THE JUSTIFICATION FOR CONTROLS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86M00886R000700020001-5
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 11
• Document Creation Date: December 21, 2016
• Document Release Date: August 14, 2008
• Sequence Number: 1
• Publication Date: August 13, 1984
• Content Type: REPORT

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STAT
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THE JUSTIFICATION FOR CONTROLS
John McMahon, Deputy Director
Central Intelligence Agency
I would like to express my appreciation for the opportunity
to address this distinquished assembly. As some of you may
recall, the Intelligence Community has worked before with the
Academy on technology transfer issues--specifically, the Dale
Corson Panel which studied the issue of scientific communication
and national security.*
It was not surprising that we didn't agree on all points,
but I think our dialogue was a success because it provided
valuable insights and publicity about a problem that, until
recently, has been largely overlooked. Indeed, the Academy has
played an important role in developing awareness throughout
academia about technology transfer issues.
What I would like to do today is share with you some of our
findings regarding the implications of technology losses to the
Soviet Bloc. We are not dealing with a few intelligence officers
who get some information every now and then. Rather we face a
very well orchestrated effort directed by the Politburo, for
acquiring and using Western equipment and technology.
* Scientific Communication and National Security, a report
prepared by the Panel on Scientific Communication and National
Security, chaired by Dale R. Corson, President Emeritus, Cornell
University.
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Technology Transfer has many facets, but in terms of
national security, it can be distilled down to a single,
overriding problem: the acquisition of Western technologies
applicable to military developments by the Communist World--above
all, the Soviet Union and its Warsaw Pact allies. About two
years ago we alerted our allies to this growing threat, and
pointed out that it was not only a question of trade, but of
robbery; that the Soviets were running clandestine operations
against their technological and industrial base. We believe they
now realize the severity of this threat, much more than ever
before.
The scope of the Soviet collection effort and the ability of
the Soviet military-industrial complex to assimilate Western
technology is most impressive. During the late 1970s alone,
Soviet collectors acquired about 30,000 pieces of Western
controlled and uncontrolled equipment, weapons, military
components and manufacturing technology, and over 400,000
technical documents. Unfortunately, a good many of these
documents were classified. We know that the KGB, and their
counterpart in the military, the GRU, as well as the Ministry of
Trade, The Soviet Academy of Sciences, and the State Committee
for Science and Technology are seeking and have already acquired,
used or copied the following Western items to help solve their
problems in developing new weapons and military equipment.
They have acquired hundreds of pieces of microelectronic
fabrication and test systems, hundreds of electronic test and
metering systems for quality control of aviation, missile and
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undersea systems, scores of microwave and other advanced
communications equipment, programmable oscilloscopes, high
quality large photographic systems for thin film production,
multi-million dollar large machining centers for manufacturing
tanks and military vehicles, industrial lasers and lasers for
communications and weapons R&D, fiber optical production systems,
space shuttle equipment and know-how, quality lubricants and
rubber products for military vehicles, high density self-
contained power supplies, and high modulus glass fibers.
That is just a very small sample of how successful they have
been at obtaining Western technology. I am reminded of a glib
saying that has survived for years that it doesn't matter how
much of our equipment and machinery the Soviets buy or steal,
because they can't reproduce it; all we have to do to maintain
our technical lead is protect our production technology. This
reasoning seriously underestimates our opponents.
Western technology has accelerated the growth of Soviet
military power in all key areas, and there has been a steady
erosion of the technological superiority on which US security and
the security of our allies increasingly depends. The narrowing
of the technological gap in turn has compelled the US to make
even greater efforts to counter the growing sophistication and
lethality of the Soviet military machine.
Although there is growing public awareness of this problem,
very few outside the Intelligence Community understand the Soviet
program for collecting and exploiting Western technology. It is
this issue that I will address today, for the organization of the
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Soviet program shows that the military benefits Moscow derives
from Western technology is not the result of some haphazard or
fortuitous exploitation of normal trade patterns. I submit that
it is precisely because of the organization of this acquisition
program that tougher enforcement of export controls is
imperative.
