The Best Enemy Money can Buy
By Antony Sutton
CHAPTER III
The Deaf Mutes Supply
Trucks for Afghan Genocide
"The (American) businessmen who built the Soviet Kama River truck plant
should be shot as traitors."
— Avraham Shifrin, former Soviet
Defense
Ministry official
Although the military output from Gorki and ZIL was well known to U.S. intelligence and
therefore to successive administrations, American aid for construction of even large military
truck plants was approved in the 1960s and 1970s.
Under intense political pressure from the deaf mute blind men, U.S. politicians, particularly
in the Johnson and Nixon administrations under the prodding of Henry Kissinger (a longtime employee of the Rockefeller family), allowed the Togliatti (Volgograd) and Kama
River plants to be built.
The Volgograd automobile plant, built between 1968 and 1971, has a capacity of 600,000
vehicles per year, three times more than the Ford-built Gorki plant, which up to 1968 had
been the largest auto plant in the USSR.
Although Volgograd is described in Western literature as the "Togliatti plant" or the "Fiat-Soviet auto plant," and does indeed produce a version of the Fiat-124 sedan, the core of the
technology is American. Three-quarters of the equipment, including the key transfer lines
and automatics, came from the United States. It is truly extraordinary that a plant with
known military potential could have been equipped from the United States in the middle of
the Vietnamese War, a war in which the North Vietnamese received 80 percent of their
supplies from the Soviet Union.
The construction contract, awarded to Fiat S.p.A., a firm closely associated with Chase
Manhattan Bank, included an engineering fee of $65 million. The agreement between Fiat
and the Soviet government included:
The supply of drawing and engineering data for two automobile models,
substantially similar to the Fiat types of current production, but with the
modifications required by the particular climatic and road conditions of the
country; the supply of a complete manufacturing plant project, with the
definition of the machine tools, toolings, control apparatus, etc.; the supply of
the necessary know-how, personnel training, plant start-up assistance, and other
similar services.
All key machine tools and transfer lines came from the United States. While the tooling and
fixtures were designed by Fiat, over $50 million worth of the key special equipment came
from U.S. suppliers. This included:
1. Foundry machines and heat-treating equipment, mainly flask and core
molding machines to produce cast iron and aluminum parts and continuous
heat-treating furnaces.
2. Transfer lines for engine parts, including four lines for pistons, lathes, and
grinding machines for engine crank-shafts, and boring and honing machines for
cylinder linings and shaft housings.
3. Transfer lines and machines for other components, including transfer lines
for machining of differential carriers and housing, automatic lathes, machine
tools for production of gears, transmission sliding sleeves, splined shafts, and
hubs.
4. Machines for body parts, including body panel presses, sheet straighteners,
parts for painting installations, and upholstery processing equipment.
5. Materials-handling, maintenance, and inspection equipment consisting of
overhead twin-rail Webb-type conveyors, assembly and storage lines, special
tool 'sharpeners for automatic machines, and inspection devices.
Some equipment was on the U.S. Export Control and Co-Corn lists as strategic, but this
proved no setback to the Johnson Administration: the restrictions were arbitrarily
abandoned. Leading U.S. machine-tool firms participated in supplying the equipment:
TRW, Inc. of Cleveland supplied steering linkages; U.S. Industries, Inc. supplied a "major
portion" of the presses; Gleason Works of Rochester, New York (well known as a Gorki
supplier) supplied gear-cutting and heat-treating equipment; New Britain Machine
Company supplied automatic lathes. Other equipment was supplied by U.S. subsidiary
companies in Europe and some came directly from European firms (for example, Hawker Siddeley Dynamics of the United Kingdom supplied six industrial robots). In all,
approximately 75 percent of the production equipment came from the United States and
some 25 percent from Italy and other countries in Europe, including U.S. subsidiary
companies.
In 1930, when Henry Ford undertook to build the Gorki plant, contemporary Western press
releases extolled the peaceful nature of the Ford automobile, even though Pravda had
openly stated that the Ford automobile was wanted for military purposes. Notwithstanding
naive Western press releases, Gorki military vehicles were later used to help kill Americans
in Korea and Vietnam.
In 1968 Dean Rusk and Wait Rostow once again extolled the peaceful nature of the
automobile, specifically in reference to the Volgograd plant. Unfortunately for the
credibility of Dean Rusk and Wait Rostow, there exists a proven military vehicle with an
engine of the same capacity as the one produced at the Volgograd plant. Moreover, we have
the Gorki and ZIL experience. Further, the U.S. government's own committees have stated
in writing and at detailed length that any motor vehicle plant has war potential. Even
further, both Rusk and Rostow made explicit statements to Congress denying that
Volgograd had military potential.
It must be noted that these Executive Branch statements were made in the face of clear and
known evidence to the contrary. In other words, the statements can only be considered as
deliberate falsehoods to mislead Congress and the American public.
It was argued by Washington politicians that a U.S. jeep engine is more powerful than the
engine built at Togliatti. The engine is indeed about two-thirds as powerful as the jeep
engine, but a proven vehicle of excellent capabilities utilizing a 1,500 cc. 4-cylinder Opel
engine developing 36 horsepower: this same engine later powered the Moskvitch-401 and
the Moskvitch-402 (Moskva) military cross-country 4-wheel drive version of the 401,
produced at the MZMA in Moscow.
In brief, there already existed a tested and usable military vehicle capable of transporting
men or adaptable for weapons use and powered by a 1,500 cc. engine, the same size as the
engine supplied for Togliatti. Therefore statements by U.S. officials to the effect that the
Togliatti plant has no military capabilities are erroneous.
Military possibilities for such a small engine include use in a special-purpose small military
vehicle (like the American jeep), or as a propulsive unit in a specially designed vehicle for
carrying either personnel or weapons. Soviet strategy is currently toward supply of wars of
"national liberation." The Togliatti vehicle is an excellent replacement for the bicycle used
in Vietnam. The GAZ-46 is the Soviet version of the U.S. jeep, and we know that such a
vehicle figures in Soviet strategic thinking.
The War Potential of
the Kama Truck Plant
Up to 1968 American construction of Soviet military truck plants was presented as
"peaceful trade." In the late 1960s Soviet planners decided to build the largest truck factory
in the world. This plant, spread over 36 square miles situated on the Kama River, has an
annual output of 100,000 multi-axle 10-ton trucks, trailers, and off-the-road vehicles. It was
evident from the outset, given absence of Soviet technology in the automotive industry, that
the design, engineering work, and key equipment for such a facility would have to come
from the United States.
In 1972, under President Nixon and National Security Adviser Henry Kissinger, the
pretense of "peaceful trade" was abandoned and the Department of Commerce admitted
(Human Events, Dec. 1971) that the proposed Kama plant had military potential. Not only
that, but according to a department spokesman, the military capability was taken into
account when the export licenses were issued for Kama.
The following American firms received major contracts to supply production equipment for
the gigantic Kama heavy truck plant:
Glidden Machine & Tool, Inc., North Tonawanda, New York — Milling
machines and other machine tools.
Gulf and Western Industries, Inc., New York, N.Y. — A contract for $20
million of equipment.
Holcroft & Co., Kovinia, Michigan — Several contracts for heat treatment
furnaces for metal parts.
Honeywell, Inc., Minneapolis, Minnesota — Installation of automated
production lines and production control equipment.
Landis Manufacturing Co., Ferndale, Michigan — Production equipment for
crankshafts and other machine tools.
National Engineering Company, Chicago Illinois — Equipment for the manufacture of castings.
Swindell-Dresser Company (a subsidy of Pullman Incorporated), Pittsburgh,
Pennsylvania — Design of a foundry and equipment for the foundry, including
heat treatment furnaces and sineting equipment under several contracts ($14
million).
Warner & Swazey Co., Cleveland, Ohio — Production equipment for
crankshafts and other machine tools.
Combustion Engineering: molding machines ($30 million). Ingersoll Milling
Machine Company: milling machines.
E. W. Bliss Company
Who were the government officials responsible for this transfer of known military
technology? The concept originally came from National Security Adviser Henry Kissinger,
who reportedly sold President Nixon on the idea that giving military technology to the
Soviets would temper their global territorial ambitions. How Henry arrived at this gigantic
non sequitur is not known. Sufficient to state that he aroused considerable concern over his
motivations. Not least that Henry had been a paid family employee of the Rockefellers since
1958 and has served as International Advisory Committee Chairman of the Chase
Manhattan Bank, a Rockefeller concern.
The U.S.-Soviet trade accords including Kama and other projects were signed by George
Pratt Shultz, later to become Secretary of State in the Reagan Administration and long
known as a proponent of more aid and trade to the Soviets. Shultz is former President of
Bechtel Corporation, a multi-national contractor and engineering firm.
American taxpayers underwrote Kama financing through the Export-Import Bank. The head
of Export-Import Bank at that time was William J. Casey, a former associate of Armand
Hammer and now (1985) Director of the Central Intelligence Agency. Financing was
arranged by Chase Manhattan Bank, whose then Chairman was David Rockefeller. Chase is
the former employer of Paul Volcker, now Chairman of the Federal Reserve Bank. Today,
William Casey denies knowledge of the military applications (see page 195), although this
was emphatically pointed out to official Washington 15 years ago.
