, to
the most frequent, seeker of exceptions to multilateral controls. Cocom
itself came to reflect such attitudes, and exceptions to the embargo
were allowed to thrive.
We now know this was a mistake. During the period of detente, the
world stood witness to the greatest military buildup in history, along
with the increased Soviet adventurism that grew out of an increased
self-confidence.
The Reagan administration came to power 15 months ago deter-
mined to stem the flow of the technology that the Soviet Union and its
Warsaw Pact allies were using to improve their already vast warmak-
ing capabilities. It was clear that the West's crucial qualitative edge
in military systems was being undermined by the Soviets' increasingly
aggressive efforts to buy or steal our militarily relevant technologies
and equipment.
More precisely, we saw this well-orchestrated acquisition program
giving the Soviets:
First, a very significant savings in time and money in their military
research and development programs;
Second, rapid modernization of their defense industrial infrastruc-
ture;
Third, the opportunity to accelerate the closing of gaps between our
weapons systems and theirs; and
Fourth, the chance to develop, with alarming speed, neutralizing
countermeasures to our own technological innovations.
As a consequence, the administration has initiated efforts to fill in
gaps in the multilateral export control system. At the Ottawa summit
meeting last July, President Reagan raised the problem of Western
technology transfer to the Soviet Union. An agreement at Ottawa to
consult on this issue culminated in a high level meeting in Paris dur-
ing January, the first ministerial level Cocom meeting since the late
1950's. The other Cocom governments have asked that the results of
that meeting be kept confidential, as indeed are all Cocom proceedings.
I chaired the U.S. delegation to that meeting, however, and I can
say that there was a concrete consensus that the member governments
should increase their effort to improve Cocom effectiveness. We have
been encouraged by what appears a new and more constructive atti-
tude of other Cocom governments, and feel that this meeting forms a
basis for a revitalization of the Cocom system.
Such a revitalization will take much hard work and it will take time,
among other reasons because Cocom depends on the national adminis-
tration of controls by 15 individual governments. But some specific
steps are under way. Effectiveness, for example, requires precise defini-
tions of many complex technologies. We have made progress toward
agreement on a number of specific, technical proposals in this area to
tighten the embargo.
Second, the United States is now working on proposals that will ex-
pand Cocom control lists of new priority industries. These include
gas turbine engines; large floating drydocks ; certain metallurgical
processes; electronic grade silicon; printed circuit board technology;
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space launch vehicles and spacecraft; robotics; ceramic materials for
engines; certain advanced composites; and communications switching
and computer hardware and software technology and know-how.
This process will continue into the triennial Cocom list review, which
will take place this October, when a general reappraisal of everything
on the control lists will take place.
Senator NUNN. Who is actually doing this reappraisal for our gov-
ernment, for instance? What group of people carry out our national
input into that process?
Mr. BUCKLEY. We have the military, of course, and we also had a
tremendous input from the intelligence services who are examining
new concepts of what is really critical, what are the choke points, and
what is it that the Soviets are most anxious to have. We also have a
great deal of cooperation from industry in helping us in this process.
Senator NUNN. Is there a central clearinghouse on this ? Is there
one location that everything feeds through, or is it a rather, diffused
effort?
Mr. JOHNSTON. No, sir. We have something called the Economic
Defense Advisory Committee which is chaired by the State Depart-
ment. Under this committee there are 12 technical subcommittees de-
pending on the kinds of products that we are talking about, that is
where the decisions will be made on exactly which products we will
try to have added to the list.
Senator NUNN. Are those people State Department employees?
Mr. JOHNSTON. Some of them are.
The chairman of the organization is. But there are members of the
Defense Department, the Commerce Department, and the intelligence
community.
Senator NUNN. So the central location is in the State Department,
but you are bringing in other agencies on that?
Mr. JOHNSTON. That is right.
Senator NUNN. Is that both for the items on the export control list
as well as export arms control list?
Mr. JouNszoN. No. The arms control list is controlled by another
section of the State Department. That is done essentially in collabora-
tion with the Defense Department.
Senator NUNN. So this is a group that deals with the
Mr. JOHNSTON. Export Administration Act.
Senator NUNN. Export Administration?
Mr. JOHNSTON. Right.
Mr. BUCKLEY. We have also developed workable proposals for har-
monizing the export licensing procedures of the 15-member states so
as to make Cocom decisionmaking more efficient. What we are seeking
are ways to bring national enforcement practices to a level of equal
effectiveness. These two matters will be addressed at a special Cocom
meeting which will convene in Paris later this spring?and the fact
that all partners have agreed to that special meeting is testament to
our shared goals.
We have been cooperating with our Cocom allies to improve
enforcement and investigative capabilities of illegal diversions.
The State Department, working closely with our intelligence and
investigative agencies, has been channeling appropriate information
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to other governments to alert them to potentially illegal activities
within their borders. We have also encouraged them to increase the
investigative resources and the sanctions available for export control
enforcement. Commerce, and in turn customs, have detailed officers to
the State Department to support this overseas compliance effort.
Cocom has thus, we believe, made measurable progress toward
strengthening strategic export controls since this administration came
into office. But it is also clear that the continuing revitalization process
will be long and hard.
In attempting to strengthen controls on strategic exports to the
Soviet Union and the other Warsaw Pact countries, we are faced with
the perennial problem of securing agreement with all the other Cocom
allies on just where to establish the technical cut-offs for commodities
and technologies under embargo. 'Determining in many scores of dif-
ferent technical areas what is sufficiently strategic to warrant control
is not an easy task. We do not always agree on what are militarily
critical technologies, yet the purpose of the organization is limited to
such technologies. Members exercise considerable care to avoid con-
trols whose principal impact would be economic rather than military,
and each has its own views and perspective.
Western European and Japanese economies would generally speak-
ing, be affected more than the U.S. economy by sweeping controls
on manufactured products. But such differences between ourselves
and our Cocom allies should not be over-emphasized.
We should remember that our allies have cooperated with us for
over 30 years to control significant amounts of equipment, material
and technologies through Cocom. That is, first and foremost, because
we share a common belief that such controls constitute an important
element in our mutual defense.
As you know, the State Department is also responsible for adminis-
tering munitions export controls which cover defense articles and
services. Munitions are not approved for export to Warsaw Pact
countries. Accordingly, the main issue in administering these controls,
relate to security concerns and our foreign relations with other
countries.
Your letter of invitation mentions that, in an executive branch more
effectively organized to shape and enforce export control policy. you
envisage a principal and expanded role for the Department of State.
We too, envisage such a role for the Department.
Upon taking office, this administration undertook a full review
of our policy concerning the transfer of strategic technology to the
Soviet Union and the other Warsaw Pact countries.
The State Department was a major participant in this review,
which culminated in the Cocom high 'level meeting. The State Depart-
ment led our delegation to that meeting. Since then, on a number of
other occasions, senior officers at the State Department have discussed
with our allies security concerns related to technology transfers.
We are persuaded that improved allied cooperation on sensitive
technology transfer issues is a realistic objective. There will, of course,
continue to be some differences on the details of controls and their
application to individual cases. But, with hard work to identify
clearly and to justify persuasively what needs to be controlled, and
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how controls should be enforced and administered, such differences,
we believe, will be the exception rather than the rule.
Senator NUNN. Thank you very much, Mr. Secretary.
We also appreciate your furnishing the material answering specific
questions at the end of your testimony. We will study this with great
care as we come up with any recommendations we may make for
improvement.
I have a few questions I would like to pose to you and I will be glad
for you to farm them out here in the particular area of expertise.
I will direct them to you. You handle it from there.
Are you generally satisfied with the level of cooperation we are
getting from Western Europe and Japan in high technology area
today?
Mr. BUCKLEY. Yes; we are.
One thing that we sensed was a really heightened awareness of the
part of those countries as to the impact of technology purchases on
actual military capabilities. And I would give high credit for that to
briefings conducted by the CIA at the various Cocom capitals, in which
highly classified detailed information opened lots of eyes to the impact
of technologies to which people were not paying any attention. I think
that has had the effect of increasing cooperation to a very significant
degree.
Senator NUNN. Is it necessary for the United States to always be a
leader in this respect? I am sure we want to be. But let's assume, for
instance, we get rather sloppy in our administration. Have we had any
instances of cases where the allies came to us and said, "Look, you are
transferring technology which we think is useful in military applica-
tion by the Soviet Union and we want you to crack down," or is it
always the United States who has to save our allies?
Mr. BUCKLEY. My institutional memory is rather short, in this case,
15 months. I do know I can speak of one ally, I can't give names, be-
cause of the Cocom ground rules, that has begun to take on a role of
leadership in these areas. The United States, I think, historically has
been the key. But Ernie, do you know of other instances?
Mr. JOHNSTON. It is essentially the United States. I think that is
right.
This subject comes up primarily in the review that we conduct. There
we have also had suggestions from other countries about items that
ought to be added to the list.
Senator NUNN. In other words, you could say it is a pretty general
rule that based on historical experience that export controls are not
going to be any tighter in any of the countries than they are in the
United States?
Mr. JOHNSTON. I think that is generally true.
Senator NUNN. We are the leader and we are going to have to con-
tinue to lead?
Mr. JOHNSTON. That is right.
Senator NUNN. The State Department is not a law enforcement
organization in the usual sense. When administration of the Arms
Export Control Act was handed to the State Department, why did
the Department give enforcement to the Customs Service?
Mr. BUCKLEY. First of all, customs is an organization in place with
the people at all the points of export. Second, there is a rather easy
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means of communication between bureaus and that is to require that
licenses that are issued be filed at the relevant customs office before
the actual shipment has taken place, and this facilitates the ability
of customs to match the documents against what is being exported.
Senator NUNN. What is the relationship between the Export Admin-
istration Act, which regulates nonmilitary-type technology, and the
overall Arms Export Control Act? Do you have two separate groups
of people dealing with that all together?
Mr. BUCKLEY Yes.
Mr. JOHNSTON. Yes. The Defense Department and the State Depart-
ment work together to decide what goes on the munitions list. This is
something defined, if you will, as an instrument of war or something
which is related directly to making war. However, there is always a
series of goods which could have a dual use. They can have a civilian
application, or they could have a military application for example,
computers. These are the main things controlled by the Export Admin-
istration Act.
Senator NUNN. Of coarse, Commerce is responsible for that?
Mr. JOHNSTON. Yes, sir.
Senator NUNN. How much input does the State Department have
with Commerce regarding the Export Administration Act?
Mr. JOHNSTON. On the list of strategic ffoods, which is essentially
what we are talking about, the Defense Department and the State
Department work very closely with the Commerce Department.
The Secretary of Commerce has the final authority, but the Defense
Department and the State Department work very closely both in re-
gard to deciding what gets on the list and what the licensing policy
ought to be.
Senator NUNN. The munitions list has to consider certain gray areas,
I am sure.
Mr. JOHNSTON. I would like to ask Mr. Bryant, who is our expert on
munitions.
Mr. BRYANT. In compiling the U.S. munitions list, we, the Depart-
ment of State, consult with the Department of Defense as required
by Executive order, to determine what should be on the munitions list.
There are occasions when there are debates as to whether or not a
specific item is on the list. The determination, generally speaking, is
made on the basis of what that item was specifically designed to do.
Senator NUNN. When you examine that munitions list, do you go in
the gray area, things that are really not what we would call conven-
tional munitions, but which do involve high technology?
How much overlap is there between the Export Administration list
and the munitions list?
Mr. BRYANT. There should be no overlap at all, either an item is con-
trolled under the Export Administration Act or it is controlled under
the Arms Export Control Act. In certain fields, particularly military
electronics, the basic technology involved in both civil and military
electronics may be the same.
For example, computer chips and the integrated chips are both used
in military and nonmilitary items. When incorporated into a military
item, the chips take on the characteristics of that item. The chips
themselves, when exported, are not subject to our control, unless spe-
cifically designed for inclusion in a military item.
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Senator NUNN. When you are getting your munitions list, your
arms export list, do you have feed-in from the Defense Department?
MY. BRYANT. Yes sir.
Senator NUNN. I.343 you have feed-in, from some of the intelligence
agencies?
Mr. BRYANT. Yes, sir.
Senator NUNN. The State Department makes the final decision?
Mr. BRYANT. That is correct, sir.
Senator NUNN. In the Export Administration Act, the Commerce
Department makes the final decision?
Mr. BRYANT. I have to defer to Mr. Johnston.
Mr. JOHNSTON. Yes, sir, except that I do think there is a pretty close
collaboration on a subject like this. The three agencies are working
very closely together.
Senator NUNN. Do the Defense Department and the State Depart-
ment both have a feed-up and input into Commerce on that?
MY. JOHNSTON. Yes.
Senator Nuisrx. Does the division in the State Department that deals
with the munitions list have a feed-in to the Commerce Department in
terms of the export list?
Mr. JOHNSTON. If an item is taken off the munitions list, and occa-
sionally there are bills in Congress which do this, we pick them up on
the list that is administered by the Department of Commerce.
Senator NUNN. What group in the State Department feeds into the
Commerce Department in terms of the Department's final decision-
making on the export control list?
Mr. JOHNSTON. It is the Bureau of Economic and Business Affairs.
Senator NiaNN. That is a separate group from the group on the
munitions list?
Mr. JOHNSTON. Right.
Senator NUNN. You say the Bureau of Economic Affairs?
Mr. JOHNSTON. Yes.
Senator NUNN. Does that group also feed into the Cocom delibera-
tive process?
Mr. JOHNSTON. Yes.
Senator NUNN. The same group?
Mr. JOHNSTON. Yes. It is essentially the same. It is the same office.
We have an Office of East-West Trade which devotes, I would say,
probably 75 percent of its efforts to this.
Senator NUNN. The State Department does not try to enforce the
Arms Export Act as such. You make the decision about what goes on
the list and then you leave the enforcement up to customs; is that
right?
Mr. JOHNSTON. That is correct.
Senator NUNN. The State Department does not have investigators
go'ng around to determine if compliance is taking place?
Mr. BRYANT. No, sir. Whenever we receive an allegation of willful
wrongdoing, we refer the allegation to the U.S. Customs Service for
investigation.
Senator NUNN. How does that work? Is that working well?
Mr. BRYANT. We find that that is working quite well.
Senator NUNN. Do you find any disadvantage, any big disadvantage
in having the enforcement of the Arms Export Control Act under
customs whereas the licensing is under State?
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Mr. BRYANT. No, sir. Rather we find it an advantage. Willful viola-
tions are investigated much more rapidly, we think, than would be
the case if we were doing our own investigations.
Senator NUNN. In other words, you think you are getting along
well with that divided kind of responsibility?
Mr. BRYANT. We think the coordination between the two offices is
excellent, sir.
Senator NUNN. What level of technical expertise do you need in
licensing at State in that function, in the Arms Export Control Act?
What kind of person and background do you have to have in that
function
Mr. BRYANT. The licensing officers are generalists, sir. We draw
upon the technical expertise of the Department of Defense whenever
we have questions as to the level of technology of an item.
Senator NUNN. Is there a certain group in the Department of De-
fense that you look to for that?
Mr. BRYANT. We have a central office to whom we refer everything
and then they refer out to the various services as the need arises.
Senator NuNN. So you do not try to provide all the technical experts
in the State Department and you have people with broad policy-type
experience?
Mr. BRYANT. No; in the Department of Defense we can draw on
defense research and engineering and the technical expertise in the
services.
Senator NUNN. Do you have a computerized operation in your muni-
tions function?
Mr. BRYANT. The present system is to some extent computerized and
we are now in the process of installing what is called a data-based
management system computerizing our whole operation.
Senator Nu-NN. When will that be operative?
Mr. BRYANT. It is hope that will be operative before the end of the
fiscal year.
Senator NUNN. What will that do for you?
Mr. BRYANT. Any application coming into our office will be assigned
a number, as it is now. That application enters through a terminal into
a minicomputer, and is tracked throughout its whole period of time in
the office where it is, what is being done with it, what problems may
have arisen with regard to that particular application and when it goes
out, what action we took with regard to that application and why.
Senator NUNN. What number of applications would you handle on
your munitions control, say, in a year?
Mr. BRYANT. 36,000.
Senator NUNN. That would be the gross number that you look at?
Mr. BRYANT. That would be the gross number of all types of
applications.
Senator NUNN. Of the gross number, how many different items will
end up being on the munitions list?
Mr. BRYANT. Approximately 95 percent of them, perhaps higher
than that.
We deal with a very small community.
The applicants come to us generally speaking, knowing that the item
that they are seeking to export is on the U.S. munitions list.
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Senator NuNTN. What does a manufacturer do if the item is not on
the munitions list? What is the difference in what they have to do if
it is on the list and if it is not?
Mr. BRYANT. If it is not on the U.S. munitions list, that he goes to
the Department of Commerce to seek authorization for export.
Senator NUNN. Then that would get into their function on licensing
export?
Mr. BRYANT. That is correct.
Senator NuNN. If it is on the list, they have to go through the State
Department?
Mr. BRYANT. They have to go through the Department of State.
Senator NUNN. What about the operation in the Bureau of Economic
Affairs? Is that computerized?
Mr. JOHNSTON. We do not really computerize the operations that we
do. I should explain to you that the Department of Commerce receives
very large numbers of license applications. I do not have the number,
but I think it is in the neighborhood of 50,000 to 60,000. They do not
call all of these cases to the attention of the State Department or to the
Defense Department. There are criteria which are set down and only
if those criteria are met are those license applications furnished to one
or the other Department. Accordingly, the number of specific licens-
ing requests that we look at is small compared to the number that the
Department of Commerce receives.
Senator NuNN. Has the State Department generally been able to
work well with the Customs Service in coordinating enforcement
efforts under the Arms Export Control Act, both in this country and
abroad?
Mr. BUCKLEY. Yes; we have.
As I mentioned in my testimony, they have assigned people to us
abroad. All of these mechanisms, of course, are under review to make
sure that we get the most effective enforcement possible.
Senator NuNN. Is the United States requesting many exceptions
from the Cocom list?
Mr. BUCKLEY. We have an odd phenomenon. Because the Commerce
Department put in a very special effort to clean up the backlog, we
have a bubble of items before the Cocom at the present time. This is
compounded by the fact that where we are most competitive in our
trade with the Soviet Union and in the Eastern bloc is in some of the
high technology level of dual uses, particularly the computer area.
So combining these two factors, we have a large number of excep-
tions relative to the number of cases that are up for discussion.
I would say this, though, that we do not ask for an exception except
where we have very good evidence to our satisfaction that it has. a
commercial end use and we have the knowledge that these items will
not be used for military purposes.
Senator NuNisr. Have we approached Cocom for any exceptions since
the Polish crisis came up?
Mr. JoHNsToN. Yes; we have, but not for the Soviet Union.
Senator NUNN. What countries are involved? Or is that a confiden-
tial matter?
Mr. JOHNSTON. No; it is not.
The Cocom control list applies to the Soviet Union, to the European
Communist countries, with the exception of Yugoslavia, and to China.
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We have approached the Cocom for exceptions in regard to those
countries other than the Soviet Union.
Senator NUNN. Briefly what countries are included in the restric-
tions for Cocom? In other words, if you have got a list of things that
Cocom agreed to, what countries are excluded from being able to
receive those items?
Mr. JOHNSTON. The countries to which the Cocom directs its efforts
are the Soviet Union, the Eastern European countries, China, and I
believe the other Asian Communist countries.
Senator NUNN. Those are the ones that are on the restricted list?
Mr. JOHNSTON. That is right.
Mr. BUCKLEY. Albania, North Korea, Vietnam, Kampuchea, and
Mongolia.
Senator NUNN. Do we have any agreement in Cocom on any non-
Communist country?
Mr. BUCKLEY. They are all Communist.
Senator NUNN. So the question of shipping goods to Libya, coun-
tries of that nature, would be strictly a national decision?
Mr. JOHNSTON. That is right.
Senator NUNN. Where is that national decision made on those kinds
of shipments?
Mr. JOHNSTON. The Export Control Act has three grounds for
refusing to let goods out of the United States. One is for strategic
purposes, and those are the items that we have been talking about.
Those are directed mainly toward the Communist countries. The sec-
ond is short supply, if we decide that we need a good to stay in this
country because we don't have enough of it. That is another possi-
bility. The third is for foreign policy reasons. It is the foreign policy
controls which you are talking about with respect to Libya. In those
foreign policy controls we have got a number of subdivisions. One is
if there is a regional problem because of some military activity that is
going on; the second one is human rights controls, if we think that a
country has not been behaving as well as it should on human rights:
a third is terrorism control.
Senator NUNN. Mr. Secretary, if you had to point out two or three
weaknesses in our present policies that you are most concerned about,
how would you list those? What areas of improvement are you most
concerned with?
Mr. BUCKLEY. I think that there is room for improvement in coordi-
nation and we are working on that. In fact, just yesterday we had a
meeting of a number of involved agencies, to address precisely those
questions. There are 12 different agencies in the Government involved
in this area, 42 groups. And a lot of them are very specialized.
We need to have a better idea of what each one of us is doing.
Another area, and this is what I had in mind when I referred to
some of the inevitable delays, is in having a better idea of what really
is critical. One of the dangers we have to avoid is that we put too much
into these lists. Then you have two things: First, you splinter time for
enforcement; second, you raise resistance on the part of our allies. An
innovative industrialist such as Fred Bucy of Texas Instruments has
been very useful in emphasizing the importance of things like manu-
facturing processes, not the goods, but how the devil do you make those
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goods?right. We have asked our intelligence services to focus in these
areas and also to focus on the techniques by which the Communists
sniff out what we are doing. Here is another area of a more precise
definition of what it is we should be controlling. Finally, an area we
have under discussion is the person to person transmission of ideas and
technologies, the visitors who come to this country and attend univer-
sities, and so on.
There is the leakage that comes out of businessmen going around
the world, not being conscious of how precious their concepts are. So
I think this is another area where we have to come up with procedures
and mechanisms for enforcing policies; in heightening the understand-
ing of the American manufacturing community and foreign manu-
facturing communities of the dangers of leakage through observation
of manufacturing processes and also trying to figure out that delicate
line between pure academic, research, science, and applied scien-te in
the potential military area. This thought leads me to a final area
where I think we have yet to come to grips with sufficient precision;
that is, identifying the emerging technology that usually starts out
with the commercial use but nevertheless predictably will have mili-
tary applications.
Senator NuNic. There was a suggestion earlier in the week in our
hearing by Dr. Lara Baker of Los Alamos that a group of technical
experts away from Washington could serve as a strictly technical non-
policy clearinghouse where everything could channel through there in
terms of technical questions without any reference to policy. I know
that there are some people in the intelligence and defense communities
doing that. I am not certain where that should be housed. There was
a strong opinion it ought to be done away from Washington so it
doesn't get caught up in the Department of Defense policy versus the
Department of State policy, or the Commerce policy on export versus
the others.
That is an idea that ought to be looked at. The feeling was there
wasn't any one central clearinghouse for technical expertise, not that
they would all be housed there, but that they would serve as the focal
point for that.
The estimate was it would take about 20 professional people and
about $5 million a year and that an awful lot of the expertise would
already be there in working in other areas.
There also was a suggestion made by Dr. Lara Baker exactly what
you just alluded to, that we ought to spend more time narrowing down
the list of what is critical to the Soviet Union; in other words, sort of
reverse engineering espionage efforts so that we would have a much
narrower list and try to do what we do well, rather than trying is
con-
trol too much and not controlling anything well. I think that s what
you are saying.
Mr. BUCKLEY. Yes.
Senator NUNN. I would bring that suggestion about one central
clearinghouse on technical information to your attention.
Mr. BUCKLEY. I would appreciate that.
Senator NUNN. I am not looking for another agency, but it might be
the voice for any policymaking kind of persuasion. DOD always is
willing to take a more restrictive approach. That is their job. Corn-
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fierce is going to take a more export-minded approach, which is nat-
ural. That is the business they are in. The State Department is going
to look from the foreign policy aspects.
All of these agencies, as good a job as they do, are very much in-
volved in the policy type application.
I would throw that out for your consideration.
Mr. BUCKLEY. It is a very interesting idea. We should follow up on
it.
Senator NUNN. Mr. Secretary, I want to thank you and your asso-
ciates for being here this morning. We appreciate the good job you
are doing. I know that this administration is very much concerned
about the policy in this area.
The purpose of these hearings is not so much to determine policy, but
rather to determine how it is we carry out that policy and how does the
Government work once the President makes his pronouncements.
One of the interesting things we had early in the week was a pretty
thorough examination of the Commerce Department's own internal
numbers of people dealing in each one of these agencies. They are try-
ing to revoke the license and enforce the law with a very small number
of people. Another thing you would find of interest is that after former
President Carter announced the grain embargo, the people responsi-
ble for going out and investigating violations and pursuing those
totaled one person in the Department of Commerce. Interestingly
enough, I guess it follows that having one person involved in that
whole investigative effort that there was 100 percent compliance, ac-
cording to the statistics. No one violated the grain embargo.
Mr. BUCKLEY. I think, Mr. Chairman, that this last, area is one that
ought to be looked at, the resources to do the job.
Senator Nuicx. Thank you very much.
Our next witness is Mr. Edward J. O'Malley, Assistant Director,
Intelligence Division, Federal Bureau of Investigation.
Mr. O'Malley, we swear in all witnesses before our subcommittee.
Would you hold up your right hand?
Do you swear the testimony you will give before the subcommittee
will be the truth, the whole truth, and nothing but the truth, so help
you God?
Mr. O'MALLEY. I do.
TESTIMONY OF EDWARD S. O'MALLEY, ASSISTANT DIRECTOR,
INTELLIGENCE DIVISION, FBI
Senator NuNN. We know you have a statement. We will ask you to
proceed with that.
Mr. O'MALLEY. Thank you very much, Senator.
I appreciate the opportunity afforded me to appear before you today
to review the FBI's role and responsibilities in the area of technology
transfer.
As you are aware, we covered some of this ground in our previous
correspondence with you. I will expand on those issues and respond to
any other specific questions you may have concering the FBI's role.
My responses and comments here today will, of course, be unclassified.
Much of the counterintelligence activity we engage in to counter the
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activities of the hostile intelligence services to acquire our tecnology
is classified. Therefore, to be more specific and responsive to your
interests, I have furnished to you certain written comments which are
classified.
We, in the intelligence community in general and in the FBI in
particular, are acutely aware of the legitimate concern of the various
congressional committees in this area of technology transfer and ap-
preciate the efforts you are expending to bring these concerns out
front and before the public.
We hope that by the additional exposure of this issue through these
public hearings the magnitude of this problem will be more fully
understood.
Basic to the understanding of this issue is the need to recognize and
acknowledge the nature of the U.S. society?a free and open society.
It is within the framework of this openness that the FBI must operate
to counter the activities of the hostile intelligence services to acquire
U.S. technology.
Our counterintelligence activities are conducted in accordance with
a recently signed Executive order?E.O. 12333?and within the frame-
work of the Attorney General guidelines which are currently being
revised.
There is nothing contained within the parameters of those two docu-
ments which adversely affects our ability to carry out our counter-
intelligence responsibilities. Being a law enforcement agency, our agent
personnel are thoroughly trained in the judicial process necessary to
successfully prosecute a case.
We realize the importance and necessity of obtaining sufficient evi-
dence to prosecute a case if that, in fact, is the ultimate objective of
a particular counterintelligence investigation. Prosecution resulting
from a counterintelligence investigation would normally be under the
espionage statute. Though the espionage statute does not stipulate that
only cases involving classified information can be prosecuted, legal
precedent has established such a requirement.
Diplomatic immunity, of course, precludes prosecution; therefore, in
those counterintelligence investigations involving officials with immu-
nity the counterintelligence objective against such officials would prob-
ably be to have the subject declared persona non grata.
Naturally the elements of proof for such action are not as stringent.
There are, of course, benefits other than prosecution and personal non
grata action that accrue from other counterintelligence investigations.
These include the identification of intelligence officers, their agents and
contacts, modus operandi of the hostile intelligence services, and their
targets?all meaningful counterintelligence objectives.
The Soviets correctly view the United States and several other West-
ern countries as a continuing source of important and openly available
scientific and technical information, to which they take every opportu-
nity to obtain access.
Some of the unclassified documents so acquired are previously classi-
fied materials which had been declassified through U.S. procedures pro-
viding for automatic declassification after a stipulated period. When
collected on a massive scale and centrally processed by the Soviets, this
information becomes significant because it is collectively used by Soviet
weapons designers and weapons countermeasures experts.
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The Soviets also regularly attend high-technology trade shows and
visit commercial firms in the West, particularly small- and medium-
sized firms that are active in developing new technologies. These ap-
parent trade promotion efforts often mask Soviet attempts to acquire
emerging Western technological know-how before its military uses
have been identified and Government security controls have been ap-
plied. Emerging technologies are particularly vulnerable to foreign
collection efforts of this type.
Because of the ease by which unclassified technology and proprie-
tary information is obtained, the gain is very substantial. Soviet ac-
quisition efforts are massive, involving many Soviets traveling outside
the Soviet Union.
Literally thousands of Soviet bloc persons enter this .country each
year?trade delegations, students and other academic exchange par-
ticipants, diplomats, and seamen--and all have the potential to collect
information/technology, most of it open source and unclassified.
Those efforts are well rewarded and in an open society such as ours
there will undoubtedly be no degradation of those efforts. The acquisi-
tion of classified information falls more to their trained and experi-
enced intelligence officers.
It is in this area that the FBI's counterintelligence activities are
mainly concentrated.
Illustrative of those collection efforts of unclassified information
is an incident that occurred Ely? Nev., in late 1979, and comments
which appeared in the Washington Post. (Additional information
concerning this is being made available to you in classified form.)
In October 1979, two Soviets, dressed in jeans and sport shirts and
almost 2,500 miles from their posts in Washington, D.C., visited Ely,
Nev., a potential basing site for some MX missiles. They identified
themselves as Vladimir'"Kvasov and Vladimir Militsyn, listed respec-
tively by the Soviet Embassy as a lieutenant commander/assistant
military attache and as a civilian employee of the attach? office. The
assistant librarian at the Ely Public Library was previously notified
by the FBI as to a possible visit by them. They showed up at the li-
brary dressed very casual and described themselves as travelers from
Washington.
The younger Russian went to the newspaper rack while his friend
asked for books on industry in Las Vegas. Las Vegas is a restricted
area for Soviet Embassy personnel because of its proximity to Nellis
Air Force Base and the Nevada nuclear test site.
After browsing, they both came back with a book on the Nevada
sites?a 300-page environmental impact statement for the Nevada site
where the U.S. Government conducts underground tests of its nuclear
weapons. They received permission to copy the volume which was done
at a cost of $47 at a nearby store. The Russian who did the copying
identified himself as an energy engineer from Washington. The two
Russians subsequently made several other stops inquiring about the
area and the kinds of industry in the area.
An important aspect of our counterintelligence approach to limit
or attempt to negate technology loss is the need to develop an aware-
ness of the problem?the threat posed by the activities of the hostile
intelligence services.
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We in the EBI have a dedicated program which we call DECA?
development of counterintelligence awareness?which was instituted
some 4 years ago to address this issue.
This awareness program is targeted at defense-related companies
involved in U.S. classified contracts?at the secret and top secret
level?some 11,000 throughout the United States. These firms are
identified to us through the Defense Logistics Agency. We work closely
with the Defense Contract Administration Services regions through-
out the United States in coordinating our awareness programs. Each
of our field offices has at least one special agent who is responsible for
this program.
The essence of the program is to alert company management and
security personnel of the possible threat to that company?because of
its classified contract?posed by the hostile intelligence services.
Senator NuisTN. Do you take the initiative in contaoting these com-
panies or do you go through trade associations?
Mr. O'MALLEY. We contact the companies directly. We have identi-
fied the companies in each one of our field divisions which have classi-
fied contracts and we then approach them directly.
Senator N17NN. What kind of cooperation are you getting?
Mr. O'MALLEY. It has been excellent. We are there in a sense that
we are not concerned about the legitimate approved trade they have
with the Warsaw Pact countries but to alert them to the threat posed
by the services especially the hostile intelligence services of these coun-
tries, their efforts to obtain illegally, clandestinely, their technology.
Senator NuNN. Do you have a list when your agents call on them?
Do you have a list of critical technology that may be involved?
Mr. O'MALLEY. It depends on the industry. We are aware of what
technologies the other side is looking for. If -we approach somebody in
the aerospace industry, we will alert them as to our knowledge of what
the other side is seeking which may be relevant to their particular
company.
It is hoped that the threat information imparted will be incorpo-
rated into the routine security briefings each of those companies is
required to give its employees. Additionally, articles such as one pre-
pared by the FBI entitled "Secrets, Spies and Citizens" are made
available to the company for distribution to its employees.
In addition to the field level participation, senior Bureau Head-
quarters personnel including Director "Webster and me address this
awareness issue in speeches to senior industrial management person-
nel throughout the country. A recent example was Director Webster's
comments to the Electronic Industries Association at Boca Raton,
Fla., in January of this year.
Electronic expertise in Silicon Valley is widely recognized in the
United States and abroad. Technology transfers within and from
Silicon Valley can occur in different manners. The Santa Clara Coun-
ty sheriff discovered a vast black market in stolen electronic chips.
Many of these stolen chips are sold and used in the United States,
but some find their way abroad. When illegal exports have been un-
covered in Silicon Valley, Federal agencies become involved in the
investigations.
Federal involvement can result in several ways. If the technology
is classified for national security purposes, the FBI will investigate
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charges of espionage. If unclassified technology, valued at more than
$5,000 is stolen and transferred across State lines, the FBI can inves-
tigate under Interstate Transportation of Stolen Property statute.
The U.S. Department of Commerce and the U.S. Customs Service
investigate violations of the Export Administration Act, which nor-
mally involve the sale and export of technology listed on the com-
modity control list without obtaining specific authorization from the
Department of Commerce. The U.S. Customs Service also investigates
violations of the Arms Export Control Act, which normally involve
the sale and export of arms, ammunition, weapons platforms and
special military equipment without obtaining specific authorization
from the State Department.
Although the FBI does not initiate investigations of violations of
the Export Administration Act or the Arms Export Control Act per
se, foreign counterintelligence and other authorized criminal investi-
gations can uncover violations of these acts. When a foreign counter-
intelligence investigations uncovers such a violation, it can be easily
integrated into the ongoing investigation. Our primary interest in
these cases is the activity of foreign intelligence services in the United
States.
Senator NuNN. What if the Commerce Department picks up the
phone and tells them they have an Export Administration Act viola-
tion, do you have jurisdiction over this?
Mr. O'MALLEY. It is clearly an export violation, we don't have any
jurisdiction.
Senator NUNN. Let's say they suspect it may eventually be going
to a Warsaw Pact country?
Mr. O'MALLEY. In that case we would have an interest from the
counterintelligence standpoint. We do have foreign counterintelligence
cases where we have developed information which would also be a
violation of the Export Administration Act.
Senator Nurrisr. Even if it is not classified, you still have jurisdiction
if it involves foreign?
Mr. O'MALLEY. If we investigate the activities of all hostile intelli-
gence services in the United States, we do not have to wait until there
is a violation of some law to initiative an investigation of these hostile
services. We are interested in whatever they are doing in the United
States and if it involves sensitive but unclassified technology we cer-
tainly would be interested in that.
Senator NUNN. Suppose it is a citizen of West Germany with a
legitimate export license, on a nonclassified, item. Commerce tells you
they suspect that eventually this may find its way to the Soviet Union.
What is your justification in that?
Mr. O'MALLEY. In a case like that we would be interested in the
sense of a counterintelligence investigation that the odds are that if
something is being transshipped, something that has been legally
exported to a Western European country is being transshipped to the
Soviet Union, the odds are that there is some involvement by a hostile
intelligence service. Within that context, we would certainly have
interest.
Senator NurNiv. When you say you have an interest in it, does that
mean you would actually pursue it, investigate it? Do you think you
have the jurisdiction?
Mr. O'MALLEY. Yes; we would. We would pursue that.
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We have an excellent day-to-day relationship with the Compliance
Division of the Department of Commerce.
Senator NuNisr. Are you saying the relationship is being upgraded
and expanded with the Commerce Compliance?
Mr. O'MALLEY. I am saying our relationship with the Compliance
Division, Department of Commerce, is being enhanced at the current
time. I understand that measures are being taken within the Compli-
ance Division to expand its own capabilities.
We also enjoy an outstanding working relationship with the U.S.
Customs Service.
In the Boca Raton speech, Mr. Webster called the William. Holden
Bell-Marian Zacharski case a "textbook example of espionage, or the
illegal transfer of technology."
The scenario of the "textbook example of espionage" as depicted by
Mr. Webster in his Boca Raton speech in general terms, was vividly
seen in the development of the William Holden Bell-Haman Zacharski
case.
The chance social meeting took place at the Cross Creek Village
apartment complex Playa Del Rey, Calif. in the fall of 1977. Both
Bell and Zacharski resided at this complex with their wives. A
personal friendship between Bell and Zacharski developed. A mutual
interest in tennis which resulted in almost daily sessions contributed
greatly to the relationship.
During the next few months Zacharski skillfully cultivated Bell,
a man 30 years his senior. This cultivation process was so thorough
that it even included their tennis activity. Zacharski insisted on play-
ing Bell regularly despite the fact he was a far superior opponent,
and he purposely adjusted his game to match Bell's lower level of
ability.
More importantly, he discovered that Bell had experienced a costly
divorce in 1976 and had declared bankruptcy the same year, making
him a most vulnerable recruitment target. During the sounding out
period, Zacharski learned that Bell was privy to a great deal of classi-
fied information concerning airborne radar systems and related mili-
tary equipment. Zacharski requested and received from Bell copies of
a Hughes Aircraft Co. newsletter entitled "Hughes News" and another
Hughes publication called "Vector," both publications unclassified
and available to the public.
The "moment of truth" for Bell occurred in late 1978, when the
apartment complex converted to condominium status. Because of his
precarious financial situation Bell was unable to produce a down pay-
ment to purchase his unit. At this point Zacharski offered to help in
the form of cash in return for more technical documents generated by
Hughes Aircraft.
Although reluctantly, Bell accepted the offer and the illegal transfer
of technology began. The rest of the story reads like a spy novel?
special camera provided by Zacharski to photograph classified docu-
ments, secret meetings between Bell and Polish intelligence officers
abroad, cryptic telephone contacts using code names and payment in
gold. Bell testified to having been paid almost $170,000?a sum for
which he sold out his company and his country.
I might add that it is my understanding that Mr. Bell testified
earlier this week that the FBI had sat around for 2 or 3 years and
watched him pass classified documents to the Poles. I categorically
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reject that. We would certainly not stand by and watch anybody pass
classified documents to any hostile intelligence service or to anyone
else for that matter.
In conclusion, I would like to state that the FBI will continue to
pursue the counterintelligence implications of technology transfer and
provide intelligence support to those law enforcement elements outside
the FBI that have statutory responsibilities for export control. Tech-
nology loss can be reduced through these concerted and coordinated
efforts even within the framework of our open society and current
operating procedures.
Senator NuNN. On that latter point, I think what Mr. Bell was say-
ing was that he was under surveillance at the time he passed certain
valuable information. Are you denying that?
Mr. O'MALLEY. I am not denying that he was under surveillance.
What I am saying is that it was our observation that he was not at any
time passing classified documents where we had no information at the
time of our surveillance that he had passed any classified information.
What we need, Senator, as you are well aware, is proof, hard proof that
he has passed those documents and the instant we had such proof, of
course, we prosecuted him and Mr. Zacharski.
Senator NuNrf. Of course only a law enforcement agency can make
that judgment. We are not here trying to make that judgment. We are
certainly not being critical of the FBI in the Bell case. But as I under-
stood it, what he was saying was that he was under surveillance while
he was passing that information. Also I understand there had been a
wiretap on him for some time during the period when he was passing
information. The wiretap doesn't necessarily tell us that he was
passing it.
Mr. O'MALLEY. There are ramifications of what you are asking now.
I would be happy to talk to you in closed session.
Senator NUNN. I am not even asking you. That is not a questionmark.
Nevertheless, I know it is a difficult thing in getting proof. The point
that he did make, though, that should have come through pretty loud
and clear is that there were all sorts of suspicious circumstances that
someone should have known during the entire period of time that this
was going on.
I think he was somewhat amazed with all the circumstances that he
wasn't caught sooner. I think it is a lesson to be learned. I don't know
by who. Perhaps the FBI did everything possible in the case. Perhaps
the private companies involved could do more in alerting law enforce-
ment on specific circumstances when it comes up.
I don't think there is any doubt about the fact though that Mr. Bell
did pass certain critical information.
Mr. O'MALLEY. No doubt at all.
Senator NuNrf. How important is it for the law enforcement agen-
cies, in cases like the Zaeh,arski case and the DeGeyter case, to have a
presence abroad and liaison with the foreign law enforcement
authorities?
Mr. O'MALLEY. It is absolutely crucial. We have had a long history
of such relationships with intelligence agencies and law enforcement
agencies abroad. I think it is particularly important in the area of
technology transfer, but I think it is well established that more and
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critically. in Europe, that more and more of the illegal technology
transfer is occurring through these European countries. Technology,
equipment, dual use products that may be legitimately licensed to
European countries are being diverted to Warsaw Pact countries. I
think with that in mind it is absolutely crucial that we have close re-
lationships with our counterparts abroad.
Senator NuNN. The FBI is primarily domestic in terms of the
overall jurisdiction and enforcement. What is the nature of your
relationship with the foreign governments and foreign agencies?
Mr. O'MALLEY. We have no investigative jurisdiction abroad, Sen-
ator, but we do have a legal attach?ystem and those individuals who
operate in our behalf in foreign countries have strictly a liaison re-
sponsibility. If we determine there is information say in the United
States that a certain crime has been committed or about to be ,com-
mitted in Europe we will furnish that information to our counterpart
service through our legal attache. He will conduct no investigation
himself but will furnish the lead, if you will, to the local service 'and
the results of that investigation will be furnished back to him to be
given to us if it involves U.S. interests.
Senator NuNN. You say you are very pleased so far with your in-
formational program to the business community. Do you think that
is working well?
Mr. O'MALLEY. Yes, sir. It is.
Senator NuNN. Could you furnish for the record some statistics
that would indicate the degree of briefings that go on between the
FBI and private companies?
Mr. O'MALLEY. Yes; for the record I can say that the 11,000 com-
panies that we identified which have or may have secret or top secret
contracts, we have so far have talked to 6,000 of them.
Senator NUNN. 6,000?
Mr. O'MALLEY. 6,000.
Senator NuNN. That is by personal visit?
Mr. O'MALLEY. Personal visit.
Senator NuNN. Do you try to contact people who are head of secu-
rity in those companies primarily?
Mr. O'MALLEY. Yes; particularly the security people or other senior
officers who are in the position to pay attention to what we say and
to listen to our suPgestions and implement them within the company.
Senator Ntricx. How many referrals of evidence indicating criminal
activity does the FBI receive from the Department of Commerce
Compliance Division in a year? Do you have any statistics on that?
Mr. O'MALLEY. I don't have any statistics at hand but I checked and
to my knowledge we have not gotten any criminal referrals from the
Department of Commerce in the past year.
Senator NuNN. In the past 12 months?
Mr. O'MALLEY. Yes.
Senator Nuiciv. Would that be calendar year 1981?
Mr. O'MALLEY. I responded to the question I thought you had asked
within the past year. But I am not sure in the past few years that we
have gotten any criminal referrals.
Senator NuNN. So your records don't reveal any or at least. :you
don't know of any criminal referrals from the Compliance Divisioti
of Commerce to the FBI?
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Mr. O'MALLEY. That is true.
Senator NUNN. How about criminal referrals by the U.S. Customs
Service?
