LETTER TO WILLIAM CASEY FROM(SANITIZED)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85M00364R001001540042-8
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 6
• Document Creation Date: December 21, 2016
• Document Release Date: June 16, 2008
• Sequence Number: 42
• Publication Date: June 7, 1983
• Content Type: LETTER

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June 7, 1983
William Casey, Director
United States Central Intelligence Agency
Washington, D.C. 20505
I have an item which concerns a danger to our national security, and
which I feel compelled to bring to your attention. This danger was exhibited
in a financing deal we attempted to consummate some months ago.
Approximately ten months ago, my firm attempted to obtain a contract to
arrange the financing needed by a high-technology company which manufactures
defense-sensitive optical equipment. During our preliminary negotiations,
events and possible courses of action arose that led us to check out the
legality of the project with a ranking official at the Department of Commerce.
When the official could find no legal restrictions which would prohibit the
company from doing what had bothered us, we proceeded in our attempt to obtain
a contract to arrange normal financing for them. Incidentally, if we had
consummated our deal, the perceived danger to our national security would have
been obliterated because we would have arranged normal. financing.
I should point out that we are experts in finance, not national
security, yet we- perceived a danger.
The company wanted financing, that is, cash investors who were willing to
put up money to allow the company to construct facilities to manufacture its
devices to fill a number of orders from foreign governments. A large number
of its orders were from Mid-Eastern countries but they were not limited
thereto. Further, these potential foreign sales required Department of
Defense approval and I feel certain that the Company had applied for such
approvals. Most. of these orders were of recent vintage and unfilled.
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During our negotiations, however, the owner embarked upon a trip to
Europe and to the Middle East. Upon his return, he announced that he had
received two firm offers for the Company itself. These offers would require
him to move the company, in total, to London and/or an unspecified (and
confidential) location in the Middle East. Apparently, only the
administrative portion would have been located in London, although this is an
educated conjecture on our part. It was this possibility which disturbed us
and led us to check out its legality. For, with such a simple artifice, it
appeared that the Company could circumvent the laws controlling the flow of
defense-sensitive technology into unwanted hands.
Even though we found no illegality, the possibility of this, or a
similar company moving its entire operations to a foreign country has to be
scary from the point of view of national defense. Even if it were to
transplant only its technical or manufacturing expertise, the move could have
had a devastating effect. We have no evidence that either deal was
consummated, or that such deals really existed beyond the puffery of the
owner. Nonetheless, in recent months we have speculated, among ourselves,
about the intense desire of such high-technology companies to fill armloads of
orders from foreign governments. They must feel tremendous pressure to
circumvent the requirements for, and the delays connected with, seeking
DOD authorization. How much easier it would be, especially to a company
already hard-pressed for expansion capital, if the entire company were located
in Saudi Arabia, or even, Libya.
In other words, the United States needs a policy which limits our
exposure to high-technology companies being purchased or financed (and
controlled) by undesirable foreign governments. According to the Department
of Commerce: we do not.
Yet, in the financial world, it is surprisingly easy to gain total
control of a company (any company!!) by supplying limited quantities of
money. Please note that the type of money supplied to a company does not have
to be common equity capital to gain external control of a company. There are,
today, very complex and elaborate ways of supplying money to companies who
need it. A large number of financial deals involve foreign monies either
directly through broker-agents or indirectly through trusts, consortiums,
foreign banks, and even, the World Bank. Deals to supply capital to U.S.
companies are often made in Europe and the money never appears in the United
States, at all.
Many small high-tech companies are literally barred from the major
suppliers of capital in New York. They are barred simply because the
compensation offered to major underwriters for raising such capital is too
small for the underwriters to bother with. Another factor is that small
issuances cost prohibitively more than big ones. Finally, the risks of
failure are much greater. For all of these reasons, the small high-technology
companies are generally forced into the murky world of venture capitalists, or
into the hands of purveyors of foreign funds or into the smaller regional
money markets where few know the ultimate sources of the funds. Even
well-established U.S. sources do not trace the true sources behind trusts or
foreign entities.