We cite these names to demonstrate the tight interlocking hold proponents of military aid to
the Soviet Union maintain on top policy making government positions.
On the other hand, critics of selling U.S. military technology have been ruthlessly silenced
and suppressed.
Critics of Kama Silenced
and Suppressed
For two decades rumors have surfaced that critics of aid to the Soviet Union have been
silenced. Back in the 1930s General Electric warned its employees in the Soviet Union not
to discuss their work in the USSR under penalty of dismissal.
In the 1950s and 1960s IBM fired engineers who publicly opposed sale of IBM computers
to the USSR.
Let's detail two cases for the record; obviously this topic requires Congressional
investigation. At some point the American public needs to know who has suppressed this
information, and to give these peri sons an opportunity to defend their actions in public.
The most publicized case is that of Lawrence J. Brady, now Assistant Secretary of
Commerce for Trade Administration. Ten years ago Brady was a strong critic of exporting
the Kama River truck technology. In his own words (in 1982 before a Senate Investigating
Committee) is Brady's view on Kama River.
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 disagreed with the political appointees of the Carter administration and indicated 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 Soviet immensely 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.12
Brady went on to note that his reward for surfacing vital information was criticism and suppression.
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 | 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 Administration 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 information 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 a whistleblower and eventually left the Department of Commerce. In point of fact, that was the tip of the iceberg. There had been apparently intelligence through the 1970s, particularly the latter half of the seventies, indicating that there was substantial diversion taking place (and) . . . for some reason the intelligence just didn't get to the top. So that was my role. I eventually had to leave Government for it.13
However, Mr. Brady was unaware of a similar and much earlier story of suppression in the Kama case which paralleled his own.
In the years 1960-1974 this writer authored a three volume series, Western Technology and Soviet Economic Development, published between 1968 and 1973 by the Hoover Institution, Stanford University, where the author was Research Fellow. This series cataloged the origins of Soviet technology from 1917 down to the early 1970s. The series excluded the military aspects of technical transfers. However, the work totally contradicted U.S. Government public statements. For example, in 1963 State Department claimed in its public pronouncements that all Soviet technology was indigenous, a clear misunderstanding or dismissal of the facts.
By the early 1970s it was clear to this author that a significant part of Soviet military capability also came from the West, even though this assessment was also refuted by U.S. government analysts. Quietly, without government or private funding, this author researched and wrote National Suicide: Military Aid to the Soviet Union. The manuscript was accepted by Arlington House. Both author and publisher maintained absolute silence about the existence of the manuscript until publication date.
When news of publication reached Stanford, there was immediate reaction — a hostile reaction. A series of meetings was called by Hoover Institution Director W. Glenn Campbell. Campbell's objectives were:
1) to withdraw the book from publication,
2) failing that, to disassociate Hoover Institution from the book and the author.
Campbell initially claimed that National Suicide was a plagiarism of the author's works published by Hoover. This was shown to be nonsense. In any event an author can hardly plagiarize himself. The objective, of course, was to persuade author and publisher to withhold publication. Both the author and Arlington House refused to withdraw the book and continued with publication. The book was published and sold over 50,000 copies.
After the unsuccessful attempt at suppression Glenn Campbell arbitrarily removed the title Research Fellow from the author and removed both his name and that of his secretary from the personnel roll of the Hoover Institution. This effectively disassociated Hoover Institution from the book and its contents. The author became a non-person. Two years later the author voluntarily left Hoover Institution and assumed a private role unconnected with any research foundation or organization. These events happened some years before Mr. Brady of Commerce took his own personal stand and suffered a similar fate. By a strange quirk of fate,
Glenn Campbell is today Chairman of Mr. Reagan's Intelligence Oversight Committee.
Who were the Deaf Mute
Blindmen at Kama River?
Clearly, the Nixon Administration at the highest levels produced more than a normal number of deaf mutes — those officials who knew the story of our assistance to the Soviets but for their own reasons were willing to push forward a policy that could only work to the long run advantage of the United States. It is paradoxical that an Administration that was noisy in its public anti-communist stance, and quick to point out the human cost of the Soviet system, was also an Administration that gave a gigantic boost to Soviet military truck capacity.
Possibly campaign contributions had something to do with it. Multinationals listed below as prime contractors on Kama River were also major political contributors. However, t.he significant link never explored by Congress is that Henry Kissinger, the key promoter of the Kama River truck plant at the policy level, was a former and long-time employee of the Rockefeller family — and the Rockefellers are the largest single shareholders in Chase Manhattan Bank (David was then Chairman of the Board) and Chase was the lead financier for Kama River. This is more than the much criticised "revolving door." It is close to an arm's length relationship, i.e., the use of public policy for private ends.
Here are the corporations with major contracts at Kama River, listed with the name and address of the Chairman of the Board in 1972.
GULF & WESTERN INDUSTRIES, INC.
1 Gulf and Western Plaza, New York NY 10023
Tel. (212) 333-7000
Chairman of the Board: Charles G. Bluhdorn
Note: Charles Bluhdorn is also a Trustee of Freedoms Foundations at Valley Forge and Chairman of Paramount Pictures Corp.
E. W. BLISS CO. (a subsidiary of Gulf & Western)
217 Second Street NW, Canton, Ohio 44702
Tel. (216) 453-7701
Chairman of the Board: Carl E. Anderson
Note: Carl E. Anderson is also Chairman of the American-Israel Chamber of Commerce & Industry
COMBUSTION ENGINEERING, INC.
277 Park Avenue, New York, NY 10017
Tel. (212) 826-7100
Chairman of the Board: Arthur J. Santry, Jr.
HOLCROFT AND COMPANY
12062 Market Street, Livonia, Mich. 48150
Tel. (313) 261-8410
Chairman of the Board: John A. McMann
HONEYWELL, INC.
2701 4th Avenue S., Minneapolis, Minn. 55408
Tel. (612) 332-5200
Chairman of the Board: James H. Binger
INGERSOLL MILLING MACHINE COMPANY
707 Fulton Street, Rockford, ILL 61101
Tel. (815) 963-6461
Chairman of the Board: Robert M. Gaylord
NATIONAL ENGINEERING CO.
20 N. Wacker Drive, Chicago, ILL 60606
Tel. (312) 782-6140
Chairman of the Board: Bruce L. Simpson
PULLMAN, INC.
200 S. Michigan Ave., Chicago, ILL 60604
Tel. (312) 939-4262
Chairman of the Board: W. Irving Osborne, Jr.
SWINDELL-DRESSLER CO. (Division of Pullman, Inc.)
441 Smithfield Street, Pittsburgh, PA 15222
Tel. (412) 391-4800
Chairman of the Board: Donald J. Morfee
WARNER & SWAZEY
11000 Cedar Avenue, Cleveland, Ohio 44106
Tel. (216) 431-6014
Chairman of the Board: James C. Hodge
CHASE MANHATTAN BANK
Chairman of the Board: David Rockefeller
Footnotes:
12 United States Senate, Transfer of United States High Technology to the Soviet Union and Soviet Bloc Nations, Hearings before the Permanent Subcommittee on Investigations, 97th Congress Second Session, May 1982, Washington, D.C., p. 263.
13 Ibid., pp. 267-8.
Every generation or so in the past two hundred years Western technology has generated a
fundamental innovation that changes the whole course of society and the economy. The
industrial revolution of the late 18th and 19th centuries was based on canals and iron.
Railroads were a fundamental innovation of the first third of the 19th century. In the late
19th century the Bessemer process enabled mass production of cheap steel. The internal
combustion engine in the 1900s began another revolution. Atomic energy in the 1940s
started the atomic age.
In the 1970s the semi-conductor was first mass produced in California. The economy of the 21st century will evolve around the silicon chip, i.e., the integrated circuit memory chip and semi-conductor components.
No country large or small will make any progress in the late 20th century without an ability to manufacture integrated circuits and associated devices. These are the core of the new industrial revolution, both civilian and military, and essentially the same device is used for both military and civilian end uses. A silicon chip is a silicon chip, except that military quality requirements may be more strict than civilian ones.
This electronic revolution originated in Santa Clara Valley, California in the 1950s and roughly centers around Stanford University.
Stanford is also in many ways at the core of the debate over transfer of our military technology to the Soviet Union. Congressman Ed Zschau (Rep. Menlo Park) represents the Silicon Valley area and is a strong proponent of more aid to the Soviets. On the other hand, also in Silicon Valley, this author's six books critical of our technological transfers to the Soviets originated, and three were published at the Hoover Institution, Stanford University (See Bibliography for titles).
Silicon Valley gets its name from the essential element silicon used in integrated circuits. An essential component of integrated circuits is the semi-conductor usually made of silicon and linked to other components such as transistors into a single circuit. By 1971 an entire computer could be produced on a single chip, in itself probably the most significant industrial breakthrough since the discovery that steel could be manufactured on a large scale from iron.
The semi-conductor revolution began in the Silicon Valley and was a challenge to the socialist world to duplicate. This they could not do. Every single Soviet weapon system has semi-conductor technology which originated in California and which has been bought, stolen or acquired from the United States.
Early Soviet Electronic Acquisitions
Back in 1929 Pravda commented that without the automobile the Soviet Army would be helpless in any future war. Western multinationals Ford Motor Company, Hercules Gear, IBM and others helped USSR bridge the gap of the 1920s. Identical aid can be found for electronics.