Mr. O'MALLEY. We have a very close working relationship with
Customs, both at headquarters and with their field divisions through-
out the United States and there has been, although I don't have sta-
tistics on it, a number of referrals from us to Customs and vice versa.
At the current time we have a number of very, I would say, defined it
as substantial cases that; we are working jointly with Customs in the
technology transfer area.
Senator NUNN. Do you have an established procedure for liaison be-
tween the FBI and the Commerce Department in high technology
cases?
Mr. O'MALLEY. It is riot a written document as such but we do have,
I think, fairly well structured relationship with Commerce. We have a
liaison officer. We also have, I think, excellent liaison from the very
highest levels of Commerce down to the lower levels, and with several
different divisions within Commerce. Particularly in the last year we
have had a number of meetings between the FBI and Commerce at
fairly senior levels, to brief them on our responsibilities, particularly
in the counterintelligence area, and to exchange ideas on the whole
technology transfer issue in general.
I think they have been very worthwhile. At the present time we are
in the process of negotiating with the Department of Commerce a mem-
orandum of understanding which will, I think, enable us to avoid
problems that we have experienced in the past of I2-C of the Export
Administration Act where we ask for certain information and accord-
ing to that particular section it was either not forthcoming or there
were lots of delays. I think, though, as a result of the meetings that 1
have been talking about, and the relationship that we have today, that
hopefully at least there will be a memorandum of understanding that
in the future when the Bureau approaches Commerce requesting cer-
tain, particularly licensing-type information that that request each
time does not have to go all the way up to the Secretary of Commerce
but can be handled let's say at a routine but albeit
Senator NUNN. You mean at the present time under the present
procedures any FBI requests for information have to go all the way
to the Secretary of Commerce?
Mr. O'MALLEY. That is required by the Export Administration Act.
Senator NUNN. That is the law?
Mr. O'MALLEY. Yes.
Senator NUNN. What provision of the law is that?
Mr. O'MALLEY. 12-C of the Export Administration Act.
Senator NUNN. Is that proprietary information?
Mr. O'MALLEY. It basically says, licensing information or requests
for licensing information cannot be made public without the expressed
authority of the Secretary of Commerce unless he decides that it will
be in the public interest I gather to release such information. The
problem is?
Senator Nrinciv. Making it public is giving it to the FBI
Mr. O'MALLEY. That is the way the Commerce has interpreted it in
the past, that making it public is synonymous to giving it to other
agencies within the Federal Government.
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Senator NuNN. Does the Justice Department to your knowledge
agree with that interpretation of the present law?
Mr. O'MALLEY. They do not agree with that.
Senator NuNN. So the Justice Department believes that the Com-
merce Department without changing the law could actually share that
information with the FBI?
Mr. O'MALLEY. Yes; I believe the Justice Department has prepared,
the Office of Legal Counsel, has prepared a study on that and com-
municated the results of that study to the Department of Commerce.
Senator NuNN. I am informed by staff that that law was amended
last year, in December specifically to permit that information to be
passed for investigative purposes. Are you familiar with that?
Mr. O'MALLEY. I am not.
Senator NUNN. Could you ask the Justice Department to furnish us
their position on the current law, whether there is a change in the law
needed to permit that kind of cooperation?
Mr. O'MALLEY. I will ask the Department.
Senator NuNN. I will pose the same question to the Commerce De-
partment when they testify next week. Your own view is so far as you
know the Justice Department believes the Commerce Department has
it within their authority to permit that under existing law?
Mr. O'MALLEY. Yes.
Senator NuNic. Do you know how many technology transfer cases
have been worked jointly in the last year by the FBI and the
Commerce Department?
Mr. O'MALLEY. I don't believe we have worked any cases jointly.
We normally contact the Commerce Department where we have a
question regarding certain licensing information or whether or not
a given item is on the commodity control list and therefore embargoed
for transport abroad, particularly to a Warsaw Pact country.
Senator NUNN. How about the Customs Service? Do you have cases
that you work jointly with them?
Mr. O'MALLEY. We certainly do. We have a substantial number of
such cases going on at the present time.
Senator NuNN. How do you explain the lack of having any referrals
from the Compliance Division of the Commerce Department to the
FBI and how do you explain the lack of having any joint cases you
are working with the Compliance Division? Is there a reason for
that that is not readily apparent?
Mr. O'MALLEY. I think it is probably because in the past Commerce
has been understaffed. They do not have, compared to Customs, the
number of investigators out in the field or the people with the same
kind of law enforcement training, that people in the field in terms of
Customs would have. We have a tradition which transcends the tech-
nology transfer issue of working very closely with Customs. They
have a large presence as the Department of State indicated through-
out the country of all the key ports. So I think these are the general
reasons why we exchange information more frequently with Customs
than we would with Commerce.
Senator NuNN. Are you familiar with the DeGeyter case?
Mr. O'MALLEY. Yes ; I am.
Senator NuNN. Was that an FBI case?
Mr. O'MALLEY. Yes.
Senator NuNN. Did you work with Commerce on that?
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Mr. O'MALLEY. No. We did not work the case jointly information
being
Com-
merce. We consulted Commerce as to whether or not the
being sought by Mr. DeGeyter was on the commodity control list, or
something within that data base management system would have
qualified it as sensitive enough to bring it within the parameters of
the Export Administration Act.
Senator NUNN. So the Commerce Department simply answered
inquiry by you on that case?
Mr. O'MALLEY. That is right.
Senator NUNN. Were you aware that the DeGeyter case was listed
in the Commerce Department's annual report as a 'criminal proceed-
ing handled through the Compliance Division"?
Mr. O'MALLEY. I have been told that it was. I am a little mystified
as to why it was said, perhaps there is a reason why they said that.
I am not sure. I haven't discussed it with them.
Senator NuNN. What; areas would you point out where coordination
can be improved between the FBI and the other Federal agencies in
this area?
Mr. O'MALLEY I think an awful lot has been done in the past year,
18 months, Senator, on this issue, both within the intelligence com-
munity itself and between the intelligence community and the export
control community. There are a number of committees in the intel-
ligence community and outside the community that we all sit on and
I think that it is working very well. Commerce sits on it, State sits on
it, Customs, all the export control community agencies as well as ours
and other members of the intelligence community, includinc, Defense
and CIA. So I think a lot has been achieved in terms of coordination,
but I think like anything else, there still can be more achievements.
I think even more coordination in the future.
But I can say, with a fair degree of certainty, that there is no issue
of greater importance in the intelligence community today than the
technology transfer issue.
Senator NuNic. I certainly agree with that. Do you have any diffi-
culty getting people in the Commerce Department who have security
clearances so you can deal with them in your counterintelligence in-
formational exchange?
Mr. O'MALLEY. There was a problem in the past on that issue. We
brought it to the attention of the Commerce Department and appro-
priate clearances were obtained for people within the Compliance
Division.
Senator NurNic. So you think that problem has been smoothed out?
Mr. O'MALLEY. I think it has been.
Senator Nui.ix. We were told during the grain embargo that at one
of the high level meetings someone was excluded from the meetings
because of clearance?
Mr. O'MALLEY. That :happened initially. That is the exact situation
I was discussing with you. That happened in the initial meeting. We
found out he did not have appropriate clearances. We brought it to the
attention of Commerce and they saw to it that these people were given
clearances and thereafter they sat in on our meetings.
Senator NuNri. So you don't think that is a problem at this point
in time?
Mr. O'MALLEY. I do not. I think the Commerce Department has
tightened up its security substantially over the past 2 years.
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? Senator NUNN. Do you feel in your personal opinion that the Com-
merce Department is capable of?the Compliance Division in the
Commerce Department?is capable of effectively enforcing the Export
Administration Act as it is presently constituted?
Mr. O'MALLEY. I mentioned earlier some of the problems that Com-
merce, would acknowledge themselves in terms of a lack of sufficient
personnel, a lack of training, a lack of presence throughout the United
States and abroad. There is one or two ways that that can be resolved,
either increase or improve the capabilities of Commerce in the areas
that I mentioned or consider transferring it to another agency.
Senator NuNN. Would the Customs Service be better able to handle
the enforcement of the Export Administration Act than the Com-
pliance Division?
Mr. O'MALLEY. The only thing that I can say in regard to that ques-
tion, Senator' is that the Customs Service does have a larger presence,
both here in the United States and abroad. Their training is better.
They have law enforcement powers which Commerce people do not
have. I believe it would be inapproprate for me to publicly? .
Senator NuNN. I understand, but your relationship with the
Customs Service in this overall area is very professional, very good?
Mr. O'MALLEY. It is excellent.
Senator NuNN. What about the Silicon Valley problem? We have
heard testimony that there is a huge theft problem in the Silicon
Valley. An awful lot of the enforcement in the past has been left up
to both police and sheriffs and local prosecutors and so forth. Has the
FBI moved into that area in recent months?
Mr. O'MALLEY. Senator, I understand what you are saying, that
there has been a tremendous amount of work done by the local author-
ities in the Silicon Valley area. But I must add also that there is a
substantial Federal presence in that area also in terms, of our own
operations and the operations of customs. Silicon Valley is a cause
of concern for us. It is of obvious interest to the Warsaw Pact coun-
tries. As serious as it is, it is one of many problems that we have
throughout the country in the technology transfer area.
Our presence there as I indicated is substantial and I would be, I
think, very happy to go into closed session with you for the details on
that presence.
Senator NuNN. Fine. We are going to need to have a closed session
because we had certain questions that came up yesterday about mis-
demeanor pleas on a very serious case that involved national security
and we are going to have to hear that in closed session. So we would
like to talk to you in closed session on the other too.
I want you to understand that we have not taken a look at the Bell
case from the point of view of determining whether law enforcement
efforts were excellent, good, or fair. We are making no finding or impli-
cation. Nothing I said should indicate that we are in any way criticiz-
ing the FBI on the Bell case. We did hear testimony from him
yesterday.
Mr. O'MALLEY. I understand that, Senator, but I saw the newspaper
piece regarding Mr. Bell's testimony. That is the only reason I
responded to that, not because of anything that you have said or
anyone else.
Senator NuNN. The implication I got from his testimony was that
there were a lot of signs there that his own company should have
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caught or someone should have caught earlier. But I certainly am not
making any statement to that effect. We just haven't looked at it in
that aspect. We have looked at it in the aspect of whether this tells us
something about our overall capability in this area and whether the
business community can do more themselves.
Have you been a member of a working group on export controls?
Mr. O'MALLEY. Yes; I have.
Senator NtrisTN. What is that group?
Mr. O'MALLEY. It was a group, as a matter of fact, you mean the
FBI or me personally?
Senator NuNN. Both.
Mr. O'MALLEY. The FBI is currently a member of four or five such
groups on export control. As I said, both within the intelligence com-
munity and combined with the intelligence community and the export
control community. I also chaired a committee about 3 years ago look-
ing into the entire problem of export control.
Senator NuNN. Has that group had recommendations?
Mr. O'MALLEY Yes; it has.
Senator NuNN. Whom did the recommendations go to?
Mr. O'MALLEY. Those recommendations went to the National Secur-
ity Council.
Senator NTJNN. When did they go to the National Security Council?
Mr. O'MALLEY. If my recollection serves me it was in December 1979.
Senator NUNN. December 1979?
Mr. O'MALLEY. Yes.
Senator NONN. Have those recommendations or some of those rec-
ommendations been acted on?
Mr. O'MALLEY. Yes; they have.
Senator NuNN. Have some of them not been acted on?
Mr. O'MALLEY That is also true.
Senator Nurric. Are these classified recommendations?
Mr. O'MALLEY. Yes, they are.
Senator NuNN. At the appropriate time in a closed session, are you
permitted to go into that?
Mr. O'MALLEY. No; that is a national security document and I can-
not comment even though I chaired the committee, I cannot comment
on anything that is in that report and the only thing I would do would
be to recommend that you approach someone in the National Security
Council for that document.
Senator NENN. You are familiar with it?
Mr. O'MALLEY. Yes.
Senator NtrivN. But you have to get permission from them?
Mr. O'MALLEY. I cannot discuss it.
Senator Num,r. We will pursue that with the National Security
Council and perhaps go into that in closed session also. It is certainly
relevant to the hearings, if you have an expert group of people looking
at it and coming to conclusions. We will pursue that. We appreciate
very much your being here. We appreciate the cooperation of the FBI.
Mr. O'MALLEY. Thank you, Senator.
Senator NuNN. Thank you.
Our next witness is Mr. Arthur Van Cook, Director of Information
Security, Department of Defense, and Chairman, National Disclosure
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Policy Committee. Do you have anyone else with you this morning?
Mr. VAN COOK. I have one of my staff.
Senator Nmsnsr. We would be glad for him to come up. If he is going
to testify, I will swear him in.
Mr. VAN CooK. He is not going to testify.
Senator NuNN. Will you hold up your right hand? Do you swear
the testimony you will give the subcommittee to be the truth the
whole truth, and nothing but the truth, so help you God?
Mr. VAN COOK. I do.
Senator Muir% We appreciate you being here this morning. We ap-
preciate your cooperation. We look forward to getting your testimony.
You go right ahead.
TESTIMONY OF ARTHUR VAN COOK, DIRECTOR OF INFORMATION
SECURITY, DEPARTMENT OF DEFENSE, AND CHAIRMAN, NA-
TIONAL DISCLOSURE POLICY COMMITTEE
Mr. VAN COOK. Thank you, Mr. Chairman. I do hold the position
of Director of Information Security in the Department of Defense.
I am also designated as the Chairman of the National Disclosure
Policy Committee and I am the U.S. representative to the NATO
Security Committee.
In these capacities and with these titles I am responsible for policy
development and oversight of DOD activities in the areas of informa-
tion security and foreign disclosure.
Senator Nurrx. What did you say your position was in terms of
NATO?
Mr. VAN COOK. I am the U.S. representative to the NATO Security
Committee, sir.
Senator NUNN. Does that committee interrelate with Cocom?
Mr. VAN COOK. No, sir.
Senator Nummr. It has no relationship with that?
Mr. VAN COOK. No.
Senator Nuisrx. Is there a body in NATO that has any feed into the
Cocom decisions on export?
Mr. VAN COOK. Not to my knowledge, sir. As a NATO body.
Senator NuNN. I would like to pursue that with you. But go ahead
with your statement. We will get to it.
Mr. VAN COOK. Yes, sir.
I welcome this opportunity to discuss the problem of technology
transfer to the Soviet Union and other Soviet bloc nations. The Depart-
ment of Defense has been concerned for some time about the virtual
unremitting flow of unclassified defense information to our adver-
saries. This hemmorrhage of information to hostile nations, particu-
larly technology and technical data with military applications, is one
of the more serious problems confronting the Department.
Soviet bloc acquisitions of unclassified national security related
publications greatly enhances their capabilities to design, produce and
field weapons systems of all types, as well as develop measures to
counter U.S. weapons systems. It cuts their production costs, shortens
their production times, and improves the quality of their product.
A Soviet scientist who defected several years ago and others told
Congress that the majority of Soviet information collection require-
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ments can be openly obtained in the United States. The Federal Bureau
of Investigation has estimated that as high as 90 percent of the Soviet
collection requirements can be satisfied through open sources. A recent
unclassified CIA report states that Soviet intelligence organizations
have been so successful at acquiring Western technology that the man-
power levels allocated to this effort have increased significantly since
the 1970's to the point where there are now several thousand technology
collection officers at work.
We are painfully aware of Communist bloc efforts within the United
States to obtain technology, mostly through legal means, that is,
through open literature, which we are powerless to stop. Prior to
February 1980, for example, we stood helplessly by as the Soviet Union
purchased 80,000 technical documents from the National Technical
Information Service (NTIS). Although their access to the NTIS has
now been officially terminated, their surrogates undoubtedly continue
to exploit this source of extremely valuable information.
Members of Congress, industry spokesmen, and the media fre-
quently lament this state of affairs, and ask is there nothing that can
be done. Generally, these activities are carried out overtly and do not
violate existing U.S. law. In fact, it has always been presumed that
little could or should be done to limit such acquisitions, relying instead
upon the ability of the publishers of such documents to properly secure
sensitive information by using the existing security classification sys-
tem. However, much of this information is not classifiable under exist-
ing rules. The existing classification criteria does not provide adequate
protection to a large body of sensitive national security information,
particularly militarily critical technology and operational data devel-
oped solely for the use of our Armed Forces.
Classification of such information has been neither possible nor
practical. Although such sensitive national security information fits
the categories permitted to be classified, it does not rise to the level of
the "damage" standard of the Executive order governing classification.
Disclosure of the technical characteristics of electronic components
used in a missile guidance system, for example, may not appear to
damage the national security, and yet may well provide our adversaries
with precisely what they need to produce a more effective missile. It
is this "damage" standard that is applied by originators in deciding
whether to make their documents unclassified or to protect them by
security classification. Uppermost in their minds is the realization that
the test for classification could receive judicial review.
Consequently, if a determination is made not to classify, this in-
formation is vitlm?,rable under the Freedom of Iniormation Act
[FOIA] since the information does not fall within one of the non-
security exemptions to mandatary disclosure. It therefore becomes
available and this valuable technological and operational information
can be utilized by our adversaries to their military benefit.
Senator NUNN. Is it correct that foreign citizens have access to in-
formation in America under the Freedom of Information Act?
Mr. VAN COOK. Yes; they do, sir.
Senator NITNN. If President Brezhnev sends over a freedom-of-
information request to the Department of Defense and it is not classi-
fied, what is the law on that?
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Mr. VAN Com. The law would be if it is not exempt under the
nine exemptions of the Freedom of Information Act, classification
being one, that he would get the information he asked for.
Senator NUNN. So if the President of the Soviet Union sent over a
request for 100 different items under the Freedom of Information Act,
signed his own name, signed as President of the Soviet Union, he
would be entitled to that information under present law?
Mr. VAN COOK. It would be interpreted to be a member of the public
under that act.
Senator NUNN. Have there been any recommendations made by the
Department of Defense or any other agency in respect to access of
foreign citizen to that?
Mr. VAN COOK. There have been by the executive branch. The Pri-
vacy Act provides that the information can be asked for by a U.S.
citizen or permanent resident alien and that same language was pro-
posed for the Freedom of Information Act. My view would he that
it would be helpful to have that language in the act if in the initial
request the individual is identified as a foreign national. But I think
it would be very difficult to enforce.
Senator NUNN. Why is that?
Mr. VAN COOK. Any citizen or anyone who wrote in we would be in
the position of probably asking them for their birth certificate to prove
that they were a U.S. citizen.
Senator NTJNN. Shouldn't there at least be a prima facie showing
of citizenship on the application
Mr. VAN COOK. It would be very difficult to enforce. I think it would
be helpful nevertheless. There are
Senator Nurri.r. We are saying right now if Fidel Castro wrote in to
the Department of Defense and said he wanted 200 items that were
unclassified, that you would have to send them to him?
Mr. VAN COOK. That is correct, sir. If the items were not covered
by the exemptions.
Senator NUNN. Qadhafi in Libya. Is that correct?
Mr. VAN COOK. That is right.
Senator NUNN. The ayatolla of Iran?
Mr. VAN COOK. Yes, sir.
Senator NUNN. Don't you think on the face of it that is ludicrous?
Mr. VAN COOK. Yes, sir. I do.
Senator NUNN. So do I.
Suppose there is a hypothetical spy trial going on in West Germany.
Two or three East Germans are being tried for espionage. Suppose
during the course of that trial they write into the Department of
Defense and ask for certain information under the Freedom of In-
formation Act. What would be the law under that circumstance?
Mr. VAN COOK. The law would be that they would be entitled to the
information that they requested but we would certainly be reluctant
to give it to them with the knowledge that they were on trial for
espionage in their own country.
Senator NUNN. You would be slow. You would put that request at
the bottom of the pile?
Mr. VAN COOK. I think we would handle that very carefully, sir.
Senator IsTuNN. Let's say the situation developed in this country
where there were people who were charged, as being spies and were
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being tried under the Espionage Act. Would they still be entitled
to the Freedom of Information requests?
Mr. VAN. COOK. Yes; they would.
Senator NUNN. How about the case we heard earlier this week, the
Bell case? He is convicted of violating American law and giving away
national security secrets and he says very openly that he did and so
forth. What is his status under the Freedom of Information Act?
Mr. VAN COOK. He would be eligible to request information under
the Freedom of Information Act and if it could not be withheld under
the provisions of this statute, he would receive it.
Senator NuNN. So if he were to write in, ask for certain high tech-
nology items and so forth, that are not classified, he would be entitled
to that?
Mr. VAN COOK. Yes; he would be entitled to receive it under the
Freedom of Information Act. Yes, sir, if there were no other restric-
tions, no restraints under the act.
Senator NUNN. Are there any other restraints under the law?
Mr. VAN COOK. There are nine exemptions under the Freedom of
Information Act, the first of which is classification.
Senator NUNN. But it relates to the material itself and not to the
applicant?
Mr. VAN COOK. That is correct, sir.
Senator NuNN. So, Mr. Bell, a convicted felon, would have the same
rights under the Freedom of Information Act as the New York Times
reporter or the Washington Post reporter?
Mr. VAN COOK. Yes; we have the experience of a Norwegian citizen,
I believe the name is Gletich, who was an access professional you
might say. He asked us on 23 different occasions for information
under the Freedom of Information Act. This man was put on trial
for espionage in his own country and was convicted. To some of those
requests we did respond favorably and some we did not.
But this is an example?
Senator NuNN. Would you have responded favorably on some after
he was convicted?
Mr. VAN COOK. No; this was prior to the time that he went on trial.
Senator NuNN. But he has been convicted now?
Mr. VAN COOK. He has been convicted.
Senator NUNN. Would he still be entitled to get the information?
Mr. VAN COOK. Now that we know that the individual is tried and
convicted, I would suspect that we would work that case very care-
fully but nevertheless I believe under the law
Senator NUNN. If he had a good lawyer he could go to court and
get it?
Mr. VAN COOK. He could go to court and get it; yes.
Senator NUNN. Go ahead.
Mr. VAN COOK. As Admiral Inman has remarked, a "cottage in-
dustry" has been created by the Freedom of Information Act. Access
professionals and data brokers use the act to gather information, re-
package it, and market their information product in the United States
and abroad. Openness is a desirable social and economic commodity,
but we must not lose sight that such openness comes at .a cost. It has
been presumed that the rapid dissemination of information is socially
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and economically good because it avoids duplication of effort, fosters
competition, and beneficially spreads technology.
But, there is a hidden cost. While it may be argued, for example.
that a full and free exchange of information is necessary if the United
States is even to maintain its technological world leadership, it is my
concern that it is this very full and free exchange of information
that may be causing that technological lead to wane.
I have just mentioned a case where we received requests under FOI
from the Norwegian access professional who was, at the time of his
request, being tried in court in his country for espionage. This
dramatically illustrates the point.
Senator NUNN. Is there any other country in the world that has
this same kind of law, that foreign citizens are entitled to request
information? Could you, as a U.S. citizen, request information in
Britain and be entitled to it?
Mr. VAN COOK. I would expect not, sir. In Britain, they have an
Official Secrets Act. The information, official information, in gov-
ernment records is the property of the Crown. In our country, our
Government records are the property of the people, the public. We
are just protecting those records for the people.
Senator NUNN. There presumably would be the people of this
country, not the people of the Soviet Union?
Mr. VAN CCX)K. That is correct, people of this country.
Senator NUNN. Have you ever heard an argument that would have
the logic to it that the President of the Soviet Union or the ayatollah
in Iran, or Qadhafi in Libya ought to have access to information
under the Freedom of Information Act, does anybody have an argu-
ment that that is necessary to protect our own right to know in this
country?
Mr. VAN COOK. No, sir, I have never heard such an argument.
Senator NUNN. If you hear it, let me know. I am really curious
about what the argument would be.
Mr. VAN COOK. I share your curiosity, sir.
The Soviets view the United States and several other Western
countries as a continuing source of important and openly available
scientific and technical information. In some cases, according to an
unclassified CIA report, their acquisitions satisfy deficiencies in
Soviet technology such as smart weapons, electro-optical and signal
and information processing technology for Soviet air defense systems.
Also, the Soviets appear to have concentrated their tactical systems
acquisitions on Western tank, antitank, and air defense related tech-
nology to benefit their weapons programs and to design counter-
measures to Western systems.
Even with classification there have been instances of difficulty caused
by judicial review of such determinations pursuant to FOIA litiga-
tion. A requester sought access to records entitled "Technical Abstract
Bulletin" [TAB] indexes produced by the Defense Technical Informa-
tion Center. The TAB is a bibliographical reference document that in-
dexes technical reports prepared for the Department of Defense. It was
an entity classified confidential. Most of the reports indexed in the
TA_B were unclassified and although some of the reports indexed in
the TAB were in themselves classified, their titles had been rewritten
so that each title was unclassified. The basis for its overall classifica-
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tion of confidential was that the compilation of research and develop-
ment information contained in and revealed by the TAB index would
allow a foreign nation to develop, improve or refine similar items of
war potential, or would provide such a nation with a base upon which
to develop effective countermeasures or weaken or nullify the effec-
tiveness of a defense plan, project or system which is vital to the na-
tional security.
The, court ruling in this so-called Florence case did not even reach
to the question of whether the documents were in fact properly classi-
fied, and thus not subject to disclosure. In the court's opinion, other
provisions of the FOIA were overriding. The FOIA stipulates that:
"Any reasonably segregable portion of a record shall be provided to
any person requesting such record after deletion of the portions which
are exempt." The effect of the court's opinion and its order to release
the segregable portions resulted, in this instance, in the release of the
entire document.
In 1980, Senator Sasser brought into focus the problem of unlim-
ited dissemination by making inquiries into the international exchange
program. It was discovered that a large number of unclassified 'U.S.
Government publications were being automatically distributed to for-
eign governments such as the Soviet Union, Cuba, and Iran under this
exchange program. A large portion of these documents were defense-
originated publications including field manuals and technical manuals
developed for the use of the Armed Forces.
The international exchange program is under the direction of the
Library of Congress, and the distribution of these unclassified docu-
ments is made pursuant to law and in accordance with some 55 bilateral
agreements negotiated by the Department of State and foreign govern-
ments. The laws governing the supply of U.S. official publications for
international exchange are section 1718 of title 44 of the United States
Code, "Distribution of Government Publications to the Library of
Congress," and section 1719 of title 44, "International Exchange of
Government Publications."
The intent of this legislative policy is to make the widest range of
U.S. official publications available for exchange. The only documents
considered in this process are those published by the Government
Printing Office, and the publications made available for the e,m1tange
program are generally identical to those that are made available to
designated public and academic libraries in the United States under
the depository library program established by section 1902 of title 44.
The trend toward openness in Government has run virtually un-
interrupted for the past 30 years. It is a trend that the Department
of Defense certainly has supported over those years. It has lonrr been
the Department's policy not to constrain information the public re-
quires to be informed sufficiently about the activities and operating
functions of the Department. We were concerned, however, that there
appeared to be no compelling reason for permitting Government pub-
lications that are required solely for official use or for strictly ad-
ministrative or operational purposes to be freely transferable to all
countries participating in the exchange program even though the
publications were not classified for reasons of national security.
Therefore, the military departments and defense agencies were
asked to revise their policies and procedures with respect to the ap-
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proval and issuance of unclassified field manuals, technical manuals
and other publications containing valuable technical data to assure
that these publications required solely for official use or for strictly
administrative or operational purposes were clearly identified.
Further, the Library of Congress and the Government Printing Office
agreed not to include defense documents so identified in the inter-
national exchange program. Our aim was not to exclude all defense
documents from the program but to provide more positive control
over a certain class of such documents. This we did.
Senator NUNN. You are really saying that you took these documents
out of the circulation list that were automatically sent abroad; is
that right?
Mr. VAN COOK. By identifying those documents as those which had
technical data and operational data for the use of the Armed Forces,
by identifying them with a notation, the effect of it was that we did
take them out of the exchange program.
Senator NUNN. But that doesn't mean they aren't obtainable under
other methods?
Mr. VAN COOK. They could be reached under the Freedom of Infor-
mation Act for example, yes, sir.
Not satisfied that we had done all we can within the Department
to Fmk the availability of such unclassified information, General
Stilwell, Deputy Under Secretary of Defense (Policy), established
a DOD working group on technology transfer. This group which I
was asked to chair, was directed to address: (1) what the Department
of Defense can do now to effect more positive control of such defense
information, (2) what Department policies and procedures ought to
be changed to effect more positive control, and (3) what can we ask
others outside the Department to do to assist in these efforts.
The issues involved in such an undertaking are not unfamiliar and
center around the countervailing principles of openness in Govern-
ment and the Government's legitimate need to protect from disclosure
certain information in the interest of national security. What we are
seeking is a more equitable balance between the need to protect certain
information and the competing need to keep the public properly in-
formed about the activities of its Government.
One of the initiatives that has emerged as a result of the technology
transfer working group was a proposal to authorize the Secretary of
Defense, by Executive order, to classify at a level lower than confi-
dential, defense information the unauthorized disclosure of which
could reasonably be expected to be prejudicial to the national security
because it would result in the loss to the United States of a military,
technological, or operational advantage. This proposal did not receive
broad executive branch support, however, and has been abandoned.
Another initiative appears in the defense legislative proposal to
amend the Freedom of Information Act where it has been recom-
mended to exempt from disclosure technical data that may not be
exported lawfully outside the United States without an approval, au-
thorization, or a license under Federal export laws. This recommenda-
tion is now a part of the administration's proposal to amend the act.
Senator NUNN. Are you saying that under the existing law and
interpretations that something under the Export Administration Act
has to have a license and approval from the Commerce Department
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or otherwise it can't go out of the country, would be obtainable, the
same information would be obtainable under the Freedom of Infor-
mation Act
Mr. VAN COOK. Yes. That is entirely possible.
Senator NuNN. I don't understand that. I don't understand how we
get to that spot.
Mr. VAN Coos. Under the Freedom of Information Act, there is
no exemption that deals with technical information. There is an ex-
emption, the third exemption, under the Freedom of Information Act
which provides that information can be withheld from public release
because it is exempt from disclosure by statute. So if something is
subject to export control laws under the Munitions Act or under the
Export Administration Act, I would think that could be withheld
under the B (3) exemption under the Freedom of Information Act.
But there may be certain elements of information not clearly covered
by statute that might be released under the Freedom of Information
Act. I say it is probable, possible.
Senator NuNN. You are saying that if someone were careful in
applying that exemption that relates to the statutory restrictions that
the Freedom of Information Act could not reach that material?
Mr. VAN COOK. That is correct.
Senator NuisTN. You are saying it needs to be clarified?
Mr. VAN COOK. I think it needs to be clarified.
Further internal proposals to provide more positive control of this
type of information that is allowable under existing policies and pro-
cedures are being developed, but it would be premature to discuss them
at this time since they have not yet been fully considered by the
Department.
Thus far I have been dealing with the problem of technology trans-
fer from an information security perspective. However' in 1978, in
addition to my responsibilities as Director, Information Security for
the Department of Defense, I also became responsible for the imple-
mentation of the national disclosure policy. I should like now to
discuss technology transfer from my other perspective, that of the
chairman of the National Disclosure Policy Committee.
Under the basic national disclosure policy issued in 1971 by the Na-
tional Security Council, with Presidential approval and each subse-
quent President's reaffirmation, the Secretaries of State and Defense
are jointly responsible for controlling the dissemination of classified
military information to foreign governments. The interdepartmental
committee which I chair was established to implement the national
disclosure policy and includes representatives of the Central Intelli-
gence and Defense Intelligence Agencies, the Department of State,
the Organization of the Joint Chiefs of Staff, and the three military
departments.
The most important aspect of the national disclosure policy is the
realization that classified military information is a national asset, an
asset that must be conserved and protected. In determining whether
classified military information, including technology, will be pro-
vided to a foreign government five policy objectives or criteria must
be considered. The first is that the disclosure must be consistent with
the U.S. foreign policy toward the recipient nation. The second ob-
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jective is that the disclosure must not seriously jeopardize U.S. na-
tional security.
Third is the assessment of the foreign recipient's ability to protect
the information as we protect it. Fourth? is whether the information
to be provided is sufficiently limited to only that which is necessary to
accomplish the purpose of disclosure. And finally, the benefits to the
United States must be at least equivalent to the value of the informa-
tion disclosed.
Each year there are approximately 10,000 disclosure decisions
made in the Department. Obviously the National Disclosure Policy
Committee itself cannot handle this volume. Consequently disclosure
authority is delegated to principal Department of Defense officials as
the Secretaries ot the military departments, the Chairman of the Joint
Chiefs of Staff, the Director, Defense Intelligence Agency and a few
others.
These are, in turn, authorized to redelegate this authority to the
levels that they believe are necessary to meet operational requirements.
People authorized to make decisions with respect to the release of
classified military information to foreign governments are guided in
their decisions by the National Disclosure Policy Document issued by
the Secretary of Defense. This document lays out in clear terms the
criteria for disclosure which must be met and specifies the levels of
eligibility for each country with whom we exchange classified military
information.
In those cases where the criteria cannot be met for one reason or
another or the information to be disclosed exceeds the level of eligi-
bility for the country concerned, an exception to the national disclo-
sure policy must be considered before the disclosure is authorized.
The role of the National Disclosure Policy Committee is to consider
and act upon any request for exception to policy.
To assist in keeping track of the Department's disclosure decisions
we have an automated data system called the Foreign Disclosure Auto-
mated Data System or Fordad.
Four types of data are recorded in the Fordad system:
1. All delegated disclosure decisions of documentary information or
material that are normally made within the guidelines for the national
disclosure policy.
2. All decisions on requests for exceptions to policy initiated because
the disclosure falls outside the normal guidelines for disclosure.
3. All disclosures involving top secret information.
4. All DOD decisions on munitions license applications.
This data base is used on a routine basis to provide decisionmakers
with the background of previous, similar cases by weapon or country.
However, in a 1979 study, we found that this system had significant
problems of completeness, timeliness, quality, and accessibility. In
May 1979, the Deputy Secretary of Defense tasked the military depart-
ments and other agencies to assist the Deputy Under Secretary of
Defense (Policy) (my boss) in improving the system. We then initi-
ated a project to develop the Foreign Disclosure and Technical In-
formation System (Fordtis). The objective of Fordtis is to assist
the U.S. Government in meeting its national security responsibilities
in the disclosure of classified military information, import and export
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control, international armament cooperation, and assessment of U.S.
technology posture.
Analysis has shown that automation can be effectively applied to
the caseworking process by providing caseworkers a common frame
of reference within which to make decisions. We f mnd that the system
must include foreign military sales and munition licenses to give a
complete picture of munitions leaving this country. We also found
that commercial commodity licenses sent to DOD by the Department
of Commerce and Cocom cases sent to DOD by the Department of
State must be included in order to make rational decisions on the ex-
port of militarily critical technologies.
In addition to these historical files, the caseworkers need reference
information such as the militarily critical technologies list, country
assessments, and weapon systems reference lists. Fordtis will con-
tain this information and will interface with the Department of State
systems and one Department of Commerce system.
We expect an initial operating capability this month with a full
operating capability supporting a network of users 1 year later. We
anticipate that Fordtis will reduce staffing of routine cases and
allow more time for precedent-setting critical cases. Fordtis will
allow the U.S. Government an unprecedented capability to control
the export of information, munitions, and technology.
Mr. Chairman, this concludes my prepared statement. I shall be
happy to respond to any questions you or your subcommittee may have
at this time.
Senator NuNN. Thank you very much, Mr. Van Cook.
We appreciate your excellent statement. Because of the Soviets'
activities in Afghanistan the United States will not allow the Soviets
to obtain information from the Technical Information Service. Does
this mean the Soviets really are locked out of this or can they find
other ways to get to it ?
Mr. VAN COOK. The Soviets directly are locked out of it but we ex-
pect that their surrogates are certainly providing the information to
them and using the service.
Senator NuNN. Is this more of a symbolic act than it is something
that can really be enforced?
Mr. VAN COOK. Yes, sir.
Senator NuNN. You mentioned the so-called "cottage industry"
that has sprung up regarding the Freedom of Information Act. Would
you tell us how you define a cottage industry? What do you mean
by that?
Mr. VAN COOK. These are organizations that have been in the
business of accessing Government records under the Freedom of In-
formation Act, asking for a wide range of Government records, repro-
ducing them, and selling them, here and abroad.
Senator NuNN. They are actually in the business?
Mr. VAN COOK. They are in the business, yes, brokers.
Senator N17NN. Do any of these so-called cottage industries have
computerized operations that you know of?
Mr. VAN COOK. Yes. They do, sir.
Senator NIETNN. Would you describe that
Mr. VAN COOK. You know, in this age of microfiche and microforms
and computers, the data bases are easily organized and they can be
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accessed in minimum time, within a matter of minutes. So that these
data bases are utilized by industry throughout the United States, cer-
tainly by these people, where they have a complete data base of all of
that which they have obtained through their requests under the
Freedom of Information Act.
I believe there is one outfit called INFODOC overseas that makes
great use of these data bases. I have an example of some of their publi-
cations which I will be glad to provide for the subcommittee's review.
Senator Nurnv. Do you regard our technology as a national asset as
you do our military information
Mr. VAN COOK. I believe that there should be no question in anyone's
mind that the U.S. technology and technical know-how is the best in
the world. It should be treated with a sense of worth. Yes, I believe
it should be treated as a national asset.
Senator Numv. Regarding the Freedom of Information case in
which an individual was able to obtain the technical abstract bulletins
index, is this really an equivalent to a road map of U.S. technology,
directions, capabilities, advancements, and future intentions ?
Mr. VAN COOK. Yes. In that particular case, Senator, we classified
the document, the total document, the index on the basis that it would
give an indication of our level of effort because it did outline. in some
detail, although each entry being unclassified, the subject matter that
was in existence. So the compilation we felt revealed a level of effort
and classified on that basis. The court made a decision that it did not
need to reach to the validity of the classification but merely get to that
portion of the Freedom of Information Act which says that the re-
questor is entitled to the unclassified segregable portions and the court
ordered that he be provided with all of the unclassified entries. Conse-
quently, we provided him with the document.
Since, based on that court decision, we have since declassified that
document. It is no longer a classified document. So it is available.
Senator' NurrN. So that was the combination of the Freedom of
Information Act plus the court decision?
Mr. VAN COOK. That is correct, sir.
Senator Nurnsr. Is this administration going to have any recom-
mendations on the Freedom of Information Act?
Mr. VAN COOK. Yes. There is a legislative package in the Congress
at this time.
Senator NuNN. Now pending?
Mr. VAN COOK. Now pending, yes.
Senator NuNN. Does that cover any of these areas we have talked
about? Does it cover the access by foreign citizens?
Mr. VAN COOK. My understanding is that it is in that package. Yes,
sir.
Senator NUNN. COLTH you furnish that package to us for the record?
We can get it?
Mr. VAN COOK. I will be glad to.
[The material referred to was marked as "Exhibit No. 32," for
reference, and may be found in the files of the subcommittee.]
Senator NuNN. Has the Department of Defense participated in that?
Mr. VAN COOK. Yes.
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Senator NUNN. Do you think this package does plug up most of the
loopholes that you are dealing with?
Mr. VAN COOK. The one that we are principally concerned with now
and which we are addressing today, technology transfer, we think it
would go a long way if under the Freedom of Information Act we
would have the authority to withhold that type of information. I think
it would help considerably, sir.
Senator NUNN. What about the index of military specifications? Is
that currently available under the Freedom of Information Act?
Mr. VAN COOK. Yes. The index of military specifications and stand-
ards is a two-part document, alphabetical listing and numerical list-
ing of our military specifications and standards. It is for sale by the
Government Printing Office. By subscription, $40, I think, domestic
and $50 foreign.
Senator NUNN. Is this something that should be classified?
Mr. VAN COOK. It is very difficult to classify this, Senator, to reach
the damage criteria for one thing. For another thing, it sometimes
is not practical to classify. Example, you might take a military
standard and specification of a Jeep tire which is listed in this book
and if you went to the classification route, the fellow who has to
change tires would have a clearance, you know, you get into all of those
safeguard rules and it is just impractical to do it.
Senator NUNN. So this is something no matter how we change the
law, regulation, something like this is going to always be available.
Right?
Mr. VAN COOK. Not a matter of how you change the law and
regulations. I think if the laws were such that if we could withhold
this information properly and use it for the people who need to use
it, in the Department of Defense, in the Government in fact, possibly
the contractors, that is what we are looking for.
Senator NUNN. Is there any kind of proposal by the administration
that would allow you to do that?
Mr. VAN COOK. Yes. I think this amendment to the Freedom of
Information Act would give us that license.
Senator NUNN. But I thought you were saying that this is a docu-
ment that is printed by the U.S. Government Printing Office and can
be subscribed to?
Mr. VAN Coox. Under the Freedom of Information Act, if we could
withhold it, under a statute, under the Freedom of Information Act,
for example, we would stop that, that would no longer be available
for subscription.
Senator NUNN. One of the huge problems in classification is that
the people at the top, or even the second echelon or third echelon, don't
have time to go through all of these documents and classify. Conse-
quently any comprehensive system of classification has people way
down the line making those determinations. Is that correct?
Mr. VAN COOK. Sir, in the Department of Defense we make very
extensive use of what we call security classification guides. so the
people down the line that you are speaking of work under these guides.
They don't make original classification decisions. nor do they have to.
They merely need to determine that the information they are deal-
ing with fits this guidance and they mark it as the original classifier
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wants it marked. We have over 1,200 such guides in the Department of
Defense covering classified programs, projects, plans and systems.
Senator NuNN. We thank you very much for your cooperation and
your testimony. We want to stay in touch with you as we begin to
make suggestions in these areas.
Mr. VAN COOK. Thank you, Senator.
Before I go I would like to say I have 39 years in the Government
service and I have dealt with many of the committees, both in the
House and the Senate side. But I just want to say that the coopera-
tion that was extended and the courtesies that were extended to us by
the staff people on this subcommittee was above and beyond. I think
they are truly professional and specifically Mr. Fry of your staff,
Mr. Asselin who dealt with us on the preliminary inquiries, were com-
pletely cooperative and the Department expresses its appreciation to
the subcommittee for that.
Senator Nurrs. Thank you very much. We appreciate that. I know
the staff appreciates that. I agree with your evaluation of them and
I am delio:hted that they were received that way in the Department of
Defense. We hope to have some constructive recommendations and we
certainly have benefited very much from your input.
Mr. VAN COOK. Thank you, sir.
Senator Nio-xx. Our next witness is Mr. William Von Raab, Com-
missioner, U.S. Customs Service. I believe Mr. Von Raab is going to
be accompanied by Mr. George Corcoran, Assistant Commissioner?
border operations?U.S. Customs Service.
Mr. Vox RAAB. That is correct. One other individual possibly. We
have some charts.
Senator NUNN. That will be fine. If the people who are going to
testify, if you could introduce them for the record, then we will ask
all of them to be sworn in.
Mr. VON RAAB. George Corcoran is at my right, Assistant Commis-
sioner for border operations; Pat O'Brien, who is our Director of
General Investigations under which most of these activities take place.
They may be asked a question.
Senator NuNN. If you will all hold up your right hand, do you swear
the testimony you will give before this subcommittee will be the truth,
the whole truth and nothing but the truth, so help you God?
Mr. VON RAAB. I do.
Mr. CORCORAN. I do.
Mr. O'BRIEN. I do.
TESTIMONY OF WILLIAM VON RAAB, COMMISSIONER, U.S. CUSTOMS
SERVICE, ACCOMPANTED BY GEORGE G. CORCORAN, ASSISTANCE
COMMISSIONER?BORDER OPERATIONS?U.S. CUSTOMS SERVICE;
AND, PATRICK O'BRIEN, DIRECTOR, GENERAL INVESTIGATIONS,
U.S. CUSTOMS SERVICE
Mr. VON RAAB. I brought a few charts here which might make
my presentation a little clearer' if it is all right with you.