The intelligence community has collected truly impressive
evidence on the Soviet Union's worldwide effort to acquire the
latest technology. The program is extraordinarily well-
organized, highly centralized, and under the direct supervision
of the highest organs of the Party and State: the Politburo of
the Central Committee, and the Council of Ministers. The primary
control over technology acquisition and exploitation rests with
the Military Industrial Commission (VPK) of the Presidium of the
Council of Ministers. Significantly, predecessors to the VPK
have existed since the 1930s to ensure that the Soviet military
gets first choice of the resources it needs from the planned
economy. Sometime in the late 1960s, the VPK was directed to
expand its role and efforts to acquire technology from the West.
The VPK directly oversees the participation of the key
Soviet defense industrial ministries that are involved in
military production, and in assimilating Western technology. In
addition to the VPK, there is a little known organization inside
the State Committee for Science and Technology called the
Technical Center. It is the central clearinghouse for the
program, responsible for collecting the requirements and reports
submitted by the defense industrial ministries to the VPK, and
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for the intelligence information and materials acquired by the
collecting agencies. The defense industrial ministries in turn
are required to report regularly to the VPK on their progress in
assimilating foreign technology into their weapons programs.
The collection requirements gathered by the Technical Center
are blessed by the VPK and given to the collectors for action.
The Soviets designate as collectors not only the KGB and GRU, but
also the Soviet Academy of Sciences, the State Committee for
Science and Technology, the State Committee for Foreign Economic
Relations, the Ministry of Foreign Trade, and the intelligence
services of their Warsaw Pact allies.
We estimate that the KGB and GRU account for about 70
percent of the most significant military-related items acquired
from the West. This includes not only classified items such as
weapons system documents and components, but, also such key dual
use and export-controlled items as computers, microelectronics,
fiber optics, powder metallurgy, composite materials, lasers and
the associated production technology. These dual use items are
often as important to Soviet military capabilities as stolen
weapon systems. In a recent French report,it was estimated that
during the last three years the KGB alone acquired 30 percent of
France's latest high technology achievements, and 80 percent of
this amount was acquired on the open market. In the past year,
about half of the 100 plus Soviets expelled from Western
countries were involved in scientific and technical espionage.
The role of the State Committee for Science and Technology--
the GKNT as we call it--and the Soviet Academy of Sciences in
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acquiring Western technology is of particular relevance to this
gathering. The GKNT's scientific and technical information
gathering and processing activities are vital to the generation
of Soviet requirements for foreign technology acquisitions.
These activities are conducted through a nationwide, centrally-
directed system that comprises some 100,000 individuals and
several thousand information departments affiliated with Soviet
research institutes, design bureaus, and production facilities.
In addition, the GKNT manages efforts to acquire Western
technology through the activities of Soviet scientists and
engineers involved in academic, commercial, and scientific
exchanges with the West, including those sponsored by the Soviet
Academy of Sciences.
In an era of quantum leaps in military technology, basic
research has become increasingly important to a nation's long-
term military potential. Most basic research in the Soviet Union
is done under the auspices of the Soviet Academy of Sciences.
A fact difficult to accept in the United States is that the
Soviets, with growing frequency, have used the academic exchange
programs with Western universities and research centers to
acquire sensitive scientific information for use in their weapons
and military equipment programs. Western magnetic bubble memory
technology, microelectronic and laser research, nuclear energy
technology and deep-diving submersibles are but a few of the
areas in which Soviet scientific exchanges have scored notable
successes.
The Soviet Academy of Sciences, along with the GKNT, work
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closely with Soviet intelligence services. Soviet scientists
travelling to the West are given S&T requirements before they
leave the country, and also are expected to assess their Western
colleagues for their potential as intelligence agents. Moreover,
an increasing number of intelligence officers are give S&T
training to allow them to masquerade as scientists participating
in these exchanges.
The Ministry of Foreign Trade is responsible for the
majority of the illegal trade conducted through normal trade
channels. The Ministry operates a large network of trade
offices, joint companies, and purchasing missions, whose staffs
are quite adept at obtaining Western equipment. The KGB and GRU
regularly coopt members of the Ministry's foreign trade
organizations for special collection tasks abroad, and both
intelligence services use the trade missions abroad as cover for
some of their personnel. Many of the Soviets who have been
expelled by Western countries for political, military and
industrial espionage within this past year were attached to these
trade missions.