In August 1971 the U.S. Department of Defense paid $2 million to Hamilton Watch Company for precision watchmaking equipment. Watchmaking equipment is used in fabricating bomb and artillery shell fuses, aircraft timing gear, pinions, and similar military components. Most Soviet watch-manufacturing equipment has been supplied from the United States and Switzerland; in some cases the Soviets use copies of these foreign machines.
In 1929 the old Miemza concession factory, formerly a tsarist plant, received the complete equipment of the Ansonia Clock Company of New York, purchased for $500,000. This became the Second State Watch Factory in Moscow, brought into production by American and German engineers, and adapted to military products. In 1920 the complete Deuber-Hampton Company plant at Canton, Ohio, was transferred to the Soviet Union, and brought into production by forty American technicians. Up to 1930 all watch components used in the Soviet Union had been imported from the United States and Switzerland. This new U.S.-origin manufacturing capability made possible the production of fuses and precision gears for military purposes; during World War II it was supplemented by Lend-Lease supplies and machinery.
After World War II Soviet advances in military instrumentation were based on U.S. and British devices, although the German contribution was heavy in the 1950s. About 65 percent of the production facilities removed from Germany were for the manufacture of power and lighting equipment, telephone, telegraph, and communications equipment, and cable and wire. The remainder consisted of German plants to manufacture radio tubes and radios, and military electronics facilities for such items as secret teleprinters and antiaircraft equipment.
Many German wartime military electronic developments were made at the Reichspost Forschungsinstitut (whose director later went to the USSR) and these developments were absorbed by the Soviets, including television, infrared devices, radar, electrical coatings, acoustical fuses, and similar equipment. But although 80 percent of the German electrical and military electronics industries were removed, the Soviets did not acquire modern computer, control instrumentation, or electronic technologies from Germany: these they acquired from the U.S.
Bridging the Semi-conductor Gap
Taking semi-conductors as an example, three stages can be identified in the transfer process. The Soviets were able to import or manufacture small laboratory quantities of semi-conductors from an early date. What they could not do, as in many other technologies, was mass produce components with high quality characteristics. This situation is described by Dr. Lara Baker, a Soviet computer expert, before Congress:
The Soviet system in pre production 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 systems become most obvious. Serial production is the Achilles heel of the Soviet bloc. Especially in high technology areas, the big problem the Soviets have is quality assurance they count products, not quality products. This is the area where the Soviets exhibit weakness and need the most help.14
The first phase for the Soviets was to Identify the technology needed, in this case a semiconductor plant, to bridge the chasm between the 19th century and the 21st century.
The second phase was to obtain the equipment to establish a manufacturing plant.
The third phase was to bring this plant into production and make the best use of its output in an economy where developmental engineering resources do not exist in depth and military objectives have absolute priority.
We shall demonstrate in Chapter Five how the Soviets achieved the first of these tasks — with the help of the Control Data Corporation, Mr. William Norris, Chairman. The second phase was achieved through an illegal espionage network, the Bruchhausen network. The third phase is today in progress, although the phases one and two are already in place in the Soviet military complex.
The emphasis in this critical transfer of semi-conductor technology was not reverse engineering as, for example, the Soviet Agatha computer is reverse engineered from the Apple II computer, but use of U.S. manufacturing techniques and equipment to bridge a gigantic gap in Soviet engineering capabilities. The Soviet system does not generate the wealth of technology common in the West. It cannot choose the most efficient among numerous methods of achieving a technical objective because the Marxist system lacks the abundant fruits of an enterprise system. The emphasis in semi-conductors is transfer of a complete manufacturing technology to produce high quality products for known military end uses WHICH COULD NOT HAVE BEEN ACHIEVED BY THE SOVIETS THEMSELVES, WITHOUT FUNDAMENTAL CHANGES IN THEIR SYSTEM.
In brief, in electronics the key is not copying Western technology as for example the Caterpillar tractor was duplicated by the millions, but to transfer specialized production equipment to mass produce critical components.
This assertion has been fully supported by expert witnesses before Congressional committees. For example, the following statement was made in 1952 to the Senate by Dr. Stephen D. Bryen, Deputy Assistant Secretary of Defense, International Economics, Trade and Security Policy.
Senator Nunn: Dr. Bryen, you made reference in your testimony to the effort by the Soviets to build and equip a semiconductor plant using equivalent knowhow from the United States. Could the Soviets have built and equipped such a plant in the late 1970s and early 1950s 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 market 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.15
And a similar comment from a former Russian engineer, Joseph Arkov, again in Senate testimony.
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.
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 following 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 type. They use the computers as best they can in those three or four plants where they can do the most good. They are not inclined to use them as non-producing models to be studied in a laboratory for the purpose of copying.
Moreover, if the American product obtained in another transaction — 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.16
How the Deaf Mute Blindmen Helped
the Soviets into the 21st Century
With these insights into Soviet technological acquisition strategy we can identify the stages by which the Soviets acquired semi-conductor technology. Chronologically these are:
DATE EVENT
1951 Semi-conductor developed in Santa Clara Valley, California. From this point on Soviets import chips and then manufacture on a laboratory scale.
1971 "Computer in a chip" development. Soviets still unable to mass produce even primitive semiconductor devices.
1973 Control Data Corporation (CDC) agrees to supply Soviets with a wide range of scientific and engineering information including construction and design of a large fast computer (75 to 100 million instructions per second is fast even in 1985) and manufacturing techniques for semi-conductors and associated technologies (See Chapter Five).
1977-80 Soviets acquire technology for a semi-conductor plant through the Bruchhausen network and Continental Trading Corp. (CTC). The CDC agreement gives Soviets sufficient information to set up a purchasing and espionage program. CDC told the Soviets what they needed to buy.
1981-82 Commerce Department lax in enforcing export control regulations. U.S. Customs Service makes
The Bruchhausen Network
The second phase of the acquisition of semi-conductor mass production technology was the Bruchhausen network.
This network comprised a syndicate of 20 or so "front" electronics companies established by Werner J. Bruchhausen, age 34, a West German national. The key component was a group of companies with the initials CTC (Continental Trading Corporation), managed by Anatoli Maluta, a Russian-born naturalized U.S. citizen. A Congressional subcommittee devoted considerable time and resources to reconstruction of the activities of the CTC-Maluta operation.
This network of companies, controlled from West Germany, gave the Soviets the technology for a major leap forward in modernizing military electronics capability. Dr. Lara H. Baker, Jr., who had personal knowledge of the CTC-Maluta case, was one of the subcommittee's sources in reconstructing the network. Other sources included the Departments of Commerce and Justice and the U.S. Customs Service.
Using Werner Bruchhausen's companies and accomplices in Western Europe as freight forwarders and transshipment points, Maluta sent more than $10 million of American-made high technology equipment to the Soviet Union from 1977 to 1980. the machinery was used to equip a Soviet plant for the manufacture and testing of semiconductors. The equipment went from California to Western Europe to the USSR.
To Dr. Baker, the CTC-Maluta case proved a point: that the Soviets know precisely what U.S. technology they want, and leave little to chance. Dr. Baker explained:
Of particular interest to me in the (CTC-Maluta) case is the information it gives us about Soviet intentions. We delude ourselves if we think the Soviets enter the black market in search of strategic components 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 needs for. They know exactly what they want — right down to the model number — and what they want is part of a carefully crafted design.
The carefully crafted design in this instance was a semi-conductor manufacturing plant, an essential part of the Soviet need to close the technological gap between themselves and the U.S. in the integrated circuit/microcomputer industry. We shall see in Chapter Five how Control Data Corporation provided the key basic information on what to acquire.
Dr. Baker, who testified in the 1981 successful prosecution of Maluta and his associate, Sabina Dorn Tittel, studied 400 separate air waybills and other shipping documents used by the CTC network. The conclusion was inescapable that the Soviets were equipping a semiconductor plant. Soviet use of components of U.S. origin demonstrated their determination to make the facility as efficient and modern as any in the world:
…(the Soviets) 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.
Stressing the point that, through the CTC-Maluta combine, the Soviets bought everything needed for a semi-conductor manufacturing plant, Dr. Baker testified to the Senate that among the equipment bought in the period 1977 through 1980 were saws for cutting silicon crystals, equipment for making masks for integrated circuit production, plotters to draw the circuits, basic computer-aided design systems for integrated circuit design, diffusion ovens for circuit production ion-implantation systems for circuit production, photo-lithographic systems for integrated circuit production, scribers for separating integrated circuits on wafers, testers for testing integrated circuits on wafers, bonding equipment for bonding connecting leads to integrated circuits, and packaging equipment for packaging the circuits.
Dr. Baker added:
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 (from the CTC-Maluta network) will significantly improve the Soviets' capability to produce such circuits.
Further support for the assertion that the Soviets relied on American technology to equip their semi-conductor plant came from John D. Marshall, a chemist and specialist in facilities that manufacture semiconductors.
Marshall owns a high technology business in Silicon Valley and testified to Congress that in the winter of 1975 he made two trips to the Soviet Union. Led by a West German named Richard Mueller to believe that the Soviets wanted to retain his consultative services in connection with their plans to manufacture electronic watches, Marshall learned on the second trip to Moscow that what was actually wanted was expertise to equip a semiconductor plant. Marshall told the subcommittee:
On the second trip, we met several Soviets who purported to be technical people. They were not very well trained and were not familiar 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 semi- conductor 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 semi-conductor components.