Senator NuNN. That will be fine.
Go right ahead.
Mr. VON RAAB. Let's make sure that the Senator can see them over
there.
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Senator, I appreciate this opportunity to discuss with you the prob-
lem of Soviet acquisitions of critical technology. Since you are all well
aware of the magnitude and seriousness of the matter, I will take this
opportunity not to discuss the critical technology issue but rather what
the Reagan administration and Customs is doing to address it.
Historically, the Customs Service has played a role in export con-
trol enforcement since the birth of our Nation. In 1793, President
Washington, in order to avert American involvement in the French
Revolutionary Wars, issued the first proclamation of U.S. neutrality
and directed enforcement by officers of the Customs Service.
Since that time,
numerous proclamations and statutes have been
promulgated involving neutrality and other areas of export control.
Some of these enactments were for specific political or policy purposes,
such as bans on the export of critical technology to the Soviet Union
and others were for general purposes such as the licensing of all muni-
tions for export whatever their destination. Regardless of their nature,
Customs has always played a principal role in the enforcement of
these provisions.
Until 1973, Customs investigations regarding illicit exports were
mostly reactive and centered around various exile groups in the United
States, who, at times, would try to organize expeditions to invade
their former homeland.
Cases involving other areas of export control were almost non-
existent and, of the few that were conducted, most concerned the
export of stolen articles or commercial goods. During the mid and late
1970's, more and more emphasis was placed on export control enforce-
ment and several significant investigations were successfully culmi-
nated, including some cases involving the illicit transfer of critical
technology. These critical technology cases have been provided to your
staff in written summation.
Under the Reagan administration, a strong emphasis has been
placed on thwarting the flow of high technology to the Soviet bloc
and other unfriendly nations. In response to this mandate, I directed
the U.S. Customs Service to launch new initiatives aimed at com-
bating the trafficking in illegal exports.
The result of these efforts is called by us in Customs Operation
Exodus, a national enforcement program which integrates the various
operational units of the U.S. Customs Service. The program has three
distinct objectives, each of which is essential to the national interest.
The first objective is to halt, to the maximum extent possible, the
illicit flow of critical technology to the Soviet bloc and other un-
friendly nations. By critical technology, we in Customs means those
items which represent technological advances to the Soviet bloc
whether they be revolutionary or merely evolutionary in nature. This,
of course, is necessary if we are to regain and retain military parity
with the Soviet Union.
The second objective is to disrupt the flow of high technology to
the Soviet Union. By high technology, we mean those items which
the Soviet Union can manufacture themselves but choose to acquire
from the 'United States in order to reduce costs and improve ouality.
By intercepting such shipments, the Customs Service can significantly
disrupt the Soviet military complex.
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The Soviets will eventually be required to produce their own high
technology rather than relying on ours and will thereby be forced
to divert resources from other military areas.
The full significance of this becomes apparent when one realizes
that the Soviet Union does not have the massive civilian market for
this technology and must absorb the entire cost of building and operat-
ing Manufacturing facilities without being able to offset the expense
through large-scale commercial sales.
The final goal of the program is to intercept shipments of other
commodities which are being exported in violation of various sanc-
tions and embargos, such as the present embargos against Cuba, and
Libya, as well as the recent sanctions against Argentina. Effective and
credible enforcement is essential if the sanctions are to achieve their
desired end.
Operation Exodus is being coordinated from the national com-
mand center located at the Customs headquarters in Washington. The
command center is staffed with special agents and intelligence analysts
who coordinate the interdependent intelligence, inspection, and investi-
gative activities both here and abroad. The effective correlation of
these three disciplines has been one of the prime underlying factors
contributing to the early success of Operation Exodus.
In our intelligence efforts, we have been very fortunate. We have
found that most manufacturers and exporters are also importers
amongst whom we have developed sources in relation to our import
smuggling and fraud programs.
Likewise, the sources we have among shippers, brokers' and freight
forwarders as well as our extensive network of contacts within the
foreign Customs Services have all been very productive in the? area
of illegal technology transfer.
We have also clone very well with U.S. Government agencies. Here,
our reputation in investigating illegal exportations and the focus pro-
vided by Operation Exodus have combined to play a critical role in
the administration's efforts to block the transfer of technology to the
Soviet Union.
Due to the fine efforts of Assistant Secretary Lawrence Brady, we
have been able to establish an analytical unit within the Department
of Commerce. This unit which is headed by a special assistant to
Mr. Brady and staffed by Customs and Commerce employees, has de-
veloped an innovative intelligence approach dependent upon the appli-
cation of link-analysis techniques to the Department of Commerce
license application files.
The analyses produced to date have been outstanding in identifying
firms engaged in diverting critical technology to the Soviet Union
and in pinpointing new diversion routes. This intelligence is being used
in developing profiles for the Exodus inspection teams and as the
basis for major criminal investigations into Soviet diversions.
The Department of State has given us extensive access to their files
both in their Office of Munitions Control and their Office of East-West
Trade, where the sheer volume of information available has required
us to place a full-time analyst. We are also receiving maximum sup-
port from the U.S. intelligence services and the FBI who is providing
intelligence and participating in joint investigations with us through-
out the country.
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Our inspectional activities are progressing equally as well. The
Exodus teams are now operational throughout the Nation examin-
ing cargo at airports, seaports, and land borders. What they encounter
most are fraudulent exportations. That is goods being misdescribed to
lead the shipper and Customs officials to believe that they do not re-
quire a license; or goods being shipped under either a fictitious license
or one that covers a different commodity or different destination.
When one of our inspection teams locates a suspicious shipment they
contact the command center to determine whether the shipment re-
quires a license, whether any license associated with it is valid, and
whether the firms or commodities involved are suspicious and should be
monitored overseas for potential diversion.
In addition, to facilitate matters further, two special agents and two
import specialists have been detailed to the Department of Commerce
to assist in responding to licensing inquiries. This not only improves
the efficiency of our operation but also minimizes delays of legitimate
exportations.
The inspectional teams also on occasion encounter goods being clan-
destinely smuggled out of the country or being diverted to third coun-
tries, however, by and large, smuggling and diversions are detected
only through good intelligence and thorough investigations.
The results of our Exodus inspections have been outstanding. The
chart on display indicates the number of shipments being detained
by our inspection teams since we established our Exodus Command
Center.
These figures, we have found to be an accurate measurement of our
field activity. You will notice the sharp increase in early February,
this is when formal Exodus teams became operational.
The high level of activity in March, on the other hand, is the result
of the President's Libyan embargo which became effective in stages
between March 12 and March 28.
The next chart indicates the export seizures being made. The high
number of seizures in March is again due to the Libyan sanctions. So
far this fiscal year, we have made over 300 export seizures valued at
more than $20 million. The more notable seizures have involved lasers,
computers, and highly sophisticated military technology destined for
the Soviet Union either directly or through other nations.
We have also made numerous seizures destined to Libya and
other nations against which this Nation has imposed sanctions and
embargos.
In just the last week, we seized a, shipment of 32 military aircraft
engines destined for Argentina and have also placed several ship-
ments, including a high performance helicopter under detention.
As I previously stated, our most significant results can be expected
in the area of investigations. The intelligence being provided by the
CIA, FBI, and other Government agencies, both foreign and domestic,
the information being provided by Commerce and gathered from our
contacts in the import/export and shipping industry, again both here
and abroad, and the leads being developed through the efforts of our
inspectional teams have led to numerous significant investigations in-
volving the diversion of technology to the Soviet Union and other com-
modities to Libya, Cuba and other sanctioned nations.
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Our investigations are aimed at criminal prosecutions which we
hope will provide an effective deterrent to those engaged in this
illicit trade. The techniques we use, that is confidential sources' sur-
veillances, data base analyses and foreign investigations are those
that we have always used in smuggling and fraud investigations.
At this moment, we are conducting over 40 major criminal investiga-
tions involving illegal diversions and are monitoring several signifi-
cant shipments abroad which we believe are intended for the Soviet
bloc.
While I cannot publicly discuss the details of most of these investi-
gations, I am free to discuss one of the more significant ones with you,
due to the nature in which the investigation has progressed.
Early last month, the Custom attach?Mexico City, acting upon
information from a confidential source, located a multispectral scanner
which had been smuggled out of the United States on a corporate jet
belonging to a Los Angeles-based firm.
The scanner is designed for use by the military in tracking the
movement of troops and supplies by airplane and satellite. It works
by emitting infrared and thermal light waves that strike objects on
the Earth and transmit electronic data to computer equipment at a
ground station which converts the data into photographs.
Using false documentation describing the merchandise as photo-
graphic equipment from Panama, the violators booked the shipment
to Zurich, Switzerland on KLM Airlines. A rapid investigation in
Europe quickly determined that the consignee had only a mail drop
in Switzerland and was actually located in East Germany.
Consequently, the Customs attach?n Mexico City determined that
the shipment was placed on a flight that stopped in the United States
enroute to Zurich.
When the plane landed in Houston, the cargo was off-loaded, seized
by Customs agents and replaced with sandbags. The shipment was
permitted then to proceed to Zurich via Amsterdam.
Two days later, special agents in Los Angeles executed a search
warrant at the exporter's premises, and seized two sophisticated com-
puters also destined to the same customer as well as documentation
establishing the true destination as Moscow. This investigation and
many others equally important, are being pursued this very moment
by Customs special agents.
Consequently, from an almost nonexistent and purely reactive
Federal export control program focusing on illegal arms exports;
Customs, with the support, cooperation, and encouragement of the
entire export control enforcement and intelligence communities, has
successfully launched a major initiative to combat the illicit transfer
of technology and other commodities to hostile nations.
We attribute this success to our unusual role in the international
enforcement community. Our authority, structure, contacts, and ex-
perience in smuggling and fraud investigations have placed us in the
position of being able to reach out and almost instantly provide to
the Nation a capability which is sorely needed.
I believe that in the coming years, the U.S. Customs Service can
continue to be very effective in addressing the problem at hand and
disrupting, the Soviet acquisition attempts which the intelligence com-
munity has projected throughout the 1980's.
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Thank you for this opportunity to describe briefly some of our
efforts to stem the loss of critical and high technology and I would
be happy to answer any questions as would Mr. Corcoran or Mr.
O'Brien that you may wish. to put to us.
Senator NUNN. Thank you, very much, Mr. Von Raab. Is the en-
forcement of the Export Administration Act a long-term priority
of the Customs service? I gather from what you have said here today
it is.
Mr. VON RAAB. Yes, sir.
Senator NUNN. Can you provide to the subcommittee an approxi-
mation of the amount of resources devoted to controlling the export
of critical technology by the Customs service?
Mr. VON RAAB. At the present we have approximately 125 Customs
inspectors, 50 special agents, and 25 support personnel, who are as-
signed exclusively to Operation Exodus. We are also drawing upon
on a regular basis the daily responsibilites of almost 4,000 other
Customs inspectors, and just under 600 other agents where and when
the need arises.
Senator NuriN. Plus all your people out there in the field, I guess,
are theoretically available when the need arises?
Mr. VON RAAB. That is about all our people. I would say as far as
our inspectors and agents are concerned, there is not a single one of
them who has not spent a fair amount of time, if not just being trained
in Operation Exodus, having some personal experience with that.
Senator NUNN. To what extent does Customs have liaison with the
Department of Defense in this technology area?
Mr. VON RAAB. We have a number of contacts with the Department.
We have individuals who are identified to work with the Department
of Defense. We have excellent liaison with the Department of Defense.
Senator NUNN. Where do you go for your expert technical opinions
when you run across a technology case?
Mr. VON RAAB. If we can't answer it ourselves?we are getting
better at doing that?we then make an inquiry of the Commerce De-
partment and we consult with them over the telephone if we can
handle it that way. If not, we will go into it in more detail in person
or bring a sample or documentation with us. Therefore, we receive the
ultimate technological support from the Commerce Department.
Senator NUNN. You say that you have assigned certain personnel
from Customs to the Commerce Department?
Mr. VON RAAB. Yes.
Senator NUNN. How many?
Mr. VON RAAB. Seven.
Senator NUNN. What is the reason for that? What do they do?
Mr. VON RAAB. The reason is simply to merge where possible our
expertise and theirs. We are experts on the way cargo is passed across
borders. They are experts on the particular requirements involved in
licensing of particular matter. We are often faced with a question of
whether something needs a license at the border.
It is easier for us to have people in the Commerce Department who
can deal directly with the Commerce experts and to be able to ask
them those questions.
It saves us time and energy and we get better answers as a result.
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Senator NUNN. Mr. Von Raab, if you were given total responsibility
under the law, to enforce the violations of the Export Administration
Act, would Customs be able to carry out that mission in your view?
Mr. VON RAAB. Yes; we would. We would continue however to
rely heavily on Commerce's expertise to provide us with assistance.
Senator NUNN. In terms of what expertise that they have?
Mr. VON RAAB. They make the decisions as to whether something
should be licensed.
Senator NUNN. If they were doing the licensing that would be where
you would get your information as far as what should be enforced?
Mr. VON RAAB. Yes; often we are asking the question of ours at the
border as to whether something requires a license. Often, it is a
difficult question. Therefore we do rely on them.
Senator NUNN. Would the Customs Service have to employ addi-
tional people in order to handle the enforcement part of the Export
Administration Act?
Mr. VON RAAB. As I indicated, we have exactly what the munbers
were, but between 200 and 300 individuals already assigned direetly to
that with the ability to call on the rest of our forces. We would not heed
to hire additional individuals because I don't believe that Commerce
really has more than 20 or so that would have to be replaced.
Senator NUNN. Do you think it is possible for the Commerce De-
partment to have a viable export control program in terms of enforce-
ment with 8 to 12 investigators and 5 inspectors in the compliance
division?
Mr. VON RAAB. No, sir. Obviously, those numbers are much too low
for a reliable enforcement effort. I would say, however, that those indi-
viduals do make an important contribution to the enforcement effort.
Senator NUNN. How can Customs insure that violators of the Export
Administration Act will adhere to the administrative sanctions such
as denial of export privileges?
Mr. VON RAAB. The way?I don't fully understand you.
Senator NUNN. Let's assume you took over the enforcement end. How
would you insure that when there is a violation that the administrative
sanctions can be administered? Would that be a Commerce function?
Mr. VON RAAB. We would refer that to Commerce.
Senator NUNN. Commerce would handle that end of it?
Mr. VON RAAB. Yes, sir.
Senator NUNN. Could you in Customs, if you were reouired to by
law, assume the administration of the Export Administration Act such
as conducting licensing operations in adjudication of noncriminal vio-
lation? Would that be something you could also undertake?
Mr. VON RAAB. I would not like to ever say that the Customs Service
is not canable of doing anything. but I think it is reasonable to say that
that activity certainly fits much better into Commerce with its close
association with the business community.
Senator NUNN. If there was a determination to give you jurisdiction
over the enforcement end of the Export Administration Act, you think
it makes sense to continue to have the licensing in the Commerce
Department?
Mr. VON RAAB. Yes, sir.
Senator NUNN. We understand that in the CTC case that West Ger-
many cooperated and that was facilitated through the establishment of
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a working agreement between the U.S. Customs attache in Bonn and
West German Customs; is there as specific agreement on that?
Mr. VON RAAB. On the case? We have mutual assistance agreements
with Canada, France, Austria, Mexico, and West Germany; I think
that is it.
There are five. There are five specific mutual assistance agreements
that the Customs Service does have with the proper agency or govern-
ment of five other countries. I don't know if I gave you five or not. But
there are five.
Senator NUNN. You have the authority under the law in certain
cases to make arrests without warrants; do you not?
Mr. VON RAAB. Yes, sir.
Senator NUNN. What kind of cases do you have that authority in?
Mr. VON RAAB. Those are typically border searches, mostly on in-
coming border searches.
Senator NUNN. Incoming?
Mr. VON RAAB. Yes, sir.
Senator NUNN. Do you have any authority on outgoing?
Mr. VON RAAB. We have no specific statutory authority on outgoing.
However, we have received a succession of favorable cases implying
that we have very, very strong authority in that are under State stat-
utes or under, in sonic cases, posse comitatus.
Senator NUNN. How about large amounts of cash being taken out of
the country? Is that something that you can make an arrest in when
it violates the law without a warrant?
Mr. VON RAAB. We require probable cause in the case of currency
seizures.
Senator NUNN. But you don't have to have a warrant?
Mr. VON RAAB. Only on search, not on the arrest.
Senator NUNN. What about the export control cases? Do you have
authority to make arrests without warrants in these cases?
Mr. UBRIEN. I am Pat O'Brien, Director of General Investigations
with the Customs Service.
While not having needed explicit search or arrest authority we have
done very well in the courts and they have ruled that we have implied
authority to conduct the searches and the arrests.
The difference in the.currency area is that the currency statute it-
self says that searches will be conducted pursuant to a warrant based
upon probable cause.
So, the currency statute actually limited our authority beyond what
we had prior to the statute.
Senator NUNN. DO you need authority under the law to conduct
searches of persons leaving the country as well as coming into the
country?
Mr. VON RAAB. We have implied authority to conduct searches of
those individuals.
Senator NUNN. So you don't need any changes in the law in that
regard?
Mr. VON RAAB. Of course we would prefer to have wherever explicit
statutory authority to conduct those searches. We have been success-
however, in receiving as Mr. O'Brien indicated, very good and
supportive decisions based upon our implied authority.
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We would certainly like to have the issue of the currency seizure
cleared up and we would like to have the level required to reduce the
suspicion as it is in most others.
Senator NUNN. Is there a pending bill on that? I thought Senator
Proxmire had a bill on that; do you know?
Mr. CORCORAN. Yes, there is a bill on the arrest authority, but not
on the search and seizure.
Mr. VON RAAB. The Treasury is preparing some legislation and
I would expect that if we can move it through OMB, we will probably
make it up here at some point.
Senator NUNN. We understand that Customs has experienced diffi-
culty in receiving information due to a restricted interpretation of
section 12(c) of the Export Administration Act by the Department
of Commerce.
Could you tell us what?
Mr. VON RAAB. In the past, Customs Service has had some prob-
lems receiving information from the Commerce Department. How-
ever, a recent decision by the Secretary made, I believe, some time
during March has opened up our access to the files with respect to
specific cases that we may be working on. So Commerce has shown
a tremendous amount of increased cooperation, I believe largely
through the intercession of the Assistant Secretary Brady, who has
been working very hard to improve our working relationship.
Senator NUNN. Are you familiar with the Richard Mueller case
and the Volker Nast case?
Both of those cases, I think, were made by Customs? The II
batteries case?
Mr. CORCORAN. Yes.
Senator NUNN. We understand that both of these men were indicted
and are now in West Germany ; is that right?
Mr. CORCORAN. They have both been indicted and that is right, two
of the individuals are in West Germany. This was one case we jointly
worked with the Commerce Department.
Senator NUNN. Was this a violation of the Export Administration
Act?
Mr. CORCORAN. Yes, they were indicted for the violation of the
Export Administration Act and found guilty of exporting semicon-
ductor manufacturing equipment.
Senator NITNN. Who was found guilty?
Mr. CORCORAN. Three individuals and the company in southern
California, II Industries.
Senator NUNN. Are these extradictable offenses under the Export
Administration Act?
Mr. CORCORAN. They are not for American citizens.
Senator NUNN. How about foreign people?
Mr. CORCORAN. I don't think so, sir. I would have to check.
Senator Nmsrx. Could you furnish something in the record on that?
Mr. CORCORAN. Yes.
Senator NUNN. ParticularlyThese two cases.
Mr. CORCOT?AN. The company was fined $10,000 and the three indi-
viduals were fined $25000 aniece in addition to being found guilty.
[The information follows :J
Violations of the Export Administration Act and the Arms Export Control
Act are not extradictable offenses.
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Senator NUNN. Mr. Von Raab, we understand that customs has
experienced certain difficulties with the Commerce Department in
criminal investigations. These difficulties were outlined in an October
30, 1980, memo from William Green, Deputy Assistant Commissioner
of the Office of Border Operations. That was to Mr. Robert Keuch,.
who is the Associate Deputy Attorney General and Chairman of the
Interagency Group on Export Control.
This is the memo that we have on that subject and I quote from it:
What is particularly significant is Commerce's 0EA CD continued action to
impede cooperation and investigation even while it states that it wishes to
fully participate in all cooperative ventures.
Commerce continues to take unilateral and uncoordinated action concerning
either joint or Customs initiated investigations by requesting foreign inquiries
through various U.S. embassies and consulates without consulting with either
Customs attaches or headquarters. Such action is causing serious problems.
These problems are not limited to hampering instant investigations but also
compromising the U.S. Customs foreign government sources, damaging the
previously close and long relationship between the United States Customs
Service and their foreign counterparts and directly impacting on national
security.
'Senator NUNN. This memo is October 30, 1980. Have you seen that
memo?
Mr. VON RAAB. No, sir. I have not. But I have spent a lot of time
discussing the problems that have existed in the past between the Cus-
toms Service and the Department of Commerce, both with the individ-
uals at Customs who are responsible and also with the number of offi-
cials at Commerce.
As I indicated, Assistant Secretary Brady and I have taken this as
a personal campaign to improve the cooperation of the two services
and particularly to improve the Commerce Department with respect
to our activities.
I believe that he has made a number of changes within the Commerce
Department. He is trying very hard. It takes a long time to turn
around a bureaucracy like the Commerce Department. I, fortunately,
am lucky enough to have an enforcement organization of extremely
responsive and extremely dedicated individuals and therefore we have
been able to respond to Exodus very quickly.
But I would like to indicate that the environment between Commerce
and the Customs Service has improved immeasurably. And I have
great hopes for the developing relationship.
With respect to foreign investigations, I do believe that there are
problems with Commerce conducting certain foreign investigations.
Customs does have much better connections with the police agencies
that these investigations would typically use.
Unfortunately, Commerce is burdened with a number of other re-
sponsibilities that other nations find offensive, particularly antitrust,
some antitrust investigations but more particularly some of our anti-
boycott as a result of which it is very difficult for a Customs or for
Commerce officials to work effectively with police agencies and in other
parts of the world where they fear that the Commerce officials are not
only interested in stemming the flow of critical technology which they
regard as a legitimate exercise but they are also afraid that the Com-
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merce officials may be visiting certain businesses for purposes of en-
forcing some of the U.S. laws that those countries do not like.
So it is a real problem for Commerce abroad in my opinion. Occa-
sionally we stumble over each other but I think the bigger problem is
that the police organizations don't like the Commerce attaches.
Senator NUNN. In your personal opinion doesn't it make sense to
shift the enforcement part of the Export _Administration Act to the
Customs Service leaving the licensing in the Commerce Department?
Mr. VON RAAB. We are already doing a large part of the enforce-
ment. I don't know that it is necessary that only one agency have the
total responsibility for enforcement.
Senator NUNN. If you were trying to devise an efficient method,
though, you wouldn't split the same responsibility between two agen-
cies, would you, one with an overwhelming capability and the other
with very little capability at all?
Does that makes any sense at all from an administrative point of
view
Mr. VON RAAB. I unfortunately do not know enough about the uni-
verse of Commerce's responsibilities. I have to assume that there are
certain aspects of investigations or enforcement that they do bring
particular expertise to bear on. I certainly wouldn't suggest that they
need to increase their forces in any way. But if I were Assistant Secre-
tary Brady, I would hate to lose any power I had over enforcement
because there are particular cases in which I feel that I might find it
necessary.
Senator NUNN. You are not Assistant Secretary Brady. We will
hear from him later. I am asking for your opinion.
Mr. VON RAAB. I have to agree with him on this. I think he will
probably say that to you. I think we should carry the major share,
the 95 percent, but I don't believe that it is necessary to snatch it
totally from Commerce.
Senator NI:wig. Would you see that there would be any damage done
to our overall export capability in enforcing the law by putting it all
into Customs?
Mr. VON RAAB. As I indicated before, I have great faith in Customs.
So my answer to that would be, No, I don't see that it would cause
a problem.
Senator NUNN. But because of your fondness for Mr. Brady and
your sensitivity to the Commerce's Department's feelings in this sub-
ject, you would not advocate shifting?
Mr. VON RAAB. That is correct.
Senator NUNN. Is Mr. Corcoran free to give his opinion?
Mr. VON RAAB. Absolutely.
Senator NUNN. He can give his own personal view without being
in any difficulty? Is that right?
Mr. VON RAAB. Yes, sir.
Senator Numsr. Mr. Corcoran
Mr. VON RAAB. At least for now he is.
Senator NUNN. Do you think it makes sense, Mr. Corcoran, to have
two different agencies responsible for enforcement under this?
Mr. CORCORAN. I think on the basis that you mentioned of effective-
ness and efficiency it makes sense to have one agency when we are so
predominantly involved.
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Senator NUNN. You think it makes sense to put it all in Customs?
Mr. CORCORAN. Yes.
Senator NUNN. Is Mr. O'Brien free to give his opinion?
Mr. VON RAAB. They are both free to.
Senator NUNN. For the time being?
Mr. VON RAAB. They don't have control over this decision.
Senator NUNN. What is your personal view on that?
Mr. O'BRIEN. Being under oath, I must give my personal view.
I believe it can only improve the effectiveness and efficiency opera-
tions to centralize it.
Senator NUNN. Put it all under Customs?
Mr. O'BRIEN. Yes.
Senator NUNN. You don't believe it would damage our overall
ability to enforce the Export Administration Act to take it out from
under Commerce altogether except leaving the licensing there?
Mr. O'BRIEN. Absolutely.
Senator NUNN. Would you agree leaving the licensing there makes
sense?
Mr. O'BRIEN. Yes; I think it is important to keep the administra-
tive, especially the policy determinations separate from the enforce-
ment function. They make their determinations based on national
interest rather than enforcement.
Senator NuNN. I have a memo here the origin of which I will not
give at the moment but it says:
The Commerce Department has to wear two hats. On the one hand, it must
serve the interest of the exporting community by assisting them in opening for-
eign markets, by advising them on proper procedures for exporting, by offering
advice, making determinations concerning export licenses and in general assisting
exporters.
On the other hand, however, the Commerce Department must police the same
group to ensure the laws and regulations have been complied with and take puni-
tive action. This, of course causes a somewhat incongruous situation which can
lead to conflicting internal policy and management decisions.
Customs now enforces the Arms Export Control Act with the delegation of the
Department of State and has done so for many years
and so forth.
Do you, Mr. Corcoran, agree with that?
Mr. CORCORAN. I think my feeling is that very much as Pat O'Brien
just mentioned, I think that we as the enforcement agency should be
the factfinding agency.
I do think that even though there seems to be a conflict there that
Commerce should retain the licensing and administrative function.
I think overall policy and considerations in the Commerce and the
oversight of the movement of products in and out of the country
Senator NUNN. Should retain the licensing function?
Mr. CORCORAN. Yes; I think they should retain that function and
the policy and administrative actions involved in the licensing. I think
we should be just a factfinding enforcement agency.
Senator NUNN. I think Mr. Von Raab, you mentioned in your state-
ment that or in answer to the question that you didn't believe the Com-
merce Department couldn't really do the job with the number of people
they have there now?
Mr. VON RAAB. The point I am trying to get across is I am not sure
that to deprive Commerce, the ability to do any enforcement in this
area is a good idea.
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I say that only because we live with a similar problem with respect
to drug investigations in which we are deprived by the Reorganization
Act of 1972 from conducting drug investigations. DEA has that
responsibility.
Senator N17NN. What I am puzzled about, I have been through all
of that?
Mr. VON RAAB. Therefore I think it is a mistake to prohibit a depart-
ment from conducting certain activities which are very closely related
to other matters that it deals with. I am not suggesting in any way that
Customs shopld not, in effect it is. but should not remain and grow as
the primary if not almost total enforcement arm.
It makes me nervous to remove any enforcement authority from the
Commerce Department. That is my concern.
Senator NuNN. But if you just remove the people, left the authority
there, that would solve it, wouldn't it?
Mr. VON RAAB. You will get to it one way or the other.
Senator NUNN. What I am puzzled about is you don't believe they
could properly enforce
Mr. Vox RAAB. Certainly not with that number of people.
Senator NUNN. But then you added you don't think they should
increase the number of people.
Mr. VON RAAB. I don't think they need a large enforcement effort. I
just think it is probably important for them
Senator NuNN. What you are basically saying is we should leave
some authority and maybe a few people in the Commerce Department
for sensitivity and prestige purposes and then shift the main respon-
sibility to the Customs Service?
Mr. Vox RAAB. That is probably true.
Senator NuNN. I want to thank all of you for appearing, not only
appearing here today, but also cooperating with us so well here in this
whole investigation.
The staff has informed me of your excellent cooperation. We appre-
ciate it. Mr. Von Raab, if you could reduce those charts to be this size
so we could put them in the record, we would appreciate it.
Mr. VON RAAB. We have a few sets. We will send them up.
[The charts referred to follows:]
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PROBLEM:
FOREIGN ACQUISITIONS
O Critical Technology
O High Technology
O Other Commodities
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Z-17000Z91-001-001179?001A198dCl-V10 1-1-/Z1-/LOOZ eSeeiei -10d penaiddV
118Z.Lg
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INSPECTIONS
O Fraudulent Exports
O Smuggling
O Diversion
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EINTELUG EXCE
O Manuffacturers/Expo ers
O SMppers/Brokers/F
rward rs
O Forerign Customs Senfic
O Commerc
/Stat
O U.S. Dnte[INgenc
4."
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Sendoes
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INVESTIGATIONS
O Criminal prosecutions
O Techniques ? smuggling/fraud
O Sources
O Surveillances
O Data base analyses
O Foreign investigations
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CIINCLUSI Iii
O Disru
t flow of critical tech
O impede military badup
Lor
n military ec
O Enforc
sanctions
O Dtrrr
rot/compHanc
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uc7,
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Senator NuNN. Thank you, very much. The subcommittee will be
back here at 9 o'clock Tuesday, at which time we will hear from Adm.
Bobby R. Inman Mr. Lorenzo, Deputy Under Secretary of Defense,
and Mr. Bryen, Deputy Assistant Secretary of Defense as well as Mr.
Lecht, former chairman, president of the board, of Advanced Com-
puter Techniques Corp.
[Member present at the time of recess: Senator Nunn.]
[Whereupon at 12 :30 p.m., the subcommittee recessed, to reconvene
9:08 a.m., Tuesday, May 11, 1982.]
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TRANSFER OF UNITED STATES HIGH TECHNOLOGY
TO THE SOVIET UNION AND SOVIET BLOC NATIONS
TUESDAY, MAY 11, 1982
U.S. SENATE,
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS,
COMMITTEE ON GOVERNMENTAL AFFAIRS,
TV a8hington, D.0 .
The subcommittee met at 9:08 a.m., in room 3302, Dirksen Senate
Office Building, under authority of Senate Resolution 361, dated
March 5, 1980, Hon. Sam Nunn presiding.
Members of the subcommittee present: Senator William V. Roth,
Jr., Republican, Delaware; Senator Sam Nunn, Democrat, Georgia;
and Senator Lawton Chiles, Democrat, Florida.
Members of the professional staff present: S. Cass Weiland, chief
counsel ? Michael C. Eberhardt, deputy chief counsel; Eleanore J.
Hill, chief counsel to the minority; and Kathy Bidden' chief clerk;
Gregory Baldwin, assistant counsel to minority; Jack Key, Glenn
Fry, and Fred Asselin, staff investigators to the minority; and Kath-
leen Dias, executive secretary to the minority chief counsel.
[Members of the subcommittee present at convening: Senators
Nunn and Chiles.]
Senator NuNN. The subcommittee will come to order.
Senator Roth is coming in a few minutes but has asked me to begin
in his absence.
Our first witness this morning is Michael Lorenzo, Deputy Under
Secretary of Defense, International Programs and Technology, De-
partment of Defense.
Mr. Lorenzo, do you have some associates with you? If they are
going to testify, I will ask all of you to take the oath.
Mr. LoRENzo. I have a lot of supporters, Mr. Chairman.
Do you want them to take the oath? I don't know if I will call on
them or not.
Senator NUNN. We can have them come up later, if you need them.
Do you swear the testimony you give before the subcommittee will
be the truth, the whole truth, and nothing but the truth, so help you
God?
MT. LORENZO. I do.
Senator Ntrxx. Mr. Lorenzo, we appreciate you being here this
morning. We appreciate your cooperation with the subcommittee. You
can introduce your associates and I will ask if either of you are going
to testify, you go ahead and take the oath now.
Do you swear the testimony you give before the subcommittee will be
the truth, the whole truth, and nothing but the truth, so help you God?
(217)
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Dr. KAPPER. I do.
Dr. LOIVIACKY. I do.
Senator NUNN. We swear all our witnesses before the subcommittee
without exceptions. It is a long tradition.
Mr. LORENZO. Nothing like starting with a common base line, Mr.
Chairman.
Senator NUNN. That's right.
Mr. LORENZO. It is indeed a Pleasure, Senator Nunn. I guess I have
the go ahead, do I not?
Senator NUNN. Yes, sir, you go right ahead.
STATEMENT OF MICHAEL LORENZO, DEPUTY UNDER SECRETARY
OF DEFENSE, INTERNATIONAL PROGRAMS AND TECHNOLOGY, DE-
PARTMENT OF DEFENSE, ACCOMPANIED BY DR. FRANK KAPPER,
DIRECTOR OF MILITARY TECHNOLOGY SHARING AND DR. OLES
LOMACKY, DIRECTOR OF THE OFFICE OF TECHNOLOGY TRADE
Mr. LORENZO. Mr. Chairman, in the interest of time, and I might
say the thorough work we have done with your wonderful staff, Glenn
Fry and others, and going over the issues, the substance, I would like
to submit my prepared statement for the record as if I read it and
make a brief opening statement to summarize the statement, and I
would like to hit, a few highlights and be prepared, perhaps, for some
questions you may have.'
Senator NUNN. That will be fine.
Mr. LORENZO. I mentioned earlier, I have Dr. Frank Kapper here
on my left. He is the Director of Military Technology. He handles
munitions cases, FMS cases, MOU's, national disclosure policy,
mainly what is known in the vernacular as West to West trade.
On my right is Dr. Lomacky. As you know, he has the very difficult
and unpopular job of being in charge of dual-use technology trans-
fer, which comes under the Export '-Administration Act of 1979 and
which is the primary thrust of the hearings today, commonly known
as East:West trade, which I think is a misnomer.
It is really West to East trade we are concerned about.
The statement goes into the defense roles and responsibilities, and
accomplishments to date, of which there have been some. We would
like more and are working hard with some of our concerns related
to export control.
Limited by an unclassified hearing you have here, of course, we
stand prepared to go into closed session in subsequent hearings, if you
so desire, and, of course, classified sessions which you may desire to
do to get down to a lot of the nitty gritty, et cetera.
I looked over and I have read the statements of a lot of my col-
leagues who have already testified before this subcommittee and some
of them to follow.
Senator NUNN. Mr. Lorenzo, if you prefer to go through your whole
statement, we would be delighted. It is not that long. I am sure that
might be more comfortable for you. We have time this morning.
We will be delighted to hear all of it.
a. See p. 552 for the prepared statement cf Michael Lorenzo.
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Mr. LORENZO. Rather than read word for word, I was going to hit
the hightlights.
Senator Nuxisr. Whatever you prefer.
Mr. LORENZO. Really, we do two functions for the Under Secretary
of Defense Research and Engineering, Dr. DeLauer.
One is the technical policy and the other one is technical assessment.
This combined with strategic policy that is going to be covered by
my successor, Dr. Bryen, generally constitutes the DOD decision or
position that we go back to Commerce as our response to anybody's
request for technology transfer.
Technical policy becomes very difficult, like policy in general, to
define. We define it as pertinent to technical performance, operational
parameters and the acquisitional aspects of technology transfer. Dr.
DeLauer himself has established a new technical policy. Since we are
both rather fresh and recent from the private sector, it goes like this.
We have discovered and observed that on a case-by-case review basis,
we do an excellent and outstanding job in turning down cases.
However, it is our opinion that we do not do a job commensurate
with telling industry what they can do and can sell. We are working
on that and will give you some examples later, if you so desire.
There are many, many cases.
Let me take one now. A CAT scanner which is headed for a hospi-
tal. Everybody wants to help a hospital. I think maybe Larry Brady
uses this example, too.
I have a little different rationale than he does, but that is all right.
The OAT scanner is going to be roughly a million-dollar piece of
equipment. So that means a lot to the people manufacturing and sell-
ing. However, in that CAT scanner is imbedded a general purpose
computer, an array processor, display and signal processing equip-
ments both in hardware and software.
Obviously, the imbedded equipments only amount to around $35,000
to $10,000. However, they are accessible and normally through engi-
neering practices they are readily accessible, to be used off-line for
other things that we don't want them used for.
They are high powered computers. Well, first, the usual harangue
and argumentation goes on. The case of course should be considered
on its pure merits that is whether it could contribute a significant
enhancement to the military capability of a potential adversary,
either the country receiving it or another country who gets it on a
third party transfer.
In looking at this very deeply, we find out that we have not and
really should use technology to help solve technology transfer leak-
age, or so-called hemorrhaging.
This we can do, and I am glad to report to you though with a
humble and rather primitive beginning, that efforts are underway,
because we do want to protect the trade, the economy of our country
which, of course, we all know needs help now more than any other
time and sell, but protect the critical technology so it cannot be used
for off-line uses. And this we can do by changing the engineering
design to make the software, you might say, difficult to reverse engi-
neer, change the writing and change the mechanical accessibility.
And so we would like to work with you in the months to come and
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I think we can make great strides in letting a lot of our advanced
technology go out but it will not?in unmodified form?let's say
modified form, I am sorry, be a contributor to the military enhance-
ment of a potential adversary.
That, as you heard, is costing us a lot of money in defense today.
The Soviets obviously have built up tremendously over the last 15
years with a lot of technology from our side and they depend on
Western technology.
I think with approaches like this, as an example, we can at least
make it very difficult for them and hopefully keep down the amount
of defense money expended in countering their threat which is being
built on Western technology to a great extent.
I might say in passing a very important message, I would like to
leave with the subcommittee is that we are getting great cooperation
from American industry. It is a good thing.
I will cite two examples. You take John Young, chief executive
officer of Hewitt-Packard. We sat down with them in detail, also with
Dr. Matt Sutton, Minneapolis Honeywell. They do not want to trans-
fer their advanced critical technology to do anything conflicting with
defense desires. We have to tell them what it is we want them to do
and what they can do, instead of all this back and forth work we are
going through now.
Of course, we are in the learning period of controlling critical
technology and we will get there, I am sure.
Senator Ntrxx. Do you have a group of people under your jurisdic-
tion who really sit down and conceptually with their scientific back-
ground and knowledge. try to come up with a list of what the Soviets
really need, what is critical to them in the defense arena, what kind
of dual use technology they could employ in their defense efforts?
Mr. LORENZO. I think the answer to your question, Mr. Chairman, is
essentially yes. A military critical technolopy list, which was called
for in the Export Act, is a step in that direction. We have revised it
twice and it is being- revised again.
The first time it was aimed for products predominantly. As you
know, the first submission was October I, 1980, in accordance with the
act.
The second round, we infused in that revision, you might say a Bucy
report type of description. The end products themselves are not too
bad because we give it to somebody who has to reverse engineer and
that takes time.
However, in the Bucy report, and he was 10 years ahead of his time,
he dealt, with Keystone equipment, in other words, something that
could be. done to the design, production, and manufacturinp; process.
Those are the kinds of technology that would hurt us most if it falls
in the hands of an adversary.
I would say the military critical technology list is one step in that
direction.
Senator NuNN. Does it cover dual use technology and commercial
applications?
Mr. LORENZO. Primarily that is what it covers right now, dual use
technoloTy. As everybody knows on this subcommittee, that is tech-
nology and products predominately made for the civilian market, but
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which have critical military applications. The majority examples are
computers, including the software and that kind of product.
Senator NUNN. IL you ever get the feeling we are trying to control
too much and by trying to control too much we aren't able to do a good
job with controlling anything?
Mr. LORENZO. Personally, I think the answer to your question is yes.
When I came from the private sector 7 months ago, I had the feeling
we were unnecessarily controlling too much, like the CAT scanner I
mentioned.
We get in an argument and say, yes, that imbedded computer is crit-
ical and could help, but let me go off on a little philosophy, and I am
going to leave another paper and introduce it for the record which you
can keep.1
Technology really is an international language. When you get all
done, the physical scientific laws of nature were imbedded in all people,
with all ethnic backgrounds, almost from the beginning of the Earth.
Everybody knows what they are in every language. I go around the
world, I talk to the Turks, I talk to the Japanese and when you start
talking about such things as Carnot's laws of thermodynamics law,
they all know what you are talking about "in English."
You do not, as you know, need an interpreter. Being a research tech-
nologist and working at the graduate level, I have no difficulty com-
municating. We have to understand that they all know the physical
scientific laws of nature very well in every language and they know
what the parameters are for key payoffs. What we fail to realize in this
country is that if we can control and classify things to the ultimate,
we can impede progress, but they will eventually know what we do.
The classical example of that is nuclear energy.
That is enough motivation for them to know where to put their
resources.
Yes we can control critical technology, and I think we can identify
such fairly well. However, the best control in the world is short-lived
at best so we shouldn't use a lot of discretion on what we control be-
cause it goes contra to our economic development, open society, free
trade, understanding with foreign nations and also building up mutual
respect with foreign nations to meet your military obligations.
The bottom line is this: If you buy everything said, and I think you
do, I think you will also buy that the physical scientific laws of nature
are in the hands of everybody and always will be. Of course, we being
an open society, just by definition, our findings get in our research
and development findings, particularly at universities where we share
knowledge to help out the whole world. But we have bad people in
the world here and there who use it for other things. We can and will
control critical technology.
Let me come to the bottom line. There are two things we can do:
One, we can be smarter as in the example of the CAT scanner I talked
about?another is keeping our technology base out in front and ahead
of everybody else and I think we are doing that very well in this coun-
try and spending approximately $20 billion in fiscal year 1982 R. & D.
dollars?I won't get into exact numbers?just for other than research
and development, or let's just say the technology base in DOD.
1. See p. 562 for the material referred to by Mr. Lorenzo.
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Being smarter, I think, is where we as a nation have failed in tech-
nology transfer, not doing things like I described, as in the CAT
scanner.
Let's back off, and I am answering your question in the affirmative,
yes, I think we sometimes, and this is a personal professional opinion
of my own, are controlling things maybe too much. If we modify
them slightly and make them inaccessible for uses we don't desire, I
think we will go a lot further in obtaining our national goals and
objectives.
I am sorry to give you such a long answer.
Senator NuNN. Is DOD the proper place to do that? Without any
doubt, DOD ought to have a major input and, of course, I joined
Senator Jackson in his efforts to give DOD much more input than they
had formerly. But is DOD the place where you should get an objective
technical analysis, let's call it a Soviet wish list, a list that we compose
of what the Soviet Union really needs? Certainly DOD should have an
input, but I wonder if DOD or State or Commerce, each with their
own perspective, is the proper place for that kind of list to be found.
Mr. LORENZO. You pretty well answered all your questions, Mr.
Chairman. DOD can give you the major, critical inputs for what the
critical technologies are, what the Soviet Union needs for military
use. But you have to remember of the total electronic capability in
this country. DOD uses less than 5 percent.
So you will need somebody, some organization with a scope bigger
than DOD to handle the total problem. I think you pretty well
answered your own question by the way you stated it. I am in agree-
ment.