Finally, the Soviet Union has made increasing use of its
East European Intelligence Service surrogates to acquire Western
technology. The East European countries generally have a better
image in the West than the Soviet Union; thus their intelligence
collectors are often able to operate more freely. The Soviets
also must have multiple channels for acquiring Western technology
so that none of their defense industrial ministries become
dependent on a single channel. The USSR Ministry of Radio
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Industry, for example, acquires embargoed items routinely through
Hungarian collectors. The most active East European countries in
acquiring technology for the Soviets are, East Germany, Hungary,
Czechoslovakia, and Poland.
The Soviet Union and its East European allies use a vast
array of methods to acquire US and other Western technology. I
will discuss briefly here only illegal trade through third
countries, because this is where international export controls
are weakest. Although intelligence officers are involved in
arranging diversion operations, the main mechanism for acquiring
controlled items through this channel is a host of fraudulent
trade schemes.
Computers and semiconductor production equipment are the
main targets for diversion operations. We have identified some
300 firms operating from more than 30 countries that have engaged
in illegal high-technology trade, and there are probably many
more that are unidentified. We know of at least five major
diversion networks operating in Western Europe.
Two of these, the Bruchhausen and Mueller networks, are
among the Soviet Union's largest suppliers of semiconductor
production equipment, and they operate on a global scale.
Richard Mueller and Werner Bruchhausen were both indicted in
United States Federal Court for illegal trade activities.
However, because illegal trading is not an extradictable offense,
they remain at large. Bruchhausen, a West German, at one point
in the 1970s had more than 60 front companies operating in
Austria, France, the United Kingdom, Switzerland, West Germany,
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and the United States. From 1977 to 1981, millions of dollars of
equipment used to make microprocessors, computers, and integrated
circuits were transferred through this network to the Soviet
Union.
Richard Mueller, also a West German, is a master at
proliferating a maze of front companies with no ostensible
connection to himself, and I must say that personally I stand in
awe of his ability. We estimate that during the period 1977 to
1980, Mueller smuggled at least $10 million dollars worth of
embargoed technology from the United States to the Soviet Union.
Just this past December, West German and Swedish customs
seized two US VAX 11/782 computers and tons of related equipment
that Mueller was attempting to smuggle to the Soviet Union. The
diversion route followed a typically roundabout course, from the
United States to a Mueller front company in South Africa, from
there to West Germany and Sweden, enroute to the Soviet Union.
Fortunately, the shipments were intercepted.
None of our allies, of course, condone the use of their
territory for illegal trade activities; the penalties, however,
for engaging in diversions have little deterrent value. Fines
rarely exceed a few thousand dollars, while the profits for
illegally selling controlled equipment to the Soviet Bloc are in
the tens of millions. In 1982, Bruchhausen, for example, netted
$18 million dollars. Prison terms are rarely imposed, and when
they are the sentence is usually suspended.
The United States alone cannot respond adequately to the
mounting threat posed by the Soviet technology acquisition
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program. Only a concerted, multifaceted approach, combining both
effective export control policies and vigorous counter-
intelligence programs by the United States and its allies, can
thwart this highly organized Soviet acquisition effort. For many
reasons, the United States must take the lead in making the case
for stricter export controls and enforcement. Some of our allies
still believe that trade is a way to persuade the Soviet Union to
act more responsibly in the world, despite all the historical
evidence to the contrary. Their economies are also far more
dependent on exports than is ours, and they have traditionally
viewed the Soviet Bloc as a lucrative market.
Proposals to eliminate the requirement to obtain a validated
license before exporting strategic items to COCOM countries could
jeopardize our whole export control mechanism. The intelligence
community believes that removal of validated licenses for goods
to be shipped to other COCOM countries would weaken substantially
the ability of the United States to monitor the flow of its
technology abroad and to prevent the unauthorized re-export of
this technology to the Soviet Bloc.
In conclusion, I can only impress upon you that the Soviets
have a massive program for acquiring our best technology, a
program that works. When we see a Soviet weapons system that is
a copy of ours or a derivative of ours, it reaffirms the
magnitude of this problem and the success that the Soviets
enjoy. It is a problem that merits the attention of the National
Academy of Sciences and of every American, including our
industrial leaders.
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