It was clear to me that Mueller had deceived me as to the Soviets' intentions, that it was not merely electronic watches the Soviets wanted to manufacture.
Marshall realized that to cooperate further with the Soviets would be illegal. He refused to meet further with the Soviets and left Moscow.
As he returned to the United States, Marshall recalled conversations he had overheard that at the time had not made.sense to him on the way to Moscow. Marshall and Mueller had stopped in Hamburg where Mueller introduced him to a Canadian, also providing technical assistance to the Soviets, that his mission was to show them how to make integrated circuits and to use equipment now on the way.
In Moscow, Marshall said, he met a woman who spoke English with a German accent who planned to ship certain American-made photolithography materials to the Soviet Union via East Berlin. Photolithography materials are critical in semi-conductor manufacture.
In West Germany, Marshall was introduced to Volker Nast, identified by Mueller as his partner. Nast was involved in illegal diversions of the U.S. technology to the Soviet Union.
The significance of 1975 as the year the Soviets expressed their desire for American-made semi-conductor equipment has been explained by Marshall. In 1975 the U.S. was preeminent in the field of semi-conductor technology. Marshall said:
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.
According to Marshall, the Soviets' primary interest in 1975 was the manufacture and assembly phases of semi-conductor production. By 1977, he said, the Soviets needed to stock the facility with test equipment, and software development equipment.
Dr. Lara Baker, in his testimony before Congress, agreed with Marshall. In the 1978-79 time frame the CTC-Maluta syndicate purchased production equipment. In the 1979-1980 period, the CTC-Maluta network bought semi-conductor test equipment. Said Baker, "Marshall's testimony is quite consistent with my information."
U.S. Customs Service investigations confirmed not only the Bruchhausen network but subsidiary networks operating in cooperation with the Soviets for illegal purchase of semiconductor manufacturing equipment.
Information about the Soviets' efforts to build a semi-conductor industry — and, in so doing, make a major leap forward in military electronics — was given to a Senate subcommittee by Charles L. McLeod, a Special Agent with the U.S. Customs Service. McLeod said the same Richard Mueller who had brought John Marshall to Moscow had been active in several other schemes.
In fact, McLeod said, Mueller was an operative in a syndicate whose mission was to export by illegal means semi-conductor manufacturing equipment from the United States to the Soviet Union. Other operatives in the network included Volker Nast, Luther Heidecke, Peter Gessner and Frederick Linnhoff, all West Germans. In the U.S., their associates included Robert C. Johnson, Gerald R. Starek and Carl E. Storey, officers in high technology firms.
McLeod, of the San Francisco office of U.S. Customs, investigating technology diversions originating in nearby Santa Clara County, said inquiries into two Silicon Valley electronics firms — II Industries and Kaspar Electronics — led to the conclusion that the Soviets were trying in the mid-1970s to "construct a semi-conductor manufacturing facility by using U.S. technology and equipment." A loosely knit organization of electronics producers and brokers in West Germany and Northern California assisted the Soviets.
The first diversion of semi-conductor manufacturing equipment occurred in 1974. McLeod said participants in the diversion included Luther Heidecke, a representative of Honeywell/West Germany, AG, and Peter Gessner, the European sales representative for Applied Materials, a Northern California firm which produced semi-conductor manufacturing equipment. Gessner had other jobs as well, serving as the European salesman for II Industries and Kaspar Electronics. In addition, Gessner was employed by Richard Mueller.
Processing orders through Honeywell/West Germany for the purchase of semiconductor manufacturing equipment, Heidecke arranged for the export of II Industries and Kaspar Electronics machinery to West Germany and ultimately to the Soviet Union. Heidecke's activities came to the attention of the West German authorities, who prosecuted him for giving the Soviets national security information.
McLeod described a second diversion. A Mays Landing, New Jersey export firm known as Semi-Con, formed by a West German Richard Mueller and managed by a former intelligence agent, shipped semiconductor manufacturing equipment to the Soviet Union. The equipment was from II Industries and Kaspar Electronics.
The identification of the Bruchhausen network does not reflect favorably upon the operating efficiency of the Commerce Department's Office of Export Control and specifically its Compliance Division. (As the situation existed in 1980, it may possibly have improved since that time.)
The existence of the CTC network of companies was first brought to the attention of the U.S. government in 1977 and 1978 when two anonymous letters were received at the American Consulate in Dusseldorf, Germany. The State Department translated the letters into English and referred them to the Compliance Division in Commerce. The letters were received by the Compliance Division in 1978 and no effort was made to investigate the allegations.
After receipt of the letters, two U.S. producers of dual-use technology also reported to the Commerce Department that they were suspicious of the CTC companies. Again no Commerce action.
A Commerce Department special agent did interview CTC's principal executive in Los Angeles, the naturalized Russian-born American citizen Anatoli Maluta, also known as Tony Maluta 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. However, Maluta said, because of the agent's interest, he would cancel the suspicious order.
There was no further investigation of the CTC network until a second letter arrived at Compliance Division from another high-technology producer, also suspicious about the CTC companies.
Early in 1980, a second Compliance Division agent, Robert Rice, was assigned to the case and conducted a comprehensive preliminary inquiry. Rice, the most senior agent in the Division, found considerable information indicating widespread violations of export controls. The evidence went to the Office of the U.S. Attorney in Los Angeles in March 1980. A major inquiry was begun by the U.S. Attorney's office, under the direction of Assistant U.S. Attorney Theodore W. Wu and the U.S. Customs Services. 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 out of reach, and two Los Angeles associates — Maluta and Sabina Dorn Tittel. Maluta and Tittel were convicted.
The CTC case demonstrated technology diversions of about $10 million and is considered by law enforcement and national security specialists 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 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 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, and enlisted assistance of the Customs Service. Later assistance was provided by trained criminal investigators from the IRS.
Fourth, at an early point in the inquiry it was necessary to seize shipments. Commerce had neither the authority nor the manpower to seize shipments. Customs did.
Fifth, at another point in the inquiry it was necessary to search the premises of CTC companies and certain of employees 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 to coordinate searches abroad. Customs executed the warrants in the United States and, through its agreements with West German customs, arranged for the execution of warrants in Germany.
Sixth, to substitute sand for one of CTC'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 overseas law enforcement contacts.
Eighth, extensive surveillance was necessary. Armed Customs agents and armed Internal Revenue Service criminal investigators and an unarmed Compliance Division Special Agent Rice provided this work.
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 Compliance 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 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 Type of Equipment
Shipped to the USSR
The Bruchhausen network was extremely efficient at obtaining the type of equipment needed by the Soviets for their semiconductor plant.
Here is a summary as reported to a Congressional Committee by an American computer expert.
Senator Nunn: 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 Nunn: Or military?
Mr. Marshall: Yes.
Senator Nunn: Members of the minority staff showed you a list of equipment that has been illegally exported to the Soviets over the period 1976 to 1980; is that correct?
Mr. Marshall: Yes.
Senator Nunn: These illegal exports were valued at about $10 million. Have you looked at that list?
Mr. Marshall: I have seen the list, yes.
Senator Nunn: 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.
Examination of Continental Technology Corporation invoices demonstrates the high technology specialized nature of the equipment shipped by the Bruchhausen network. Here are sample summaries based on CTC invoices:
CTC Invoice Number: 1017
Manufacturer: Fairchild Instrument Corporation
The commodities on this invoice are spare parts and extensions for the Fairchild Xincom test systems referred to on CTC Invoice number 8051, among others. As such they continue and enhance the capabilities of the microprocessor test system previously referred to.
The products also exceed the state of the art of new designs in the destination country, as of the time of shipment.
CTC Invoice Number: 8071
Manufacturer: Fairchild Instrument Corporation
The commodity on this invoice is a test system for the production testing of integrated circuits. This test system is necessary and critical for the test of civilian or military microcircuits. This is an area in which the destination country falls far behind the United States in capability, and the test system is applicable to integrated circuits for military applications. Single board computers/microcomputer systems are used in most advanced weapons systems throughout the free world, particularly in missile and aircraft systems. Their use provides a significant increase in effectiveness with an equally significant reduction in weight and power consumption.
These products would exceed the state of the art of equipment being manufactured in the destination country, as of the time of shipment. The products also exceed the state of the art of new designs in the destination country, as of the time of shipment.
CTC Invoice Number: 1091
Manufacturer: Fairchild Instrument Company
The commodity on this invoice is a test system for the production testing of integrated circuits. This test system is necessary and critical for the test of civilian or military microcircuits. This is an area in which the destination country falls far behind the United States in capability and the test system is applicable to integrated circuits for military applications. Single board computers/microcomputer systems are used in most advanced weapons systems throughout the free world, particularly in missile and aircraft systems. Their use provides a significant increase in effectiveness with an equally significant reduction in weight and power consumption.
These products would exceed the state of the art of equipment being manufactured in the destination country, as of the time of shipment. The products also exceed the state of the art of new designs in the destination country, as of the time of shipment.