Senator NUNN. Theoretically the final decision will be made at the
White House on any dispute, but as a practical matter dealing with
thousands of different items, where should the technical part of the
equation and policy part come together for a final decision after
receiving the input from the various agencies?
Mr. LORENZO. That is a very difficult question for me as an individual
to answer. I will answer you very truthfully and honestly, I don't
know where it is. I don't think you have it.
Does that answer your question?
Senator NUNN. Not any single place.
Mr. LORENZO. That is correct. I don't think DOD should be the total
picture, but I think DOD is very critical and a very major contributor.
When I say DOD, I say all of its intelligence agencies and all the
intelligence agencies we work so well with, like the CIA, DIA, so
forth.
That working relationship is very good, very critical and very vital.
Senator Nuwx. Go ahead.
Thank you.
Mr. LORENZO. I would like to just cover one more thing here. There
is a trend, and this goes back to what I said earlier, Mr. Chairman,
we are turning down more cases or rejecting more requests for tech-
nology transfer.
For example, just to give you and the subcommittee a feel, for the
munitions cases or West-West trade, let's say, in the 1981 calendar
year, we handled or processed about 8,000 cases in our office in DOD.
That was just a part of the 28,000 we delegated, you might say, by
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mutual agreement, that Bill Robinson and the Munitions Board
handles and that working relationship with the Munitions Board in
State and Defense is outstanding.
It has been very good for years. We do get together and solve our
problems very well, but let's just say this: Less than a couple years
ago, the turndown rate was less than 1 percent. In 1981, the turndown
rate was 5 percent, but that is sort of misleading. It's apples and
oranges a little bit. Well, the turndown rate was 5 percent on the 8,000
cases we said we wanted to see as examples, you might say to set
technical policies with the Munitions Board.
On a lot of the approvals we gave, on the 95-percent approvals, a lot
of them have "fences" and "gates" and no no's here and there, or modi-
fications to make things inaccessible or parts of it.
I don't like to see that high turndown rate increasing because that
implies we have gone back to the other points I have made. We are not
communicating too well with our friends in private industry. We are
spending a lot of money. But we do offer and have offered more advice
through what we call a defense advisory service.
The State Department works with us very closely. Instead of a con-
tractor or an applicant submitting a total case, he submits just a draft.
We give an advisory, sit down and talk it over with them and back
they go. We don't waste a lot of time and create a lot of friction and
irritation. Technology transfer, by and large, in our open society, I
think is communications, making it known to all sectors that are in-
volved an awareness of the impact of certain critical technologies. If
we do that, and I am talking about university research which we are
working very closely with, a lot of studies, National Academy of Sci-
ence and all around the country, I think we will get there better in our
open society.
As Dr. Guy Steven recently said, we get confused in this country of
having too much of a matrix organization where we hear everybody
from all sides. It is known to the Soviets and we have been accused by
them in international fora having an "ad hoc" form of government.
Everybody speaks and everybody does everything, but by and large,
I think if we keep on that approach, and we have no other choice than
to do that, that is our way of life.
I think once we get there, we are going to be in better shape than our
potential adversaries.
On dual use technology, which this committee is primarily interested
in today, working with Commerce and looking over the numbers, it
seems like we had a rejection rate of less than 2 percent on the defense
process cases and that was, about 2 years ago. And this past 1981 cal-
endar year, that reject rate was up to 15 percent. There the job is very,
very difficult because you are dealing with people who have made a
product primarily for the civilian market and it does have defense
application.
Of course, that was a sample of 3,500 cases we did, taken from the
commodity control in Commerce which approximated something like
77,000 cases in 1981.
So I have covered here just the highlights, the MCTL. We are im-
proving it. And I might just say, with a very small staff we do interface
with a lot of people. There are over 300 key technically qualified people
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we interface with in the rest of the Department of Defense, such as
all the military agencies, predominantly the research and acquisition
people, counterparts and all the intelligence agencies and many, many,
thousands in the private industry.
To give you an example of private industry and our interfaces with
it, MAPAG alone, a multiassociation reviewing our MCTL right now,
has over 80 company members, but a staff person gave me an estimate
of over 90,000 people in American industry.
So we have underway, have done and have a tremendous educational
process for technology transfer.
I might go a bit further, Senator Nunn, and I know you are well
aware of our four power meetings where we meet with Germany,
France, and England twice a year. Dr. DeLauer is the principal rep-
resentative for the United States and I am the alternate.
We also meet with CNAD, the Conference of National Armament
Directors, of 15 nations in Brussels, Belgium, twice a year, and since
I have been aboard, I may not have become unpopular but I have in-
troduced on the agenda or at least I have helped introduce it. It has
also been introduced in the NATO technology transfer study and
others, which is a very good thing, and Dr. Bryen's statement is going
to uncover that very important study, underscoring to the allies: "Hey,
you are very nice people, we need you; we need a mutual military
capability but we want to help you close your doors on letting dual use
critical technology out to potential adversaries or places where they
can do harm."
And this is very, very effective. The bottom line on the NATO tech-
nology transfer study, in my opinion, is to get the respective Minister
of Defense, counterpart to our Secretary of Defense, involved in their
government infrastructure on all technology transfer, particularly
dual use, going from their civilian contractors into the East-West bloc.
And a lot of progress has been made and I don't want to steal the
thunder of my colleague, Steven Bryen. He is probably going to talk
about France. France has a new law where the MOD gets into this
process and the law went into effect October 9 but it is on the agenda
now and all of these international fora are getting attention.
They know and I give credit to our intelligence community net-
works, that we have good networks. They also have a lot of good net-
works, not comparable to ours. They are asking us now in meetings,
and they bring the subject up themselves. They say if we get. some-
thing leaked, let us know. So I think our savior with our allies is
their MODS and I say they are working the problem and they have
a long way to go and I will defer the rest to Dr. Bryen to get into
that area.
I am pretty much through with my statement, Mr. Chairman.
You can go ahead and shoot questions. We do have the DOD tech-
nical data base we outlined. The foreign disclosure technological in- ,
formation system is a massive effort. Just the supporting documen-
tation is over 10,000 pag-es.
On foreign availability, which you sort of alluded to in your ques-
tion. Let me say this. True DOD may not be the agency to put it all
too-ether, but certainly with the intelligence agencies, T think we can
'like a significant contribution. If for military enhancement of a
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potential adversary, I think DOD is definitely the main arm and also
should play a major part but I cannot answer your question, who is
that total agency.
May I suggest you go talk to Senator Garn, he may have some
ideas on that point.
Senator Nrr,NN. Thank you very much. When you make up the
militarily critical technology list, the MCTL, does that in effect deter-
mine it for even availability of technology?
Is that a key part of the process?
Mr. LORENZO. The MCTL is concerned with availability in the
adversary countries. If they already have something in great bunches,
or certain technologies' it is pretty hard for us to say to our allies
that we have to control it. There is definitely a corollary or strong
relationship.
Senator NUNN. We have heard in previous testimony that diver-
sions of U.S. technology occur through free world nations. In light
of this, do you think D.R. & E. reviews an adequate number of free
world export licensing cases?
Mr. LORENZO. We need to do more in the free world area. Since this
is an unclassified session, I won't cite the countries that cases are
going to. We are on record now in daily dialog, you might call it,
in an argument with the Department of Commerce. We do want more
cases.
The answer to your question is, no; I don't think we are doing
enough cases to the free world because technology goes into the free
world. There are all kinds of international trade houses, all kinds of
multinational hookups, all kinds of companies that are multinational;
some are part or totally owned by the Communist bloc---yes; to an-
swer your question, we should look at more free world cases and I
think when the act, the Export Administration Act of 1979 is read-
dressed, when it comes up in 1983, that should be incorporated in the
revision, or updating of the new act. We will be glad to make recom-
mendations for you at that time.
Senator NuNisr. Thank you very much. Does Defense Research and
Engineering have a presence in the enforcement activities or do you
strictly have the input in the policy level licensing or does DOD in
any way enter into the enforcement?
Mr. LORENZO. We don't have I guess you would call a direct or
substantive impact on enforcement, but we are consulted at all times.
We are now preparing in connection with our colleagues on the policy
side of Defense, Dr. Bryen, the "Mushroom Book," in other words,
a book Dr. Lomackv on my right and I are preparing to help Customs
identify high technology.
In other words, when they are out checking shipments and so
forth, what is it they are looking for, how should they look for it?
We should be more involved and we have been talking informally
with both State and Commerce and they have expressed a desire for
us to be more involved. We just have to develop the people and I fore-
see where we are going to have to provide people probably onsite to
help out as this enforcement activity grows. This is something that has
come up in the last 6 months or a year. Customs has put more people on.
Project Exodus is underway and they are revealing more. Yes; we
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have to get with it. I think we have to provide more input and def-
initely we can help them in the technological and engineering aspects
and particularly in training of their agents on what to look for, what
it is when they have it, and how to handle it, and what to do about it.
Senator NUNN. We heard testimony from Dr. Lara Baker of the
idea to establish a technical expert group somewhere away from Wash-
ington divorced from policy to :function as a technical evaluation
center, not that all the people would be housed there, only a small
group, but that the technical information would be cleared through
there. Would this be an advantage or do you see it as just adding one
more layer in the process?
Mr. LORENZO. If I said yes, I would be shooting myself in the foot,
Mr. Chairman. Dr. Baker is doing a very good job tor us right now.
He has a lot of good people and they contribute tremendously from
their background in nuclear weapons development in that the major
technology used is you might say supercomputers. He is doing a very
good job. So from a selfish point of view, I would say no, I don't want
him to do that, I would want him to do what he is doing right now,
but if he decides to do it, of course that is his business in our free
society.
I would like, if a group was going to start like that. and we essen-
tially have parts of that right here; to see it in Washington. We are
looking at?my bosses and I are right now permanentizing my staff,
making it more professional, making it more career oriented and per-
haps we are looking at alternatives, to set up you might say situations
he has. His idea is good. But from the selfish point of view I am not
going to shoot myself in the foot and bless him to do it in Albuquerque.
I want him to work right now for me, which he is, and he is doing one
mighty fine job.
Senator UNN. How many people in your office are actually dedi-
cated to what you call West-East trade functions? What is the staffing
you have dedicated to that purpose?
Mr. LORENZO. I took a count very recently, as a matter of fact last
night.
I have taken many counts since I have been on board. We have a
total, you might say, on East-West trade which I think is a misnomer
because we are talking from West-to-East trade, of 12 professionals
and 4 secretarial. But of those 12 professionals we only have really 4
that you might say are deeply highly technically qualified people and
1 administrator. Then I have more technically qualified. I am sorry,
I should have said 4, of a permanent nature and I am fighting for more
and have gone down to my bosses for more and I am promised that
I am going to get more permanent because this cadre of 11 people?
we have 1 schedule C temporary, trainee, involves a lot of trainees
coming and going. They are very good. That is part of the educational
process.
We consider and I have gone to the mat on this, 11 truly technically
qualified people to form a minimum critical mass in a centralized loca-
tion because we are dealing, as I have mentioned before, with 300
highly qualified technical people in the rest of defense, and intelligence
agencies, 90,000 in industry, and also you might say 5,000 in foreign
governments.
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I have never counted the number of R. & D. people we are dealing
with in foreign governments. So I have drawn the line you might say.
I don't think we could be any smaller and having gone through many
recent exercises in the last 2 months, you cannot delegate any more
of the responsibilities to the military services. We need a minimum
critical mass just like an atomic weapon. You cannot get anywhere
unless you have a certain minimum critical mass and from a manage-
ment point of view I think that is a very logical point.
I would like to enhance them, make them career oriented, get rid
of the temporary label. Qualified people are very important, but you
have got to automate the data and use other management techniques
that we are doing very fast, such as entering our data base into
FORTDIS. I think that pretty well answers your question. Yes, we
are small. I think as the job gets bigger we have to get smarter with
more automation or have more permanent people, and we are using
a lot of contract help, too.
I might mention the Institute for Defense Analysis, headed up by
Dr. Alex Flax. They have been supporting us particularly on the
MCTL, and many other things and are doing a very outstanding job.
Senator Nuicsr. Do you or either of your a5.sociates have any recom-
mendations about changes in the law that we should consider?
Mr. LORENZO. We have several recommendations. They are kind of
detailed. We would like to document them for you and submit them
for the record at a later date.
Senator NUNN. All right. Are those recommendations in the form
of administration proposals or just DOD proposals at this stage?
Mr. LORENZO. The majority of them will be from the DOD perspec-
tive. But we will give you recommendations on the overview when the
act is to be revised in 1983.
Senator NUNN. I also have a number of proposals I am going to
probably make at the close of the hearings that I would like for you
to review and what I will be doing is making recommendations to the
subcommittee. There may be several of us individually, Senator Chiles,
Senator Roth, and others, that would like to make recommendations
to the subcommittee. But that is not an official final view of the sub-
committee. We would like your input about those recommendations.
Mr. LORENZO. We will be very happy to participate, Senator Nunn.
We have in the past. I have looked over the record. I want to congratu-
late you on the Culver-Nunn RSI law as well as other things. I think
you are very internationally oriented. You are looking at the total
picture.
I think technology transfer is a very difficult problem. We would be
glad to work with you.
Senator NUNN. It is certainly not simple.
Mr. LORENZO. It is a very tough job?technology transfer?you are
going against the tide you don't have the big dollars a lot of the other
programs have like a lot of the strategic and tactical programs. You
are taking things away from people. You have got to know all the
technologies. You have got to have highly qualified people. You have
to tell people no. On top of it all, it is the most thankless job prob-
ably in the Department of Defense today.
Senator NUNN. Of course, we operate in an alliance also and if we do
not coordinate in the alliance, if we don't have commonality, standard-
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ization, interoperability, those things in the alliance, we deplete our
resources to the point we can't defend against the Soviet Union.
The only way you get those things is to cooperate more at the R. & D.
stage, at every stage which means you have got to have probably more
technology transfer at least within the alliance. So this is not exclu-
sively an American problem. America can't solve it. It has got to be
an international approach as you have already said.
Mr. LORENZO. You are so correct. It has to be multilateral. You
can't go unilateral on the controls, You are so correct. You have said
it so well. I called it the "delicate balance" of giving friends?allies?
technology and controlling critical technology that might leak to the
adversaries' atmosphere.
Senator NUNN. The key to it is to get that list of the things you are
going to control down to a manageable level and not having it so
broad and so long that in an effort to control everything you don't
control anything.
It is like classification, too. If your classification gets so broad, if
everything is classified, in an effort to protect everything, you end up
causing such disrespect for the system you don't protect anything and
then you leak out information every day that is very, very important.
So I think here the answer administratively is illusive, but at least
in concept we have got to find a way to hone down what it is we con-
trol as the most important element and do a darned good job of that
as I see it.
Mr. LORENZO. You are so right.
Senator NUNN. The challenge is how do you do that. We have got
a lot of agencies involved. There is certainly no simple answer to it.
But I appreciate very much your testimony. Do either one of your
associates want to add anything at this point? We would be delighted
to hear from them? Any suggestions, recommendations?
Mr. LORENZO. Fire their boss.
Senator NUNN. Do either one of you want to make any statement at
this point?
Mr. LoarracKY. Senator Nunn, I think Mr. Lorenzo has outlined
very well the kind of work that we do and the difficulties that we face.
One of the major efforts that we have underway now is to achieve
precisely what he alluded to; namely, to get our allies to cooperate
with us in technology and export control. But we have a very intensive
effort underway in Cocom. We have taken the critical technologies list
and we are making very good progress and getting that list accepted
in the negotiations on the Cocom list.
I am very encouraged by the attitude of our allies in that we were
told over the years, no, they cannot control technology, this is strictly
a U.S. kind of thing. I am very pleased that we have made some
very important progress in that area. I might also add that as in
the past so it is today they are extremely careful to demand and rightly
so the kind of precision which you have alluded to; namely, they want
to make sure that we have made a good intelligence assessment of the
other side. They want to make sure that what we want to control is
described in such a way that it has a minimum unnecessary impact
on commercial trade.
I think with these criteria is they are presented to them properly
I think the chances are that they will accept our proposals. If we do
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not follow these rules I think we will have a very difficult time. Thank
you.
Senator NuNN. Thank you.
Thank you very much, Mr. Lorenzo. We appreciate all of your co-
operation, you and your associates. We know you have a tough job.
We look forward to your giving us your reaction to the recommenda-
tions we will be making next week.
Mr. LORENZO. It is a tough job and it is a challenge. But with people
like you on our side we will get there.
Senator Nuivisr. Thank you very much.
Our next witness, Admiral Inman, is coming in just a few minutes.
I believe Mr. Charles Lecht is here. If you would kindly take the chair
we will go ahead and hear from you and then we will hear from Ad-
miral Inman. I think it is really fortunate we are going to hear from
you first in a way because I have read your statement and find some
very interesting points there that I think could be addressed later with
questions from other witnesses.
We swear in all witnesses before this subcommittee. It is a matter
of practice before the Investigations Subcommittee. So before you
start your testimony, if you will stand and take the oath.
Do you swear the testimony you will give will be the truth, the
whole truth, and nothing but the truth, so help you God?
Mr. LECHT. I do.
Senator NowN. Thank you very much. We appreciate your coopera-
tion with the subcommittee. We appreciate your meeting with the staff
and discussing these areas. We know you are highly qualified in this
whole area of technology. We look forward to having your statement.
TESTIMONY OF CHARLES LECHT, FORMER PRESIDENT AND CHAIR-
MAN OF THE BOARD, ADVANCED COMPUTER TECHNIQUES CORP.
Mr. LECHT. Thank you very much, Senator Nunn.
I have my prepared statement which I submitted to the subcom-
mittee. I will summarize it if you would like.1
Senator NuNN. Your statement is not too long. We would be de-
lighted to hear it, whatever you prefer to do. I might acid, Mr. Lecht
is the former president of the Advanced Computer Techniques Corp.
in New York.
Mr. LEciErr. Yes, sir.
Senator NuNN. Whatever you desire.
Mr. LECHT. I agreed to testify to this subcommittee on the issue
of international trade of computer technology because I believe the
goals to which this subcommittee is directed are correct ones and
important ones for the national defense and security of this country.
I have spent many days abroad for the last 15 to 20 years and I
have had occasion to work with both Socialist and Western countries.
I have some different conclusions regarding Soviet or should I say
Soviet bloc attempts to acquire a U.S. technology. I have reached
conclusions as to why this is going on which differ from those which
I have previously read about or heard about in the media or in
Washington.
See p. 570 for the prepared statement of Charles P. Lecht.
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Primarily I have come to the conclusion that the concept that the
Soviets want U.S. technology because they can't make it themselves
or they can't buy it themselves is a fallacious one. I have concluded
that the Soviet technology establishment?in the country which pro-
duces more scientific literature than any other country in the world?
is capable of producing what it wants. I have thus concluded that
the Soviets have been looking for U.S. technology primarily because
they want to find out how our military materiel work, our missiles,
our aircraft, our radar, our sonar, and the like. Since most highly
advanced military technology is driven by dual use embedded com-
puter systems to be found in both the private as well as the Defense
sectors, the acquisition of these systems by the Soviets reveals infor-
mation on how to jam our technology-driven military devices?how
they operate or what their shortcomings are.
My prepared statement supports this thesis.
Furthermore, my experience abroad in dealing with a variety of
companies, both American and foreign, has led me into direct con-
tact with Soviet military on one occasion?I have been called at my
hotel room by a Soviet general asking me to come have a drink with
him, an event which I refused to do for my health and welfare, and
loyalty to this country.
I have found that the notion of creating lists of items to guide
what may be traded and what may not be traded and which can be
used by persons at the borders of our country won't work in the high
tech, area, especially around computer systems technology. Much of
this high tech stuii has elements which vanish into the microscopic
world, has no metal thus are not detectable by machinery. For ex-
ample, computers for the future are being experimented with as
creatable in test tubes? protein based devices which are at the fore-
front of the technology. But, even today's metallurgical, chemical,
and electronic-based devices which are at the developmental fore-
front, allow for the creation of systems which are extremely powerful
and extremely small and almost nondetectable. These are the devices
being used in our embedded weaponry.
I thought I would call this to the subcommittee's attention to indi-
cate that I really believe the concept of border policing and lists which
may be looked at by, say, border patrolmen or the like is an untenable
one in this age of high science in and about computer and communica-
tion systems technologies.
Senator NUNN. You are saying the advanced technologies are so
sophisticated, so small and involve know-how in many cases and that
border control is not the answer to controlling that kind of high
technology?
Mr. LECHT. For the most part I don't see how it could be controlled
that way at all. But I also don't believe that the capacity to create
these is the privileged commodity of the U.S. scientific community. I
think the chairman of Control Data Corp. and others have testified in
the past that U.S. dominance in the high tech area is no longer a
reality. Japan, countries like France, England, Russia, and even Soviet
bloc countries have the capacity to make exactly what we are making
now.
So I wonder about the Cocom lists and our ability to police these
lists and whether this preoccupation was not causing us to focus in the
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wrong direction, so that we cannot see that the Soviet desire to ac-
quire our technology has more military meaning than anything else.
Senator Nu-NN. What do you think we ought to be doing? You
acknowledge it is a serious problem, I think. You would narrow it
down more to the pure military analysis part of it. You are saying
border control in this sophisticated age is not adequate, maybe not
even relevant. What is it that we should be doing in this country in
your view to begin to address the problem as you see it?
Mr. LECHT. First of all, I believe the establishment of a subcommit-
tee like this one to identify the problem is very relevant and extremely
important because up until this point I am not sure that we have
identified the problem in the United States. Certainly cooperation at
the source of these high technologies is probably the beginning point.
I have here a list of the American microprocessor companies and their
foreign involvements and it is quite astounding. You've got compa-
nies for example, like American Microsystems, Inc. It is a Gould Co.
It is a U.S. owned company recently bought back from a West German
company which has involvements in Austria. We know that Austria
has been a center of technology transfer in trade for many years now.
If you go through this list, and you see companies like Fairchild Cam-
era, Analog Devices, you see Motorola, Nixdorf, Solid State Scientific,
all with foreign involvements, with foreign staff on site at plants
abroad. Even if these are U.S. companies they are worked in by for-
eign people in various locations around the globe.
Some of the devices that they are working on are so small that you
can carry 1,000 of them out in your pocket and still not be detected.
Senator NUNN. When you say controlled at the source, do you mean
much more governmental business involvement and coordination? Is
that what you mean?
Mr. LECHT. Yes, but better focused. As I said earlier, if you buy the
idea that we are no longer the country which has a privileged position
in solid state large-scale integrated circuit technologies. Then we don't
have as our primary worry controlling trade in those technologies.
They can be bought elsewhere. We have to control those particular
technologies that relate to our national defense?the plants that make
these technologies, the data describing them and the way they are em-
ployed.
Senator NUNN. We go a step further. How do you go about doing
that? What do you do that we don't do now? I think you have made
it plain that some of the things we do now you don't believe are rel-
evant, but when you really hone it down, trying to control the defense
technologies and as you have described it, what steps do you think
could be taken that are not now being taken?
Mr. LECHT. It should start with an education program that de-
lineates between those items which are peculiar to our national defense
and those items which are not. We do not need a blanket embargo on
all high tech going abroad. Such an embargo doesn't have any mean-
ing. We do need better identification by the Defense Department of
those technologies which are key to our national defense 21 nd then a
campaign to educate source management who are creating these tech-
nologies.
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Senator NUNN. Both in this country and in our allied countries?
Mr. LECHT. Yes, sir.
[At this point, Senator Chiles withdrew from the hearing room.]
[The letter of authority follows :1
U.S. SENATE,
COMMITTEE ON GOVERNMENTAL AFFAIRS,
SENATE PERMANENT SUBCOMMITTEE ON INVESTIGATIONS,
Waahington, D.C.
Pursuant to Rule 5 of the Rules of Procedure of the Senate Permanent Sub-
committee on Investigations of the Committee on Governmental Affairs, permis-
sion is hereby granted for the Chairman, or any Member of the Subcommittee as
designated by the Chairman, to conduct open and/or executive hearings without
a quorum of two members for the administration of oaths and taking testimony
in connection with hearings on the Transfer of United States High Technology to
the Soviet Union and Soviet Bloc Nations, to be held May 4, 5, 8, 11 and 12, 1982.
WILLIAM V. ROTH, JR.,
Chairman.
SAM NUNN,
Ranking Minority Member.
Senator NtrigN. You believe that, if the list is properly made up and
kept current and changed with the state of the art, that that kind of
education campaign between the Department of Defense and the other
departments and high technology industry would be more meaningful
than all the law enforcement we could muster?
Mr. LECHT. Yes, I believe it would be a good start. Certainly in the
United States you have a lot of sympathy for Defense requirements
and the requirements for maintaining secrecy around high technology
affecting that defense. But abroad, I am afraid our partners don't have
the same sense of urgency with regard to the handling of our high tech
products. For example, I have seen Russian computers sitting along-
side American computers running the same software in some of our
allied countries. I have concluded that in other country locations of our
plants producing high tech there really isn't a lot of sympathy for our
secrecy needs.
I have seen Communists working in American plants in high tech
in northern Italy for example.
Senator NuNN. Communists actually working in the plant?
Mr. LEcirr. Yes; card-carrying Communists and proud of it, en-
couraging others to attend their meetings in the evening.
Senator NUNN. Are these American companies operating abroad?
Mr. LECHT. Yes.
Senator NUNN. Dealing in high tech?
Mr. LECHT. Yes.
Senator NUNN. Dealing in items that you think might be crucial
to the national security?
Mr. LECHT. No question about it, sir.
Senator NUNN. You travel quite a bit. Does your company do busi-
ness in several foreign countries?
Mr. LECHT. We have just about worked in every Western country,
in the Far East, Australia, Japan, South Africa, and black African
countries. We have also worked in Yugoslavia and in the Soviet Union,
in Hungary, Czechoslovakia, and the like.
Senator NUNN. What is the general attitude of American businesses
toward this problem? Do you find them generally anxious to cooper-
ate or are they very skeptical about governmental efforts?
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Mr. LECHT. No; I think that any serious businessman in this coun-
try is compelled to cooperate with the Government's requirements on
the transfer of technology abroad. I think that they generally are sym-
pathetic. The problem is it has been so overstated in the past that at
times they become suspicious that it is going to in some way impact
their capacity to trade anything.
Senator NUNN. In other words, by overstating the problem if the
Government does that, and by having too many items on the list that
perhaps do not have the significance that you have described, you
create skepticism among businesses and less cooperation rather than
more?
Mr. LECHT. Yes, the American businessmen who are going abroad
and who see large-scale integrated chips of the most modern variety
coming out of the Soviet Union, wonder what the flak is about in
the newspaper which says we shouldn't trade with them.
Senator NUNN. You mention in your statement that the General
Electric Co. trains Soviet personnel in computers in Milan. Would
you tell us a little more about that?
Mr. LECHT. I mentioned that they trained them in the latter sixties.
The General Electric Co., as well as IBM and all the other manu-
facturers, have been selling high technology to the Soviet Union of
one kind or another, I should say, over the past 20 years off and
on with various periods of time where restrictions prohibited this.
And with the sale of computers, frequently there is training as part
of the package of the sale of these devices. This involves taking the
client's staff into a classroom to train them on how to operate,
program, and, in general, how to use the machines.
Well, if you sell to the Soviet Union, they need the training also.
I have seen Soviet staff in classrooms in Italy being trained by com-
puter manufacturers' representatives from the United States of
America.
Senator NUNN. When you actually sell the computers, the training
goes with it, though; doesn't it?
Mr. LECHT. Frequently it does, sometimes they will buy it.
Senator NUNN. The critical decision is whether they sell the com-
puters at all.
Mr. LECHT. I don't think that stopping the sale of computers will
benefit anything though. They hardly buy anything from us anyway i
in the computer area n the Soviet Union. The demand statistics don't
seem to justify the concern so often expressed that they cannot manu-
facture or obtain high tech without U.S. involvement. What they are
i
more concerned with in my opinion is high tech that finds its way ntc
the nose cone of a missile.
Senator Nurix. So you are saying the kind of computers that have
been sold you don't think are damaging?
Mr. LECHT. Most of the computer technology the United States has
sold to the Soviet Union could have been bought anywhere else or
made themselves. It is the stuff they stole, sir.
Senator NUNN. There are export control lists that our Government
has. Are these widely distributed in industry, in your view? Does
industry appear to be cognizant of what the Government believes is
critical?
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Mr. LECHT. These export control lists, I think, spend more time in
the Government files than they do in the hands of people doing inter-
national commerce. I have never seen a recent export control list until
your subcommittee started. I should say, I haven't seen one in years.
I had seen one earlier. I don't think the past or current export control
lists portray a deep knowledge in current high tech by those who
prepared these.
Senator NUNN. Could American private businesses and people in the
high tech area play a role as an advisory kind of committee in this
area and be helpful or would there be such inherent conflict of interest
that it would not be feasible?
Mr. LECHT. You have to start somewhere. I think bringing some
high tech advisers into the Government to better help define the prob-
lem and better help create the guidelines is absolutely mandatory at
this point in time.
For example, some of the lists at the present time are influenced by
the notion of size of the machines. Well, size today means old, not
new. The bigger they are the older they are, the newer they are, the
littler they are. So on occasion we hear that we can't sell big machines
but we can sell small ones. It frequently turns out that the smaller
machine the more powerful it is, the larger, the less powerful. Thus,
there are a lot of conceptual revisions needed and I think the scientific
community ought to be brought in on these revisions.
Senator NUNN. Have you had any dealings with the Department
of Commerce in enforcing American technology transfer?
Mr. LECHT. Well, the Department of Commerce once helped me
transfer some of my technology over to Italy to demonstrate it at an
Italian fair. but other than that dealing, I have had none.
Senator NuNx. Have you seen them create much of a dialog with
industry about what should and should not be on the list? Is there
any kind of educational effort going on from the Commerce Depart-
ment that you have personally seen?
Mr. LECHT. No, sir, I haven't.
Senator NUNN. We appreciate very much your being here, Mr. Lecht.
Your testimony has been very helpful and very heartening and we
thank you for your cooperation with the subcommittee.
-Mr. LECHT. Well, I was heartened to see this subcommittee formed,
Senator Nunn. I wish you good luck and great success.
Senator NUNN. We hope to continue to bounce ideas off of you.
Mr. LECHT. It will be a pleasure, sir.
Senator NUNN. Thank you.
At this point, Admiral Inman is our next witness and we will take
about a 5-minute break while we wait on him to arrive.
[Member present at the time of recess: Senator Nunn.]
iBrief recess.]
[Members present after the taking of a brief recess: Senators Roth,
Nunn, and Chiles.]
Senator NUNN. Our next witness is Adm. Bobby Inman. Admiral
Inman, we appreciate, the excellent job you have done for your country
in every area and I particularly appreciate the interest you have dis-
played in the technology transfer area. I don't know of anybody in
government that has concentrated on it more and given it more em-
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phasis in the last couple of years than you have. I also appreciate your
cooperation with our staff in preparing for these hearings.
We are delighted you are here. We swear in all the witnesses before
the subcommittee so if you would take the oath we will be glad to get
your statement.
Do you swear the testimony you give before the subcommittee will
be the truth, the whole truth, and nothing but the truth, so help you
God?
Admiral INDIAN. I do.
Senator NuNN. Thank you.
Why don't you go ahead and proceed and then we will have
questions.
TESTIMONY OF ADM. BOBBY R. INMAN, DEPUTY DIRECTOR,
CENTRAL INTELLIGENCE AGENCY
Admiral INMAN. Thank you, Mr. Chairman. I have a statement that
I will submit for the record, if I may, including as a part of it the
unclassified version of the intelligence community's look at Soviet
acquisition of Western technology.
Senator NUNN. That will be admitted, without objection.1
Admiral INMAN. The origin of that study really begins with this
subcommittee and its staff, as you will well recall, from dialogs that
go back a year and a half, the questions asked about the general status
of Soviet technology transfer and inadequacy of the answers we
had--
Senator Nuivisr. If you could pull that mike up a little closer.
Admiral INDIAN. Bow is that?
Senator NuNN. That's good.
Admiral INMAN [continuing]. And the inadequacy of the answers
we had available. The whole question of technology transfer had not
been a priority topic. Out of the dialog between this subcommittee, its
staff, and the Senate Select Committee on Intelligence, we were asked
in March 1981 to do an interagency study to pull together all we knew
about the Soviets success in acquiring Western technology and their
use of it in their military buildup.
A 6-month effort was undertaken. The results were startling to
those of us inside the intelligence community as well as to the users.
It was clear that we had a great deal of information about the nature
of the Soviet efforts, their use of their Eastern European allies to
support it and the general outcome. We provided that study in its
full classification level to the Senate Select Committee last October,
and then we proceeded in the ongoing dialogs within the administra-
tion and with the staff both of this subcommittee and of the Senate
Select Committee to try to refine what we knew to improve our
capabilities to track the problem better in the years out ahead but
most of all to try to help assess the impact of the damage and what
might be done in response.
I would point out two or three highlights from that knowledge for
our discussion today. First, is we look at the militarily useful, mili-
See p. 577 for the prepared statement of Adm. Bobby R. Inman.
95-929 0 - 82 - 16
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tarily related technology that the Soviets have acquired from the West,
about 70 percent of it has been accomplished by the Soviets and the
East European intelligence services. They have used clandestine,
technical, and overt collection techniques in the process. They are
trying to get technologies of proven Western weapons and component
designs that can be applied directly to Soviet weapons research and
development, and industrial needs.
They concentrate their efforts through open purchases, legally
accomplished where that is possible and where it is not successful,
through illegal purchase and when that is not successful, through use
of espionage.
The sources of the technology may be Government classified or
unclassified reports, private company's proprietary reports, open
source technical documents from companies and Government organi-
zations?much of the embargoed equipment falls in this category as
well. The Soviets have undertaken a thorough vacuum cleaning of
everything in the public sector which will let them better target their
espionage activities. Of the remaining 20 to 30 percent of the acquisi-
tions of information of potential military value to the Soviets, most
comes through legal purchases and open source publications acquired
by other Soviet organizations, such as the Ministry of Trade and
related international bodies.
A very small percentage of it comes from direct technical exchanges
conducted by scientists and students.
As we look out. into the later 1980's, we believe that future Soviet
and Warsaw Pact acquisition efforts are likely to concentrate on the
sources of such components and manufacturing technologies, such
as defense contractors in the United States, Western Europe, and
Japan who are responsible for military technologies, general pro-
ducers of military related auxiliary manufacturing equipment, again,
in the United States, 'Western Europe and Japan, and small- and
medium-sized firms and research centers that develop advance com-
ponent technology and designs, including advance civil technologies
with future military applications.
Since the early seventies, and Soviets and their surrogates have in-
creasingly used their national intelligence services to acquire Western
civilian technologies, for example, automobile, energy, chemicals, and
even consumer electronics. Since the midseventies, the Soviet's Euro-
pean intelligence services have been emphasizing collection of manu-
facturing-related technology in addition to weapons technology.
And since the late seventies, there has been an increased emphasis
by these intelligence services on the acquisition of new Western tech-
nologies emerging from universities and research centers.
I can only conclude from all of these efforts that the Western secu-
rity services will be severely tested by the Soviet intelligence services
and their surrogates during the eighties.
I am pleased to say that coordination within the intelligence com-
munity and intelligence support. for the executive branch, the various
departments and agencies which have responsibilities in this area, is
substantially better than it was a year ago. In the wake of the study
document, the DCI has established a Technology Transfer Intelligence
Committee along with a dedication of analytical resources which had
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not previously been committed to the problem and new mechanisms to
coordinate how the intelligence community pursues intelligence col-
lection, analysis, and reporting, and new subcommittees to support the
activities of the other departments as they try to bring better coordina-
tion and better formulation of policy.
There is still a great deal of work to be done.
Mr. Chairman, rather than proceeding further with the formal
statement, I think it would be better to use the time to try to field
questions of members of the subcommittee.
Senator NUNN. Thank you very much, Admiral Inman.
I will take just a few minutes and, Senator Roth, I defer to you
and Senator Chiles.
We just heard testimony from Mr. Lecht who is in the software
side of the high technology business. His statement, if I could para-
phrase it without trying to quote it, is essentially that the high tech-
nology critical lists that he has seen are very broad and tend to be
very severely outdated.and do not aim themselves toward state-of-the-
art technology, small computers, and that sort of thing. I understand
from other witnesses, too, that there seems to be a consensus that we
ought to really make an all-out effort to narrow the list and to try to
find the areas that are critical to the Soviets rather than trying to do
a job of controlling more and more, poorer and poorer.
Do you generally share that sentiment or do you disagree?
Admiral INMAN. I do not sign up to it entirely, Senator. I think
we have to stay focused on the larger problem of trying to do the
best job across the broadest range of technologies. I agree one ought
to prioritize the activity. Clearly the critical technologies ought to get
the immediate priority attention. But what I worry about in that
formulation is that one would then conclude that is the end of the
problem and that one does not need to pursue the whole broad range
of activities.
There is no doubt in my mind that the highest priority ought to go
to the direct weapons-related technology, the ones where we have
classified research underway.
The mechanisms may not have worked well in the past, both to up-
date those lists and to have the kind of dialog with industry that lets
you know what is coming along as the newest area of technology.
I suspect improvements are doable and prioritizing ought to be under-
taken regularly, but as a broad general national problem, we ought to
look to try to preclude the broadest range of acquisition by the Soviets
of Western technology which feeds that continuing military buildup.
It is from looking at the scope of that buildup across the whole range
of strategic conventional forces, manufacturing capabilities, that I am
persuaded this is a challenge that is going to be with us for another
decade.
Senator Nuisrx. When you look back?you have been involved in the
intelligence area for some time now without regard to any administra-
tion, Democratic or Republican, but if you look back at the last decade,
how would you rate our greatest failings in the technology transfer
area?
Admiral IrimAN. I have to conclude from simply the accumulation
of evidence and Soviet success that our performance has been very
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poor, indeed, in the whole area of limiting technology transfer, but
I think, Senator Nunn, that you really have to look at that and in the
climate of times. For a decade, the country at large, as well as the
Government, put its faith in total broad terms in detente as an ap-
proach that was going to bring us peace, that was somehow going to
slow down the military threat we were going to have to face?a general
optimism that all exchanges were inherently good, that whether they
were scientific or technical or simply economic, business, that that
would produce from our principal adversaries a greater willingness to
work with us rather than to feed the military threat that we are going
to have to face.
That was also a climate when we were pulling down our whole na-
tional security apparatus with the basic question of what can we do
without? That impacted heavily on the intelligence community where
we lost a great deal of manpower to pay for new technological collec-
tion opportunities. As we gave up what we could do without, one of
the many things we gave up was any kind of coordinated collection or
reporting efforts against the Soviet acquisition of technology in this
country.
It had its own impact in trying to assess the success of the Soviets
R. 86 D. efforts. One of the small side benefits of this latest study is
that we now recognize the Soviets did not embark, as some had feared,
on the major investment in R. & D. to find breakthroughs in areas
that we were ignoring. Rather they used the clear technique of taking
whatever the West was developing, adapting it to their own needs
and getting it into production in very impressive timeframes.
When one looks back, what you get is a reflection of activity all
across the Government and the general attitude of the country not to
worry about the loss of outflow, it is kind of a security blanket comfort
that any kind of trade or exchange was inherently going to be favor-
able for us. When one looks at the results 10 years later and looks at
Soviet activity, I think it would be very hard to come to those same
conclusions at this point in time.
Senator NUNN. If you had to rate our problems now addressing the
most critical for the next decade in this area, how would you rate
the major challenges?
Admiral INMAN. I have read a lot of writings, I have listened to a
lot of speeches, both inside the Government and in the private sector
over the last decade in describing Soviet economic problems. I can re-
member 10 years ago listening to a learned authority tell those of us
who were in his audience that within 5 years, the state of the Soviet
economy would be so bad and the problems with the minorities would
be so difficult that we didn't really need to worry about the Soviet
military buildup. They would be turned inward to deal with their
problems and they would not be a challenge.
I have heard the same authority say almost exactly the same thing
last spring, almost 10 years later. But, in fact, I am still looking for
that change. The economy is in bad shape, cost of the empire is high,
but they have continued to protect a steadily increasing investment
across their whole military structure for the last 17 years. The result
is that we now face a qualitative challenge as well as a quantitative
one.
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The qualitative one that we didn't face at all 11 years ago, an ability
to stay and fight, with a whole range of weapons systems which have
very impressive standoff capabilities.
Much of that growth in the Soviet side, in manufacturing techniques,
in weapons systems, in design, has come about from their acquisition
here. As I look out for the next 10 years I don't see anything on the
horizon that is going to change those priorities on the part of the
Soviets. I think they are going to continue to have economic problems.
The major pressure on them right now is the agricultural failure
and the hard currency they have to spend to buy grain. But they have
continued to protect the investment in the military sector and I think
they will continue to do so. Therefore we must pay very high propriety,
I believe, to outflow of technology which will let them quickly adapt
and bring into use of more sophisticated weapons systems, standoff,
longer range, better guidance systems?accuracy is going to be increas-
ingly a problem we have to deal with in their strategic weapons as well
as their conventional weapons and, again, a good deal of the technology
for that has come out of the West.
So I would rank efforts to preclude Soviet access to high technology,
to things that would improve the firepower, the acquisition, recon-
naissance capabilities very high in our own national priority interest.
We have got a very long way to go in our own rebuilding program.
Senator NUNN. In that rebuilding program, what are your
priorities ?
Admiral INMAN. Let me split that into two categories. I can speak
Pretty easily about the Priorities in the intelligence community side.
There I believe the challenge that we are going to face in the decade
ahead is going to find its greatest prominence in challenges all over
the Third World, competition for raw materials, natural resources,
Problems with access to markets, and countries with political instabil-
ity. A great change that faces us is Soviet mobility, mobility of the
Soviet power to the degree that we have never had to worry about in
the past.
Thirty years ago, when we looked et the Soviet Union as an adver-
sary, their forces were primarily designed for use perhaps 200 miles
from the periphery of the Soviet Union. By the mid 1950's, it was
a 600-mile line. By the early 1960's, and the exercises, it was a L500-
mile line. But was still largely in their own discussion a defensive po-
sition and a defensive structure.
By 1975. that had changed abruptly. Theer waz no longer a 1,500-
mile line. They looked to use their forces wherever they saw the in-
terest ef the State involved. But they were still cautious and therefore
in the late 1975 time frame, in the move to Angola. they used Cuban
troops?not their own?with Soviet airlift and Soviet equipment. In
Ethiopia in 1977, the same pattern evolved. It was Vietnam's man-
power. Soviet equinment, that moved into Kampuchea in 1978. The
watershed came in 1979 with the Soviets willingness to use their own
forces in Af0thanistan.
? We had watched a massive airlift exercise into Mongolia in April of
1979. And that turned out to be a precursor for a massive movement
of force into Afghanistan on the Christmas date of 1979.
When one thinks out to the next decade, with a new generation of
leaders who may not be as cautious as these old Bolsheviks that we have
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dealt with for the last 17 years, I believe one has to worry a great deal
about whether those new leaders will be as reluctant to use Soviet mili-
tary capabilities beyond their own shores.
It is not beyond the realm of possibility that we will find a decade
out, or sooner, an unstable situation and sudden quick movement of
Soviet military forces into the arena and we are then confronted as the
British are now confronted in the Falklands with the fact of military
presence and trying to contemplate what to do about it. But it is going
to be vastly different than dealing with Third World nations using bor-
rowed military equipment, with sophisticated capabilities, with the
ability to use that high technology at very substantial distance.
The country has to contemplate whether we have the mobility, the
range of conventional forces that can deal with that kind of challenge.
It is a very long winded answer to what are the priorities for the
future, but we are going to need to know a great deal about countries
all over the world, to try to anticipate in advance where the instabilities
are developing that might offer the opportunity for our adversaries to
take advantage of the opportunity.