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An additional, but different, danger lies in the case with which even the
largest U.S. companies can be controlled by foreign suppliers of capital.
There is probably little real danger that such large companies can be
perverted for foreign interests, however, because extraterritorial sales
account for a much smaller portion of their total endeavors. The gas pipeline
equipment sales to Russia and the sales to Iran during the-hostage crises are,
nonetheless, examples of it happening.
The real danger lies in international financial institutions which supply
funds to selected small companies. The receiver of such funds is often forced
to accept some rather onerous contractual terms to get the money they need.
Lately, many such deals have required the small company to surrender large
portions of its common equity ownership to the suppliers of funds.
I do not mean to imply that all such deals are suspect. Most are just
good and solid business deals on the part of the financial institutions who
are using, and should use, the full economic power available to them.
Assume, however, that an undesirable foreign interest, with apparent
legitimacy, had formed or acquired an insurance company, a monetary trust, a
bank, or whatever, in this country. In that case, such deals might well be
something other than just good business. Again, I do not want to make too
much of this, I just want to point out the possibilities. Almost any
financial analyst can point to companies where total operating control has
been maintained for many years by a single individual who owns,no more than
..five percent of. the. total outstanding common stock.
I know that the U.S. Government has no power, nor even the right, to
prevent highly-talented individuals from taking their own technological
expertise to more favorable climates for self-profit. But we ought to be .able
to know when it is happening and to prevent the wholesale movement of.a
defense-sensitive enterprise into undesirable foreign hands. This could
probably be accomplished by identifying the sensitive companies and
maintaining a constant review of the money markets where this type of company
looks for funds.
A potential for large foreign sales requires the physical plants to make
.the products and the money to build such plants. Since such companies need. to.
seek out the funds from various. sources, the word always seems to get around
quite quickly among underwriters, finders, banks and insurance companies.
These are standard sources of capital and normally such companies try these
sources first. It is when. they are turned down that the real possibilities of
undesirable foreign interventions occur.
Therefore, my suggestion is that the U.S. government establish a liason
with these standard sources of investment capital to identify and monitor the
high technology companies, and especially those which have been refused help
by these sources. At the very least, you ought to conduct a study to find out
how extensive the danger really is. I find it difficult to believe either
that the incident which happened to us is an entirely unique experience or
that, with. the currently massive international movements of money, the
Russians, or others, will fail, for long, to recognize their opportunities.
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The $140 million alleged to have been spent by the Russians on the Nuclear
Freeze movement, if correctly used, could have established partial or total
control of five to twenty high-technology companies with total sales in the
hundreds of millions of dollars and with existing research budgets larger than
the monies needed to establish control.
Just as an example, a list of eight small
have selected at random, is as follows:
Information International
KRATOS Inc.
LTX Corp.
Mathematical Applications
North Atlantic Industries
Odetics, Inc.
ROCKCOR, Inc.
Simmonds Precision
high-tech companies,...which I
At recent prices, the $140 million spent by the Russians on the nuclear
freeze movement could have purchased an absolute (51%) controlling interest
in, at least, six; far less than $300 million would have purchased them all.
Yet, these companies are reasonably well-known, with one even listed on the
New York Stock Exchange. Therefore, control of such companies would be the
most expensive to acquire by the Russians, or others. In reality, much less
than 51% ownership is needed for control or to introduce management of your
own choosing. Ironically, since the market values for most of these companies
has risen lately, the Russians could have made a profit, as well, while
stealing our secrets.
If I, or my associates, can be of any further assistance in this matter,
please feel free to call.
Sincerely,
Senior Vice President
cc: Webster/FBI
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` UI PEC i : {CiptinnoI)
Acknowledgement of Letter from
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Stanley Sporkin
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INITIALS I Nr whom. Draw o line across cc>turnn ohcr eoch comurent,)
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for the Directors signature
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DATE
R.~CF.t4ED IFORWARDED