CTC Invoice Number: 1040
Manufacturer: Fairchild Instrument Corporation
The commodity on this invoice is a test system for the production testing of integrated circuits. This test system is necessary and critical for the test of civilian or military microcircuits. This is an area in which the destination country falls far behind the United States in capability, and the test system is applicable to integrated circuits for military applications. Single board computers/microcomputer systems are used in most advanced weapons systems throughout the free world, particularly in missile and aircraft systems. Their use provides a significant increase in effectiveness with an equally significant reduction in weight and power consumption.
These products would exceed the state of the art of equipment being manufactured in the destination country, as of the time of shipment. The products also exceed the state of the art of new designs in the destination country, as of the time of shipment.
CTC Invoice Number: 21 073
Manufacturer: California Computer Products Incorporated
The commodity on this invoice is a complete off-line high precision flat bed plotter system. The plotter involved, the CALCOMP-748 plotter, is precise enough and big enough to directly draw the masks needed for integrated circuit production. For that reason the plotter associated equipment is embargoed. The integrated circuits produced with masks drawn on this plotter can be used for civilian or military applications and as such are embargoed.
The products exceed the state of the art of new designs in the destination country, as of the time of shipment.
CTC Invoice Number: 21 074
Manufacturer: California Computer Products Incorporated
The commodities on this invoice are accessories for the high precision plotter referred to on CTC Invoice number 21 073. As such they are embargoed for that application. These particular pieces of equipment are within the state of the art of the country of destination, however, they could not be shipped as part of the plotter system.
CTC Invoice Number: 21 075
Manufacturer: California Computer Products Incorporated
The commodities on this invoice are spare parts for the plotter referred to on CTC Invoice number 21 073. As such they would be embargoed because of the direct military application of the plotter. The parts themselves may be embargoed because they contain embargoed technology. These products would exceed the state of the art of equipment being manufactured in the destination country as of the time of shipment.
CTC Invoice Number: 22 004
Manufacturer: Tektronics Incorporated
The commodity on this invoice is an extremely high speed (350 megahertz) oscilloscope with direct military applications in nuclear weapons testing, in high speed signal processing systems, and in other high speed electronic applications. This product exceeds the state of the art of equipment being manufactured in the destination country as of the time of the shipment.
The product matches the state of the art of new designs in the destination country, as of the time of shipment.
CTC Invoice Number: 1188
Manufacturer: Tektronics Incorporated
The commodities on this invoice are accessories for the high speed oscilloscope referred to on CTC Invoice 22 004. As such they are embargoed. These products exceed the state of the art of equipment being manufactured in the destination country as of the time of shipment. The products also exceed the state of the art of new designs in the destination country, as of the time of shipment.
CTC Invoice Number: 1003
Manufacturer: Data General Corporation
The commodity on this invoice is a complete Data General Eclipse S/230 digital computer with substantial peripheral and input/output communication equipment. This general purpose computer could be licensed if a license were applied for and certain characteristics of the computer were deleted. As a general purpose computer it is applicable to many civilian and military applications. This particular configuration seems applicable to the control and monitoring of the manufacture of integrated circuits.
The products also exceed the state of the art of new designs in the destination country, as of the time of shipment.
So confident are the Soviets that our strategic goods embargo is a leaky sieve that they not only import illegal military end use equipment, but ship it back to the West for repair, presumably secure in the belief that it can be reimported.
One example that was intercepted occurred in July 1977 when California Technology Corporation placed a purchase order with a U.S. manufacturer for $66,000 in components for sophisticated electronic machinery with direct military application. All components ordered were Munitions List items and cannot be legally exported without approval from the U.S. Department of State. Yet CTC received the equipment and in September 1977, under the name Interroga International Components and Sales Organization, CTC exported the components to West Germany.
Three years later one of the components was in need of repair. It was sent to the manufacturer's plant for work. On June 16 and 23, 1981, in West Germany, Stephen Dodge of Customs, Robert Rice of Commerce, and Theodore W. Wu, Assistant U.S. Attorney in Los Angeles, received information that the machinery had been sold originally to Mashpriborintorg of Moscow, and the Russians had sent the disabled component back to ADT of Dusseldorf for repair.
A telex from CTC executives in Dusseldorf to Anatoli Maluta in Los Angeles, dated February 27, 1980, was seized by U.S. Customs agents. The telex said the component would be returned to the U.S. for repair. A "friend" would receive the repaired equipment and then turn it over to Maluta for re-export.
Now let's turn to the question of how the Soviets know what to order for their semiconductor plant. The invoices reproduced above suggest the Soviets knew precisely what production equipment they wanted to build a semiconductor plant. The question is how did they find out the model numbers, specifications and the rest? Footnotes:
14 United States Senate, Transfer of United States High Technology to the Soviet Union and Soviet Bloc Nations Hearings before the Permanent Subcommittee on Investigations, 97th Congress Second Session, May 1982, Washington, D.C., p.
15 United States Senate, Transfer of United States High Technology to the Soviet Union and Soviet Bloc Nations Hearings before the Permanent Subcommittee on Investigations, 97th Congress Second Session, May 1982, Washington, D.C., p. 259.
16 United States Senate, Transfer of United States High Technology to the Soviet Union and Soviet Bloc Nations Hearings before the Permanent Subcommittee on Investigations, 97th Congress Second Session, May 1982, Washington, D.C., p. 29.
next
59s Computers - Deception by Control Data Corporation
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 disagreed with the political appointees of the Carter administration and indicated 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 Soviet immensely 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.12
Brady went on to note that his reward for surfacing vital information was criticism and suppression.
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 | 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 Administration 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 information 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 a whistleblower and eventually left the Department of Commerce. In point of fact, that was the tip of the iceberg. There had been apparently intelligence through the 1970s, particularly the latter half of the seventies, indicating that there was substantial diversion taking place (and) . . . for some reason the intelligence just didn't get to the top. So that was my role. I eventually had to leave Government for it.13
However, Mr. Brady was unaware of a similar and much earlier story of suppression in the Kama case which paralleled his own.
In the years 1960-1974 this writer authored a three volume series, Western Technology and Soviet Economic Development, published between 1968 and 1973 by the Hoover Institution, Stanford University, where the author was Research Fellow. This series cataloged the origins of Soviet technology from 1917 down to the early 1970s. The series excluded the military aspects of technical transfers. However, the work totally contradicted U.S. Government public statements. For example, in 1963 State Department claimed in its public pronouncements that all Soviet technology was indigenous, a clear misunderstanding or dismissal of the facts.
By the early 1970s it was clear to this author that a significant part of Soviet military capability also came from the West, even though this assessment was also refuted by U.S. government analysts. Quietly, without government or private funding, this author researched and wrote National Suicide: Military Aid to the Soviet Union. The manuscript was accepted by Arlington House. Both author and publisher maintained absolute silence about the existence of the manuscript until publication date.
When news of publication reached Stanford, there was immediate reaction — a hostile reaction. A series of meetings was called by Hoover Institution Director W. Glenn Campbell. Campbell's objectives were:
1) to withdraw the book from publication,
2) failing that, to disassociate Hoover Institution from the book and the author.
Campbell initially claimed that National Suicide was a plagiarism of the author's works published by Hoover. This was shown to be nonsense. In any event an author can hardly plagiarize himself. The objective, of course, was to persuade author and publisher to withhold publication. Both the author and Arlington House refused to withdraw the book and continued with publication. The book was published and sold over 50,000 copies.
After the unsuccessful attempt at suppression Glenn Campbell arbitrarily removed the title Research Fellow from the author and removed both his name and that of his secretary from the personnel roll of the Hoover Institution. This effectively disassociated Hoover Institution from the book and its contents. The author became a non-person. Two years later the author voluntarily left Hoover Institution and assumed a private role unconnected with any research foundation or organization. These events happened some years before Mr. Brady of Commerce took his own personal stand and suffered a similar fate. By a strange quirk of fate,
Glenn Campbell is today Chairman of Mr. Reagan's Intelligence Oversight Committee.
Who were the Deaf Mute
Blindmen at Kama River?
Clearly, the Nixon Administration at the highest levels produced more than a normal number of deaf mutes — those officials who knew the story of our assistance to the Soviets but for their own reasons were willing to push forward a policy that could only work to the long run advantage of the United States. It is paradoxical that an Administration that was noisy in its public anti-communist stance, and quick to point out the human cost of the Soviet system, was also an Administration that gave a gigantic boost to Soviet military truck capacity.
Possibly campaign contributions had something to do with it. Multinationals listed below as prime contractors on Kama River were also major political contributors. However, t.he significant link never explored by Congress is that Henry Kissinger, the key promoter of the Kama River truck plant at the policy level, was a former and long-time employee of the Rockefeller family — and the Rockefellers are the largest single shareholders in Chase Manhattan Bank (David was then Chairman of the Board) and Chase was the lead financier for Kama River. This is more than the much criticised "revolving door." It is close to an arm's length relationship, i.e., the use of public policy for private ends.
Here are the corporations with major contracts at Kama River, listed with the name and address of the Chairman of the Board in 1972.
GULF & WESTERN INDUSTRIES, INC.
1 Gulf and Western Plaza, New York NY 10023
Tel. (212) 333-7000
Chairman of the Board: Charles G. Bluhdorn
Note: Charles Bluhdorn is also a Trustee of Freedoms Foundations at Valley Forge and Chairman of Paramount Pictures Corp.