We are certainly not going to be able to do less in following the
threat in the Soviet Union itself, to the peripheral nations, particu-
larly in Eastern Europe and across the central European plain.
Senator NUNN. Getting it down to the high technology area, what is
it that we should do better than we are doing now? What should be
our emphasis in high technology?
We have heard a good many suggestions over the last 4 days of hear-
ings and we are really searching for priorities. If you had to name the
priorities of ways which can improve, what would you list?
Admiral INMAN. Senator Nunn, I am not the best witness to answer
that, since I have spent most of these last 30 years looking out at what
others do, not at what is happening' in the United States.
Senator NUNN. Let's look at the intelligence area then.
Admiral INAIAN. In the intelligence area, we clearly need more
analytical personnel, dedicated to a range of problems, particularly to
problems like technology transfer. I am less certain what we need in
the counterintelligence area. I am less certain because we have had a
long time, a number of delays in getting underway with the kind of
detailed examination of our long-range needs in that area that has
already been completed in the foreign intelligence area.
True, there is a major component in technology transfer avoidance
that falls to the FBI, to the other organizations that operate in the
United States. There is a study now underway which should be fin-
ished by July which will define with a great deal more clarity, both
the threat that is faced, the methodology being used by various for-
eign intelligence services to extract, informatiorr from this country and
the kinds of resources that are necessary to deal with it. So, you will get
a much better answer on this question along about late August 8 or
early September.
My guess to you is that the first priority is a pretty substantial input
of manpower into the Federal Bureau of Investigation. Also less
expensive and easier to do these days are going to 1:. some additional
steps to automate files available to Customs, Immigration. to increase
the speed with which they can correlate information available to them,
and make it available to the enforcement agencies.
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From my own cursory examination, and your detailed one in these
last days probably now already exceeded my knowledge, most of these
agencies have had very little help in the last year or so, either in the
way of manpower to deal with the increasing foreign presence in this
country?
Senator NuNN. The FBI has had a real cutback in this area.
In the last 6 years they have had substantial cutbacks.
Admiral INmAN. It is an area that I don't believe there is a substi-
tute for manpower to deal with the problem.
Senator Num.'. Senator Roth?
Chairman ROTH. First, let me publicly say what a splendid public
servant I think you have been, Admiral Inman, and as a member of
the intelligence committee I regret very much your decision to depart.
I think these hearings initiated by Senator Nunn are extremely
valuable and ones that are at least to me very complex and troubling.
If I understand your answer to an earlier question of Senator Nunn,
you disagreed with the idea that we should concentrate on select areas
to prevent the transfer of high technology but instead, have a broader
approach.
Admiral INMAN. I disagree, Senator Roth, only if that means you
are simply going to concentrate in the high technology area and then
give up the efforts on the other areas.
I have no difficulty at all with the prescription that would say the
highest priority, the maximum concentration of effort in the interven-
ing months should be to try to stop the outflow in the highest technol-
ogy area. And we should be able to rapidly define that from inside the
Government and we ought to get the new mechanisms established very
quickly that let Defense stay right at the front edge of what is coming
along in industry. Most of it, I believe, will be coming out of advanced
research in any case. So it ought to be feasible to have a very rapid
updating and change of focus of where your highest priority is, but I
believe we should never lose sight of the breadth of the Soviet efforts
and I take the view that it is in our long-term national interest to im-
pede as much of that as it is feasible to do.
Chairman ROTH. That is the point I would like to get at. To me it is
troubling because looking at it from the one perspective I agree with
you. But at the same time, as a democracy we take great pride in having
an open and free community, so that once we start talking about pre-
venting the transfer very broadly, you come in to conflict with other
goals of this county.
I have been told that particularly in the area of research and develop-
ment, the free flow of information among the scientists is fundamental
and that one of the reasons for our success is that you do have this free
discourse between the universities, Government and the private sector,
all which makes it seem to me extraordinarily difficult to have very
effective controls in a broad sense of the word unless we make some
sweeping changes.
Then there is the other aspect of the problem and that, of course, is
trade which is important to this country and on which our future pros-
perity and strong economy depends.
Often one hears that if one shuts off this technology we are shutting
off sales and that means that we cannot compete not only with those
behind the Iron Curtain, but other democracies.
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So that I wonder if we can realistically shut off all technology with-
out impeding some of these other efforts. Would it make sense that we
should export no technology, not only from the military point of view,
but from the competitive point of view?
Would that be a practical approach to try to shut off the transfer of
all technology?
Admiral INMAN. Senator, I don't think it even feasible to consider
shutting off all of it. I have been spending a lot of time tugging at this
problem since the committee first started asking me questions about it
2 years ago.
I have a perception that the leakage from basic research is minimal.
There is a little. But that the Soviets themselves have difficulty in
applying that. That burns up time; that it is in applied technology
where the gains are quickest; where the applications are fastest, where
one can also make sure judgments about the impact on our own case if
we make an effort to impose additional restrictions.
I would set out for your several basic ground rules with the ease of
one who is departing that is not going to be responsible for a great
deal of it.
First, that before one enacts additional legislation or establishes new
controls the first emphasis ought to go on insuring that the ones we
have now work well. I think we will clearly document in the next
several months that in dealing with the espionage problem we have
simply provided far too few people with too little support here in this
country, to let the job be done the way it needs to be done.
I suspect when one examines closely the implementation of the
Commerce export controls, the efforts by the State Department in the
international trafficking and arms regulations, and looks at the De-
fense critical technologies list, you are going to find several things.
You will find a measure of protection of bureaucratic turf. That
al ways happens when organizations are being pulled down in size.
The first priority becomes protecting turf. I think you will find prob-
ably some shortfalls in manpower and in automation and perhaps not
as close working relationships among the various organizations as
really ought to occur.
I would put first priority on trying to improve the performance of
the existing mechanisms.
There may be a need for some additional legislation. I would go
very slowly in that category where one is dealing with the open pub-
lication of basic research. There I have been trying since last January
to spur the academics into addressing that problem themselves. I have
a basic faith that if they put some effort on the problem, they are
probably far more likely than those of us in Government to come up
with some thoughtful ideas on how one impedes the outflow and I
choose that word very carefully.
I don't believe the idea of a total cutoff of outflow is achievable and
I am not sure it is even a useful goal. But I think one ought to con-
sciously look at the whole range beginning with advanced technology
as the area where the highest payoff is likely to occur and look at all
the measures that one can undertake to impede Soviet access to tech-
nology which they can use for production of military hardware.
Chairman ROTH. Admiral, to what extent has the Soviet Union
been successful in securing this technical information from our allies
and partners?
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Have they been better, about the same, or less effective than we have
in protecting the technology of national security?
It seems to me this is important from a number of standpoints, first
of all, to what extent we are going to exchange technology; second,
many of us think that it is important that because of the increasing
costs of weapons that they should begin to purchase agreed-upon weap-
ons on an alliancewide basis.
It would be increasingly difficult if we couldn't share technology
because one or the other of us were less reliable.
Would you care to comment on that?
Admiral INNIAN. We are too far down the path to try to walk back
from sharing technology with our allies. I would not want to walk it
back because I think commonality of weapons systems and capabilities
over the long term is going to be a greater plus than the potential
drainage. But in any case, we are too far down that path. But there
are components that are not subject to immediate Government con-
trol in any case. With the growth of the multinational corporation,
there are many subsidiaries that are not only manufacturing, but file
for patents back in this country from foreign subsidiaries. And we
sat about consciously to help our former enemies as well as our former
allies rebuild their economic health.
We have been successful beyond our wildest dreams and now some
of that competition is very intensive. One cannot seriously talk about
being completely successful in denying Western technology to the
Soviets without including our allies as close partners. That means it
is a much more complex problem. Where we can impact is on the direct
access for equipment, hardware that is being developed; particularly
in the military sphere where clearly we are the leaders still.
In response to part of your question about how much do the Soviets
acquire from the various components, I don't have a certain figure on
the percentage of the success that has come out of Western Europe or
out of Japan. I do know that they have intense efforts in those areas
just as they have here. We have had some particularly good reporting
in the last year from a defector in the Far East who documented very
substantial efforts the Soviets made in Japan to acquire technology.
Again, in Western Europe and Japan, as here, they have been
successful in buying a good deal of it. They haven't had to steal it.
What is clear is that the Soviets to this point in time are very depend-
ent on the totality of that vacuum cleaning and purchasing for this
massive military buildup that we have watched occur.
Chairman ROTH. My last question, Senator Nunn, you said in answer
to a question that the Russians, the Soviets, have not tried to imple-
ment or fill out those areas that we have not provided to do work our-
selves. There was a recent editorial in the New York Times comment-
ing on technology transfers to the Soviet Union in which it expressed
the opinion that lowering the barriers to the flow of technology to the
U.S.S.R. is not necessarily a bad thing.
It editorialized that "a more relaxed policy would serve the West's
best interests because a steady supply of foreign technology taxes the
Soviet Union's incentive to develop its own better to have the Soviets
stealing and copying, following a few steps own,
than working inde-
pendently and becoming able to deliver a technological surprise."
What would be your response?
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Admiral INMAN. It will not surprise you that I do not agree. It is
wishful dreaming. To say that it has sapped the Soviet efforts, I am
afraid portrays a lack of understanding of the state of the Soviets and
how far they have come in building up an R. & D. structure.
You worry me a little in the first part of the question. I hope I did
not mislead the committee in my wandering answer. We have not found
evidence thus far of a Soviet breakthrough in a critical technology
area that they have pursued on their own or indeed that we have ig-
nored.
There clearly is apprehension in fields like charged particle beams
and lasers, where they were clearly investing large sums of money in
research and development and test facilities that they might in fact
have that prospective breakthrough.
We have not seen evidence that they have achieved any. But what
is clear at this point is that the primary path the Soviets took was to
acquire what was obviously easily acquirable, technology from the
West and to adept that to their needs.
They have done that ranging all the way from manufacturing tech-
niques or technology to the guidance systems, to improve the accuracy
of ICBM's and SLBM's and cruise missiles.
Chairman ROTH. Thank you.
Senator NUNN. Senator Chiles?
Senator CHILES. Admiral, I want to add my voice publicly to thank
you for your outstanding service and to say that I hope your leave is
going to be temporary, and that you will be back giving us your serv-
ices.
You mentioned that the Soviets had a problem in agriculture and
that they have had to expend their hard currency to obtain grain and
food.
Argentina has been the principal supplier to the Soviet Union of
grain. For that, the Soviets have paid hard currency.
Given the present situation in the Falklands, do you see the Soviets
getting the possibility of not having to use hard currency, but, being
able to trade off weapons, which they seem to have a large capacity to
manufacture, for grain?
Admiral INMAN. Over the past decade, the Argentines have turned
largely to Western Europe as a source for their military hardware.
That is expensive. They have not previously indicated any interest in
procuring Soviet hardware, even though Peru was acquiring a great
deal of it. But you have fingered a very major worry that I have, that
the outcome of this crisis will be a decision on the part of the Argentine
Government to embark on a substantial program of acquiring new
military hardware from the Soviet Union.
I think you will find the Soviets very eager to sell at a bargain price
and particularly if that means they can lower the amount of hard cur-
rency they have to spend to get access to get wheat and beef.
It is a major cause for worry in the months ahead.
The only thing that stood between that to this point has been lack of
Argentine interest in turning to them as a major military supplier.
Senator CHILES. Of course with those weapons could also go the
advisers, spare parts and all of the--
Admiral INmAN. Dependence.
Senator CHILES. Yes, dependence will go at the same time.
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I would like ask you another followup question on an issue that
greatly concerns me and a number of my colleagues in the Senate, the
Soviet threat. We even had a closed session of the Senate to go into the
Soviet threat. There had been a briefing by the intelligence community
for many of us prior to that, but the feeling was that, because only 25
or 30 had availed themselves of that briefing, all of the Senate should
have that opportunity.
For that reason we went into a closed session. That is not done very
often in the Senate.
I and many of my colleagues feel that that briefing we received was
so sobering. It was alarming to see the tremendous buildup, and to
compare what actually happened every 5 years with what we thought
would happen. We now see the Soviets achieving a momentum that
would be very, very difficult for them to stop and reverse. A large por-
tion of their GNP now is going into the war machine; it has got to
make up so much of their employment. I feel that is something that
should be more available to the U.S. public. There is no perception on
the part of the public as to actually what that buildup is.
We are continually told that all of this is classified. My concern is:
Are we going so far as to classification of this information that we are
prohibiting the ability of really forming a public understanding in
this country that is necessary to do something about this Soviet weap-
ons buildup?
I wonder the way that we collect some of this information is classi-
fied. How much about those methods do the Soviets really care about
now?
The information we collected is something that is available to the
Soviets. But, ironically, the information is a secret from our people
as opposed to being a secret from the Soviets. I understand that how
we collect some of this information is classified. However, from your
perspective how are we going to be able to show this alarming build-
up to the American people in sufficient detail to convince them that
this is not rhetoric, that this is not one of those statements that will be
discounted later? How can be made the public understand this threat?
Admiral INMAN. Senator Chiles, let me try to stumble my way
through a response to that in an open, unclassified session.
Senator CHILES. I understand this.
Admiral INMAN. I happen to be a great admirer of John Hughes
and of the presentation of the Soviet buildup which would help a lot
of people. It was put together a number of years ago and I have
watched the impact on Republican and Democratic Congressmen, Re-
publican and Democratic administrations, and our foreign allies. It
has in every instance been a very sobering presentation because of the
accumulation of data before your eyes on the full scope of the buildup,
the infrastructure, the building of shipyards, the building of airplane
factories, the building of tank plants, the clear fact that they are using
those facilities substantially less than their capacity at this point in
time even when we have worried in our own defense buildup of
whether we have the industrial capacity to do the job that needs to
be done.
The complications in releasing that information, or in declassifying
it are substantial. One is the question of the impact of the Freedom of
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Information Act. If you declassify satellite information to use for that
specific purpose, is all of it, thereby, open and accessible and thereby
knowledge of what you targeted, how frequently you acquired. it,
available under the existing terms of the Freedom of Information
Act.
There are considerations one must carefully take into account on
national technical means of verification of treaties and the whole arms
control process and if one believes that we do need an arms control
track as well as the rebuilding track for our defense capabilities, then
you have to think very carefully about whether you endanger con-
tinued access.
The Soviets have an antisatellite capability now. Many of the
systems which provide this information are very suspectible to its use.
There is the question, when do you cross over the line between that
which is accepted under treaty for national technical means and when
is it a challenge to the secrecy in that closed society that they are not
willing to accept. But I must admit those of us who have been inclined
to support the use of the imagery had a real setback a couple of
months ago when we did use imagery to describe the buildup in
Nicaragua and the press coverage, at least some of it the next morning
talked about the claimed, alleged, reported information and it was
very clear that what to John Hughes and Bobby Inman was enor-
mously persuasive information from photomterpretation, was instantly
challenged. The average man in public is not a photointerpreter, able
to make their own independent judgments. If the views of the profes-
sionals are not to be accepted as credible, then I have great reserva-
tions that, taking any risks about future access is worth the cost.
Indeed, it has been the credibility that John and others of us have
had with these committees which I think has been a central factor in
the weight that that briefing has.
So we are on the edge here of some deeper and more complex prob-
lems of the general attitude that the media brings to the validity of
information provided by the Government and specifically by the
intelligence community on issues. If one doesn't want to believe that
there is a Soviet buildup, you can find all kinds of questions to ask
to divert attention.
I am grateful for the expressions of support that have come from
the members here and I have enjoyed enormously my working relit-
tdonships with you over the years. Rather than saying that this is a
temporary departure I would rather phrase it a different way. As I
go off to my second career, I hope I am still going to be able to help
in addressing a great many of these issues from the private sector.
But. even there, credibility, a willingness to accept the honesty and
integrity of the professionals in providing information is absolutely
key to building public understanding. A very good publication was
put together with a lot of hard work last year called "Soviet Military
Power." It does not have all the dramatic impact that you got, that
many of your colleagues have gotten, as have I, from watching the
full classified briefing, but all of the essence is there in that publication.
Senator NUNN. That publication was primarily done for NATO?
Admiral INMAN. Yes, sir.
Senator NUNN. An interesting thing about that publication if I
can interrupt Senator Chiles for just a moment is the overall view
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was it was enormously helpful in European circles. I was over there
shortly after it was put out. But there were a substantial number
of critics that kept talking about the fact this was simply expressed
in gross terms, this is what the Soviets had, one, two, three, four
with no effort to make a net assessment, with no effort to say what
the American capability was, what the NATO capability was. Of
course, when you get into net assessments you are getting into subjec-
tive judgments that would take 15 or 20 years for the Department
of Defense to agree on, never mind the ones that go to the National
Security Council.
I know the difficulty of putting out that kind of information.
There is a totally different group of people dealing with it. That
is where the skepticism goes. There is a great desire on the part of
the people in the media and the public, I might add, to have some-
one digest the American-Soviet-NATO-Warsaw Pact balance in 30
seconds or less, in one page or less.
Tell us whether we are stronger or weaker, tell us who is superior
and I think that is a very fallacious kind of approach but that is
what you are dealing with and that is what, of course, we are all
dealing with.
Admiral INMAN. I think we have gotten enchanted in this last 20
years, at least the public debate has gotten drawn too much to charts,
graphs, trying to compare everything by numbers. The systems ana-
lysts love it. I am very skeptical about the ultimate value of making
judgments about need in that way. I doubt if any systems analysts
would have put the Falklands or the kinds of forces one needs to
impact on the Falklands in the charts or in racking up the kind of
capabilities one needs to deal with the troubled world of the decade
ahead.
Senator CHILES. I am sure that is true. I would say one comment I
have, I see the problem which you are raising. I have a feeling if you
give the American people sufficient information and detail, they won't
allow the media to interpret for them. They will make their own
interpretation.
Admiral INMAN. I don't want to leave any doubt at all that I believe
the Soviet buildup over these last 17 years has brought us to a perilous
state. That there is now vastly greater military power in the hands
of a very few leaders who certainly are not chosen by public mandate
than have ever been in the hands of any of the czars in the time
before.
There are several components. Ultimately whether those new leaders
are willing to use those military powers in ways that are directly
threatening to us or our interests will lie partly on our own military
forces but partly on judgments about our national will. And clearly
they will become very sophisticated at looking at public debate in
the United States, but I am afraid sometimes they may conclude
that there is less will to deal with problems than in fact I believe
exists in the country at large.
Senator CHILES. I agree, that they could miscalculate.
Admiral INMAN. Yes, sir.
Senator CHILES. Thank you.
Senator NuNx. You made reference in the past and again this morn-
ing about scientific exchanges and your desire to stimulate the aca-
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demic community and scientific community to take their own action.
You are about to move into the private sector. We heard over and over
again about how the Soviets send middle-aged scientists over as stu-
dents, we send students of Soviet history over in an exchange program.
One is after technology, the other is after some form of legitimate
literary or historical endeavor.
[At this point, Senator Chiles withdrew from the hearing room.]
Senator NuNx. There is nothing wrong with the latter, but what is
it you would like to see the scientific and intellectual community do in
this regard and I stress voluntarily without Government dictating, I
am sure that is what. you mean?
Admiral INMAN. Happily what I wanted to see is now underway.
In anticipation that the Government was going to eventually come to
grips with the major technology outflow for which there are laws that
ought to be effective and organizations that ought to be effective in at
least making that very difficult, it was clear that there was a segment
of this outflow that was not regulated, that was not controlled and in
thinking ahead, I was trying to spur the scientists into giving atten-
tion to that area themselves and coming up with thoughts about what
one could voluntarily do to deal with it.
That got interpreted as proposals for censorship, for threatening to
put controls in places, to try and somehow turn the intelligence com-
munity loose on academicians and other things. They were just flatly
false. What T hoped to get was an honest broker in the scientific com-
munity to put together a forum to discuss the problem and come up
with recommendations. The National Academy of Sciences and Na-
tional Academy of Engineering are now jointly sponsoring such an
effort.
It is a study group that is going to take about 12 months to deliber-
ate the problem very carefully. They were fortunate to have gotten the
former president of Cornell University to head the group. They have
had one meeting. They have another one coming up in a month. They
need to be left alone. They don't need a lot of people peering over their
shoulders either from the Government or from the media, but I have
substantial optimism based on my earlier experience that they will
define areas that are of concern where there are approaches that are
entirely acceptable.
There will be some grumbling, but I believe it will be possible to
determine what it really impacts on the free growth and exchange of
science, and to recognize things that do not impact on that, that will
nonetheless let us throw some barriers in the path of the Soviets to
make their acquisition harder.
I would finally make a pitch that there are some exchanges that are
clearly in our national interest. We are going to need in this decade out
ahead scholars and students with genuine area study capability, with
language skills who can watch the actions of our adversaries and give
us sound advice, whether they are working in the intelligence com-
munity as analysts or whether they are working in the Foreign Service'
or other parts of the Government.. And so we should be cautious as we
go about assessing the value of exchanges that we don't underplay the
value to this country of various area studies and language training as
part of the exchange structure.
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Senator NuNN. In other words, you are not here advocating a new
law on scientific and technological exchanges?
Admiral INMAN. I am not. I think it would be an area well serviced
to stay away from for a while and see what they can develop on their
own.
Senator NuNN. Thank you very much. We appreciate your coopera-
tion. We look forward to your views on some ideas we have in the next
couple of days. What is your expected departure date?
Admiral INMAN. It depends on the confirmation of Mr. McMahon.
I would hope that would go smoothly without difficulty and, therefore,
in early June, he will be ready to take office and I will retire.
Senator NuNN. I hope you are accessible in the future to the Con-
gress and to those of us who have come to respect you so much for your
advice and wisdom and experience. We will certainly continue to call
on you as if you had never left.
Admiral INMAN. Thank you very much.
Senator NuNN. Thank you.
Our next witness is Dr. Stephen Bryen, Deputy Assistant Secretary
of Defense, International Economics, Trade, and Security Policy.
Dr. Bryen, if you have other people with you this morning, if you
would introduce them, if any will be answering questions we direct to
you, we can have them take the oath also. Would you raise your right
hand.
Do you swear the testimony you give will be the truth, the whole
truth, and nothing but the truth, so help you God.
Dr. BRYEN. I do.
TESTIMONY OF DR. STEPHEN D. BRYEN, DEPUTY ASSISTANT SEC-
RETARY OF DEFENSE, INTERNATIONAL ECONOMICS, TRADE AND
SECURITY POLICY, DEPARTMENT OF DEFENSE
Senator NuNN. Dr. Bryen, we appreciate your cooperation, your
office's cooperation with this subcommittee and our staff as we have
undertaken a rather lengthy, detailed examination in this technology
area.
[At this point, Chairman Roth withdrew from the hearing room.]
Senator NUNN. We know you have prepared testimony today and
will be glad to hear from you before we begin asking questions.
Dr. BRYEN. Thank you, Mr. Chairman. I will try and summarize
my testimony a bit. Since you have the full text, it can be entered
into the record.
Senator NUNN. Without dbjection your whole text will be entered.'
Dr. BRYEN. I welcome the opportunity to speak with you today
concerning what we in the Department of Defense believe to be a
most serious national problem, the control of technology which is
being transferred to the Soviet Union and its allies. My discussion will
focus on what we have achieved so far, what we have now in the works,
what we have yet to do. Previous testimony has gone to considerable
length to illustrate the scope of the problem. It would be very difficult
to estimate the real damage done to American national security by the
Bell case, which you have already looked at.
1 See p. 583 for the prepared statement of Dr. Stephen D. Bryen.
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That loss consists of both military damage in making those weapons
systems vulnerable to countermeasures and the cost to the taxpayers
to overcome the vulnerabilities that those compromises entail. But the
same kind of damage is done in more subtle ways by a variety of
mechanisms that are essentially directed by the Soviet Union to the
detriment of the United States.
Undoubtedly you have heard or hear in the future of those who say
only by constant investments in the technology base upon which our
defense is founded can the United States hope to remain ahead of its
strategic adversary.
Senator NUNN. Will you pull that mike up a little. Thank you.
Dr. BRYEN. Likewise, you will hear that it is impossible to constrain
knowledge and to do so, in fact, is counter to the efforts to advance the
onward progress of technology. We believe it would be imprudent in
the extreme to shrink f'.roifi the difficult task of devising and enforcing
reasonable controls to preclude the use by the Soviets of the fruits of
our technological genius to destroy the very system by which it is
nourished.
It is our attempt to structure within the Department of Defense,
reasonable controls over technology, controls which will effectively
inhibit the flow of technology contributing to the growth in Soviet
military capability.
Now it is a truism there is no substitute for case-by-case review of
proposed exports, legal exports. Only by careful and objective assess-
ment of the facts of each case can the operational, technical, and prece-
dential impact of an export be properly assessed. We have no intention
whatever of eliminating this vital element of our contribution to the
Government's export control of technology. However, the case-by-case
approach functions best within a framework of guidelines and criteria,
proven standards by which judgments can be made.
In the past, our individual judgments were made in so flexible a
fashion that we were overly subject to the vagaries of the moment. The
effect has generally been to advance the margins of acceptability of
exports through the gradual accretion of precedential approvals, by
the way encouraged to some extent by the Export Administration Act
without particular regard to the basic standards by which exports
should be judged?the Nation's security.
Accordingly, we are engaged in a major effort to develop in a cogent
fashion, a framework of policy within which the Department of De-
fense can provide its advice and counsel to the ultimate licensing
authorities in our Government.
My office started with four people a year ago. We have expanded
since then to a staff of 12. We have intensified our role in the export
review process while. at the same time undertaking a major effort to
objectively develop policy. I would like to share with you some of the
things we have done to date and I would like to solicit your suggestions
for our future efforts.
First, an augmentation team composed of representatives of the
military services has been assigned to my office and is preparing for the
Secretary of Defense's signature a policy statement on control of tech-
nology transfer. This, we hope, will replace and improve a 1977 interim
policy that is signed by Secretary of Defense Brown.
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We hope that our new policy will reflect several changes that have
occurred since 1977. One of the most important ones being the enact-
ment of the 1979 Export Administration Act. This is the basic role
under which we today operate.
In addition, this team is providing management assistance to my
office in three basic forms.
The first of these is technical assistance to automate some of the
routine administrative tasks involved in determining policy and proc-
essing cases. The second is to assist the integration of existing data
bases used in routine case processing. And the third is the creation of
a central library to provide the basic documents required for develop-
ing policy.
This subcommittee should know a year ago when I came on board,
there were not available coherent records on past DOD determina-
tions, or for that matter any determinations by previous administra-
tions, nor was there any single source to appraise the result of past
activity. And we are slowly correcting this deficiency. It takes time
because we have to reconstruct records and try and determine exactly
what has gone forward in the past and to base our new judgments on
those records as best we can.
We are also working very hard to train our people, to develop rigor-
ous standards and try to follow more disciplined procedures as pos-
sible.
In the long run, I think these efforts will pay off in that we will
develop a solid core of professionals who will understand as best they
can the problem and will work in a consistent and predictable way.
If we can do this in the Department of Defense, we have to do it in
a broader way with the public, with the business community and with
our allies and friends abroad and to further this effort, we have under-
taken with our augmentation team the development of a white paper
on this entire subject of ,technology transfer, which we hope will be
published this summer.
The goals of the paper are to detail the importance of dual-use
technology to our defense support industries, promote as much as we
can a voluntary compliance with the export process and we hope to se-
cure support for and assistance in developing methods which more
closely review defense-related technology proposed for export.
The paper will attempt to present the roles and contributions of
both our Department, State, Commerce, Treasury, and Justice, and the
Bureau of Customs.
Another major effort is our attempt to work closely with both State
and Commerce and seeking to strengthen strategic trade controls in
Cocom, the coordinating committee, and thus to stem the flow of West-
n technology to the Soviet Union and its allies. As you know, Cocom
is an informal nontreaty organization established in the early 1950's.
It is comprised of the NATO countries, less Iceland, but it does include
Japan, a very important member. It has, however, no formal link to
NATO.
Senator NuNx. Is there a case to be made that there should be a more
formal relationship with NATO or would that be a negative kind
of development?
Dr. BRYEN. There is a good case to be made for it. I think the prob-
lem is a political problem in that Japan is a member of Cocom, of
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course does not view itself in the NATO system. Under those circum-
stances, those institutions will probably have to remain separate.
Senator NUNN. Does NATO have a way of getting its input in
through the various Department of Defense inputs and the respective
NATO countries?
Dr. BRYEN. You just put your finger on the very major issue and
problem and one we have been working very hard on. If I can step
away from my testimony, maybe T can try and elaborate on it a bit.
In the past, with the exception of the United States and to a lesser
extent Great Britain, defense ministries, surprisingly played a very
minor role in the technology control business. Surprisingly because the
whole point of the effort is to deny strategic technology to our adver-
sary. Our tradition was just very different from the tradition of our
European colleagues and Japan as well.
What we have been trying to do is to turn that around and develop
far more participation by defense ministries abroad in this entire
process. We have (rone to achieve this objective through two routes.
One is through Cocom. We have not achieved this yet but we have
asked for a, military subcommittee in Cocom to meet on a regular basis
where military experts from different participating countries could
get together, exchange information, evaluate proposals for export
based on the strategic implications both for the individual countries
and for the collective defense effort. As I said. we didn't get that. We
did get agreement to expand use of Cocom to include military experts
which we considered a step forward.
On a separate track, we have, and this is very much Mr. Weinber-
ger's recommendation which was approved by NATO, undertaken a
study within NATO of the whole impact of technology transfer on
the NATO military missions. The purpose was twofold. First, we have
tried often enough to relate the impact of technology transfer on Amer-
ica's national defense programs, but not so much how that cut into
our allies programs. So it is a very ambitious effort and we have gone
through the first 6 months of it now and quite successfully.
Second, it brings together defense ministry participants to consider
the study of technology transfer and to take that information back
home to their own governments.
The next point is, how do you get from NATO to Cocom?
Senator NUNN. So there is an effort to get NATO to begin consider-
ing this as a body.
Dr. BRYEN. Yes. It is more than an effort, to begin. They are doing
it. It will continue. T have learned that just today. We are very
enthusiastic about it. We think it will be very helpful to all of us. It
will create the kind of interrelationship and understanding that we
ne"cl in other governments to get this job done.
Senator NUNN. Is that going to be a standing group in NATO?
Dr. BRYEN. We have asked that it be a standing group.
Senator NUNN. Of people that will be responsible for that and will
get input from their own ministries.
Dr. BRYEN. That is how it has worked so far and that is how we
want it to work in the future.
Senator Nu-vr,r. Then bring it up to the NATO representative level?
Dr. BRYEN. That is right. Again it was largely at the suggestion of
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Secretary Weinberger that we undertook this effort. We supported it
very fully. I must tell you that we had many barriers to cross to get
the basic themes agreed on.
One of the aspects of this whole problem is that people didn't do
this kind of analysis in the past, either here or anywhere else. When I
came a year ago to this job and asked how technology transfer im-
pacted military programs, there was very little available.
It wasn't that the evidence wasn't in the system. No one was putting
it together and really attempting to evaluate it and do the right kind
of impact study. We have done a good deal of that. We have got a lot
more to do.
Senator Nurmr. What are you going to call that standing group in
NATO?
Dr. BRYEN. So far it has been called by the brilliant name AC 314
which means nothing at all, but it will be called the Technology Trans-
fer Group as it has been known colloquially among those of us who
have worked on the issue.
Senator N-crNiv. That sounds suspicious and covert enough to get it
some attention.
Dr. BRYEN. We think it has already gotten some attention. It has
been a process. We expect it to be a process. I must say that we have
had excellent support among all our agencies who help us get the job
done at NATO.
Senator NUNN. You were going to say that once NATO gets to be
cognizant of the problem and a working group, what do they do to
feed into Cocom?
Dr. BRYEN. Principally NATO will feed into the governments but
what we want to see, obviously, is far more defense participation in
the Cocom study as well and in each nation, a chance for the defense
ministries to review proposals for export before they occur.
There has been one very positive development in that regard, if I
can mention it today because I think it is an important contribution.
This was the decision by the French Government to give its defense
ministry a role quite similar to the one we play here.
We believe it has had a very positive result already and it has helped
a great deal. We are very grateful for that step by the Mitterand gov-
ernment.
I was talking about Cocom and let me just elaborate one step further.
This administration asked for it. It was actually the President last year
at the Ottawa meeting who asked for a high level meeting of Cocom
to see if we could strengthen the organization, to see if we could give it
a new strategic purpose.
His request was accepted, a high level meeting occurred last Janu-
ary, and I think an important start was made in terms of reaching a
concord with our allies on those items that we need to control and why
we need to control them.
We are now in the process of following up that initial high level
Cocom meeting?by the way, the first one in nearly 30 years, which
gives you an idea of the problem right there. Now the issue is to get
specific proposals adopted. In that connection we had a handful of very
high priority, what we call quick fix, proposals which we will be pre-
senting in June in Paris at the Cocom meeting.
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We have every anticipation that these proposals will be accepted and
we think they will go a long way to plugging some of the gaps and
loopholes in the system that have persisted for some time.
Beyond that, we have a major list review coming up in the fall which
will try to go even more broadly into areas where coverage by Cocom
has been less than adequate.
I am skipping ahead because I have already covered the NATO and
Cocom parts of the testimony.
I do want to mention, I think Mike Lorenzo this morning and Ad-
miral Inman mentioned it, but a point that we feel very strongly about
in the Defense Department, and which the administration feels very
strongly about, and that is improving enforcement of both the legal
and illegal transfers of technology.
There are two dynamics to the enforcement process, the domestic one
and again the international one.
At the international level, one of the conclusions of the high level
meeting WPS to explore how enforcement could be strengthened in
Europe and in Japan.
We expect specific measures to be shortly negotiated at Cocom and
we are looking forward to see the national implementation. of that
effort.
For our own part, Defense itself doesn't exactly participate directly
in enforcement. We try to support our enforcement people with a num-
ber of efforts. One of them is to try to target and identify areas, sensi-
tive areas where we think a special emphasis should be made by the
enforcement people, whether it is the Customs people, Justice or people
of Commerce.
A second one is to try to help our own Customs officials better
identify materials and equipment that are embargoed. It is not a
simple thing, not today, in the age of Atari and Pac-Man.
The Customs effort has been stepped up as you have already been
told, I am sure. Behind that we are trying to provide the supporting
assistance. We call it a "mushroom book." It is to give our Customs offi-
cials a fast and useful way to precisely identify the materials they are
looking at.
Senator NUNN. Where did you get the name "mushroom book"?
Dr. BRYEN. I don't know, myself. I suspect it was in the discussions
we had with the Customs people as we explored this idea in the initial
phase. There was a suggestion made and we took it. Whether it applies
to mushrooms hiding under, in a dark place, I suspect that is where it
comes from. But once you adopt the term, well, it is somewhat like the
plastic palace in the Senate.
Once the name is assigned, people forget why.
Let me deal with one final aspect, if I may, and then I will get to the
questioning stage.
One of the things we can do in the Department of Defense, one of
the efforts that I have taken a lot of responsibility for, because I think
it is so important, is better management of our own technology.
The program that I started with and one that is very important to
us in the future is the very-high-speed integrated circuit program.
The VHSIC program has very great prominence for our military sys-
tems because it will enable us to improve existing systems and develop
new ones with far greater capability.
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The VHSIC product will be used in advanced-signal processing
applications for weapons systems, electronic warfare, communications,
radar, precisely guiding munitions.
It will enable us to do these things at a lower cost, we think; it will
be smaller in size, with greater power than anything we currently
possess.
Obviously, the protection of this technology is of highest priority.
Congress, when it authorized the VHSIC program asked that we make
efforts to protect VHSIC.
To date, a full system of controls has not been implemented and I
think regrettably so. The task force I am heading now is designed
to try to remedy this situation, to get this program under a system
of control.
Part of it involves putting VHSIC under the ITAR, the interna-
tional traffic and arms regulations, as the Congress intended. We are
working with the State Department which has the authority and we
believe we will soon accomplish this goal.
Our immediate task is to protect the technical data, the military
hardware that is now being developed, before it is too late to prevent
the dissemination of these technologies to our adversaries.
In addition to putting the VHSIC under the ITAR, we have to
also deal with the problem of the wide amount of literature that has
already been out on VHSIC, some of it covering the circuit design,
some of it covering the hardware associated with the program, some
of it covering the software.
Neither the ITAR nor the export regulations really will protect
this kind of data from compromise. I don't need to tell you about the
Freedom of Information Act.
Senator NuNisr. Do you know of any reason why people other than
American citizens or people who are legally in this country should be
given access to the Freedom of Information Act?
Is there any reason why the Freedom of Information Act should
be as broad as to allow foreign citizens to obtain information just as
if they were American citizens?
Dr. BRYEN. That is a question you probably ought to ask the Justice
Department specialists. I am -not an attorney and I won't make any
effort to explain it.
It occurs to me though that one of the things that we want, of
course, when we are abroad is some reciprocal protection of rights. So
one has to be a bit cautious In this area. But so long as we publish
materials we have to expect, I think, that one way or another they
are an open resource for anyone that wants to get their hands on it.
We have proposed, as you know, special kinds of classification called
restrictive.
Frankly, sir, I think the answer is a very careful attempt on our
side to classify what we think really is important and what we are
going through now, 2 years later, I am afraid to say, but we are still
going through the process, is trying to find those forthcoming aspects
of this program that, if we can protect, we can thereby protect the
whole program.
We are making a major effort in that regard. We hope that this
? exercise in fact will be a prototype for control of other Department of
Defense programs both in the emerging technologies field and to a
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certain extent in more mature areas, where design, where circuit design,
where specifications information, really tells the tale to the adversary.
It is a tough thing but it is one we regard as very important.
I think those are the main points I wanted to touch on this morn-
ing. I have some testimony about the Siberian pipeline. We have
expressed concern and we continue to express concern about that be-
cause of the increment in hard currency earnings capability over a
25-year period at least that will accrue to the Soviet Union.
It will give them far more economic clout than they may now have.
It will enable them, I am afraid, to have even greater access to the
technology which we are trying to protect.
Admiral Inman did a superb job of describing the problem for you,
both in the broad brush sense and in the narrow sense.
It is a terribly important issue. It is one that the administration is
taking very seriously. It is one that we have to be successful in.
I cannot in confidence at this moment predict that we are going to
be successful but I think what we need is a period of time to try out
the effort on an organized basis.
I think we need 5 years minimum . before we are going to see real
impact of the mature technology effort. We need our allies to cooperate.
We are working hard on that. We are going to need more resources to
do the job. We have already put Congress on notice about that. We
need to do some things :in our own house to operate more effectively, to
try to take those steps. We are to a certain extent feeling our way
along.
Senator NUNN. Do you generally agree with the suggestion that has
been made that the most effective way to control technology, know-
how, small, very small sophisticated electronic computer equipment,
and so forth, is to try to control it at the source with the Government-
to-business education program rather than control it as it is going out
of the country? I am not saying you don't try both, but I am saying
which is the most efficient, which is the one that ought to be given the
highest priority?
Dr. BRYEN. I guess it harkens back to the Bucy report, in respect
that what you want to watch most of all is the manufacturing tech-
nology. That is the piece of it that hurts you the most. I put all of
my?not all, but a great deal of my emphasis right there. I would be
better off giving you an example rather than trying to speak generally.
In the microelectronics area, there is a small amount of very spe-
cialized equipment that enables you to make microelectronics.
A lot of that equipment is made in this country. Some of it is made
under license abroad. Very little is entirely independent of what we
develop ourselves. If we can control that manufacturing technology
and the design technology that goes with it, we may have a good shot
at certainly inhibiting very substantially Soviet efforts to acquire it.
It is also one of the areas we simply failed to inhibit in the early phase.
But we can do it. It is a last resort to track it on the way out but it has
a very valuable impact.
Senator NUNN. You need to do all the ways but, it seems to me your
most effective enforcement is through a dialog with industry.
Dr. BRYEN. We are doing that. In fact, we just had in representa-
tives of the Semi-Conductor Industry Association.
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One of the things we wanted to do was be as direct with them as we
could. So we granted special clearances so there would be no holds
barred. We got that done. We went through an entire briefing. Then we
heard from them. They have some problems, too.
Senator NUNN. Do you do that on a one-on-one basis or do you do it
in trade association seminars?
Dr. BRYEN. This was with a trade association, but it was one of the
most senior representatives of the trade association. It was very much
a prototype of a broader effort we want to undertake.
Senator NUNN. The FBI has a similar program and I am sure that
theirs doesn't get into as much technicality as yours does in terms of
details but they, I think, are going around alerting businesses to vari-
ous covert and overt means of Soviet operations. Do you coordinate
with the FBI?
Dr. BRYEN. We do.
Senator NUNN. Do you sit down and discuss it, talk about who is
going to do what?
Dr. BRYEN. We have a group headed by Gus White at the White
House that discusses all of these issues and we square off on these pro-
grams. But our effort was really designed to highlight for semiconduc-
tor industry people how they have, inadvertently, I might say, been
contributing to Soviet military capability.
It was a very elaborate presentation, but I think a very sobering one.
It is something we cannot do out in public. We felt we ought to experi-
ment with this and see if it would help them to understand our prob-
lem, the national problem, and at the same time to develop some
suggestions.
One of the things we would very much like to see security commit-
tees in our own sensitive industries, policed by the industry itself.
Some of our industries are not known for their internal security.
Senator NUNN. You mentioned in your statement that you were
replacing the 1977 interim policy of DOD for export control. What
is the reason for replacing that?
Dr. BRYEN. We think, if you read the 1977 statement, I happen to
have a copy with me, that it is basically an apple pie kind of descrip-
tion of what we should be doing. The problem is that it apparently had
very little genuine effect either in the Department of Defense or in
the interrelationship of the Department with other agencies.
It was too general. It needs more precision. We liked the part of that
statement that keys on what is called the Bucy report, which I am
sure you heard of already in discussions, the notion of aiming at the
critical manufacturing technologies. But it doesn't get very far beyond
that. It doesn't set out the marching orders in the Department clearly.
So we are doing a front to back scrub of the whole thing. We hope to
make it more precise so that it makes clear what ones' responsibilities,
duties and roles are. That is the purpose.
Senator NUNN. What is our recourse if there is a controlled technol-
ogy on the Cocom list and it is, let's say, transferred by one of the
Cocom nations to the Eastern bloc. Do we have any recourse under
Cocom or is it just a complaint mechanism?
Dr. BRYEN. COCOM is only a voluntary organization.
Senator NUNN. There are no sanctions involved?
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Dr. BRYEN. There is no sanction in Cocom. But obviously we have
to pace our cooperation with others on their overall performance, and
technology transfer is an issue of significant enough importance to this
administration that we are actually doing that.
It is a painful process. It is not one that I want to talk in open
session about. But it is one we are very much engaged in and I think
to the betterment of the whole effort.
Senator NuNN. You mentioned that certain technologies can only
be adequately protected by national security classification. Are you
saying there is nothing in between, either it is classified or not, if it is
not classified, it is out there, available and that is it?
Dr. BRYEN. That is pretty much the case.
Senator NUNN, Would there be any need, desire or merit in trying
to find something in between that would not be classified but would be
labeled crucial technology or would that simply be too cumbersome to
get involved in?
Dr. BRYEN. I think you put a big flag on it.
Senator Nuisuc. It ought to be classified or not classified?
Dr. BRYEN. Yes; I think parts of it have to be classified. It is a man-
agement thing as much as it is a security matter.
Senator NUNN. But can you classify dual use technology? Can de-
fense classify technology?
Dr. BRYEN. We cannot classify what we don't know, but we own some
things that we haven't classified.
