HEAD OF FALLS CHURCH FIRM ADMITS INFLATING BILLS FOR ARMS SHIPMENTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90-00806R000100380005-4
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 1
• Document Creation Date: December 22, 2016
• Document Release Date: September 9, 2010
• Sequence Number: 5
• Publication Date: July 23, 1983
• Content Type: OPEN SOURCE

Sanitized Copy Approved for Release 2010/09/09: CIA-RDP90-00806R000100380005-4
# TICLE
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23 ,uly 1983
Head of Falls Church Firm
Inflating Bills for Arms Shipments
By Michael Isikoff
and Michel Marriott
Washington Pmt Staff Wrltas
The president of a Falls Church-
based firm that had an exclusive
contract,to ship U.S. military equip-
ment to Egypt pleaded guilty yes-
terday to collecting $8 million in in-
flated payments from the Defense
Department after filing transporta.
tion bills that were sometimes three
and four times higher than the com-
pany's costs.
As part of a plea-bargain. agree-
ment with government prosecutors,
Hussein K.E.I. Salem, president of
Egyptian American Transport and
Service Co. (Eatsco), then-submitted
a $3.02-million cashier's check to
reimburse the government for the
false claims and paid another
$40.000 in fines.
. Salem also agreed to cooperate in
a broader, diplomatically-sensitive
investigation by the U.S. Attorney's
office in Alexandria into billions of
dollars in American arms that flowed
to Egypt following the Camp David
accords between that country and
Israel. Sources say investigators are
looking at what role some senior
Pentagon officials may have played
in approving the contract .and pay-
ments to Eatsco under a military
sales loan agreement between the
U.S. and Egypt.
Prosecutor. Ted Greenberg said
the government is attempting to re-
cover the remaining $5 million that
the government was overcharged.
"The ($3 million check) does not
relieve other people from possible
illegal acts against the government,"
he said.
Thomas S. Clines, a former top
CIA official who helped Salem found
Eatsco and later served as its vice-
president, was named by Greenberg
in court yesterday as conspiring to
falsify the shipping invoices that
were submitted to the Defense De-
partment. Also named by Greenberg
as a conspirator was Rolf Graage, the
president of Hobelmann & Co., a
Baltimore-based freight forwarder
that contracted with Eatsco to han-
dle the arms shipments to Egypt
Lawyers for Salem and Grange
could not be reached for comment
yesterday.. John Ellsworth Stein, a
lawyer - who represents Clines, de-
-elined to comment on the govern-
ment's charges:
Eatsco was founded in 1979 by
Salem,. whom 'U.S. intelligence
sources have identified as a former
Egyptian military. intelligence offi-
cial, and Clines, a former business
partner of convicted arms dealer
Edwin P. Wilson, specifically to han-
dle arms sales to Egypt. At the time,
U.S. and Egyptian officials were con-
cluding an unusually generous agree-
ment-under which the U.S. Federal
Financing Bank extended $1.5 bil-
lion in loans to the financially-
strapped government of former
Egyptian President Anwar Sadat to
cover both the purchase and trans-
portation of shipping advanced mil-
itary equipment. The items to be,
purchased included M60 tanks, F16
jets, missiles, radar units and other
American military items.
Egypt then designated the Falls
Church firm as its agent to handle
the purchases and Eatsco contracted
with the Hobelmann firm and its Air
Freight International. Inc. subsidiary
to be its freight-forwarder.
According to government prose-
cutors, Eatsco and Hobelmann made
38 separate arms shipments between
November 1979 and Dec. 31, 1981.
In 34 of-those cases, false invoices
were. submitted to the-Defense Se-
curity =Assistance Agency (DSAAJ
that significantly inflated the coin
pany's shipping costs in order to
guise Eatsm's profits. _
In one of the cases cited by the
government, Eataco -submitted a $1.3
million bill to the Pentagon on Sept.
,11, 1981, 'for a -shipment that cost
the firm $623,060. In another, it sub-
mitted a $210,904 bill for a shipment
that cost $46,409.
A focus of the Alexandria inves-
tigation has. been determining how
Eatsco.won approval from the Pen-
tagon to handle-the shipments and
why the inflated claims were accept-
ed by DSAA, which ' is responsible
for supervising the execution of se-
curity assistance programs_ In doing
so, prosecutors have investigated ties
between Clines and two former Pen-
tagon officials-Maj, Gen. Richard
V. Secord, a former deputy assistant
defense secretary who. negotiated the
arms agreement with Egypt, and
Erich F. von Marbod, who formerly
headed DSAA.
Secord, who has strongly denied
any wrongdoing, was suspended for
three months last year and finally
retired from the government last
May primarily because of the Eatsco
investigation, his lawyer said yester-
day. Defense Secretary Caspar
Weinberger "was begging him to stay
on but he came to the conclusion
that he didn't want to be a liability
to the government (and) ha thought
CO ZUED
STAT
Sanitized Copy Approved for Release 2010/09/09: CIA-RDP90-00806R000100380005-4