E. W. BLISS CO. (a subsidiary of Gulf & Western)
217 Second Street NW, Canton, Ohio 44702
Tel. (216) 453-7701
Chairman of the Board: Carl E. Anderson
Note: Carl E. Anderson is also Chairman of the American-Israel Chamber of Commerce & Industry
COMBUSTION ENGINEERING, INC.
277 Park Avenue, New York, NY 10017
Tel. (212) 826-7100
Chairman of the Board: Arthur J. Santry, Jr.
HOLCROFT AND COMPANY
12062 Market Street, Livonia, Mich. 48150
Tel. (313) 261-8410
Chairman of the Board: John A. McMann
HONEYWELL, INC.
2701 4th Avenue S., Minneapolis, Minn. 55408
Tel. (612) 332-5200
Chairman of the Board: James H. Binger
INGERSOLL MILLING MACHINE COMPANY
707 Fulton Street, Rockford, ILL 61101
Tel. (815) 963-6461
Chairman of the Board: Robert M. Gaylord
NATIONAL ENGINEERING CO.
20 N. Wacker Drive, Chicago, ILL 60606
Tel. (312) 782-6140
Chairman of the Board: Bruce L. Simpson
PULLMAN, INC.
200 S. Michigan Ave., Chicago, ILL 60604
Tel. (312) 939-4262
Chairman of the Board: W. Irving Osborne, Jr.
SWINDELL-DRESSLER CO. (Division of Pullman, Inc.)
441 Smithfield Street, Pittsburgh, PA 15222
Tel. (412) 391-4800
Chairman of the Board: Donald J. Morfee
WARNER & SWAZEY
11000 Cedar Avenue, Cleveland, Ohio 44106
Tel. (216) 431-6014
Chairman of the Board: James C. Hodge
CHASE MANHATTAN BANK
Chairman of the Board: David Rockefeller
Footnotes:
12 United States Senate, Transfer of United States High Technology to the Soviet Union and Soviet Bloc Nations, Hearings before the Permanent Subcommittee on Investigations, 97th Congress Second Session, May 1982, Washington, D.C., p. 263.
13 Ibid., pp. 267-8.
CHAPTER IV
Soviets Buy into the 21st Century
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. as a matter of fact the Soviet industrial
capacity is so overburdened with military production that the Soviets could not
make a civilian or commercial application of certain high technology products
even if they wanted to.
— Former Soviet engineer, Joseph Arkov
before U.S.
Senate, May 4, 1982
In the 1970s the semi-conductor was first mass produced in California. The economy of the 21st century will evolve around the silicon chip, i.e., the integrated circuit memory chip and semi-conductor components.
No country large or small will make any progress in the late 20th century without an ability to manufacture integrated circuits and associated devices. These are the core of the new industrial revolution, both civilian and military, and essentially the same device is used for both military and civilian end uses. A silicon chip is a silicon chip, except that military quality requirements may be more strict than civilian ones.
This electronic revolution originated in Santa Clara Valley, California in the 1950s and roughly centers around Stanford University.
Stanford is also in many ways at the core of the debate over transfer of our military technology to the Soviet Union. Congressman Ed Zschau (Rep. Menlo Park) represents the Silicon Valley area and is a strong proponent of more aid to the Soviets. On the other hand, also in Silicon Valley, this author's six books critical of our technological transfers to the Soviets originated, and three were published at the Hoover Institution, Stanford University (See Bibliography for titles).
Silicon Valley gets its name from the essential element silicon used in integrated circuits. An essential component of integrated circuits is the semi-conductor usually made of silicon and linked to other components such as transistors into a single circuit. By 1971 an entire computer could be produced on a single chip, in itself probably the most significant industrial breakthrough since the discovery that steel could be manufactured on a large scale from iron.
The semi-conductor revolution began in the Silicon Valley and was a challenge to the socialist world to duplicate. This they could not do. Every single Soviet weapon system has semi-conductor technology which originated in California and which has been bought, stolen or acquired from the United States.
Early Soviet Electronic Acquisitions
Back in 1929 Pravda commented that without the automobile the Soviet Army would be helpless in any future war. Western multinationals Ford Motor Company, Hercules Gear, IBM and others helped USSR bridge the gap of the 1920s. Identical aid can be found for electronics.
In August 1971 the U.S. Department of Defense paid $2 million to Hamilton Watch Company for precision watchmaking equipment. Watchmaking equipment is used in fabricating bomb and artillery shell fuses, aircraft timing gear, pinions, and similar military components. Most Soviet watch-manufacturing equipment has been supplied from the United States and Switzerland; in some cases the Soviets use copies of these foreign machines.
In 1929 the old Miemza concession factory, formerly a tsarist plant, received the complete equipment of the Ansonia Clock Company of New York, purchased for $500,000. This became the Second State Watch Factory in Moscow, brought into production by American and German engineers, and adapted to military products. In 1920 the complete Deuber-Hampton Company plant at Canton, Ohio, was transferred to the Soviet Union, and brought into production by forty American technicians. Up to 1930 all watch components used in the Soviet Union had been imported from the United States and Switzerland. This new U.S.-origin manufacturing capability made possible the production of fuses and precision gears for military purposes; during World War II it was supplemented by Lend-Lease supplies and machinery.
After World War II Soviet advances in military instrumentation were based on U.S. and British devices, although the German contribution was heavy in the 1950s. About 65 percent of the production facilities removed from Germany were for the manufacture of power and lighting equipment, telephone, telegraph, and communications equipment, and cable and wire. The remainder consisted of German plants to manufacture radio tubes and radios, and military electronics facilities for such items as secret teleprinters and antiaircraft equipment.
Many German wartime military electronic developments were made at the Reichspost Forschungsinstitut (whose director later went to the USSR) and these developments were absorbed by the Soviets, including television, infrared devices, radar, electrical coatings, acoustical fuses, and similar equipment. But although 80 percent of the German electrical and military electronics industries were removed, the Soviets did not acquire modern computer, control instrumentation, or electronic technologies from Germany: these they acquired from the U.S.
Bridging the Semi-conductor Gap
Taking semi-conductors as an example, three stages can be identified in the transfer process. The Soviets were able to import or manufacture small laboratory quantities of semi-conductors from an early date. What they could not do, as in many other technologies, was mass produce components with high quality characteristics. This situation is described by Dr. Lara Baker, a Soviet computer expert, before Congress:
The Soviet system in pre production 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 systems become most obvious. Serial production is the Achilles heel of the Soviet bloc. Especially in high technology areas, the big problem the Soviets have is quality assurance they count products, not quality products. This is the area where the Soviets exhibit weakness and need the most help.14
The first phase for the Soviets was to Identify the technology needed, in this case a semiconductor plant, to bridge the chasm between the 19th century and the 21st century.
The second phase was to obtain the equipment to establish a manufacturing plant.
The third phase was to bring this plant into production and make the best use of its output in an economy where developmental engineering resources do not exist in depth and military objectives have absolute priority.
We shall demonstrate in Chapter Five how the Soviets achieved the first of these tasks — with the help of the Control Data Corporation, Mr. William Norris, Chairman. The second phase was achieved through an illegal espionage network, the Bruchhausen network. The third phase is today in progress, although the phases one and two are already in place in the Soviet military complex.
The emphasis in this critical transfer of semi-conductor technology was not reverse engineering as, for example, the Soviet Agatha computer is reverse engineered from the Apple II computer, but use of U.S. manufacturing techniques and equipment to bridge a gigantic gap in Soviet engineering capabilities. The Soviet system does not generate the wealth of technology common in the West. It cannot choose the most efficient among numerous methods of achieving a technical objective because the Marxist system lacks the abundant fruits of an enterprise system. The emphasis in semi-conductors is transfer of a complete manufacturing technology to produce high quality products for known military end uses WHICH COULD NOT HAVE BEEN ACHIEVED BY THE SOVIETS THEMSELVES, WITHOUT FUNDAMENTAL CHANGES IN THEIR SYSTEM.
In brief, in electronics the key is not copying Western technology as for example the Caterpillar tractor was duplicated by the millions, but to transfer specialized production equipment to mass produce critical components.
This assertion has been fully supported by expert witnesses before Congressional committees. For example, the following statement was made in 1952 to the Senate by Dr. Stephen D. Bryen, Deputy Assistant Secretary of Defense, International Economics, Trade and Security Policy.
Senator Nunn: Dr. Bryen, you made reference in your testimony to the effort by the Soviets to build and equip a semiconductor plant using equivalent knowhow from the United States. Could the Soviets have built and equipped such a plant in the late 1970s and early 1950s 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 market 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.15
And a similar comment from a former Russian engineer, Joseph Arkov, again in Senate testimony.
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.
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 following 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 type. They use the computers as best they can in those three or four plants where they can do the most good. They are not inclined to use them as non-producing models to be studied in a laboratory for the purpose of copying.
Moreover, if the American product obtained in another transaction — 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.16
How the Deaf Mute Blindmen Helped
the Soviets into the 21st Century
With these insights into Soviet technological acquisition strategy we can identify the stages by which the Soviets acquired semi-conductor technology. Chronologically these are:
DATE EVENT
1951 Semi-conductor developed in Santa Clara Valley, California. From this point on Soviets import chips and then manufacture on a laboratory scale.
1971 "Computer in a chip" development. Soviets still unable to mass produce even primitive semiconductor devices.