What we need to do is look at our own house. That is what we are
doing, and we say, are we being careful enough in protecting this pro-
gram? That is the purpose of the VHSIC inquiry and I hope that we
can expand that further in the future.
We are always accused of overclassifying things as a matter of
course.
Believe it or not, there was not a great tradition in the Department
of Defense to manage technology development programs from the
point of view of security precautions. That is the thing we have to take
a much more careful look at and we are.
Senator NuNN. In your statement you refer to the small industry
that has risen in Washington composed of individuals who know how
to play the system within the export control community. What do you
mean by this?
Dr. BRYEN. What I mean by that are people who have become expert
on the export control process, they know where the soft spots are, know
how to characterize items in ways that make them sound perfectly nice
and harmless and they are good at it.
I don't want to get into the moral issues about it. It is to be antici-
pated. It is an interesting point. On the whole we have little trade with
the Soviet Union. When you take away grain, it is not all that much.
Even our European partners don't do that much trade. Sometimes
these issues are cast as if the economy is going to come to a halt if we
stop the transfer of a certain item.
It is very rarely really the case. Of course, one of the things the
Soviets have become quite good at is exploiting sick high-technology
industries, industries that are cash short, need money, need R. & D.
funds' whatever; they look for those companies because they are easy
targets.
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Senator NuNN. What specifically is your office doing to coordinate
with the law enforcement community? You mentioned the mushroom
book. Is that the main effort going on?
Dr. BRYEN. That is the main effort we have underway. The other
way we coordinate--but what we try to do on a regular basis is to
make known to, the State Department, that is where most of the action
is, our concern about specific areas, so we can bring those to the atten-
tion of other foreign governments. We don't ourselves have a mandate
for enforcement.
Senator NuNN. We have heard testimony the United States has in-
dicted at least three West German nationals for violations of the Arms
Export Control Act. These individuals are now fugitives and free men
in West Germany, a Cocom nation. Is there any effort within the
Government to make these offenses extraditable offenses?
Dr. BRYEN. I can't answer on the extraditable offenses. There is an
effort to try and get our European allies to upgrade their entire legal
structure. Here in the United States it is a felony to be involved in
transferring the technology. In European countries, it is a misde-
meanor at best. People calculate the cost. How much fine there is
against the how much profit there is?
That is the wrong way to go about it. You need some positive dis-
incentives and jail terms, or something severe like that. That is why
we come back to your earlier question, that of customs catching these
things and then making sure Commerce follows up. It is a very impres-
sive way to get people to understand export controls.
Senator NuNN. We heard testimony from William Holden Bell,
former Hughes Aircraft executive, who sold secret military informa-
tion to Polish agents. He testified last week. How serious a security
breach, in your opinion, was there in the Bell case?
Dr. BRYEN. I wouldn't comment on that except to say it was serious,
but I wouldn't want to comment in open session. I think we can pro-
vide you in closed session with a real evaluation. That is not the kind
of evaluation to make in public.
Senator NuNN. We may very well.
Dr. Bryen, you made reference in your testimony to the effort by the
Soviets to build and equip a semiconductor plant using equivalent
know-how from the United States.
Could the Soviets have built and equipped such a plant in the late
1970's and early 1980's without U.S. machinery, equipment and know
how?
Dr. BRYEN. My answer is they could not. That doesn't mean that
equipment necessarily came from this country. It could have been
transferred from Europe or elsewhere. In fact, it could have been
transferred from another country that bought that equipment?it
could have been on the secondary market. There is a secondary mar-
ket in this sort of machinery. These are terribly difficult things to
trace.
What we know in the first instance is that a lot had to be U.S.
equipment, that the system was full of holes, it was porous, it was
easy for them to get it and they got it.
The microelectronics area has enabled the Soviets to upgrade their
military equipment. Again, in my testimony, there is a kind of ques-
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tion and commentary about where all this leads. I think where it
leads is that we risk losing the quality edge on which our entire struc-
ture of national defense and alliance depends. I don't think we can
afford to take that risk. I think there are things we can do to protect it.
This is why we are making this effort and we very much appreciate
your support, the support of this subcommittee and the support of
the Congress.
Senator NUNN. Thank you, very much. We look forward to bounc-
ing some of our ideas off you and your people in the next week or so.
Thank you, very much.
Our final hearing on this subject in open session will be tomorrow
morning at 10 o'clock in this room.
[Whereupon at 12:05 p.m., the subcommittee recessed, to reconvene
at 10:05 a.m., Wednesday, May 12, 1982.]
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TRANSFER OF UNITED STATES HIGH TECHNOLOGY
TO THE SOVIET UNION AND SOVIET BLOC NATIONS
WEDNESDAY, MAY 12, 1982
U.S. SENATE,
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
OF THE COMMITTEE ON GOVERNMENTAL AFFAIRS,
Wa8hingt076, D.C.
The subcommittee met at 10:05 a.m., in room 3302, Dirksen Senate
Office Building, under authority of Senate Resolution 361, dated
March 5, 1980, Hon. Sam Nunn presiding.
Members of the subcommittee present: Senator William V. Roth,
Jr., Republican Delaware ? Senator Sam Nunn, Democrat, Georgia;
and Senator Warren B. Rudman, Republican, New Hampshire.
Members of the professional staff present: S. Cass Weiland, chief
counsel; Michael C. Eberhardt, deputy chief counsel; Eleanore Hill,
chief counsel to the minority; Kathy Bidden, chief clerk; Gregory
Baldwin, assistant counsel to the minority; Jack Key, Glenn Fry, and
Fred Asselin, staff investigators to the minority; and Kathleen Dias,
executive secretary to the minority chief counsel.
[Senator present at time of convening: Senator Nunn.]
[The letter of authority follows:]
T.T.S. SENATE,
COMMITTEE ON GOVERNMENTAL AFFAIRS,
SENATE PERMANENT SUBCOMMITTEE ON INVESTIGATIONS,
Wataington, D.C. ?
Pursuant to Rule 5 of the Rules of Procedure of the Senate Permanent Sub-
committee on Investigations of the Committee on Governmental Affairs, per-
mission is hereby granted for the Chairman, or any Member of the Subcommit-
tee as designated by the Chairman, to conduct open and/or executive hearings
without a quorum of two members for the administration of oaths and taking
testimony in connection with hearings on the Transfer of United States High
Technology to the Soviet Union and Soviet Bloc Nations, to be held May 4, 5,
6. 11 and 12, 1982.
WILLIAM V. ROTH, JR.,
Chairman.
SAM NTJNN,
Ranking Minority Member.
Senator Nim-N. We have just seen a vote go up on the board This
matter has been debated for a couple of days. It makes more sense to
have the votes. I will be back in 10 minutes.
Senator Roth is over there voting now. We will start the hearings
in approximately 10 to 15 minutes.
[Brief recess.]
[Senator present at time of recess: Senator Nunn.]
[Senators present at time of reconvening: Senators Nunn and
Rudman.]
(261)
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Senator RUDMAN. The Permanent Subcommittee. on Investigations
is now in session.
The first witness in the continuation of these hearings on Transfer
of U.S. Technology is Lawrence J. Brady, Assistant Secretary of
Commerce for Trade Administration, U.S. Department of Commerce.
Mr. Brady, we welcome you here this morning.
Lawrence J. Brady is a personal friend, a New Hampshire native,
and I am particularly glad to have you here.
My colleague, Senator Nunn, of Georgia, has been the moving force
behind these hearings and I will ask Senator Nunn if he has any open-
ing remarks this morning.
Senator NUNN. No; we are delighted to have Mr. Brady here.
The only thing I say to Mr. Brady before he starts, how long have
you been on your present job?
Mr. BRADY. I was sworn in in June of last year.
Senator NuNN. I want to make it clear to you and everyone that
the problems we are outlining about the Commerce Department and
the Compliance Division are directed at not just this administration,
but the previous administration and the administration before that.
This is a longstanding problem and has no partisan origin and no
partisan conclusion. It certainly does not relate to you because a good
many things we are talking about have been ongoing problems. We
are afraid they are still ongoing, but we will hear from you on that
subject when we get into questions.
Senator RUDMAN. We have a practice here before the permanent sub-
committee of swearing in all witnesses. Please rise and raise your right
hand.
Do you swear the testimony you are about to give in the course of
this hearing shall be the truth, the whole truth, and nothing but the
truth, so help you God?
Mr. BRADY. I do.
TESTIMONY OF LAWRENCE J. BRADY, ASSISTANT SECRETARY OF
COMMERCE FOR TRADE ADMINISTRATION, U.S. DEPARTMENT OF
COMMERCE
Senator RUDMAN. Mr. Brady, your entire statement will be put in
the record, and you may summarize it or handle it in any way you are
comfortable with it.1
Mr. BRADY. Mr. Chairman, I would like the written statement I
have provided the subcommittee to be inserted in the record. I would
like to summarize the statement which I think puts this entire problem
into focus.
First, I would like to commend the subcommittee for the work it has
done in this area. I think one of the problems we have in dealing with
the whole technology transfer problem is one of public awareness.
And although we have some reservations about some aspect about the
minority staff report, these hearings certainly will have the result of
focusing the public's attention, the business community's attention
on the problem. And I think that is a very positive step.
[At this point Senator Roth entered the hearing room.]
3 See p. 596 for the prepared statement of Lawrence J. Brady.
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Mr. BRADY. Mr. Chairman, it is a privilege for me to be here again.
I have testified before this subcommittee previously. As a matter of
fact, it is 3 years ago this month that I testified over on the House
side before the House Armed Services Committee in which I dis-
agreed with the political appointees of the Carter administration and
inicated that the technology which we were licensing to the Soviet
Union, specifically for the Kama River plant, was being diverted to
the Soviet military. It is 10 years ago this month that the President
of the United States inaugurated the era of detente with a trip to
Moscow.
A central component of that historic trip was the hope that greatly
expanded trade ties between the East and the West would lead to
mutual cooperation and understanding.
Obviously, those hopes have not taken place. In that 10-year period,
as we in the administration have indicated in the last year, we have
been exploited both legally and illegally by the Soviet Union and
Eastern Europe. This technology which has helped the Soviets im-
mensely in their military-industrial infrastructure. Again, 3 years
ago, I personally disclosed the failures of the Commerce Department
in the licensing process, referring to it, as I said in my testimony, as
a shambles.
It is only now that as a nation we are beginning to understand the
extent of these technology transfers during the past decade. Stopping
the extensive acquisition by the Soviets of sensitive, dual-use West-
ern technology in the ways that are both effective and appropriate
in our open society is one of the most complex and urgent issues facing
all of us.
Moreover, Mr. Chairman, only now are we beginning to recognize
that the technology transfer issue is much more than simply an
enforcement problem. Apart from strengthening enforcement, in
order to deal successfully with the increasing Soviet effort to acquire
advanced Western technology, we need to do a number of things.
First, we need to understand what technology the Soviets need;
how such acquisition has helped the Soviet Union achieve its goal of
military superiority and what methods the U.S.S.R. is using to obtain
it; second, on a multilateral basis, we need to marshall the support
and the commitment of our allies to prevent further technology leak-
age to the Soviet Union by Western concerns and by -U.S. subsidiaries
and licensees operating abroad; third, we must build up our counter-
intelligence efforts to counteract the Soviet intelligence organization;
fourth, we must work closely with industry segments involved in the
development and production of high technology to assess ways of re-
tarding the growing industrial security problem; and examine all pos-
4ble avenues for identifying and protecting defense-sensitive tech-
nologies, including technical documents which are not now subject to
our classification system.
Strategically, we need to recognize that the U.S.S.R. is far more
powerful militarily than the nation we faced at the end of World
War II, when these controls were first put in place, and it is far more
capable of procuring and applying our latest technological advances.
However, we in the administration, within the last year, could not
take adequate protective action until we accurately assessed the na-
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Mr. BRADY. Mr. Chairman, it is a privilege for me to be here again.
I have testified before this subcommittee previously. As a matter of
fact, it is 3 years ago this month that I testified over on the House
side before the House Armed Services Committee in which I dis-
agreed with the political appointees of the Carter administration and
inicated that the technology which we were licensing to the Soviet
Union, specifically for the Kama River plant, was being diverted to
the Soviet military. It is 10 years ago this month that the President
of the United States inaugurated the era of detente with a trip to
Moscow.
A central component of that historic trip was the hope that greatly
expanded trade ties between the East and the West would lead to
mutual cooperation and understanding.
Obviously, those hopes have not taken place. In that 10-year period,
as we in the administration have indicated in the last year, we have
been exploited both legally and illegally by the Soviet Union and
Eastern Europe. This technology which has helped the Soviets im-
mensely in their military-industrial infrastructure. Again, 3 years
ago, I personally disclosed the failures of the Commerce Department
in the licensing process, referring to it, as I said in my testimony, as
a shambles.
It is only now that as a nation we are beginning to understand the
extent of these technology transfers during the past decade. Stopping
the extensive acquisition by the Soviets of sensitive, dual-use West-
ern technology in the ways that are both effective and appropriate
in our open society is one of the most complex and urgent issues facing
all of us.
Moreover, Mr. Chairman, only now are we beginning to recognize
that the technology transfer issue is much more than simply an
enforcement problem. Apart from strengthening enforcement, in
order to deal successfully with the increasing Soviet effort to acquire
advanced Western technology, we need to do a number of things.
First, we need to understand what technology the Soviets need;
how such acquisition has helped the Soviet Union achieve its goal of
military superiority and what methods the U.S.S.R. is using to obtain
it; second, on a multilateral basis, we need to marshall the support
and the commitment of our allies to prevent further technology leak-
age to the Soviet Union by Western concerns and by -U.S. subsidiaries
and licensees operating abroad; third, we must build up our counter-
intelligence efforts to counteract the Soviet intelligence organization;
fourth, we must work closely with industry segments involved in the
development and production of high technology to assess ways of re-
tarding the growing industrial security problem; and examine all pos-
4ble avenues for identifying and protecting defense-sensitive tech-
nologies, including technical documents which are not now subject to
our classification system.
Strategically, we need to recognize that the U.S.S.R. is far more
powerful militarily than the nation we faced at the end of World
War II, when these controls were first put in place, and it is far more
capable of procuring and applying our latest technological advances.
However, we in the administration, within the last year, could not
take adequate protective action until we accurately assessed the na-
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266,
We recognize the magnitude of the whole technology transfer prob-
lem and pertinent Federal agencies are working closely with the intel-
ligence community and industry.
Since the major Dart of the technology transfer problem is interna-
tional, we turned our attention to that aspect first. We examined the
effectiveness of the multilateral controls because of the technological
advances archieved in Communist countries: It was evident that
Cocom had become obsolete. This administration concluded that while
Cocom prevented many sensitive exports which would have contrib-
uted significantly to the military capabilities of countries, such as
sophisticated computers, it was still far from being totally effective.
We identified the major reasons for this. One the limited scope and
concept of the control list. Weaknesses in the multilateral enforcement,
the availability of goods from non-Cocom countries and inconsistencies
in licensing procedures among Cocom member countries.
Having identified these problem areas, President Reagan, at the
Ottawa Summit in 1981, made a personal appeal to the leaders of Eu-
rope, Canada and Japan to join with us to tighten export controls and
prevent illegal. exports.
As a result, the Cocom high-level meeting, the first, in 25 years, took
place in January of this year. Commerce played a key role both at that
meeting and in serving as a central agency for the preparation of the
materials for the U.S. delegation.
We are now actively following up on the political commitment
achieved among the allies at that meeting. Several bilateral meetings
have been held to discuss specific technical proposals. In addition, a
Cocom subcommittee meetincr6 will be held in Paris soon to review ways
of improving the enforcement on a multilateral basis based on the com-
mitments we received in January and based on the work done since
then.
On another equally critical front, we have been actively engaged in
bilateral discussions with our European allies to discuss the need to re-
strict Government-subsidized credits.
The Western countries have been pursuing a policy of competing
among themselves, to provide efficiently subsidized or guaranteed cred-
its to the U.S.S.R. These were going into a country that would other-
wise at least be required to pay commercial or above commercial rates
for credits.
These concessional credits shield the U.S.S.R. from the realities of
the marketplace and allow them to pursue their military buildup. An-
other bilateral mission headed by Under Secretary Buckley is sched-
uled for next week to pursue further negotiations on this topic.
Also, another technology transfer issue this administration is con-
cerned about is preventing the dissemination of sensitive, technical
data and know-how through academic institutions.
Since 1971, the number of academic exchanges between the United
States and the Soviet bloc countries quickly multiplied. On close ex-
amination of these agreements, it is this administration's view that ex-
changes we have had with the U.S.S.R. and its satellites have not in
the main been reciprocal. Rather, it is apparent the Soviets exploited
scientific exchanges as well as a variety of other means in a highly
orchestrated, centrally directed effort aimed at gathering the technical
information required to enhance military posture. In the area of schol-
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any exchanges, for example, the United States sends young masters
and doctoral students to study the humanities. On the other hand, the
Soviets send the equivalent of a Ph. D. to study the hard sciences.
In recognition of the serious technological drain occurring in the
academic arena, Commerce is clarifying the technical data regula-
tions to provide our scientific and academic communities with better
guidance and export responsibility in this area.
We are currently reviewing this issue with other agencies, including
the Departments of Defense, Justice, and State, to be sure the balance
between important constitutional freedoms and legitimate national
security interests is maintained.
In order to control technology transfers, this administration has
further identified the critical need for Commerce to have available
information and technological capabilities in both the free world and
the Communist countries.
Acting on the recommendation of three independent contractors to
establish within the Office of Export Administration a data base in
order to assess foreign availability in conformity with the Export
Administration Act of 1979, Commerce is in the process of developing
research and analytical capability within OEA under a foreign tech-
nical assessment center.
In addition to analyzing foreign availability within a free world, we
are also strengthening our capability to assess Communist-held tech-
nologies through the increased support in the intelligence community.
On the enforcement side, I have established a soecial analytical unit
within the Office of Export Administrition, which is staffed by both
Customs and Commerce employees. This special unit has developed an
innovative intelligence approach that relates the application of export
licenses and analysis techniques to Commerce's license application
files.
The analyses produced to date have been outstanding in identifying
firms engaged in diverting critical technology to the Soviet Union
and in pinpointing new diversion routes.
This intelligence is also being used to develop profiles for the
Exodus inspection teams, and as a basis for major criminal investi-
gations of Soviet diversions.
Our joint efforts with customs in this area have been described by
other law enforcement officials as one of the most cooperative and pro-
ductive relationships that they have witnessed in recent years.
Let me say, Mr. Chairman, that this partnership, which is an invalu-
able step for the enhanced enforcement efforts, resulted in large part
from the enthusiastic backing of Commissioner Von Raab. The con-
tinued support for this cooperative relationship between Customs and
Commerce will lay a cornerstone for future enforcement with the in-
telligence community as a whole. Customs has upgraded the inspection
effort, and I am pleased to announce today a real organizational re-
alinement and enhancement of the Compliance Division. The division
itself is being elevated to the Office status. and together with the Office
of Anti-Boycott Compliance, will comprise a new export enforcement
organization in the Department of Commerce that will be headed by
a Deputy Assistant Secretary reporting directly to me. The candidate
we have selected for that post, Ted WU, is currently an assistant U.S.
attorney for the central district of California. He is a celebrated ex-
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pert in the law enforcement community. His successful prosecutions
of two of this country's most notorious export diversion cases render
him highly qualified for this considerable undertaking.
Mr. Chairman, Mr. Wu has accepted this position because he knows
we are strongly committed to enhancing Commerce's enforcement
effort. Among the many changes Mr. Wu will oversee in the enhance-
ment of the Compliance Office will be the creation of an in-house
training program for our agents. This training program will feature
not only instruction of conventional law enforcement such as surveil-
lance techniques, but will also include development of skills associated
with the carrying of weapons, arrest, and seizure search capabilities.
We look forward to the near future when we will have an enforcement
office operating at maximum efficiency with no shortages of manpower
and resources.
might interject, Mr. Chairman, at this point, both Secretary Bald-
rige and Under Secretary Olmer have indicated a thorough commit-
ment to support whatever manpower resources are necessary to do
the job.
I anticipate, Mr. Chairman, that once Mr. Wu has taken office, he
will be happy to report to you on the achievements of Commerce's new
Enforcement Office.
In sum, I believe that we have a sensible, ambitious program to up-
grade and rehabilitate our enforcement responsibilities mandated by
the Export Administration Act.
Our Enforcement Office will remain what it should be, a lean, effi-
cient organization with no other continuing mission than the enforce-
ment of the Export Administration Act. It will be well coordinated
with the intelligence community and other enforcement agencies such
as the FBI and customs; it will also be able to utilize the invaluable
benefits of Commerce's close relationship with the business sector.
Mr. Chairman, Senators, I will be happy to answer your questions.
Chairman ROTH [presiding]. Thank you, Mr. Brady.
Mr. Brady, the members of the subcommittee are, of course, aware
of your personal commitment to this important area but I believe it is
important that the record reflect fully your position on the specific
question of export technology and particularly reference the efforts
some years ago to help the Soviet Union construct some trucking
facilities.
Would you, for the purposes of the record, explain your role in this
matter ?
Mr. BRADY. Mr. Chairman, about 3 years ago, the Export Adminis-
tration Act was up for review for extension. As part of that review,
the House Armed Services Committee decided that it was going to hold
hearings on that extension, in addition to the committee of appropriate
jurisdiction, namely, the Foreign Affairs Committee on the House side.
There were some statements being made on both sides in Congress
that were not totally consistent with the facts. We had intelligence in-
formation that trucks were being produced at the Kama River plant
for the Soviet military and, in fact, being distributed to Eastern
Europe for use in East European endeavors.
An administration witness was asked about that and denied it. I was
asked about it and confirmed it. And, as a result of that. I was labeled
whistleblower and eventually left the Department of Commerce.
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In point of fact, that was the tip of the iceberg. There had been
apparently intelligence through the 1970's, particularly the latter half
of the seventies, indicating that there was substantial diversion taking
place. I think some of the hearings this committee held in 1980 and
some of the hearings Senator Byrd held in another committee indicated
that, for some reason, that intelligence just didn't get to the top.
So that was my role. I eventually had to leave Government for it.
Senator Nuxx. In February 1980, you recommended the creation of
an Office of Strategic Trade to both license high technology exports but
also provide the compliance function. Do you still believe that such an
office should be created?
Mr. BRADY. I think I would like to make two points, Mr. Chairman.
One, I strongly believe that there must be an enforcement arm with
the licensing function, associated with the licensing function. It should
not duplicate Customs, it should not duplicate the FBI. There must be
a lean, efficient organization that coordinates the intelligence informa-
tion procured from the agencies with the day-to-day impact, commu-
nications, dialog, that the Department or the licensing function has
with the business community. They must be together.
Now, specifically with regard to where that entire function should
be lodged. In 1980, the Carter administration, an administration that,
although some individuals had indicated very serious concern with
technology licensing, such as Dr. Brzezinski and his military attache,
General Odem, as concerned as it should have been with the technology
transfer issue and, to a certain extent, the President's directives were
not being implemented. It is actually in that cross fire that I got in-
volved. So I felt in 1980 that this function could not be administered
by the Department of Commerce, because it was unwilling to give it the
attention and the resources that it needed.
When I took the job I now have, I had a lengthy conversation with
Senator Garn, whose proposal this is. And I promised him that I would
try to run Trade Administration, my office, which is fairly newly
created because we are not now a part of the trade promotion arm
of Commerce, as an Office of Strategic Trade. I think we have done a
pretty good job at doing that.
The only concern that one can still express is not toward the licens-
ing function although, and I accept the criticism made of the Com-
pliance Division. I do not believe that it has been as effective as it
might. Its agents are not as well trained as they should be and I
accept some of what I call the micro-criticism in the staff report. But
I do not believe the trade promotion arm impedes the enforcement. I
do not think that is the problem. I think the problem that we have got
to look at is strategic trade, or the use of the economic power of this
Nation, what has been referred to as the wealth of the Nation. Is it
being factored into the foreign policy process in a manner where. it
becomes as strong a factor as it might in trying to direct the policies
of this Nation vis-a-vis a certain project or a certain policy. I think
that may still be a legitimate criticism. I think we have done a good
job in pivoting, so to speak, what some people would incorrectly call
the elements of economic warfare, for instance, in the foreign policy
structure.
Chairman ROTH. I am sure my colleague. Senator Nunn, will want to
get into it in greater depth, but I am not sure I fully understand why
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policymaking and compliance should be joined together. It seems to me
organizationally you can make a pretty strong argument that it is
better to keep them apart.
One of the problems, it seems to me, is that we go up the hill and
down on this matter of exports depending on the mood, and philosophy
of the Nation at the moment. .A.s a strong believer in trade, I think we
have got to do everything we can to expedite it, but obviously not at
the cost of security risks. Doesn't it make sense to keep compliance sep-
arate as you wrestle with some of these other philosophical and policy
matters?
Mr. BRADY. Mr. Chairman, no I don't agree with that. I don't think
these ideas are philosophical. We have in the last year, immediately
upon taking office, instituted a number of senior interagency groups
that resulted in new policy directions by the President of the United
States with regard to the licensing of high-technology products. We
implemented that and are in the process of implementing that both
domestically and internationally through negotiation with our Cocom
partners.
I would point out that the list of controlled commodities to the Com-
munist world is sophisticated and lengthy. One computer requires a
license and another does not.
The committee states that Customs can easily implement or rather
enforce the munitions regulations. I don't believe that Customs can
enforce dual-use regulations because our list is much longer and more
sophisticated. Military weapons are easily defined and there are fewer
cases in this area.
Our licensing personnel are intimately involved and will have to be
regardless of where the enforcement arm is. This is one very strong
reason to keep it where it is.
Furthermore, the dialog that to a certain extent already exists and
will exist to a much greater extent between the licensing officials and
the business community and the enforcement personnel is the means by
which we get many of our intelligence leads.
As a matter of fact, the major cases we have had in this area have not
been as a result of inspection at the ports. All the major cases that we
have prosecuted in the export control area, both we and Customs, have
been the result of intelligence leads brought up by the business
community.
Furthermore, Commerce has an extensive apparatus both interna-
tionally and domestically of field offices and those field offices are out
impressing upon the business community the requirements of licens-
ing with regard to particular commodities. As a matter of fact, so
much of the field offices time is being devoted to what we a1l the
licensing or enforcement problem, my colleague has asked me to
reimburse him for the people being taken away from the trade negotia-
tions functions.
Chairman ROTH. A final question. I would like to congratulate you
on hiring Assistant U.S. Attorney Ted Wu. He is well known by my
i
staff. He s indeed an excellent choice. Could you elaborate on what his
duties will be?
Mr. BRADY. Mr. Chairman, he is going to be setting up a new
enforcement mechanism in the Department as a Deputy Assistant
Secretary reporting directly to me. That will be composed of two
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units, the Anti-Boycott Compliance as well as the Export Adminis-
tration Act provisions regarding export controls.
Furthermore, we will take the Export Control Office that we have
today and change it drastically. I believe, and Ted agrees, that it is
silly to have 4 or 5 inspectors at a couple of the ports when Customs has
200 and they are much more able than we to do the inspection Junction
and, therefore, we will most probably be abolishing the inspection func-
tion in the Department.
Our objective is to get a highly professional white-collar crime outfit
working with the intelligence agencies and all those from whom we get
leads to pursue in the best way we can with the FBI the illegal acquisi-
tion in the United States. I think we can do that and do it well.
Chairman ROTH. Thank you, Mr. Brady.
Senator Nunn?
Senator NuNN-. Thank you, Mr. Chairman.
Mr. Brady, you mentioned that a good many of your intelligence
referrals and I assume your other referrals to the Justice Department
grew out of a coordination between your Licensing Division and your
Enforcement or Compliance Division, is that right?
Mr. BRADY. I said that the dialog was a necessary one in a number of
things. One, impressing upon the business community what is con-
trolled, how the Soviets are operating and yes, we do get some leads
back from the business community, very definitely, as to where com-
modities are in the Soviet Union. Very often, where a competitor's
commodity has been exported to, with certain indications as to who
may have exported it. So to that extent we do get leads.
Senator NuNisr. How many crimi:nal cases has Commerce worked on
in the last 12 months?
Mr. BRADY. I think for fiscal year 1982, there are four criminal cases
that have been referred to Justice.
Senator NuNN. How many?
Mr. BRADY. Four.
Senator Ntric.r. For fiscal year 1982, the whole year.
Mr. BRADY. I believe that, that's right.
Senator N1TNN. The FBI was not familiar with any.
Mr. BRADY. Mr. Chairman, the FBI wouldn't necessarily be. They
are in the espionage business, they are not in the export control area.
Senator NT:rim You did all the investigative work and referred to
Justice for prosecution.
Mr. BRADY. I am sure we had help in the investigative work but it
would be referred to?
Senator No-NN. Who did you have help from?
Mr. BRADY. I am sure it, was Customs. I have to go over each specific
case but I am positive that we got help, and I don't think there is any-
thing wrong in that.
Senator NuNN. I don't either. The question is, what are you really
doing in the Compliance Division, that is the question we are going to
be coming back to over and over again in the course of my question-
ing this morning. Are you familiar with the DeGeyter case?
Mr. BRADY. Yes. I am. sir. Somewhat.
Senator NuNN. Was that a Commerce Department case?
Mr. BRADY. No, sir, it was not.
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Senator Ntricx. In the Compliance Division report, didn't they claim
that was a Commerce Department case?
Mr. BRADY. Mr. Chairman, it is my understanding that the law re-
quires the Export Administration Act to report the cases that have
been prosecuted under that act and that is why that was included in
the report.
Senator NUNN. We can get the exact language of that report but it
was very misleading, I think, in terms of reporting to Congress. When
was that report made, do you know?
Mr. BRADY. Fiscal 1980.
Senator NUNN. Fiscal 1980. Let me just go over a few of these. As I
understand it, you are saying the subcommittee staff investigation is
useful as a historic document, is that right?
Mr. BRADY. I say, Mr. Chairman that the document does not reflect
certainly what we have done in the administration. Let me be fairly
candid. I think one of the problems that I personally have with the
report is that it tends to equate the enforcement of the Export Ad-
ministration Act, particularly the Commerce Department function,
with technology leakage generally, and that is inappropriate, because
the problem is much, much greater than that. It is industrial espio-
nage, it is counterintelligence, it is scientific exchange agreement,
everything I have discussed already.
Senator NUNN. Our hearings have covered the whole scope of all
of that. As you well know, the staff report centered on some criticism
with the Commerce Department and the Compliance Division, but that
doesn't in anyway imply the subcommittee hadn't looked at the broad
scope. If you review the testimony of the witnesses we had, most of
our time has been spent in areas that don't directly involve the Com-
merce Department.
Mr. BRADY. I have accepted some of the criticisms of the Compli-
ance Division.
Senator NuNN. You call them microcriticisms and historically use-
ful. Let me just pursue "the historically useful" for a minute. Does
that mean you are here today saying you have corrected these historic
observations by the staff?
Mr. BRADY. I think we have corrected some of them. I think the
analytical unit that we have created goes a way to correcting some of
that. I think the fact that we are creating a Deputy Assistant Secre-
tary, something we have been working on for months, is going to solve
some of our problems.
As we go through and reshape and rehabilitate the division, reorga-
nize it, I think there is no question?
Senator Nurnsr. How much of this is in the future as to what you
intend to do and how much of it have you already done? Let's just
take each item now. Tell me what has been accomplished so far today
as opposed to what you plan to do? We have an awful lot of plans
when we have a hearing and that is one of the purposes of a hearing,
I think that is useful.
Mr. BRADY. I agree.
,Senator NUNN. I have never had a hearing on any criticism of any
agency where they didn't have plans to correct every item that had
been identified. When you have another hearing a year later you find
out it hasn't been done.
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Let's just talk about what has been done now so we can really dis-
tinguish what is historic and what is actual.
Mr. BRADY. Senator, before I go to the specifics, let me make a point
that I mentioned in my prepared remarks: We could not move to
rehabilitate the Division before we had an assessment of what has
happened. That is, what are the Soviets doing, how are they operating,
what, are they targeting. We didn't have that, but we do now. We have
addressed the international aspects of the enforcement. There are five
major agenda items that we will discuss with our allies on Monday.
So it is not only the Compliance Division. That is the point I am
trying to point out in terms of what we have done over the last year.
Senator NUNN. I understand.
Mr. BRADY. Let Inc go specifically to the division.
Senator N uNN. Let me ask you this; do you have to have all of that
before you can determine whether the Compliance Division officials
have proper law enforcement training? It seems to me no matter what
the Soviets have acquired, no matter what the record shows, you are
going to need a group of people with adequate enforcement training
there, would you not?
Mr. BRADY. You are right, Senator.
Senator .NuNN. Do you have people with adequate enforcement
training?
Mr. BRADY. We have some.
Senator NUNN. How many?
Mr. BRADY. I can't answer that because that is a judgment call. If
you look at some of the background. of the agents
Senator NUNN. Your judgment would be the only one we have. How
many people do you have that you think really have adequate law
enforcement experience?
Mr. BRADY. Mr. Chairman, I can't answer that in specific terms. I
can tell you that we were aware, and I was aware obviously before
1 came back to Washington, of the problems in the enforcement area.
I called it a shambles. I was aware of it.
Senator NUNN. What do you call it right now?
Mr. BRADY. Let me--
Senator NUNN. What do you call it right now?
Mr. BRADY. It is in the process of getting new life, let me put it
that way. Let me give you an example, for instance, on how to reshape
the division. I could not have made a decision on that before Customs
decided to put 200 people in the field to do its inspection, and they
did that a few months ago. Now based on that action, and I hope that
it is a permanent action, I don't need those four or five people and
the field people in New York doing inspection. I think it duplicative.
We can take those four or five positions and use them for better
purposes. I have got to be careful in public testimony because the
personnel process we will go through in the next few months is going
to reveal many problems in terms of actions taken to reshape the
division, but that is simply one of the examples that delayed us in
refashioning the organization itself.
Senator NUNN. SO the organization hasn't been refashioned then;
it is in the process?
Mr. BRADY. Well, no, I believe the order has been signed creating
the Deputy Assistant Secretary. Ted Wu will be on board within 4 or
5 weeks as soon as he winds up on the west coast.
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Senator Nurric. How do you deduct from that that the staff report is
historic?
Mr. BRADY. Senator?
Senator Nu/six. It seems to me everything you are saying is none of
these changes has been made, that they are all in the process. So how
do you conclude the staff report is historic when almost all the correc-
tions you have identified are all perspective in nature?
Mr. BRADY. Senator, what I am saying is?
Senator NuNN. You were a candid witness whe,n you were the
whistleblower. Now you are here and it seems to me you have to
maintain that same degree of candor. If you are going to correct these
problems, I think you ought to just candidly say so but to come here
and identify all the things you plan to do and then call the staff
report historic implying you have already made those changes, seems
to me is not in keeping with your past record of candor.
Mr. BRADY. Senator, some of the changes have been made.
Senator Nurrisr. Tell us what has been done?
Mr. BRADY. The analytical unit working with Customs is working
well and it has been working well for a couple of months. It is a major
addition to the enforcement apparatus in this area. The Deputy As-
sistant Secretary position has been created and an individual has been
selected and he will be on board within 4 to 5 weeks as soon as he
can sever his relationship with the Department of Justice.
Senator NuNN. He is not there yet?
Mr. BRADY. That's right.
Senator NUNN. All right.
Mr. BRADY. Third, there have been some major efforts made in the
field offices of the United States Commercial Service of the Depart-
ment of Commerce, to educate the business community as to what the
Soviets are acquiring in the United States and how they are working.
Now that program is not complete.
Senator NuNN. Every witness we had said they never even heard
from the Commerce Department on that. In fact, the amazing thing
is that Commerce is the agency that is supposed to have the liaison
with the business communities. Yet we can't find any witness who has
had a dialog with them on that subject.
We had a lot of witnesses, they talked to the FBI, Defense, but they
haven't heard from Commerce. Maybe you can detail for us what you
have done in communicating with the you
community.
Mr. BRADY. I will be happy to and it goes, Senator, from writing
to all exporters in the particular industry sector to alert them to the
fact that there is a procurement effort under way, to staaing major
conferences in various areas of the country. Ted Wu himself has
addressed. I know. at least two major conferences on the west coast.
Senator NuNN. Is he on your payroll now?
Mr. BRADY. No, but he did it because I couldn't go.
[At this point, Chairman Roth withdrew from the hearing room.1
Mr. BRADY. I specifically remembered those conferences and we had
some across this country. I personally have traveled across this country
dealing with the field offices to impress upon them the need to become
more involved in the diversion problem and they have been. The criti-
cism I have with the report is. I believe, it does not point out what we
have done internationally. It is very relevant to the Compliance Divi-
sion. The enforcement apparatus must be international if it is going to
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be any good. And that is where the large part of the problem lies.
And so I think we have moved in the last year, as I said, systematically
and quite aggressively in dealing with the problem.
And the problem is not only enforcement but it is also licensing.
We have cleaned up a backlog of 2,000 export license applications that
we inherited from the previous administration. We have the process
functioning, the interagency process functioning so we get decisions
on cases and on issues.
Senator NUNN. Have you cleaned up the backlog in the investiga-
tions and intelligence branches?
Mr. BRADY. No; we have not.
Senator NUNN. That was one of the criticisms. Is that historic?
Mr. BRADY. It is a legitimate criticism, yes, sir.
Senator NUNN. Have you really revised your whole law enforcement
training? Do you have people on board now who are capable in the
law enforcement area?
Mr. BRADY. There are announcements out for 15 positions that we
intend to put on the west coast-14 positions I guess it is?in which
we are recruiting for those jobs.
Senator NUNN. But you are not satisfied with what you have got on
board now?
Mr. BRADY. Absolutely not.
Senator NUNN. That is not a historic observation then?
Mr. BRADY. Well, it is in a sense, Mr. Chairman. I would have liked
the opportunity or another policy level official at Commerce, would
have liked the opportunity to comment on the report and to indicate
what we were doing and what we have done and, again, I want to stress
the fact that the Compliance Division specifically is one small part of
the overall enforcement apparatus that this Government directed to
this problem.
Senator NUNN. Mr. Brady, you don't have to convince us of that.
I have been in these 'hearings 5 years on the subiect. We know that, we
know you are not the only one. We don't put all the blame and efforts
on the Commerce Department. We are just simply looking as to
whether it makes sense for the Commerce Department to have a Com-
pliance. Division with a few people on board most of whom don't have
law enforcement experience, when you have a whole agency out there
that is trained in this area. That is the question. You can broaden it
and you are correct in broadening it. it is a much bigger question than
this. This is only one aspect of our whole hearing.
You mentioned that the Inspector General of the Commerce De-
partment has conducted a review of the Compliance Division whose
findings and recommendations will be published later this month; is
that correct?
Mr. BRADY. I believe so.
Senator Nuimt. Have you seen these recommendations yet?
Mr. BRADY. No, I have not.
Senator NuNN. Do you know the Inspector General?
Mr. BRADY. Yes, I do.
Senator NUNN. Have confidence in him?
Mr. BRADY. Yes, I do.
Senator NUNN. Do you think he has a broad perspective?
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Mr. BRADY. He is Inspector General. I think it is important that all
factors be put into any assessment of the enforcement arm and that
means the licensing function as well. And I know I may not be stating
this very well, but in this dual use area, you are not dealing with a
tank or an aircraft. You are dealing with a computer that may require
a license or may not. The licensing officer very often has to work very
closely with an investigator in determining whether or not a particu-
lar shipment is illegal, whether blueprints that may be exported require
a license or not.
Senator NUNN. You say you have not seen the Inspector General's
report?
Mr. BRADY. No, I have not. I have a feeling I know what he is going
to recommend.
Senator NUNN. It is our information that that Inspector General
reported started on April 19,1982, less than a month ago.
Is that consistent with your information?
Mr. BRADY. I believe that is correct.
Senator Nurrisr. We understand it was formally concluded on May
11, that is yesterday.
Mr. BRADY. That is not my understanding.
Senator NuNist. Well, in any event, the Inspector General's report
is not historic, is it, it would be rather current.
Mr. BRADY. I would hope that it would reflect the progress that we
have made, yes.
Senator NUNN. It should reflect the progress you have made?
Mr. BRADY. That's right.
Senator NUNN. We have been informed that that report will verify
all the findings, virtually all the findings of our staff. And that report
has taken place in the last 30 days. So once you read the report, we
would like for you to tell us whether that, too, is historic.
Mr. BRADY. I will be glad to, Senator. But I also think, or I would
hope, that the report would take into consideration, one, the broader
picture, and, second, the fact that we are well on our way to solving
the problems.2
Senator NUNN. You mean by the broader picture, you want the re-
port to center on the Department of Defense, Department of State,
Customs Agency.
Mr. BRADY. I want them to center on the fact it is we at the Depart-
ment of Commerce that asked the CIA to prepare this assessment, the
fact that we asked for it to be released because we have problems in
dealing with the business community.
We have problems in dealing with the press to elevate the level of
public consciousness. There are many people out there who still do
not believe that there is a problem. These are all part of an enforce-
ment apparatus.
Senator NUNN. I agree with that, Mr. Brady, but everything you
say, I grant everything you say is correct on that point but that doesn't
answer the question of whether you need a Compliance Di vision in the
Commerce Department.
2 The final inspection report of the Inspector General's Office. Department of Commerce,
regarding the Compliance Division was released to the Permanent Subcommittee on
Investigations on July 16, 1982. The report is reprinted in full beginning on p. 606.
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It doesn't answer the question .about whether you should continue
an operation that under several administrations has demonstrated very
vividly that it is not capable or it is not serious, one or the other, about
enforcing the law of the United States in this respect.
So you can broaden it all you want to and we will agree with every-
thing you say on that but that is irrelevant to the purposes of what we
are asking you, and that is whether the Compliance Division still
should be in the Commerce Department.
Mr. BRADY. Let me give you a statistic. You talk about seizures and
Customs seizures, 89 percent of the seizures made by Customs at the
ports of exit have to be returned because the items do not require a
license. That is the kind of fundamental basis that we hope to over-
come.
I accept the fact that our investigators are not well trained or the
bulk of them are not well trained in law enforcement but I think there
is a compensating factor in some cases that they do have knowledge of
the licensing system and they do have knowledge of the technological
requirements involved in the licensing process. And so I am not using
that as an excuse for not having good trained officials, believe me.
But what I am saying is, the situation is not black and white.
Senator NuNN. You are going to have maybe another 40 percent and
if you add 40 percent to what you have got now, that will get you up to
59 persons and those 59 persons in the Compliance Division, it seems
to me, are woefully inadequate to have any hope of enforcing this law
unless they largely are in a position of liaison between licensing and
Customs.
You are going to have to use Customs and the FBI to do it and the
question is: Do we need a layer between licensing and Customs in order
to communicate?
It seems to me you can shift a few of these people who are trained
in law enforcement into the licensing division.
They are probably very good people in that respect and let them be
liaison with an enforcement mechanism that is already in place and
that has hundreds of agents around the country and around the world
and has intelligence connections in almost every country of the world.
It just seems to me your position about compliance is just not a
logical position.
Mr. BRADY. Senator, you asked me about the backlog of investigative
cases. The Customs Service has 9,000 backlogged investigation cases.
Now I don't understand----
Senator NuNN. In the export area?
Mr. BRADY. No; across the board. But I would also point out that
their priorities. shift on what the crises of the moment are.
I have been informed just in recent weeks that they cannot provide
me the information I need to monitor our steel monitoring mechanism,
basic steel imports pursuant to the steel trigger pricing mechanism we
have and the 75 dumping and countervailing cases we are prosecuting
beca=, of lack of resources. So I think there is a question of going
from the frying pan into the fire with regard to Customs.