1973 Control Data Corporation (CDC) agrees to supply Soviets with a wide range of scientific and engineering information including construction and design of a large fast computer (75 to 100 million instructions per second is fast even in 1985) and manufacturing techniques for semi-conductors and associated technologies (See Chapter Five).
1977-80 Soviets acquire technology for a semi-conductor plant through the Bruchhausen network and Continental Trading Corp. (CTC). The CDC agreement gives Soviets sufficient information to set up a purchasing and espionage program. CDC told the Soviets what they needed to buy.
1981-82 Commerce Department lax in enforcing export control regulations. U.S. Customs Service makes
The Bruchhausen Network
The second phase of the acquisition of semi-conductor mass production technology was the Bruchhausen network.
This network comprised a syndicate of 20 or so "front" electronics companies established by Werner J. Bruchhausen, age 34, a West German national. The key component was a group of companies with the initials CTC (Continental Trading Corporation), managed by Anatoli Maluta, a Russian-born naturalized U.S. citizen. A Congressional subcommittee devoted considerable time and resources to reconstruction of the activities of the CTC-Maluta operation.
This network of companies, controlled from West Germany, gave the Soviets the technology for a major leap forward in modernizing military electronics capability. Dr. Lara H. Baker, Jr., who had personal knowledge of the CTC-Maluta case, was one of the subcommittee's sources in reconstructing the network. Other sources included the Departments of Commerce and Justice and the U.S. Customs Service.
Using Werner Bruchhausen's companies and accomplices in Western Europe as freight forwarders and transshipment points, Maluta sent more than $10 million of American-made high technology equipment to the Soviet Union from 1977 to 1980. the machinery was used to equip a Soviet plant for the manufacture and testing of semiconductors. The equipment went from California to Western Europe to the USSR.
To Dr. Baker, the CTC-Maluta case proved a point: that the Soviets know precisely what U.S. technology they want, and leave little to chance. Dr. Baker explained:
Of particular interest to me in the (CTC-Maluta) case is the information it gives us about Soviet intentions. We delude ourselves if we think the Soviets enter the black market in search of strategic components 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 needs for. They know exactly what they want — right down to the model number — and what they want is part of a carefully crafted design.
The carefully crafted design in this instance was a semi-conductor manufacturing plant, an essential part of the Soviet need to close the technological gap between themselves and the U.S. in the integrated circuit/microcomputer industry. We shall see in Chapter Five how Control Data Corporation provided the key basic information on what to acquire.
Dr. Baker, who testified in the 1981 successful prosecution of Maluta and his associate, Sabina Dorn Tittel, studied 400 separate air waybills and other shipping documents used by the CTC network. The conclusion was inescapable that the Soviets were equipping a semiconductor plant. Soviet use of components of U.S. origin demonstrated their determination to make the facility as efficient and modern as any in the world:
…(the Soviets) 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.
Stressing the point that, through the CTC-Maluta combine, the Soviets bought everything needed for a semi-conductor manufacturing plant, Dr. Baker testified to the Senate that among the equipment bought in the period 1977 through 1980 were saws for cutting silicon crystals, equipment for making masks for integrated circuit production, plotters to draw the circuits, basic computer-aided design systems for integrated circuit design, diffusion ovens for circuit production ion-implantation systems for circuit production, photo-lithographic systems for integrated circuit production, scribers for separating integrated circuits on wafers, testers for testing integrated circuits on wafers, bonding equipment for bonding connecting leads to integrated circuits, and packaging equipment for packaging the circuits.
Dr. Baker added:
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 (from the CTC-Maluta network) will significantly improve the Soviets' capability to produce such circuits.
Further support for the assertion that the Soviets relied on American technology to equip their semi-conductor plant came from John D. Marshall, a chemist and specialist in facilities that manufacture semiconductors.
Marshall owns a high technology business in Silicon Valley and testified to Congress that in the winter of 1975 he made two trips to the Soviet Union. Led by a West German named Richard Mueller to believe that the Soviets wanted to retain his consultative services in connection with their plans to manufacture electronic watches, Marshall learned on the second trip to Moscow that what was actually wanted was expertise to equip a semiconductor plant. Marshall told the subcommittee:
On the second trip, we met several Soviets who purported to be technical people. They were not very well trained and were not familiar 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 semi- conductor 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 semi-conductor components.
It was clear to me that Mueller had deceived me as to the Soviets' intentions, that it was not merely electronic watches the Soviets wanted to manufacture.
Marshall realized that to cooperate further with the Soviets would be illegal. He refused to meet further with the Soviets and left Moscow.
As he returned to the United States, Marshall recalled conversations he had overheard that at the time had not made.sense to him on the way to Moscow. Marshall and Mueller had stopped in Hamburg where Mueller introduced him to a Canadian, also providing technical assistance to the Soviets, that his mission was to show them how to make integrated circuits and to use equipment now on the way.
In Moscow, Marshall said, he met a woman who spoke English with a German accent who planned to ship certain American-made photolithography materials to the Soviet Union via East Berlin. Photolithography materials are critical in semi-conductor manufacture.
In West Germany, Marshall was introduced to Volker Nast, identified by Mueller as his partner. Nast was involved in illegal diversions of the U.S. technology to the Soviet Union.
The significance of 1975 as the year the Soviets expressed their desire for American-made semi-conductor equipment has been explained by Marshall. In 1975 the U.S. was preeminent in the field of semi-conductor technology. Marshall said:
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.
According to Marshall, the Soviets' primary interest in 1975 was the manufacture and assembly phases of semi-conductor production. By 1977, he said, the Soviets needed to stock the facility with test equipment, and software development equipment.
Dr. Lara Baker, in his testimony before Congress, agreed with Marshall. In the 1978-79 time frame the CTC-Maluta syndicate purchased production equipment. In the 1979-1980 period, the CTC-Maluta network bought semi-conductor test equipment. Said Baker, "Marshall's testimony is quite consistent with my information."
U.S. Customs Service investigations confirmed not only the Bruchhausen network but subsidiary networks operating in cooperation with the Soviets for illegal purchase of semiconductor manufacturing equipment.
Information about the Soviets' efforts to build a semi-conductor industry — and, in so doing, make a major leap forward in military electronics — was given to a Senate subcommittee by Charles L. McLeod, a Special Agent with the U.S. Customs Service. McLeod said the same Richard Mueller who had brought John Marshall to Moscow had been active in several other schemes.
In fact, McLeod said, Mueller was an operative in a syndicate whose mission was to export by illegal means semi-conductor manufacturing equipment from the United States to the Soviet Union. Other operatives in the network included Volker Nast, Luther Heidecke, Peter Gessner and Frederick Linnhoff, all West Germans. In the U.S., their associates included Robert C. Johnson, Gerald R. Starek and Carl E. Storey, officers in high technology firms.
McLeod, of the San Francisco office of U.S. Customs, investigating technology diversions originating in nearby Santa Clara County, said inquiries into two Silicon Valley electronics firms — II Industries and Kaspar Electronics — led to the conclusion that the Soviets were trying in the mid-1970s to "construct a semi-conductor manufacturing facility by using U.S. technology and equipment." A loosely knit organization of electronics producers and brokers in West Germany and Northern California assisted the Soviets.
The first diversion of semi-conductor manufacturing equipment occurred in 1974. McLeod said participants in the diversion included Luther Heidecke, a representative of Honeywell/West Germany, AG, and Peter Gessner, the European sales representative for Applied Materials, a Northern California firm which produced semi-conductor manufacturing equipment. Gessner had other jobs as well, serving as the European salesman for II Industries and Kaspar Electronics. In addition, Gessner was employed by Richard Mueller.
Processing orders through Honeywell/West Germany for the purchase of semiconductor manufacturing equipment, Heidecke arranged for the export of II Industries and Kaspar Electronics machinery to West Germany and ultimately to the Soviet Union. Heidecke's activities came to the attention of the West German authorities, who prosecuted him for giving the Soviets national security information.
McLeod described a second diversion. A Mays Landing, New Jersey export firm known as Semi-Con, formed by a West German Richard Mueller and managed by a former intelligence agent, shipped semiconductor manufacturing equipment to the Soviet Union. The equipment was from II Industries and Kaspar Electronics.
The identification of the Bruchhausen network does not reflect favorably upon the operating efficiency of the Commerce Department's Office of Export Control and specifically its Compliance Division. (As the situation existed in 1980, it may possibly have improved since that time.)
The existence of the CTC network of companies was first brought to the attention of the U.S. government in 1977 and 1978 when two anonymous letters were received at the American Consulate in Dusseldorf, Germany. The State Department translated the letters into English and referred them to the Compliance Division in Commerce. The letters were received by the Compliance Division in 1978 and no effort was made to investigate the allegations.
After receipt of the letters, two U.S. producers of dual-use technology also reported to the Commerce Department that they were suspicious of the CTC companies. Again no Commerce action.
A Commerce Department special agent did interview CTC's principal executive in Los Angeles, the naturalized Russian-born American citizen Anatoli Maluta, also known as Tony Maluta 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. However, Maluta said, because of the agent's interest, he would cancel the suspicious order.
There was no further investigation of the CTC network until a second letter arrived at Compliance Division from another high-technology producer, also suspicious about the CTC companies.
Early in 1980, a second Compliance Division agent, Robert Rice, was assigned to the case and conducted a comprehensive preliminary inquiry. Rice, the most senior agent in the Division, found considerable information indicating widespread violations of export controls. The evidence went to the Office of the U.S. Attorney in Los Angeles in March 1980. A major inquiry was begun by the U.S. Attorney's office, under the direction of Assistant U.S. Attorney Theodore W. Wu and the U.S. Customs Services. 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 out of reach, and two Los Angeles associates — Maluta and Sabina Dorn Tittel. Maluta and Tittel were convicted.
The CTC case demonstrated technology diversions of about $10 million and is considered by law enforcement and national security specialists 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 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 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, and enlisted assistance of the Customs Service. Later assistance was provided by trained criminal investigators from the IRS.
Fourth, at an early point in the inquiry it was necessary to seize shipments. Commerce had neither the authority nor the manpower to seize shipments. Customs did.
Fifth, at another point in the inquiry it was necessary to search the premises of CTC companies and certain of employees 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 to coordinate searches abroad. Customs executed the warrants in the United States and, through its agreements with West German customs, arranged for the execution of warrants in Germany.
Sixth, to substitute sand for one of CTC'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 overseas law enforcement contacts.
Eighth, extensive surveillance was necessary. Armed Customs agents and armed Internal Revenue Service criminal investigators and an unarmed Compliance Division Special Agent Rice provided this work.
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 Compliance 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 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 Type of Equipment
Shipped to the USSR
The Bruchhausen network was extremely efficient at obtaining the type of equipment needed by the Soviets for their semiconductor plant.
Here is a summary as reported to a Congressional Committee by an American computer expert.
Senator Nunn: 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 Nunn: Or military?
Mr. Marshall: Yes.
Senator Nunn: Members of the minority staff showed you a list of equipment that has been illegally exported to the Soviets over the period 1976 to 1980; is that correct?
Mr. Marshall: Yes.
Senator Nunn: These illegal exports were valued at about $10 million. Have you looked at that list?
Mr. Marshall: I have seen the list, yes.
Senator Nunn: 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.
Examination of Continental Technology Corporation invoices demonstrates the high technology specialized nature of the equipment shipped by the Bruchhausen network. Here are sample summaries based on CTC invoices:
CTC Invoice Number: 1017
Manufacturer: Fairchild Instrument Corporation
The commodities on this invoice are spare parts and extensions for the Fairchild Xincom test systems referred to on CTC Invoice number 8051, among others. As such they continue and enhance the capabilities of the microprocessor test system previously referred to.
The products also exceed the state of the art of new designs in the destination country, as of the time of shipment.
CTC Invoice Number: 8071
Manufacturer: Fairchild Instrument Corporation
The commodity on this invoice is a test system for the production testing of integrated circuits. This test system is necessary and critical for the test of civilian or military microcircuits. This is an area in which the destination country falls far behind the United States in capability, and the test system is applicable to integrated circuits for military applications. Single board computers/microcomputer systems are used in most advanced weapons systems throughout the free world, particularly in missile and aircraft systems. Their use provides a significant increase in effectiveness with an equally significant reduction in weight and power consumption.
These products would exceed the state of the art of equipment being manufactured in the destination country, as of the time of shipment. The products also exceed the state of the art of new designs in the destination country, as of the time of shipment.
CTC Invoice Number: 1091
Manufacturer: Fairchild Instrument Company
The commodity on this invoice is a test system for the production testing of integrated circuits. This test system is necessary and critical for the test of civilian or military microcircuits. This is an area in which the destination country falls far behind the United States in capability and the test system is applicable to integrated circuits for military applications. Single board computers/microcomputer systems are used in most advanced weapons systems throughout the free world, particularly in missile and aircraft systems. Their use provides a significant increase in effectiveness with an equally significant reduction in weight and power consumption.
These products would exceed the state of the art of equipment being manufactured in the destination country, as of the time of shipment. The products also exceed the state of the art of new designs in the destination country, as of the time of shipment.
CTC Invoice Number: 1040
Manufacturer: Fairchild Instrument Corporation
The commodity on this invoice is a test system for the production testing of integrated circuits. This test system is necessary and critical for the test of civilian or military microcircuits. This is an area in which the destination country falls far behind the United States in capability, and the test system is applicable to integrated circuits for military applications. Single board computers/microcomputer systems are used in most advanced weapons systems throughout the free world, particularly in missile and aircraft systems. Their use provides a significant increase in effectiveness with an equally significant reduction in weight and power consumption.
These products would exceed the state of the art of equipment being manufactured in the destination country, as of the time of shipment. The products also exceed the state of the art of new designs in the destination country, as of the time of shipment.
CTC Invoice Number: 21 073
Manufacturer: California Computer Products Incorporated
The commodity on this invoice is a complete off-line high precision flat bed plotter system. The plotter involved, the CALCOMP-748 plotter, is precise enough and big enough to directly draw the masks needed for integrated circuit production. For that reason the plotter associated equipment is embargoed. The integrated circuits produced with masks drawn on this plotter can be used for civilian or military applications and as such are embargoed.
The products exceed the state of the art of new designs in the destination country, as of the time of shipment.
CTC Invoice Number: 21 074
Manufacturer: California Computer Products Incorporated
The commodities on this invoice are accessories for the high precision plotter referred to on CTC Invoice number 21 073. As such they are embargoed for that application. These particular pieces of equipment are within the state of the art of the country of destination, however, they could not be shipped as part of the plotter system.
CTC Invoice Number: 21 075
Manufacturer: California Computer Products Incorporated
The commodities on this invoice are spare parts for the plotter referred to on CTC Invoice number 21 073. As such they would be embargoed because of the direct military application of the plotter. The parts themselves may be embargoed because they contain embargoed technology. These products would exceed the state of the art of equipment being manufactured in the destination country as of the time of shipment.
CTC Invoice Number: 22 004
Manufacturer: Tektronics Incorporated
The commodity on this invoice is an extremely high speed (350 megahertz) oscilloscope with direct military applications in nuclear weapons testing, in high speed signal processing systems, and in other high speed electronic applications. This product exceeds the state of the art of equipment being manufactured in the destination country as of the time of the shipment.
The product matches the state of the art of new designs in the destination country, as of the time of shipment.
CTC Invoice Number: 1188
Manufacturer: Tektronics Incorporated
The commodities on this invoice are accessories for the high speed oscilloscope referred to on CTC Invoice 22 004. As such they are embargoed. These products exceed the state of the art of equipment being manufactured in the destination country as of the time of shipment. The products also exceed the state of the art of new designs in the destination country, as of the time of shipment.
CTC Invoice Number: 1003
Manufacturer: Data General Corporation
The commodity on this invoice is a complete Data General Eclipse S/230 digital computer with substantial peripheral and input/output communication equipment. This general purpose computer could be licensed if a license were applied for and certain characteristics of the computer were deleted. As a general purpose computer it is applicable to many civilian and military applications. This particular configuration seems applicable to the control and monitoring of the manufacture of integrated circuits.
The products also exceed the state of the art of new designs in the destination country, as of the time of shipment.
So confident are the Soviets that our strategic goods embargo is a leaky sieve that they not only import illegal military end use equipment, but ship it back to the West for repair, presumably secure in the belief that it can be reimported.
One example that was intercepted occurred in July 1977 when California Technology Corporation placed a purchase order with a U.S. manufacturer for $66,000 in components for sophisticated electronic machinery with direct military application. All components ordered were Munitions List items and cannot be legally exported without approval from the U.S. Department of State. Yet CTC received the equipment and in September 1977, under the name Interroga International Components and Sales Organization, CTC exported the components to West Germany.
Three years later one of the components was in need of repair. It was sent to the manufacturer's plant for work. On June 16 and 23, 1981, in West Germany, Stephen Dodge of Customs, Robert Rice of Commerce, and Theodore W. Wu, Assistant U.S. Attorney in Los Angeles, received information that the machinery had been sold originally to Mashpriborintorg of Moscow, and the Russians had sent the disabled component back to ADT of Dusseldorf for repair.
A telex from CTC executives in Dusseldorf to Anatoli Maluta in Los Angeles, dated February 27, 1980, was seized by U.S. Customs agents. The telex said the component would be returned to the U.S. for repair. A "friend" would receive the repaired equipment and then turn it over to Maluta for re-export.
Now let's turn to the question of how the Soviets know what to order for their semiconductor plant. The invoices reproduced above suggest the Soviets knew precisely what production equipment they wanted to build a semiconductor plant. The question is how did they find out the model numbers, specifications and the rest? Footnotes:
14 United States Senate, Transfer of United States High Technology to the Soviet Union and Soviet Bloc Nations Hearings before the Permanent Subcommittee on Investigations, 97th Congress Second Session, May 1982, Washington, D.C., p.
15 United States Senate, Transfer of United States High Technology to the Soviet Union and Soviet Bloc Nations Hearings before the Permanent Subcommittee on Investigations, 97th Congress Second Session, May 1982, Washington, D.C., p. 259.
16 United States Senate, Transfer of United States High Technology to the Soviet Union and Soviet Bloc Nations Hearings before the Permanent Subcommittee on Investigations, 97th Congress Second Session, May 1982, Washington, D.C., p. 29.
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59s Computers - Deception by Control Data Corporation