What I am trying to say is the issue is not black and white and I
think that a bard core, high level, professional establishment at the
Department of Commerce working with the FBI, the CIA, and Cus-
toms is the best way to attack
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Senator NuisTN. When can we expect that to occur? When can we
expect that high level, competent, professional group at Commerce to
be out there in the field enforcing the law?
What is the date that you are shooting for? Obviously you don't have
that now.
Mr. BRADY. That is right.
Senator NuNN. If you had it now we might not be asking these
questions.
Mr. BRADY. I think within 6 months we will have it.
Senator Nurusr. Six months from right now?
Mr. BRADY. That is right.
Senator RuratAN. We will stand in recess for the time it takes for
the chairman to get back here.
[Members of the subcommittee present at the time of recess: Sena-
tors Rudman and Nunn.]
[Brief recess.]
[Member of the subcommittee present after recess: Senator Roth.]
Chairman ROTH [presiding]. While we are waiting for the ogler
Senators to return, I believe the staff has some documents they want to
put into the record.
Ms. HILL. Thank you, Senator; yes, we do. I have three exhibits we
would like to have printed in the record. They are a signed and sworn
affidavit of John Rennish, special agent with the U.S. Customs Serv-
ice; a signed and sworn affidavit of Mike Dolphin, special agent with
the U.S. Customs Service; a signed and sworn statement of Charles L.
McLeod, special agent, U.S. Customs.
[The documents referred to was marked "Exhibit Nos. 29, 30, and
31," for reference and follows:]
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EXHIBIT NO. 29
Affidavit of John Rennish
I, John Rennish, an officer of the U. S. Customs Service headquarters in
Washington, D. C., make the following statement freely and voluntarily to Glenn
Fry, Ray Worsham and Fred Asselin, who have identified themselves to me as being
on the staff of the Senate Permanent Subcommittee on Investigations.
I am a Special Agent with the United States Customs Service. I am
assigned to the Customs Service headquarters in Washington, D. C. I have been a
Criminal Investigator with Customs for 15 years.
As a Criminal Investigator, I was assigned to the investigation of Manfred
Swarovski of Wattens, Austria in 1975. A member of a wealthy and influential
Austrian family, Swarovski, who was then about 34, owned and operated an optical
equipment business in Austria that specialized in manufacturing glass beads used in
reflection devices and paint for night vision purposes. The company was known as
M. Swarovski Ges. Mbh .3c Co. and was located in Amstetten, Austria. The
company's devices were used on highways in Europe and the United States.
Swarovski established two businesses in North America -- Swarolite of
Canada, Ltd., also known as Canasphere Industries Ltd., located in Moose Jaw,
Saskatchewan, Canada, and Swarolite, Inc., located in Columbia, Tennessee. In or
about 1974, Swarovski entered into all agreement with the Soviet Union to
construct a glass bead manufacturing plant in Russia.
In the spring of 1975, U. S. Customs agents were contacted by John Kiel,
president of Photo-Sonics, Inc., of Burbank, California. Kiel said that Swarolite of
Canada wanted to buy from Photo-Sonics a special gunsight camera, model KB25A,
used on the U. S. Air Force F-4 fighter aircraft. Kiel said the order for the camera
had been placed by Rod N. Parker, manager of Swarolite of Canada. Kiel said he
had informed Parker that he could not ship a camera to Canada. To make such a
shipment, Kiel said, would require a validated export license authorized by the U.S.
Department of State.
Kiel said he was bringing this matter to the attention of the Customs
Service because he suspected that Swarolite of Canada intended to ship the camera
from Canada to Austria. Kiel considered it very questionable that Swarolite of
Canada should want such a camera. He wondered what use Swarotite could make
of it. The gunsight camera could be modified so that it would have functions other
than its use on the F-4 fighter. However, even in a modified form, the camera
would still be an item controlled on the U. S. Munitions List and would require a
license for export. Moreover, the State Department did not want the camera
exported anywhere, not even to Canada.
Customs agents instructed Kiel to keep them informed of what Swarolite
of Canada did next. Shortly thereafter, Manfred Swarovski, through his Swarolite
of Canada company, requested that Photo-Sonics sell the camera but, instead of
shipping it to Canada, to send it to his plant in Columbia, Tennessee. Such a
shipment would not require an export license. Following the instructions of
Customs agents, Kiel agreed to ship the camera to Swarolite of Tennessee.
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With the assistance of U. S. Postal Inspectors, Customs agents monitored
the mailing of the camera. Rod Parker had indicated that the shipment would have
to arrive in Columbia, Tennessee, by a specific date.
Customs agents controlled the delivery of the package. The camera
package invoice and registered letter accompanying it were marked with these
declarations: "Above items are of U.S.A. origin and manufacture. Above
photographic equipment is under United States Department of State Munitions List
Category No. XIII (a), and as such must be export licensed by the U.S. Department
of State prior to export from the United States." A copy of the letter was also
packaged with the camera.
Customs agents conducted surveillance of the package as it was delivered
to the U.S. Post Office in Columbia, Tennessee. James Sproul, Swarolite manager
in Columbia, received the camera and delivered it to Swarovski, who was staying in
the Holiday Inn Motel at the outer city limits of Columbia.
Swarovski also was placed under surveillance by Customs agents. His
activities in Columbia seemed routine and included dining out and shopping. The
next day Swarovski was again under surveillance as he checked out of the Holiday
Inn Motel and boarded a flight to Chicago. From Chicago he flew to New York
City.
When Swarovski arrived in New York, I personally took full control of the
investigation and coordinated the surveillance activities concerning Manfred
Swarovski. Once in New York City, Swarovski checked into the Waldorf Astoria
Hotel. Customs agents, continuing their surveillance, took a room adjacent to his.
Swarovski spent the next two days in New York City. He seemed to be enjoying
himself considerably, shopping, dining out, frequenting several bars and
entertaining women friends in his room. In the midst of this round of activities,
Swarovski took steps to suggest he might be trying to alter his appearance. He
changed his manner of appearance frequently and began wearing dark glasses and
began styling his hair in a different manner. However, our surveillance went on
uninterrupted. Ultimately, 15 Customs agents were assigned to this detail.
Customs agents learned that Swarovski had reservations on a Lufthansa
flight from Kennedy International Airport to Frankfurt. He decided to leave on an
earlier Pan American flight for Munich. Swarovski checked out of the Waldorf
Astoria Hotel and went to the airport where he checked all his luggage through at
the Pan Am ticket counter. Swarovski then went to the predeparture lounge and
waited for his flight to be called.
Customs agents, operating under 22 U.S.C. 401(a), which gives them the
right to search luggage under these circumstances, went through his suitcases and
found the special gunsight camera among his belongings. Swarovski, who was
unaware that the search had taken place, was then approached by Customs Special
Agent Grattan and myself. In a routine manner, we questioned him as to whether
or not he was transporting anything of value in excess of $250.00 out of the
country. I asked, "Do you have anything that you are taking out of the U. S. that
requires a shipper's export declaration?" He was also asked if he had any
merchandise requiring a U.S. Department of State license. Swarovski said no to all
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three questions. I placed Swarovski under arrest. He was read his rights and given
the Miranda warning in English and German. Customs agents also found several
business cards of Soviet officials on Swarovski's person.
The export violation occurred, according to the U. S. Districts Courts'
interpretation of the law, at that moment when Swarovski checked his luggage
through to Munich at the Pan Am ticket counter in the JFK Airport terminal. We
believed that Swarovski intended to take the camera into Austria and there have
his freight forwarder ship the camera to a destination in the Soviet Union. If we
could have had access to official shipping documents in Austria, we could have
tried to demonstrate that he planned to transfer the camera to the Soviet bloc.
Unfortunately, however, because U. S. Customs agents received very little
cooperation from the Austrian government, we were not able to document or
otherwise establish that Swarovski intended to ship the camera from Austria to the
Soviet bloc. Austria, a neutral country which shares borders with the Soviets bloc
nations of Hungary, Yugoslavia and Czechoslovakia, was not supportive of U. S.
Customs' investigative efforts.
Records of Swarolite of Canada were given to U. S. Customs by a
cooperating co-conspirator. These records revealed that on previous occasions
Swarovski had bought American high technology equipment with military
applications and sought to export it to an Austrian freight forwarder without the
proper licenses. However, once again because the Austrian government would not
provide assistance, the U. S. Customs Service was unable to document or otherwise
establish that these items were shipped to Soviet bloc nations. Further inquiry by
Customs indicated that Swarovski had tried but failed to buy from the National
Aeronautics and Space Administration a NASA moon-mapping lens.
There is no attempt provision in the current export control statutes.
Because of that, the violator can be apprehended only after he actually does the
act of exporting; in Swarovski's case, the act of violating the law occurred at the
moment he checked his luggage containing the gunsight camera through at the Pan
Am ticket counter. It was then that he presented his merchandise for export. This
requirement means that surveillance must be continuous on a suspect until that
moment when he violates the law. The cost of such surveillance can be prohibitive
if it goes on too long. Consider, for example, that instead of staying only two days
in New York City he had stayed two months or longer. At some point, Customs
might have been forced, because of financial considerations involving a 15-man
surveillance team, to curtail the inquiry and hope to detect him at the airport. But
any number of things can go wrong once the surveillance is stopped. Swarovski
could have rented a car and driven to Boston or Newark and flown abroad from
there. The slightest change in plans could have resulted in his escaping Customs
and successfully carrying the camera out of the U. S.
The lack of cooperation in the Swarovski inquiry from Austria was not
unique to this case. U. S. Customs receives poor cooperation from Austria in many
export violations. Another neutral European nation, Switzerland, does not make a
great effort to help in export violations in many cases.
U. S. Customs was fortunate to have had cooperation from the beginning
of the case from John Kiel, president of Photo-Sonics, Inc. Had Kiel not reported
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to us when he did, Swarovski might have taken possession of the camera in Canada
and shipped it from there to Western Europe.
Customs agents enforcing export laws do not have the authority to arrest.
They can Investigate, search and seize but there is no statutory authority under the
export laws to arrest. Arrests can be made if they are in states where Customs
agents are deemed to be peace officers of that state. Customs agents have no
state peace officer certification in New York. Swarovski's arrest by Customs
agents was only one aspect of the inquiry that Swarovski's attorney challenged in
court.
The attorney, Richard H. Kuh, instituted suppression arguments and
appeals which lasted in court hearings for the next 26 months. Swarovski's search,
seizure and arrest were attacked. Ultimately, the suppression and appeals hearings
proved unsuccessful. But the arrest issue went all the way to the Supreme Court
where it was upheld as a citizen's arrest. His appeals exhausted, Swarovski pleaded
guilty and served a two-year prison term.
The judge in the trial, George C. Pratt of the U. S. District Court in the
Eastern District of New York, noted the difficulties U. S. Customs agents must
work under in export cases. Citing the fact that export laws give Customs agents
the right to seize and search in connection with munitions violations, but not to
arrest, Judge Pratt said:
The fault, if there be any, lies with Congress which has
failed to grant Customs officers statutory authority to make
arrests under the Munitions Control Act. Congress passed the
Act with broad powers of search and seizure, and commanded
the Secretary of the Treasury to enforce it. Congress did not,
however, take the additional step and grant to the Customs
agents specific statutory authority similar to that granted to
them to apprehend narcotics and revenue violators. As a result,
Customs agents are powerless to arrest on the scene those
persons who are caught in an attempt to illegally export under
the Munitions Control Act.
The lack of statutory authority to make an arrest described by Judge
Pratt is still a restriction that Customs agents must work under in export
violations.
I would like to append to this affidavit two exhibits:
1. Docket No. 75 CR 795, Memorandum and Order on
Suppression Motions, United States of America against Manfred
Swarovski, U. S. District Court, Eastern District of New York.
2. Docket No. 76-1556, United States Court of Appeals,
Second Circuit, United States of America v. Manfred
Swarovski, September term, 1976.
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I have read, reviewed and initialed each page of the foregoing statement,
and I swear to the best of my knowledge that it is true and correct.
:John pennish )
January '-2? , 1982
Sworn?apid/esubscribed to before me
,this day of January, I982
N o fa r y Public
My commis ion expires:
/
7
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7,9CHIBIT NO, 30.
AFFIDAVIT
I, Michael Dolphin, a Special Agent with the U.S. Customs Service,
Baltimore, Maryland, make the following statement freely and voluntarily to
Glenn Fry and Jack Key of the Senate Permanent Subcommittee on Investigations.
I have been a Criminal Investigator with Customs for four and a half
years. I initiated the investigation of Werner R. Hilpert in July 1980.
Later on, I discovered the involvement of Rolf Peter Hems and Volker Nast.
Nast and Hernia, natives of West Germany, conspired to purchase a Microwave
Surveillance Receiver system and smuggle it out of the United States to
Hungary without obtaining a validated export license from the State Department,
Office of Munitions Control. Nast and Hems were assisted in their plan by
Werner Richard Hilpert of Princeton, New Jersey.
The Microwave Surveillance Receiver system, known as the model MSR-903,
is offered for sale by the Micro-Tel Corporation, 6310 Blair Hill Lane, Baltimore,
Maryland. Designed to receive, display, and analyze microwave signals, it is
primarily intended for, military and other surveillance uses. The MSR-903 has
been designated as a defense article by the President of the United States and
is also included on the United States Munitions List under Category XI(c).
For that reason, a special export license or written approval from the Department
of State is necessary to export the MSR-903. An applicant for such a license
is required to reveal the country of final destination, purpose of its use, and
the intended end-user of the equipment.
Customs learned that in June, 1980, Rolf Peter Henna wrote to Werner
Hilpert requesting him to place an order with Micro-Tel Corporation, Baltimore,
Maryland for a MSR-903. Soon thereafter, Hilpert contacted Micro-Tel and placed
the order. Micro-Tel advised Hilpert that he must apply for a license with the
State Department if he intended to export the MSR-903. In August, 1980 Hems
wired $12,000 to Hilpert for a down payment on the MSR-903. Hilpert subsequently
remitted a check to Micro-Tel for a $10,000 down payment. At this time, Micro-Tel
again advised Hilpert, in writing and orally, that a license was required for
export.
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Hilpert passed that information to Harms about the export license.
Henna, after consultation with Nast, told Hilpert to go ahead with the purchase
but that an export license would not be obtained.
Before the delivery of the MSR-903 officials of Macro-Tel Corporation
once again advised Hilpert of the export license requirements.
Hilpert told the officials from Macro-Tel Corporation that the export
license would be obtained by someone else associated with the purchase.
It was arranged for the MSR to be picked up in Baltimore by Hilpert in
January 1981 after a motion activated beeper had been installed pursuant to a
Court Order, in the fiberglass suitcase used to transport the MSR-903. The MSR
weighs 78 pounds and is the size of a large suitcase. In January 1981, at the
time Hilpert was to receive the NSR, Customs established surveillance of his
residence, and Micro-Tel's location.
Hilpert's wife and Rolf Henna picked up the MSR at Macro-Tel and paid the
balance of the $47,000 purchase price. It was learned that Vblker Nast provided
part of the funds with which the MSR-903 was purchased. In particular, on
January 15, 1981, Nast purchased Bank America travelers Checks in the amount of
$39,000 in West Germany.
Special Agents of the U.S. Customs Service, with the aid of a Customs
helicopter, followed Mrs. Hilpert and Henna to Princeton, New Jersey to Hilpert's
residence. The Hilpc.rts and Hems spent that evening at Hilpert's residence.
The next morning Mrs. Hilpert and Henna placed a large package in their car and
drove to Mr. Hilpert's office. From the office they went to lunch and proceeded
to New York City. Hems left Mrs. Hilpert's vehicle in New York City with the
package and took a taxi to JFK Airport. Customs continued following Herms until
he checked all baggage with Pan American Airlines at JFK Airport. At that point
Customs agents arrested Hernia, advised him of his rights, and took custody of
the MSR-903 which had been checked in as baggage. After initially denying any
knowledge of the MSR, hex-ins admitted that he was sent by Volker Nast to pick
up the equipment.
From the time of the initial pick-up of the MSR-903 on January 19, 1931,
until Herms arrest the next day approximately eighteen (18) Customs personnel
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were involved. Four separate Customs vehicles from Baltimore followed the
1 ilpert vehicle to the beginning of the New Jersey TUrnpike when surveillance
uas taken over by personnel from the Philadelphia Office. The vehicle was
followed to Hilpert's residence in Princeton, New Jersey, where other personnel
were manning a command post. A fixed video surveillance unit was installed
in the vicinity of Hilpert's residence to monitor the activities. Customs
personnel from Newark, New Jersey, had Mr. Hilpert under surveillance at his
place of employment and followed to his residence.
The surveillance was also aided by a helicopter which followed the
vehicle from Baltimore, Maryland, to Princeton, New Jersey, on January 19, 1981.
On the next day the helicopter followed Hems from Princeton, New Jersey, to
the vicinity of JFK Airport.
Mast is a fugitive from justice residing in West Germany. ,He was
previously involved in the illegal exportation of controlled commodities in
1976 with two U.S. businessmen, Gerald R. Starek and Carl E. Story of I. I.
Industries, Sunnyvale, California.
In the United States District Court in Brooklyn, New York, Rolf Peter
Hems pled guilty on February 27, 1981, to a charge of attempting to export
the MSR-903 without the required license. Mr. Hems was confined in the
Metropolitan Correctional Center in New York from his arrest on January 20,
1981 until his sentencing on May 11, 1981. Chief Judge Jack B. Weinstein,
United States District Court, Eastern District of New York, imposed the maximum
sentence of two years, which was suspended, and placed Hems on probation for
a period of five years. Hems was permitted to return to West Germany.
On May 26, 1981, Volker Nast was charged with a two-count indictment
in Baltimore, Maryland, for conspiracy in violation of Title 18, United States
Code, Section 371, and with aiding and abetting an attempt to violate the Arms
Export Control Act, in violation of Title 18, United States Code, Section 2,
and Title 22, United States Code, Section 2778.
Werner Hilpert pled guilty, pursuant to an agreement with the Government,
on 1,kly 1, 1981, in United States District Court in Baltimore, Maryland, to a
charge of aiding and abetting the attempt to export the MSR-903 from the United
States without the requisite license. He was subsequently sentenced on
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July 9, 1981, and placed on three (3) years probation and ordered to pay a
$10,000 fine. Under his plea agreement, Mr. Hilpert agreed to cooperate with
the Government and to provide any information within his knowledge concerning
the alleged conspiracy.
During the course of this investigation the Customs Attache in Bonn,
West Germany, also played an important role in following up on investigative
leads and responding to the =,e leads within a short period of time. When
the MSR-903 was picked up on January 19, 1981, the Customs Attache in Bonn
was notified and was prepared to coordinate a continued surveillance with
the West German authorities if this was required.
The Department of State Office of Munitions Control had to research
their records in order to determine that an export license had not been issued
for the MSR-903. During the investigation it became necessary to immediately
check the names of individuals and companies which became known. An up to
date review of all applications was necessary in order to be positive that an
export license was not submitted.
The Federal Bureau of Investigation was kept aware of developments in
this investigation and provided excellent cooperation to the U.S. Customs Service.
I have read, reviewed and initialed each page of the foregoing
statement, and I swear to the best of my knowledge that: it is true and
correct.
'1/7',4LAk 7.f5,'.111AL
Miaael Dolphin
April , 1982
hwotin sod subscribed to before me
this _Ls._ day of April, 1982.
)n.-
Nofzu- Public
My comission expires:
_July 31 11/86
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EXHIBIT NO. 31
STATEMENT OF CHARLES L. McLEOD
Special Agent, U.S. Customs Service
For The
U. S. Senate Permanent Subcomrittee on Investigations
ky name is Charles L. McLeod and I am a Special Agent with the
U. S. Customs Service assigned to San Francisco, California. I have been
employed with the Customs Service for eleven years, ten as a criminal
investigator and one as a Customs Security Officer. I am a college graduate
with a B.S. degree in business administration from Babson College, Wellesley,
Massachusetts. I have, as a criminal investigator, attended U.S. Treasury
Department,Criminal Investigator School, Customs Basic School, Customs Fraud
Investigation School and White Collar Crime School. I am thirty-four years
of age:.
During my career as a criminal investigator, I have conducted and
participated in investigations involving smuggling, fraud, theft and violations
of export laws. In 1977, I was the recipient of the Treasury Secretary's Award
for the investigation I conducted of II Industries, an investigation I mill
discuss later in this statement.
I have been involved in export control cases since 1975. During a
period of three years between 1975 and 1978 I worked export control cases
exclusively. In 1980 I was assigned by Customs to set up a program in the
San Francisco office which was to be geared to work export violations that
involved the. Soviet Union or Soviet Bloc nations. The program was headed by
me with the assistance of John Bloom, a Customs Inspector. lifter two months
I concluded that no one agency appeared to have a good intelligence data base.
The FBI Ws willing to cooperate; however, it had no real in-depth information.
The State Department only had information relevant to export license applications.
It had no valuable intelligence data' that could be used ?to get a handle on
violations. There was no reservoir of information because there simply was not
but a handful of prior cases in which to refer. The intelligence community did
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not .communicate, at least to my level, what the Soviets needed regarding
technology or what the Soviets considered a priority.
Customs has been mandated to enforce violations of the Arms Export
Control Act, which is administered by the State Department's Office of Munitions
Control. To this end I can say that Customs has received excellent support
from OMC. OMC has always expeditiously provided me whatever information I
requested during my investigations. To my knowledge and experience there has
been effective coordination and cooperation between Customs and OMC.
The Department of Commerce is mandated to enforce the Export
Administration Act. Customs has delegated jurisdiction to enforce this
statute; however, Customs has been effective and is capable of investigating
violations of both statutes. My personal opinion is that .export control
violations are an area which demand thorough attention and priority,
particularly those which have an impact on national security. It is a
relatively new investigative area that contains inherent problems that few
investtgators have confronted. I would like to relate to you one investigation
I conducted during 1975 and 1976 of II Industries and Kasper Instruments.
The II Industries case related to violations of the Export Administration
Act. Many of the investigative impediments I confronted during my
investigation still exist today.
I first: became involved in the II Industries case in July, 1975
when I assisted the Department of Commerce in a preliminary investigation
of II Industries and Kasper Instruments of Sunnyvale, California. During
March or April of 1975, Commerce received an allegation that certain semi-
conductor manufacturing equipment from II Industries and Kasper was
appearing in the Soviet Union. The equipment was being shipped via an
exporting company named Semi-Con of Mays Landing, New Jersey. Semi-Con
was run by Edward Breslin, a former U. S. military intelligence officer.
It was subsequently learned that Semi-Con was a creation of Richard Mueller,
a West German businessman, whom I will describe in more detail later in this
statement. Commerce's initial action was to telephone officials at II Indus-
tries and Kasper Instruments and inquire as to whether either firm had sold
equipment for use in the Soviet Union. Officials at Kasper admitted to
trading with Semi-Con but not with Mueller or the Soviets. II Industries
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- indicated that they had not conducted business with any of the aforementioned
entities.
In July, 1975, three months later, Commerce sent one investigator to
the West Coast to interivew officials at II Industries and Kasper Instruments.
I and three other Customs agents and an Assistant United States Attorney assisted
Commerce with interviews. Examination of business records revealed that semi-
conductor manufacturing equipment originally destined for Semi-Con in New Jersey
was in fact to be shipped to USA Trade and Semitronics in Montereal, Canada.
Documentation for the equipment disclosed that although the electrical power
usage had been converted for European voltage standards, Canada was to be the
"end use destination. There were even invoices for charges of $175.00 per
unit for the conversion of the electrical systems.
Following the interviews and records examinations, Customs prepared a
report for Commerce concluding that illegal activity appeared probable. Customs
did not pprve:the investigation because, at this point in .time, its role was to
assist Commerce. In August, 1975, Commerce prepared a report which recapped the
activities of the preliminary investigation. The report had no indications of
further actions to be pursued, no conclusions, and no recommendations.
In September, 1975, the import/export manager of II Industries informed
Customs that II Industries and Kasper Instruments had in the past and were
presently exporting, through diversionary means, licensable semiconductor
manufacturing equipment that was ultimately intended for end use in the Soviet
Union. Customs learned that ,Robert C. Johnson, President of Kasper Instruments,
Gerald Starek and Carl Storey, officers of II Industries, and Richard Mueller
conspired to circumvent licensing regulations,in order to. export equipment to
the Soviet Union.
Richard Mueller is a West German buinessman who operated at least two
known businesses in West Germany named Techimex and Semitronic. Mueller was
no stringer to U.S. authorities. He had previously been implicated in 1974 where
he was involved in the illegal diversion of high technology equipment to the Soviet
Union by Honeywell, A.G. of West Germany.
Mueller allegedly established Semi-Con in Mays Landing, New Jersey, as
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a means to export semiconductor equipment to Europe. It was learned that
when Conmerce made inquiries of Semi-Con, Mueller came to the United States
and met with Johnson, Starek and Storey to determine a new export'route for
the II Industries and Kasper Instruments equipment. It was decided that
Montreal, Canada, would be the route in which to export the equipment through
two companies, USA Trade and Semitronics. Canada was an acceptable route in
that export licenses are not required when-shipping products for end use in
Canada. Therefore, equipment originally destined for Semi-Con in New Jersey
was rerouted to Montreal, Canada. Following the July 1975 on-premises inter-
views and records examinations by Customs and Commerce, II Industries and
Kasper Instruments decided to seek another exporting route. It should be
noted that Customs coordinated with the Royal Canadian Mounted Police (RCMP)
and learned that OSA Trade and Semitronics did not physically exist; however,
the address of USA Trade was occupied by Kuhn and Nagel, a Canadian freight
forwarding company. The RCMP investigated Kuhn and Nagel 's dealings with
shipmentsgreirMII'industries and Kasper Instruments and learned that the
equipment was shipped to SeMitronics in Zurich, Switzerland, without validated
licenses. This was a violation of Canadian law and Kuhn and Nagel were
prosecuted by Canadian authorities.
Customs learned that II Industries and Kasper were planning to ship
equipment, ultimately destined for the Soviet Union, via Kansas City, Kansas,
through an intermediary "dummy" company. . II Industries and KaSper recruited
a West German National, Frederick Linnhoff, who resided in the Kansas City
area, obtained and operated warehousespoce in Kansas City and traded as Paul
Allen of Allen Electronics. Linnhoff was to receive II Industries and Kasper
equipment from the West Coast, alter the supporting documentation to misrepre-
sent the description and value of the freight and to change the ultimate
destination to Hamburg,West Germany. Altering the supporting documentation
of freight is a method used so as not to arouse suspicion of Customs or
Commerce Inspectors thereby circumventing export licensing regulations. Once
the freight is shipped to Hamburg, there is little that can be done to prevent
the goods from being forwarded to the Soviet Union.
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II Industries sent two shipments of licensable equipment through
Kansas. The first shipment was ultimately traced, due to efforts between
German Customs and the U.S. Customs Attache in Bonn, through Hamburg, West
Germany, and on to East Germany. Through information received, Customs was
able to monitor the second shipment II Industries was sending through Kansas.
This shipment contained a sensitive "state of the art" piece of equipment.
Through coordinationwith Commerce, who did' no6aant the shipment to leave
the U.S., it was decided to substitute the shipment. The state of the art
equipment was substituted with sand bags through the cooperation of the
freight forwarder. The original shipment was seized. The purpose of the
substitution shipment was to trace the export route and determine its
ultimate destination without risking losing the equipment to the Soviets.
Linhoff had changed the inscription on the original shipment (did not exist)
and the destination as Reimer Klimatechnik, Hamburg, West Germany. Reimer,
we later learned, was an alias used by Volker Nast, a West Germany associate
of Richard Mueller-, who was also known to be in the business of procuring
U.S. technology for the U.S.S.R.
While the substitution was being made, searches were conducted of
II Industries, Kasper Instruments, Allen Electronics and Linnhoff's residence.
.Incriminating evidence indicating shipments were going to the U.S.S.R. was
discovered. Indictments were drawn and issued for Robert C. Johnson of Kasper
Instruments, Linnhoff, Starek and Carl Storey of II Industries. Linnhoff fled
to Germany and the others ultimately pled guilty to a felony.
Linnhoff was subsequently interviewed in Germany by German and U.S.
Customs and stated that the shipments were destined for the U.S.S.R. and that
he had been advised by Nast that the Soviets had received a shipment of sand.
During the investigation of II Industries and Kasper, I learned that
Richard Mueller elicited the services of John Marshall through Carl Storey.
Marshall is the former owner of Advanced Micro Devices, Santa Clara County,
California. Marshall, an expert in the semiconductqr manufacturing industry,
agreed to provide consulting services to the Soviet Union on behalf of Richard
Mueller: Marshall visited the Soviet Union on at least two occasions to provide
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consultation for the proposed construction of semiconductor manufacturing
facility. Marshall. eventually stopped providing consultation to the Soviets;
however, his business partner, John McCracken, succeeded him. McCracken made
at least one trip to the Soviet Union, again on behalf of Mueller, to provide
similar consulting services. McCracken, like Marshall, soon stopped providing
any services to the Soviets.
As I mentioned earlier, Richard Mueller played a role in the
diversion to the U.S.S.R. of technology involving Lother Haedicke, a
representative of Honeywell, West Germany. Customs learned that II Industries
and Kasper Instruments were linked to Haedicke during this time. Haedicke
conducted business with a West German, Jerry Gessner, who was the European
sales representative for Applied Materials, a Silicon Valley firm which
produces semiconductor manufacturing equipment. Gessner also acted as the
European sales representative of II Industries and Kasper Instruments. It
was eventually learned that Gessner was also in the employ of Richard Mueller.
Haedicke processed orders through Honeywell to export semiconductor manufac-
turing equipment from II Industries and Kasper. Kasper and II Industries
would export the equipment to Gessner at Applied Materials in Germany who
would work with Haedicke to ship it to the eventual customer. Haedicke was
subsequently prosecuted by the West German authorities for providing the
Soviet Union with information detrimental to its national security.
It is my personal observation that the Soviet Union lacks advanced
technology relating to the semiconductor manufacturing industry. During the
past six to eight years, there has been evidence which illustrates that the
Soviets have made great efforts, at a great expense, to obtain technology
relating to semiconductor manufacturing. The Soviets attempted in 1974 to
obtain, through illegal means, semiconductor manufacturing equipment through
Lother Haedicke of Honeywell, A.G. Further attempts were made in 1975 through
Richard Mueller, Volker Nast, II Industries and Kasper Instruments. Most
recently, it has been documented that from 1976 until 1980, the Soviets
obtained similar equipment through Anatoli Maluta and Werner Bruchhausen,
another West German business intermediary. The Soviets even solicited
consulting services from U.S. citizens, John Marshall and John McCracken.
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It seemed evident that the Soviet's aim was to construct a semiconductor
manufacturing facility by using U.S. technology and equipment. The equipment
the Soviets obtained from II Industries and Kasper Instruments comprised only
20% of the equipment necessary for a semiconductor facility. Assuming the
Soviets wanted 100% U.S.. technology for its proposed facility, where were they
obtaining the remaining 80% of the necessary equipment? Our law enforcement
operations, Commerce and Customs, have not assumed a proactive approach to
detecting where the Soviets intend to obtain needed equipment. It would be
possible, however, to more effectively control that which the Soviets have
targeted through adequate intelligence to the agents level of operations and
by devoting adequate resources to the investigation. For instance, if law
enforcement had intelligence that the Soviets were planning to construct a
semiconductor plant using predominatly U.S. technology, those agencies
responsible for export controls could more effectively 'monitor the most
likely.industy to_be approached by them. The Soviets have taken advantage
of the weak export control efforts of the U.S. to obtain whatever they need.
The Soviets, in most instances, know exactly what technology or equipment they
need. They contract to procurement groups such as Mueller, Nast, Bruchhausen
and others to obtain what is needed. Cost is no object to the Soviets, making
it an extremely lucrative line of work for intermediaries. These intermediaries
form companies with the U.S.to purchase equipment which is then exported to a
friendly West European nation or neutral nation (Switzerland, Austria, or
Lichtenstein) and transshipped on to the Soviet Union.
Circumventing or violating the U.S. export controls is a relatively
easy task. There simply has not been enough.attention or priority devoted to
the enforcement of this area. Most federal agencies have little or no juris-
diction in this area: Those that do, Commerce and Customs, have had limited
success. The past efforts made by the U.S. to enforce export control laws
has been weak. Today, I can state that Customs has given high priority to
this area of enforcement and I am optimistic about potential results. Export
violation cases require investigation both domestically and abroad. In the
past, the U.S. had received little cooperation or empathy from our allied law
enforcement agencies when pursuing export violators. Neutral nations strictly
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prohibit U.S. investigations of any kind within their countries whereas
other allies do not appear to consider the violations serious enough to
cooperate. This attitude may possibly be encouraged by our own lack of
priOrity to export violations.
Today, Richard Mueller, Volker Nast, and Frederick Linnhoff are
all fugitives from U.S. justice but are free men residing in West Germany.
Nast was indicted by U.S. authorities a second time, as late as 1981, for
attempting to illegally export a U.S. Munitions list item destined for
Hungary; yet he is still a free man in Germany. Starek, Storey and
Johnson never served prison sentences, and to my knowledge those U.S.
perpetrators in the past received light prison terms and even lighter
administrative sanctions. I believe it is time for our Government to
approach export control with dedication, priority and with the cooperation
and coordination of those agencies who have been mandated with the
responsibilities and jurisdiction.
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I have read, reviewed and initialed each of the eight pages of
the foregoing statement, and I swear to the best of my knowledge that it
is true and correct.
Sworn and subscribed to before me
this ic.) day of 1982.
Notary Public
My commission _expires:
CHARLES L McLEOD
Witnessed by me as Acting Special
Agent ln Charge.
-
?.;
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Ms. HILL. Also we have several other statements that I would like to
introduce as exhibits to be filed with the subcommittee.
One is a briefing on duel use technology transfer prepared by Col.
Kenneth Evans with the U.S. Army, a statement prepared for the
subcommittee by the American Society for Industrial Security, a
statement prepared by the Computer and Business Equipment Man-
ufacturers Association, a statement prepared by the Electronics In-
dustries Association and a statement prepared by the Scientific Ap-
paratus Makers Association.
[The documents referred to was marked "Exhibits Nos. 33, 34, 35,
36, and 37, for reference, and are retained in the files of the sub-
committee.]
Ms. HILL. In addition, we have a bulky exhibit which contains
numerous documents and court exhibits which have been received by
the staff durinc, the investigation which I would like to make part of
the record, and, Mr. Chairman, I would ask that the record be allowed
to remain open for about 10 days because we do expect to receive other
exhibits that we have requested at this time.
[The documents referred to was marked "Exhibit No. 38," for refer-
ence and are retained in the files of the subcommittee]
diairman Rom. So ordered.
Mr. WETLAND. Mr. Chairman, just so it is clear for the record, does
minority counsel want to have all of those affidavits and association
statements published or merely the affidavits?
Ms. HILL. We want them all in the record as exhibits. Mr. Chair-
man, we ask that the statements be introduced into the record as
exhibits but we ask that only the three affidavits be printed.
Chairman ROTH. With that amendment, it will be so ordered.
[At this point of the hearing, Senators Nunn and Rudman entered
the hearing room.]
Chairman ROTH. Senator Rudman?
Senator RUDMAN. M r. Brady, I don't know whether the reference
to historic should have been prehistoric but let me just get a few things
straight.
What was the date of your swearing in?
Mr. BRADY. June 13?
Senator RUDMAN. I thought it was last spring.
MT. BRADY. Right.
Senator RUDMAN. Around the 13th of June, which means you have
been on the job now for just a bit short of a year. In terms of results,
actually results of getting things turned around, I think you would be
the first to say that at this point that really hasn't happened, wouldn't
you agree?
Mr. BRADY. In terms of the organizational changes and retraining
the personnel, making the changes we want made, you are absolutely
right. Senator, I think, however, the changes you are implying should
have taken place, do not happen overnight.
Senator RUDMAN. That is exactly what I am getting to. There had
been really two or three major criticisms of Commerce and, of course,
the suggestion, I think, made out of frustration on the part of many of
a transfer.
[At this point of the hearing, Senator Nunn withdrew from the
hearing room.]
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Senator RUDMAN. I have read with some interest this February 1980
hearing at which you and others testified, and you, yourself, addressed
some of those very problems in that hearing.
The problem is that you are now here at this hearing and the burden
is on your back. And I think Senator Nunn is probably correct in his
assessment of the Progress made to date. But believe me, lust so we have
the record straight, in those two or three areas that you believe were
problems when you arrived there, which in response to a ouestion just
before we had to leave for that vote, you said would be addressed, you
thought with results within 6 months. Just in terms of getting the rec-
ord very clear at this point in the hearing, let me now just recap those
initiatives which you have undertaken that you think will lead to those
results over the next 6-month period, so that if we have a hearing 6 or
8 months from now we can now go back to the hearing record and
take those items, look at what you have done and see what the results
actually are.
Mr. BRADY. Senator, I would first have to preface my remarks by
saying that without the knowledge of what the threat was. knowing
how the Soviets were operating, we could not take the specific organi-
zational steps that we have taken.
[At this point of the hearing, Senator Nunn entered the hearing
room.]
Mr. BRADY. We have, one, created a deputy assistant secretary for en-
forcement which will vastly upgrade the function in terms of its visi-
bility.
Second, the Compliance Office has already received additional re-
sources in the form of 15 positions for the west coast and we now have
personnel actions in process to hire those individuals.
Third, we have created an analytical unit within the Office of Export
Administration, cutting across a couple of divisions, as a matter of
fact, including the compliance division as well as the licensing division,
that is being tremendously successful in terms of showing us the routes
of diversion, likely diversions, et cetera.
Fourth, we are creating a foreign availability assessment center.
We have an individual on board now and there is recruitment action
out for others.
Within the intelligence agency at the prodding of Secretary Bal-
drige, Secretary Olmer, and myself, there has been created a functional
unit totally dedicated to the technology transfer question in terms of
intelligence information. This information is now being made available
to us.
Every week, and my deputy twice a week, as well as the director of
the Compliance Division, the position that is now vacated, we review
all of the intelligence leads provided.
Very often we have difficulty on sources and we have to wait to use
the information, but nevertheless, we get it. We are using that.
We will be restructuring the office, abolishing positions, abolishing
certain units, and I would wrap this up by saying that the Secretary,
as well as the Under Secretary, have indicated a total commitment to
do whatever is necessary in terms of resources to get the job done.
Senator RUDMAN. So if I understand your testimony correctly, what
you are telling us here this morning is that upon taking over last June,
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with the background you have and your knowledge of some of the
problems, but obviously not all, you proceeded to evaluate the threat,
to look at the organization, to meet the threat once you had that evalua-
tion?I assume CIA and DIA probably with their input?and finally
sometime midway into your year., you started these four major initia-
tives, the latest of which has been the hiring of someone who obviously
we have a great deal of respect for who understands the nature of the
kind of litigation which is highly specialized.
Mr. BRADY. Precisely.
Senator RUDMAN. So you took about 6 months to find out what you
really needed. You are now in the process in the second 6 months of
organizing that task to meet the threat, to meet the problem, and you
are telling us sometime between now and the first of the year, you
should be able to come and show us specifically, (a) the evaluation,
(b) the implementation to meet the requirements set forth in the eval-
uation, and (c) the results.
Mr. BRADY. That is right. That is absolutely correct, Senator. I for-
got to add the major impetus that we undertook as an administration
was to deal with the international aspects of the diversion problem,
which are far, far greater than the purely diversion aspects or even the
intelligence, counterintelligence problems domestically. We did this,
beginning a year ago, when the President went to Ottawa. So to say we
have not been very active and very aggressive in the general technology
transfer area is simply not consistent with the facts.
Senator RUDMAN. I think in fairness to your committee staff and
yourself, the report done by the staff is probably historically correct
and it probably is currently correct in some areas because by your own
testimony you have only started to implement during this year what
you want to do.
In fairness to assess whether or not there ought to be legislative
action to change jurisdictional lines, I think we ought to give you
an opportunity to do what you think has to be done and then to look
at it again at some time in the future.
I have one last very brief question, Mr. Chairman.
In your testimony back in February, I believe it was February 20,
1980, one of the things that you referred to, which is quite under-
standable, was the difficulty in assessing the nature of some of the
items that had to be licensed or decisions to be made on licensing
because of their highly technical nature; you were having difficulty
at the grade levels of entry into Government service to hire the people
with the kinds of technical background to look at a particular chip,
microchip, microprocessor, a piece of laser technology, a piece of
grinding technology and you say this has very serious impl:ications.
People have to know what they are looking at. My question is:
Has that become any better?
Mr. BRADY. No; it has gotten worse. As a matter of fact, Senator,
we had thought throughout the Government that the Soviets, or gen-
erally for that matter, even the West, were not able to extract tech-
nology, to any significant extent, from a chip or a number of high
technology practices.
Frankly, we are reassessing it in that respect because they may be
able to do it in a better way than they have which makes, again, the
problem that much more difficult.
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I would not be candid if I didn't say today that this problem is
monumental. We are never going to solve it entirely; we are never
going to stop the total leakage of technology to the Soviet Union
simply because we are a free country. We have free borders. It is just
a massive problem, and the things I outline in my oral statement
today, such as the growth of multinational communications, the
mobility of people, the role of the academic institutions are all vast
problems and we will address them, and I think we can make sub-
stantial progress in stopping the leakage but it will never be shut.
Senator RUDMAN. What resources do you have available to you to
give you the kind of advice that you need to make decisions which are
going to be based on the evaluation of highly technical information?
Mr. BRADY. This is one of the areas we have addressed in the last
year, and my deputy has addressed much more directly. We are having
difficulty because of the grade structure to bring the people onboard,
the engineers we need. We have some very good engineers onboard.
We need more and we are recruiting for that.
As a matter of fact, one of the things we have done is to try to shrink
the support arm of the licensing function to get more actual engineers,
people to deliver the product. We have had fairly good success with
that. To address the backlog of the 2,000 applications that we had
when we came into office, we got on loan from the Department of De-
fense, as well as NBS, some technicians and scientists to address that
backlog.
Senator RUDMAN. Do you still have access to them? Is there any
formal or informal working relationship? That is the reason for my
question because over at the Defense Department, NASA, and a few
other agencies, there are very sophisticated scientists as well as engi-
neers who are able to do some assessments.
Do you have accessibility to them?
Mr. BRADY. We use the Department of Defense personnel, including
the people in the labs extensively. I am not sure if there is a formal
agreement. DOD has a veto over some of the actions we might want to
take and, therefore, they have a statutory responsibility. So that we
use them extensively.
Senator RUDMAN. Thank you, very much.
Chairman ROTH. I have no more questions but I would like to make
an observation.
I support both what Senator Rudman and Senator Nunn have said.
The problem, Mr. Brady, has been too often in these hearings that we
hear about plans and then when we hold hearings later, nothing hap-
pens. It is very aggravating and disappointing. I don't think that is
going to be the case here, but I think that the subcommittee has under-
scored a very important need for corrective action.
I would urge you to take that action because one of the things I am
determined in this committee is that we are going to have follow-
through hearings. We are not just going to investigate and forget. I
am sure you will agree with that being appropriate.
So I just want to urge that you proceed as expeditiously as possible
because sometime later this year or early next year we would like to
know what progress has been made.
Mr. BRADY. Mr. Chairman, as you know, the act is up for extension
in September 1983, and so we will be going through an extensive
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thought process within the executive branch. I would urge you to take
a very close look at us within the next few months to see whether or
not we fulfill the commitments that I have expressed today.
I assure you I will do everything in my power to fulfill those com-
mitments, and I have the Secretary's support in that. Again, with re-
gard to the report, I am not going to disagree with portions of that
report. I just think that it doesn't tell the whole story.
Chairman ROTH. Senator Nunn?
Senator Ntrxrc. Thank you, Mr. Chairman.
I just have a few more questions.
When you get that Inspector General's report, Mr. Brady, that we
all agree is current, having started in April and ended yesterday, I
would like for you to give us your answers to that.
Mr. BRADY. Absolutely.
Senator Nrmric. Let's get your answers and whether you think it is
historic or micro, little things like whether law enforcement people
carrying out law enforcement tasks, have law enforcement capabilities,
whether that is micro or whether that is macro, I guess it depends on
whether you are running the Commerce Department or the world.
Anyway, we would like to get your evaluation of that report.
Just a few other questions. I know you have heard about section
12(C) of the Export Administration Act. That is the section that deals
with proprietary information, and I know there has been a source of
friction between Customs and Commerce on that.
We got information from Customs that there were about 24 cases
that were held up or could not be completed by Customs because of not
getting information from Commerce on that. I am not suggesting it
is a simple problem and easy answer. But what has been done in that
area?
Mr. BRADY. Senator, with regard to those 24 cases, I have had a num-
ber of people look over those and there are some we simply are not
aware of in terms of any problems. I have to admit that there has been
a problem between Customs and Commerce and Commerce and some
of the other agencies concerning 12?C, business confidential informa-
tion. I think with regard to Commerce and to Customs, that problem
has been primarily at the working level.
I assure you that it has been worked out, that we no longer have
that problem. We have negotiated or are negotiating memorandums of
understanding with all the intelligence agencies and with Customs and
the FBI regarding sharing of information. There is still the problem
that we must, according to our law, (Yet a Secretarial determination if
the information is going to be used in thepublic, disclosed to the public.
[At this point, Chairman Roth withdrew from the hearing room.]
Mr. BRADY. I understand there is a divergence of opinion as to what
we construe as public and what the Department of Justice construes as
public, so we will address that. But the 12?C problem which has
existed, which I concede has probably been used at times by Commerce
individuals inappropriately, is behind us.
Senator NuNN. I am encouraged on that point. We will follow that
with interest.
You have been critical yourself in the past with the licensing func-
tion of the Commerce Department. We have centered so far on the
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Compliance Division in questions and so forth. But what has been done
in the licensing areas? What do you plan to do to improve the things
you pointed out in the past yourself?
Mr. BRADY. Basically three things, Senator. One, when we came into
office, we wanted to have a review of the policy, and we got that. So
that the President, before he went to Ottawa and discussed the whole
East-West trade situation with our allies, did so on the basis of an
extensive, indepth policy review which was agreed upon. We have
probably had more NSC meetings in this area in the last year than
have ever been held previously with regard to the whole subject
matter.
We have policy guidance from the highest level, both with regard to
the Soviet Union, with regard to Eastern Europe, with regard to the
PRC, and with regard to the pipeline and the oil and gas question, as
a matter of fact. That is one area.
Second, the interagency machinery that was in existence but had no
life under the previous administration has been put to use and from
the top on down. We have an Export Administration Review Board
i
which s chaired by the Secretary and that has met on a couple of
occasions to decide certain cases and policy elements. The rest of the
structure, namely what we call the ACEP, which is chaired by me at
the Assistant Secretary level, my deputy at the Deputy Assistant
Secretary's level, and staff level is working and working well. The
issues are being resolved and I believe we can verify that with the
fact that we had over 2,000 cases that were over the statutory deadlines
in the process when we came into office a year ago.
They have been eliminated. We have something like 30 or 40 cases,
depending on the particular week we are in which are over the stated
timeframes and,_ frankly, there will always be a handful of those. That
doesn't mean we have done the task in terms of, one, interagency
cooperation, or in looking at what should be controlled, because that is
based on the policy decisions that were made by the President a year
ago.
We went to our allies, both in the NATO framework as well as in
the Cocom system, and we got a political direction in January and we
are now moving to redesign the list of controlled commodities so that
we move away from what was controlled in the fifties and sixties when
we concentrated on products. We are now focusing on technology,
design, manufacturing, and production of technology.
Senator Rudman referred to microprocessor chins. In the final anal-
ysis there is no way we can keep somebody from walking into Radio
Shack or any computer store in the country and buying a handful of
those chips and nutting them in a diplomatic pouch and leaving. We
recognize that. But it's the technology to make that chin or that mi-
croprocessor which is really important to the Soviets, and that is
what we are trying to concentrate on, particularly in nondefense pri-
ority industries.
Senator NuNN-. I certainly agree with that priority, and I think that
one of the most important things is to have a continuing update of the
critical technologies that the Soviets are likely to target and are likely
to need and to really prioritize those. That is not to say that others
are not important, but to concentrate on those and to educate the pri-
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vate sector on those. I don't believe there is any way that the Govern-
ment of the United States, no matter what you do in the Compliance
Division or the Licensing Division, no matter what State, Defense,
Customs, no matter what they do, they are not going to be able to
control this problem without tremendous cooperation from the private
sector.
It seems to me, forgetting our disagreement on compliance right
now, that one of the areas Commerce really can move forward in is
this educational campaign, and you are in contact with businesses.
They do respect you. You do have a little leverage there. They will
come to meetings when Commerce talks. So I think it is very im-
portant for you to carry out this education function.
I consider that the most important function Commerce has got,
even if you have everything ironed out in the Compliance Division,
I think that pales in comparison because of the limitation of the
numbers, and so forth, and because of the ability to try to educate and
stop this stuff at the source rather than at the borders.
Mr. BRADY. Senator, I agree with you entirely.
Senator NuNN. Stuff is not a good word for high technology. We
will strike that word. Just high technology transfer instead of stuff.
Mr. BRADY. What we are talking about is a massive problem. In a
way, industry is behind the times because they are worried about cer-
tain aspects of their security and they have allowed it to go unnoticed.
That is a task in the Department. It is a task we have spent quite a
bit of attention on. Frankly, we are sending out to the field something
like 60 additional Commerce individuals that are associated with our
field offices, who are normally associated with trade activities, but
whose job is also to educate the business community on the needs if
they are exporting.
There is no exporting seminar that is ever given in this country
without either participation from the Office of Export Administra-
tion with regard to the needs of licensing. It is a complex function
and it is one that we are going to try to do a lot more of.
Senator NuNN. Regarding the critical list, you can let business know
in these seminars what is on that list. Then private industry, those who
are loyal and patriotic, and that is 99 percent of them in my view, will,
I think, pay close heed to this. A real educational campaign about in-
ternal security also would be useful. I know the bigger businesses have
it. Sometimes it is not very good. But smaller businesses sometimes
don't even think about it.
A lot of our technological innovation is coming from small business
people. I would say most of them.
Mr. BRADY. That is right.
Senator NUNN. I would hope you would really bear down in the
educational effort. it seems to me that Commerce has a unique kind of
capability in that respect because you do have people out in the busi-
ness community, with your seminars, and other programs. Of course,
I think on the other side, Customs has a real law enforcement advan-
tage because they have people who are naturally involved in that all
the time. But nevertheless, I would hope you would really give top
emphasis in the Commerce Department to that educational function.
Mr. BRADY. We will, Senator.
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Senator Nincisr. Assume all your plans take place, everything hap-
pens in the Compliance Division that you have outlined and 6 months
from now you come back here and say we have done all of these things,
we have corrected all the problems, we have all the people, so forth,
what then do you envision as your role with compliance?
For instance, will you have people that visit airports, will you have
people that visit ports? What will the Compliance Division in the Com-
merce Department in a perfect world be doing?
Mr. BRADY. Senator, assuming that Customs continues its inspection
operation, the Exodus operation, I think it would be duplicating that
action for us to be doing inspections for inspections sake. That doesn't
mean we would not send special agents when they are working on a case
to a particular port, but I think it is important that we not duplicate
what, in fact, is done by Customs and can be done better because they
do have the manpower at the ports, as far as inspections are concerned.
Senator NuNN. The same thing would be true with airports?
Mr. BRADY. Yes, sir.
Senator NuNN-. You are saying all ports?
Mr. BRADY. I am saying all ports, water and airport. So I would not
expect us to have an inspection function as such. I would expect us to
have a very strong special agent force that works closely with the CIA
and FBI to get the leads to get at the diversion problem. We do get
them, but there are sometimes problems because we can't use them be-
cause of the sources. To get at the diversion problem, our efforts will
also include an education campaign. That also spills over to other
agencies in Commerce, both in the United States and overseas, per-
sonnel helping us extensively in our enforcement efforts.
When we get a case of licensing and we don't know the end user,
we request information from our personnel overseas.
Senator NUNN. I am going to have a few observations at the close
of the hearings and one of them is going to be that licensing should
remain at the Commerce Department. So my critique of Commerce is
going to be on the Compliance end as well as other things. But what I
am trying to get at, in a perfect world when the Compliance Division
is operating effectively and efficiently as you envision it, what are you
going to be able to do that Customs can't do? That's the central ques-
tion:-If you are not going to have them at ports of exit and you are
not going to inspect and so forth, and I agree with that. I think you
are absolutely right on that, it would be duplicative. But if they are
not going to do that kind of thing, it seems to me that what you are
describing is really a liaison between law enforcement and licensing.
Mr. BRADY. I think it is more than that. Senator, it goes to the fact
that the inspection at the ports of exit which Customs does is a small
part of the problem, a very small part of the problem, and none.of the
major cases we have had have grown out of inspection of crates at the
ports. What we need are special agents who can prosecute investiga-
tive cases.
Senator N'uNN. That is the Justice Department.
Mr. BRADY. I mean prosecute to the point of turning the case over to
Justice.
Senator NuNN. You mean investigate special cases?
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Mr. BRADY. Precisely, investigate diversions, work with the FBI
and the CIA to get the information.
Senator NUNN. Why can't the FBI do that? What is it that Com-
merce brings ?
Mr. BRADY. FBI deals with espionage only.
Senator NUNN. This comes darn close to espionage. The Bell case
and other cases it seems to me are very, very close to espionage. I can't
understand what it is Commerce brings to this that the FBI or
Customs doesn't already have.
Mr. BRADY. It brings the entire knowledge and expertise of what is
licensed for dual-purposes. In other words, which computer requires
a license, which doesn't, where they are going, the fact that before we
license cases we must get a rundown on some of the end users.
Senator NUNN. Why can't the FBI or Customs do that?
Mr. BRADY. Because they just don't.
Senator NUNN. They don't
Mr. BRADY. Frankly, the working relationship with Customs has
not been all that high and it is not one sided.
Senator NUNN. I am not shocked to hear that after a year of inves-
tigation.
Mr. BRADY. And I am not pointing fingers. I think the close associa-
tion between what the enforcement arm that we envision with a li-
censing process, as well as with the intelligence community is going
to provide the insight, the expertise to go out and investigate the cases
that are truly the major cases. And the analytical unit that we are
talking about that we have established in recent months, for instance,
is coming up with a substantial number of cases. This is just as a result
of the information we have.
Senator NUNN. Looking back fcr a moment historically, has there
been a major case that you can identify that Commerce has done the
majority or the bulk of the investigative work in and has been suc-
cessfully prosecuted?
Mr. BRADY. Well, I know both the Spawr and Maluta cases, Senator,
were closed out by Customs at one point. If it had not been for a certain
inspector in our Division, there is a very good question as to whether
those cases would have been prosecuted.
They are two of the largest cases we prosecuted in recent years.
Senator NUNN. We have heard testimony that the agent that you
had who handled those cases is an excellent agent and did a very good
job. I think we are in agreement on that. Do you have any others?
Mr. BRADY. There are four cases now?well, there are more than
four cases now. But I understand there are four cases that are either
in transmission to Justice or are there for criminal prosecution so that,
again, the criticism is valid, however--
Senator NUNN. How many years have you had a Compliance Divi-
sion?
Mr. BRADY. I believe it goes back to 1949. Yes.
Senator NUNN. We would like for you to furnish for the record
all the significant cases in which Commerce has played a major?I
won't say the major, but a major investigative role.
Mr. BRADY. OK. Senator, two points. One, I do not think it is
necessarily bad that Commerce, once it discovers a lead or once it
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begins an investigation, has to go to the rest of the Government for
help.
Senator NUNN. I don't either.
Mr. BRADY. I think that is the kind of coordination this Government
desperately needs, and we are trying to accomplish it. I think that I,
Ed O'Malley, Willy Von Raab, and the CIA have made great strides
in this direction.
There is another point, however, which we have not discussed this
morning, and that has been the legislative participation in the whole
technology transfer process. Beginning in 1969, this act was changed
and over the 1970's, every extension was successively liberalized to
not only permit but actually to encourage the executive branch to be
more liberal in terms of its exports. In retrospect, that was a mistake.
But the point is that through the 1970's, there was not a very strong
compliance arm simply because the whole process was not viewed as
all that important because after all, we were establishing detente with
the Soviet Union, and we were going to industrialize them without
technology.
Senator NUNN. I certainly think that is an accurate observation. I
do not think there is any doubt about that. That is an attitudinal
situation that existed for a long time.
Let me ask you a couple of other questions. Have you looked into
the grain embargo enforcement effort by the Commerce Department?
Mr. BRADY. Senator, I am aware?
Senator NuNN. Without asking any leading questions, why don't
you tell us what you think about that since we both agree that is
historic but perhaps also indicative?
Mr. BRADY. The President lifted the grain embargo because he said
that others had moved in and simply taken up the slack that we had
tried to curtail. Grain is an impossible commodity, as you know, to
trace.
I am aware of the criticism in the report that there was one agent
assigned to the enforcement of the grain embargo.
Senator NUNN. In the Commerce Department?
Mr. BRADY. Right.
Senator NUNN. He was responsible for all compliance and enforce-
ment, is that right, for Commerce?
Mr. BRADY. I understand that he worked on an interagency com-
mittee, and he was the Commerce representative.
Senator NUNN. Wasn't Commerce the designated agency to enforce
the grain embargo?
Mr. BRADY. Yes; it would be, butit was an interagency effort in terms
of acquiring information. From what I understand, there are few agri-
cultural exporters. Unlike a computer, it cannot be packaged in a small
box. A ship leaving with a grain shipment is a fairly visible item. I am
not condoning 1 person, and I am not even sure that 15 people can
enforce the grain embargo. I don't know.
Senator IsruNbr. You would be pretty certain one can't; wouldn't you
Mr. BRADY. Absolutely. I do know that as a result of what we call the
"Great Grain Robbery" in the early 1970's, that transactions can actu-
ally, before start and finish, go through 40 different hands before a
grain shipment finally gets to its destination.
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I think there is a real problem with trying to enforce that kind of an
effort, and based on the resources that they had, Mr. Chairman, I am
not sure, in view of the high technology concerns and their impact on
the military of the Soviet Union, I would prefer the agents in the high
technology area rather than in the grain area. I was not at Commerce
at the time the decisions in this regard were made.
Senator NUNN. Even if this was a major part of the President of the
United States foreign policy at the time, one of the major moves he
made in the whole 4 years? If you were President Carter and the Secre-
tary of Commerce came over and the President said to him, "Oh, inci-
dentally, Mr. Secretary, how many people do you have working on the
grain embargo enforcement ?" Would you want to reveal to President
Carter at that stage?I am not saying whether, the policy is correct.
That is a macrodecision. Let's talk micro. "Would you want to be the
Secretary of Commerce who came over and said to President Carter,
"We have got one person who is sitting in the Commerce Department
making sure that everyone complies with your grain embargo. He
hasn't had time to leave the office for the last 6 months because he is
so overwhelmed with reports, but we have priorities elsewhere." Would
you want to be the Secretary of Commerce who conveyed that message?
Mr. BRADY. Well, if that Secretary had told the President that it was
unenforceable to begin with, I wouldn't mind being that Secretary.
But I do not know if the President was ever told that it was unenforce-
able.
Senator NUNN. I would doubt very seriously anybody told him one
person was working on it. That becomes a self-fulfilling prophesy if
you only have one person working on it.
Of course, based on Commerce records, there was 100 percent com-
pliance anyway. Maybe we didn't need enforcement.
Mr. BRADY. Senator, I am not going to condone one person being
assigned to the grain embargo.
Senator NuNN. That again, is historic and I hope we can learn by
that.
Whether Presidential policy is correct or not and whether it really
is completely enforceable or not, I do not think is a decision for peo-
ple who are supposed to carry it out to make. I think they have to do
the best job they can with resources.
Let me ask you one other question. Have you heard of the Polam-co
case?
Mr. BRADY. I am aware of it, yes.
Senator NuNic. This is a case where we heard considerable testi-
mony. William Bell, a Hughes Aircraft radar specialist, was con-
victed of selling military secrets to Polish spies. The President of Po-
lamco, or the President-designate of Polamco was convicted and ac-
cording to all information we had was really pretty much admittedly
an agent of the Soviet Union. This was a case made by the FBI.
We understand Polamco is a company that is still not on the denial
list of the Department of Commerce. Is that correct, and if it is cor-
rect, could you tell us how that situation operates?
Mr. BRADY. There is a difference between the denial list, which is the
result of an administrative proceeding where a company is denied ex- ,
port privileges, and a screen where we review license applications
against the possible problem companies. It is my understanding that
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the company is on screen and not on the denial list. It is not denied
export privileges because we do not have the authority to deny it.
Senator NU NN. What is the screen?
Mr. BRADY. The screen is a review. It is a list of the companies of
individuals against which a license application is checked initially
when it comes into the office.
Polamco is on that screen but it is not denied export privileges. It is
my understanding that we do not have "an export administration
case" against the Polamco. As you know, it is, I think a Polish com-
pany chartered under the laws of California or Illinois. That is a
growing phenomena that concerns law enforcement people through-
out this Government.
Senator NErNisr. What do you have to do to have an export admin-
istration case? I assume you are saying to be on the denial list there
has to be a case made?
? Mr. BRADY. That's right.
Senator Ntricx. Will you walk us through that? In order to get a
company on an export denial list, what has to happen?
Mr. BRADY. We either have a criminal prosecution or administrative
prosecution with sanctions being levied. As a matter of fact, one of the
real?
Senator Nurrisr. You had a criminal prosecution here.
Mr. BRADY. But not under the Export Administration Act. It was
an espionage, I believe, prosecution. And there is a difference. We do
not have the legal authority to do what you and others would like us
to do.
Senator Nurrx. Doesn't that law need to be changed, then?
Mr. BRADY. It may well, Senator, it may well. And the whole area of
Communist firms chartered in the United States is, we believe, ripe for
diversion. It is one we are looking at. There are constitutional questions
as to whether we can require Federal Government approval prior to
those companies being chartered in the United States. We are looking
at a reporting requirement.
Senator NuNx. We are talking about two things, as to whether they
are chartered and the second thing is whether they can export.
Mr. BRADY. They can export legally if they come in and get a license
application and we grant it to them, which is a big "if." If they export
illegally, then we can prosecute them. We cannot, however, prosecute
them for first, being chartered here or, second, acquiring technology
within the United States. And that is what is taking place.
In other words, these Communist-owned chartered entities are ac-
quiring U.S. technology and we are concerned that it is one of the
strong vehicles by which it is leaving the country. That is something
that a number of individuals and organizations are looking at and
working on.
Senator NUNN. What do you have to have in order to put somebody
on the denial list? Tell me that again.
Mr. BRADY. Again, a criminal prosecution?
Senator NUNN. Criminal prosecution only under the Export Admin-
istration Act.
Mr. BRADY. Or an administrative prosecution. I will have to turn
to?
Senator NuisTN. If you have a lawyer here, let's have the lawyer ex-
plain the exact state of the law here.
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MS. BREED. In order for a company?
Senator NUNN. Give us your name.
Ms. BREED. Pamela Breed.
In order for a company to be placed on the denial list, we would
have to go through an administrative procedure which is a charging
letter alleging certain acts had taken place, give the respondent an op-
portunity to answer the charges and perhaps go to a hearing on the
charges before a hearing commission.
Senator NUNN. That would be a civil proceeding?
Ms. BREED. Civil proceeding.
Senator NUNN. What are the grounds for your bringing that?
Ms. BREED. For a civil proceeding?
Senator NuNN. Yes.
Ms. BREED. A variety. Illegal export, re-export, diversion, causing,
aiding or abetting a violation.
Senator NUNN. Wouldn't the Polameo ease, when the president of
the company has been convicted of espionage?
Ms. BREED. It is a violation of the Export Administration Act.
Senator NuriN. The only thing that you can put them on the denial
list for is for violating the Export Administration Act.
Ms. BREED. That is right.
Senator Nuicx. I thought you fast listed several other reasons.
Ms. BREED. Aiding and abetting in violation of the Export Admin-
istration Act.
Senator Nuiciv. It is a very narrow statute. You can only put some-
one on the denial list if they have been convicted of an Export Admin-
istration Act violation. You bring a proceeding alleging violation of
that act.
Ms. BREED. Alleging violation.
Senator NUNN. even if they committed espionage, that is not
grounds for denial?
Ms. BREED. That is correct. You have to tie in the sanction under an
act to the violations in the act.
Senator NUNN. You are saying there would be a constitutional
problem if we were to amend the law and say if you have been con-
victed of espionage, that there be ground for civil proceedings under
the Commerce Department.
MS. BREED. There could be a problem. We have not studied that
aspect of it.
Senator NUNN. It seems to me this is a very large loophole, Mr.
Secretary.
Mr. BRADY. Senator, yes, it is, and it is one of the things that we are
looking at. I started to say that we are looking at the constitutionality
and legality of a reporting requirement to require that, one, a firm is
chartered when it is reported to us, or when they acquire technology
within the United States, they report it to us. But, again, it is a ques-
tion as to how much enforceability there is to that kind of provision. It
is a that we are all looking at and I think as we go through the
next few months, particularly later this year or early next year, in
lookmr, to the extension of this law., this is very definitely one that we
a 1 I should concentrate on.
Senator NuNN. I certainly agree.
wc,--ld like to formally ask, Mr. Brady, you give us your opinion
aftei consulting with your legal department as to exactly what that
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act provides, and what needs to be done in the view of the Commerce
Department to plug up the loophole if it is as large as it appears to be.
I am going to ask the staff to pose a similar letter to the Attorney
General and have him look at it, too.
Mr. BRADY. Senator, it may be we can actually use as one of the
sanctions in an espionage prosecution the denial of export privileges to
an individual form.
Senator Nuicx. It seems to me that is something that would be logi-
cal. Senator Rudman, I know I have taken too much time.
Senator RUDMAN. Mr. Brady, thank you very much. This concludes
5 days of hearings on this subject.
You will, of course, respond to those questions asked for the record.
Senator Nuicx. Mr. Chairman, I do have a statement.
Senator RUDMAN. Proceed with your closing statement.
Senator NuNN. Thank you, Mr. Chairman. Mr. Secretary, we thank
you for being here today. We don't agree on everything. I know you
are sincere in your efforts and will continue to work on it. We will
continue to follow your progress with a great deal of interest, both in
licensing and in compliance.
I would like to make a statement giving my observations here as to
what we have learned in the last 5 days and at least a partial list of
recommendations that Senator Chiles and I will at least make to the
subcommittee. These are certainly not subcommittee findings. That
will be for the full subcommittee to make a decision on.
The Senate Permanent Subcommittee on Investigations has con-
cluded 5 days of hearings on the transfer of American technology to
the Soviet Union and Soviet bloc nations.
The hearings, in my view, underscored the need for improvement in
U.S. efforts to halt technological drain, both in the governmental and
private sectors.
Based on information developed in the hearings, we believe the sub-
committee should recommend to the full committee and the Senate the
following legislative proposals and corrective actions.
First, the Soviets dedicate substantial resources to highly focused
and increasingly adept attempts to secure American technology. By
contrast, the _American response often has been unorganized.
A restructuring of American efforts to halt undesired technology
transfer is called for. Through improved intelligence, we must deter-
mine what it is that the Soviets want and then model our response
accordingly. Our Government should seek to prioritize the critical
technology the Soviets need for military purposes and devote consid-
erable efforts to education and enforcement of the prioritized items.
No. 2, there is a need for reassessment of the ability of the Depart-
ment of Commerce to carry out its present enforcement responsibilities
under the Export Administration Act. Commerce presently carries
primary law enforcement responsibility, with secondary jurisdiction
resting in the U.S. Customs Service.
Commerce maintains both licensing and enforcement under the act;
by contrast, under the Arms Export Control Act, those functions are
handled separately by the Department of State and the U.S. Customs
Service.
And I might add we understand from both State and Customs that
that arrangement has worked very smoothly.
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The enforcement responsibilties under the Export Administration
Act should be altered, first, by delegation of full enforcement respon-
sibility to the U.S. Customs Service, with the licensing function re-
maining at the Commerce Department. In addition, for a long-range
solution, Congress should consider the concept first put forward by
Senator Garn to create an Office of Strategic Trade that, among other
things, would absorb the functions of the Office of Export Adminis-
tration.
I reserve final judgment on that. I certainly think that should be
the focus of another hearing, Mr. Brady, after you get a little further
along with your licensing proposal. Because I can see some real ad-
vantages in having the licensing and education functions that I al-
ready enumerated that I think should be your top priority in one
department.
No. 3, the Export Administration Act should be amended to include
as a criminal offense, the possession or attemped possession of re-
stricted goods with the intent to export such goods unlawfully.
Hearing evidence established the many difficulties law enforcement
authorities encounter in the prosecution and investigation of export
offenses. One problem lies in the absence of any offense until a suspect
actually exports the goods in question.
When arrest is delayed until the moment of export, law enforce-
ment necessarily risks the loss of territorial jurisdiction if the subject
departs the country. In export cases, where the offense is often non-
extraditable, that risk can be fatal to the success of the case.
No. 4, the enforcement tools currently available to the U.S. Customs
Service should be broadened. Consideration should be given to grant-
ing Customs officers express statutory authority for warrantless arrest,
search or seizure in cases of outbound cargo and persons, generally
equivalent to that authority which Customs now possesses in cases of
inbound cargoes and persons. Express statutory authority would em-
brace Customs' effectiveness in full enforcement of the export laws.
This authority has been implied by the courts in some cases.
No. 5, the Federal electronic surveillance statutes should be amended
to permit court-ordered surveillance where there is probable cause to
believe that a violation of either the Export Administration Act or
the Arms Export Control Act is being committed. As with the recom-
mendations to Customs' authority, this revision would enhance law
enforcement's ability to investigate complex export cases.
No. 6, the RICO statute should be amended to include, as predicate
offenses in proving racketeering activity, violations of the Export
Administration Act. Export violations often have been treated as
"minor" offenses, resulting in minimal sentences. Prosecution under
RICO would expose offenders to a possible N year prison sentence.
No. 7, the Freedom of Information Act should be amended to elim-
inate the application of the act to information requests made by for-
eign nationals. Faced with the disclosure of sensitive information to
foreign nationals, "cottage" disclosures industries, and others, such
statutory revisions would inject a reasonable sense of national security
considerations into disclosure practices mandated by the Freedom of
Information Act.
No. 8, the Department of State should seek mutual assistance treaties
between U.S. allies and neutral nations to obtain greater law enforce-
ment cooperation in the enforcement of export laws.
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The State Department should seek the inclusion of export violations
as extraditable offenses in agreements with foreign governments.
No. 9, the region in Santa Clara County, Calif.. popularly known
as the Silicon Valley, the heart of America's growing microprocessor
industry, is a prime target of Soviet efforts to transfer sensitive tech-
nology. Yet we were told that a strong Federal law enforcement pres-
ence has been lacking in the Silicon Valley in the past. State enforce-
ment efforts must be supplemented by a Federal interest in the prob-
lem. We note assurances from the FBI that it is aware of this problem
and is taking steps to increase its presence in the Silicon Valley and
other high technology centers. The Bureau is to be commended for its
corrective action in this regard.
No. 10, the technology transfer problem is, by all indications, a mas-
sive one requiring the attention of both the Government and the pri-
vate sector. Law enforcement and industry spokesmen suggested that
many high technology companies remain unaware of the extent of the
problem. Reportedly, industry interaction with the Commerce Depart-
ment is inadequate; unfamiliarity with the lists of controlled exports
is common within the industry. The FBI's DECA program, aimed at
improving the level of communication with the private sector, directly
educates companies involved in Defense contracts with the problem of
technology transfer. The Defense Department has begun a similar pro-
gram with the business community. There is a need for similar govern-
mental programs designed to inform the private sector dealing in sen-
sitive but nonclassified technology.
No. 11, private industry must contribute directly to any effort to halt
the technology drain. There is a lack of sufficient security precautions
at the sources of production in the technology industries. Lax security
measures were cited in some Silicon Valley plants. William Bell, a
Hughes Aircraft engineer convicted of selling military secrets _to
Polish spy Marian Zacharski, had access to sensitive information on
the basis of a security clearance which had not been reviewed in 28
years. The private sector, through the efforts of individual enterprises
and trade and professional associations, should be encouraged to main-
tain more effective security measures in plants producing sensitive high
technology items.
Massive Soviet efforts to obtain our technology resources can be
countered only through vigorous Government and law enforcement
efforts, bolstered by the strong support of America's high fechnology
industries.
I might add, Mr. Chairman, that there will be other recommenda-
tions. We will have some detailed recommendations on the Department
of Defense and I will have others, but et this point in time, I did want
to submit those as initial observations by Senator Chiles and myself.
Senator RUDMAN. Thank you, Senator Nunn.
I am sure there will be other observations and conclusions reported
out by other members of the subcommittee and possible suggestions
that will be joined together.
Certainly I commend the chairman and the minority staff for your
leadership in these hearings which I think are informative and will
lead to improvement on a very serious situation.
This subcommittee will adjourn now subject to the call of the Chair.
rWhereupon at 12:27 p.m., the subcommittee adjourned to reconvene
at the call of the Chair.]
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APPENDIX
PREPARED STATEMENT OF SENATOR WILLIAM S. COHEN
Mr. Chairman, I am pleased to have this opportunity to
7
participate in these hearings to examine the ability of our
government to enforce our export control policy.
Congress passed the Export Administration Act and the
Arms Export Control Act to establish a mechanism for controlling
the export of materials which might damage our national security.
The administration of this policy requires a careful balancing
of competing interests. Our economic goal of promoting exports
must be weighed against protecting our technological lead upon
which our national security is based. And the freedoms of our
academic community. to conduct research without government intru-
sion must be weighed against the extent to which Soviet technology
can benefit from U.S. science.
An area that has been of particular concern to me is
that of academic exchanges. These occur through personal
letters, visits, journal articles, and conferences and can
be beneficial to the well-being of both nations. However, in
certain circumstances, exchanges can be counterproductive
and damaging to our national security. American students
studying in the Soviet Union, for example, study marriage
patterns in that country between 1897 and 1975 and the economy
of Catherinian Russia. At the same time, Soviet students '
in the United States are studying chemistry, physics, laser
technology and applied computer science.
Recent events, however, call into question the adequacy
of existing policy to address these concerns. According to press
reports; the Soviet Union has increased its covert operations
to obtain technology that can be used for military purposes.
Similarly, we must question why, for example, Soviet officials
nearly won approval of an export license for industrial material
until the Defnese Department noted that the same article is
used by the U.S. Air Force to improve the hardness of our con-
crete missile silos. Perhaps most disturbing of all is the dis-
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covery by Pentagon officials of Soviet electronic circuit boards.
The computer chips in this circuit worked perfectly when American
chips were used as replacements, providing evidence that the
technology had been copied. This is the very technology on
which the Pentagon is relying for our future weapons improvement.
would like to commend Chairman Roth for his timely
investigation of this critical issue. I look forward to
examination of how the government's resources and information
could be utilized to promote ,a more effective export control
policy. Specifically, we need to address the current staff
allocations at the Commerce Department where only 25 investi-
gators are charged with the entire responsibility for export
controls even though there are more than 300 exit points
throughout our country. Since the U.S. Customs Service has
more investigative resources, does it make sense to transfer
responsibility for the Export Administration Act to this agency?
And how can-the information collected by our intelligence
agencies be used in a more effective manner in the enforcement
of our export control policy?
I believe that the efforts of the Administration in re-
viewing our export control policy should be commended, and I
look forward to working with them to develop an improved policy.
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PREPARED STATEMENT OF SENATOR HENRY M. JACKSON
Mr. Chairman:
I congratulate you, and Senator Nunn, and the Mashers and staff for
holding these hearings. The problem of assessing the loss of our tech-
nology and developing effective treasures to control its transfer is one
of the oust important facing the United States.
Documents and other information made available to the Senate by the
Select Committee on Intelligence, of which I am a uenber, as is the dis-
tinguished Chairman of this Subcommittee and the Committee an Governmental
Affairs, Senator Roth, establish that the Soviets are pursuing a purposeful
and determined campaign in this field. Their activities are nunerous,
diverse, and well-funded. And they have, in far too many cases, been
successful. We nowlcnow, and I believe these hearings will further deMon-
strate, that in many ways the United States has in effect been supporting
the uetastasizing power of the Soviet Union. As I Stated in remarks to
the Senate several weeks ago, "There is no longer doubt that our technology
has materially aided Soviet expansion. It has improved Soviet weapons,
intelligence devices, and economic leverage."
The need for a clpar and comprehensive tedhnology transfer policy
is compelling and urgent -- yet our government atill has a long way to
go.
PRIOR SUBCOMMITTEE RECORD
The hearings we begin today continue this Subcommittee's
distinguished history of investigation and legislation concern-
ing technology transfer problems. Our past activities have
included detailed scrutiny of particular licensing issues, such
.
as the Dresser Industries case, as well as studies of broader
related issues, such as East-West financial credits. The
Subcommittee's review of this latter problem, I might note,
was conducted about five years ago, and it accurately presaged the
Soviet bloc debt issues that are causing such serious concern
today.
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The Subcommittee also laid the groundwork for significant
t'
legislation. During the 1970s, the Department of Commerce was
regularly approving licenses for exports of strategic goods and
technologies to Soviet bloc nations without adequate analysis
of the adverse impact on American national security. In 1974,
legislation based on tip= Subcommittee's work helped correct
this problem by amending the Export Administration Act to pro-
vide for Department of Defense review of certain applications
for export licenses and permits. In 1979 this approach was
improved and expanded w4..th further amendments to the Export
Administration Act, again based on Subcommittee work. These
amendments assigned the Secretary Of Defense primary
responsibility for identifying control list items, as well as
military critical technologies and goods.*
The critical technologies concept is intended to lead to
tighter control over transfers of design and manufacturing
know-how and production capabilities while relaxing control
over products not transferring such knowledge. A related
element of legislation requires that the implementing regula-
tions take into consideration the difficulty of devising
effective safeguards to prevent diversions of critical tech-
nologies to military use, to protect critical goods such as
computers, and to prevent the se-export of critical technol-
ogies to third parties.
Another 1979 amendment to the Export Administration Act
was designed to correct a major deficiency that the Subcom-
mittee's work had identified in U.S. licensing procedures.
Except under special circumstances an export to adversary
nations may not be denied if comparable goods or technology
is available from foreign sources in substantial quantities.
But it was found that determinations of foreign availability
had been predicated on unsubstantiated assertions by exporters
and superficial analysis.
I might add that Senators Nunn and Cohen of this Committee, as
well as Senator Moynihan, the Vice Chairman of the Intelligence
Committee, joined me in 1979 in sponsoring these and other key
amendments.
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The 1979 legislation dealt with this problem in three
ways. First, it requires that any determination of foreign
,availability must be made in writing and be supported by reliable
evidence, which specifically excludes uncorroborated repre-
? sentations by an exporter. Second, it indicates Congressional
intent that the President initiate negotiations with other
potential suppliers when he has reason to believe that they
may make controlled items available to an adversary nation.
Third, the legislation mandates that all departments and agencies
that have export control responsibilities share foreign avail-
ability information.
CURRENT PROBLEMS
Despite this effort, it has become clear that Soviet
actions to acquire our technology have seriously outstripped
our preventive undertakings.
In recent months there seems to be greater public concern
about this problem. Such concern is a promising development,
because there are so many ways that Soviet acquisition efforts
exploit our open society. Our first defense here is public
awareness. These hearings can help substantially by further
documenting the Soviet threat to our technology and providing
a better base of public information about this subject.
These hearings will, I am sure, identify many of the
improvements needed in our transfer control policies and
procedures and develop the basis for appropriate remedies. In
this context, I want to highlight five matters that strike me
as continuing sources of weakness in our national efforts.
One is the slowness in implementing the critical technolo-
gies approach called for in the 1979 legislation, In large
part, this delay has been due to inadequate funding of the
Defense Department's undertaking. In addition, the policy-
related activities in Defense -- particularly those dealing with
such crucial matters as relations with allies in NATO and
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COCOM -- are serioUsly lacking in permanent staff and support'.
These shortcomings have impeded progress on major policy matters
as well as the day-to-day processing of licensing cases. A
related problem is that current regulations do-not require
license approval for exports of most critical technical data
to most non-Communist destinations. This loophole, of course,
presents significant opportunities for leakage of our tech-
nology to the East.
Second, the government's current approach to qUestiOns of
"foreign availability" remains a source of weakness. The
Commerce Department has primary responsibility for monitoring
and gathering of foreign availability information, but its
capabilities to do so appear to have been and to remain seriously
inadequate. It is also not clear that the intelligence community's
role in these matters has been sufficiently strong, wide-ranging,
or coordinated. On the other hand, when it has been evident
that foreign availability does substantially exist, the govern-
ment has not vigorously implemented the 1979 Congressional
intent regarding negotiations for cooperative controls. Too
often, it seems, U.S. export licenses have been granted based
on untested assumptions that our allies would not cooperate
with us in controlling the items in question.
A third major weakness of current U.S. controls is the
government's willingness to accept end-use representations
to permit the export of dual-use technologies and items even
when those certificates are essentially unverifiable. The
current Administration, better attuned rhetorically than its
predecessor to the dangers of technology loss, approved the
sale of pipelayers to the Soviet Union with the understanding
that those machines would not be used on the Siberian gas pipeline
proposed for Western Europe. But because there is simply no
way that national technical means can differentiate a pipelayer
from that sale under those assurances from one that was sold a
year earlier under no such assurances, and because there is no
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on-site inspection of engine block numbers, end-use repre-
sentations are irrelevant if not downright sham. Computers
provide another example of items in which such representations
are irrelevant or spurious. There are no functionally related
observable differences in a computer when it is working on
military problems rather than civilian ones; even on-site con-
stant observation of the machine will not reveal whether it is
being "diverted" in part or in whole to military tasks.
The fourth weakness is that current U.S. controls fail to
include all equipment and technologies relating to oil and gas
development in the national controls list of strategic defense
industries. I have twice written President Reagan on this matter;
in the more recent letter, on 8 March, I urged that the Adminis-
tration act "to finally recognize the strategic importance of
energy supplies and to start treating technologies and end-
products related to them accordingly. Procedurally, this would
mean giving the Secretary of Defense the same review over exports
of oil and gas equipment that he now has over strictly military
exports." (I ask unanimous consent that the text of this letter
and supporting materials be included as part of the Record.)
The immediate problem that prompted this letter is the
proposed East-West gas pipeline between the Soviet Union and
Western Europe -- a pipeline which, when completed, would provide
the Soviet Union with huge amounts of hard currency, estimated by
some to reach $6 to $8 billion, .which in all likelihood will be
used in significant part to acquire and exploit further
Western technology for Soviet aims. In the face of such strategic
consequences, it would be disastrously short sighted to permit
the transfer of pipeline-related technology on the grounds that it
has no immediate military applications.
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Fifth, the strategic trade policy of the United States
does not include credit controls. Current Soviet and Warsaw
Pact shortages of hard currencies suggest that those countries
would be getting a lot less of our technology if they had to
pay for it on a cash-and-carry basis. The Subcommittee, as I '
noted earlier, has been a pioneer in terms of Senate attention
to the matter of Western credits for the East. Today the debt
of the Warsaw Pact countries to the West is about $80 billion.
Poland is unable to service its $26 billion share of that debit,
and there are increasing signs that Moscow's hard currency
shortages are mounting. The export of Western capital through
extensions of credit permits the Soviets to fortify their
military-industrial system every bit as much as the transfer of
technology. We need to develop comprehensive controls on credits
to the East and work with our allies to forge an effective multi-
lateral approach.
Chairman, there are other improvements that should be
made promptly in our national system of export controls; I
have not touched, for example, on the complex problem of enforce-
ment. I understand that our.hearings will address this matter,
But there is one aspect of the enforcement matter I should
mention. During the course of its oversight studies of tech- -
nology transfer and loss, the Intelligence Committee staff has
found that responsible intelligence and law enforcement agencies
have encountered significant difficulty in obtaining relevant
information from the Department of Commerce. The Department of
Commerce has asserted that, before this information can be
released, the Secretary of Commerce must make a special finding
in each case. The 'delays involved in these case-by-case determi-
nations by the Secretary of Commerce have significantly impeded
effective counterintelligence and law enforcement investigations,
particularly those. of the FBI. I understand that this problem is
still unresolved after months of inter-Departmental negotiation,
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' NEED FOR COMMITMENT
Mr. Chairman, this set of hearings will help focus top-
level attention by the Administration on these technology
transfer matters. There is, I believe, no single step that
would have greater consequences for improving our national
posture. It is unfortunately still true that there is much
that could be done here -- what is lacking, in large measure,
is the political will to do it.
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,-!_31afc,c; ,-5citate
WASDINGT011. D.C.
_
A/it...DI/Et, VICE,
GOVD/N,,,ITAL., Al/e/r.
1111,1_1_1C/D,C
March 8, 1982
The President
The White House
Washington, I). C.
Dear Mr. President:
Some seventeen months ago, on November 14, 1980, I
sent you a letter questioning the Carter Administration's
policy of excluding the oil and gas industry from the list
of strategic defense industries, and its policy of presuming
that licenses would be granted for the export of oil and gas
equipment. I urged you to reassess this position as part
of an overall national security assessment of the world
energy situation. As I received no acknowledgment or
response to my original letter, I am presuming that you did
not see it. It may have been held at the staff level.
Meanwhile, the potential catastrophe of Moscow's gas
pipeline to Europe underlines what I was warning about.
Tn view of the serious threat of that pipeline to U.S. and
allied interests and future security, and given your own
current consideration of U.S. policy toward the pipeline,
I want to be sure you see my original letter to you and my
recent speech to the Senate on the issue of technology transfer
and loss, during which I made that letter public.
In my speech, I summarized the danger of the pipeline as
follows:
"Only on the surface is this deal an economic
one, whereby the Western Allies provide funding and
technology in exchange for Soviet natural gas. Both
sides, in fact, are fully aware of the significant
political relationships involved. The pipeline deal
will provide Moscow with a substantially increased ?
flow of hard currency and political leverage for
years to come, and we would be reckiess to gamble
that these resources will not be used against us
and our European allies. For one thing, Moscow's
revenues from the pipeline will facilitate acquisition
in the West of sophisticated technology useful in
strengthening the Soviet military. Even without direct
Soviet action, the project creates the possibility that
significant portions of allied economies and societies
could fundamentally shift away from the West toward the
Soviet Union. There would be massive diversion of
energy-related capital, talent, and effort away from
Western economic development."
I know that at Ottawa you made known your own concerns
with the Siberian pipeline, but for one reason or another the
Administration did not get itself together for an effective
follow-up. You must be aware of the widespread dismay in
Congress that our government is still hemming and hawing about
a project that would indefinitely profit our adversary some
$7 to $8 billion in hard currency annually. This dismay on
the Hill has now boiled over into threats to "bring the boys
home from Europe," and into other isolationist portents which
you and your colleagues should be taking with utmost?seriousness.
I believe there is still time for the Administration to
rally itself against the pipeline.
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Specifically, I urge you to prohibit the use of any
American technology in Connection with the pipeline, to press
American lending institutions not to ex