LETTER TO JOHN MCMAHON FROM ANNE KEATLEY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86M00886R000700020002-4
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 17
• Document Creation Date: December 21, 2016
• Document Release Date: August 14, 2008
• Sequence Number: 2
• Publication Date: April 10, 1984
• Content Type: LETTER

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INTEI.{.IGENCE AGENCY
10 April 1984
NOTE FOR: C/TTAC/OSWR/DDI
FROM: EA/DDCI
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NATIONAL RESEARCH COUNCIL
2101 Constitution Avenue Washington, D. C. 20418
April 10, 1984
John McMahon
Deputy Director
Central Intelligence Agency
Washington, D.C. 20505
EX@CU IVe G evisIry
As a follow-up to the February Export Control Seminar
at which you spoke, we are planning to produce a report
that will include edited transcripts of several of the
presentations, including those of Roland Schmitt (General
Electric Co.), Richard Meserve (Covington & Burling), Paul
Gray (MIT), as well as your own talk. The report will be
sent to all participants and to individuals who were invited
to the seminar but were unable to attend. Additional copies
will be available to you.
Enclosed for your review is a copy of your edited
presentation. In order to meet a publication traget of
April 30, I would appreciate your sending or calling in
any comments or corrections to Lois Edwards (334--2431)'by
Friday, April 20. I would especially appreciate it if
someone could check the spelling of the German names on p.12.
Thank you for your help. If you have any questions
please give me a call.
Anne Keatley
Director
Academy Industry Program
The National Research Council is the principal operating agency of the National Academy of Sciences and the National Academy of Engineering
to cerne onnernment and other nroanizatinns
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THE JUSTIFICATION FOR AND CONSEQUENCES
OF CONTROLS
John McMahon, Deputy Director
Central Intelligence Agency
As you can imagine, the intelligence community is
somewhat uptight on technology transfer. We get a
little demoralized to spend a lot of effort to find out
about Soviet weapon systems only to have them end up
being ours. That's not an overstatement. The
technology transfer on military-related hardware is
enormous, and what I would like to do today is share
with you a feeling that we are not really dealing with a
bunch of spooks who get some information every now and
then. We are dealing with a concerted effort by the
Soviet Union, beginning in the Politburo on down, in a
well organized structure that orchestrates the
acquisition of hardware as well as technology.
At one time we were quite content to be the target of
all of this because of the position the United States
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enjoyed in the technological world. That technology has
been shared now with Western Europe and Japan as they
have expanded to meet the United States technologically,
and it has afforded the Soviet Union and their allies in
the Warsaw Pact a happy hunting ground. If they can't
get it here, they can get it someplace else.
With the Europeans very much involved in this now, we
run up against a blood strain that desires trade with
the East and views the United States with a little bit
of skepticism as we begin to put controls on that
trade. We finally caught the attention of our allies
about two years ago when we pointed out to them that it
was not a question of trade, but of robbery, that the
Soviets were running clandestine operations against them
and walking away with their technology free of charge.
That caught their attention and they now realize that
it's for real. In the past year over 100 Soviets have
been expelled from Europe because they were caught
red-handed. I would like to share with you some of our
own clandestine operations as well as from sharing our
experience with our Western allies. This is not a new
issue between the intelligence community and the
National Academy. We had a very interesting dialogue
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with the Dale Corson Panel* in which we studied the
problems posed by our concern for U.S. national security
needs as well as their impact on academic exchanges. It
was not surprising that we didn't agree on all points,
but there was a sufficient sharing of views that I think
it had a very valuable effect across the board.
Insights were gained by the Academy as well as the
public about a problem that until then had very much
been overlooked. The Academy has played -a very useful
role in developing awareness throughout academia about
this technology transfer problem.
Technology transfer, of course, has many facets, but
in terms of national security, it can be distilled down
to a simple, overriding problem, at least at the
moment: the simple acquisition of military-related
Western technologies by the Communist world, and here we
focus principally on the Soviets and their Warsaw Pact
allies.
The scope of the Soviet collection effort and the
ability of the Soviet military industrial complex to
assimilate Western technology is most impressive, and it
really surprised us when we began to look into it. They
Security, chaired by Dale R. Corson
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can do it. There was a very glib saying for years that,
well, even if the Soviets get the technology, they can't
put it to use because they can't produce it. All we
have to do is make sure that they don't get our
production techniques, and they can't do much about it.
Well, that has proven false; they can do much about it
and are doing it today.
Just during the late '70s, the Soviet collectors have
acquired some 30,000 pieces of Western controlled as
well as uncontrolled equipment, weapons, military
components, and manufacturing technology, and over
400,000 technical documents. Unfortunately, a good many
of these documents are 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 and
copied the following items to help solve their problems
in developing new weapons and military equipment.
They have hundreds of pieces of microelectronic
fabrication as well as memory tester systems, hundreds
of electronic test and metering systems for quality
control on aviation, missile, and undersea systems.
They have programmable oscilloscopes, scores of
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microwave and other advanced communications equipment,
high quality large photographic systems for thin film
production, multimillion 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 knowhow, quality lubricants and
rubber products for military vehicles, high density
self-contained power supplies, and high modulus glass
fibers.
That's just a sample of how they can reach into our
technology and get it; and we know they have it. As a
result of these acquisitions, the growth of Soviet
military power has been greatly accelerated in all key
areas, and there has been a steady erosion of
technological superiority on which U.S. allied security
increasingly depends. The narrowing of the
technological gap in turn has compelled the United
States and its allies to make even greater efforts to
overcome the growing sophistication and lethality of the
Soviet military focus.
Although there is growing public awareness of this
problem, very few outside the intelligence community
understand how the Soviet program for collecting and
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exploiting Western technology is organized and
implemented.
Parenthetically, I would like to comment on an article
that the French intelligence service kindly leaked
through a French periodical in which they mused about
the beauty of the United States and its ability to
sustain two defense programs, one of their own and one
of the Soviet Union, the problem being that we have to
spend money just to stay even with ourselves because of
this rush of technology to the Soviet Union.
The organization and structure of the Soviet S&T
acquisition program is considerable. We have collected
in the intelligence community a truly impressive amount
of evidence about the Soviet Union's worldwide effort to
acquire high technology, and it is no accident on the
part of the Soviet Union. It is extraordinarily well
organized, highly centralized, and under the direct
supervision of the highest organs of the party and the
state: the Politburo of the Communist Party Central
Committee and the Council of Ministers. The primary
control over the technology acquisition and exploitation
rests with the VPK, the Military Industrial Commission.
Significantly, predecessors to the VPK have existed
since the 1930s to ensure that the Soviet military gets
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the resources it needs from the planned economy.
Sometime in the late 1960s, the VPK was directed to
greatly expand its efforts in acquiring technology from
the West as well.
The VPK directly oversees the participation of the 12
key Soviet industrial ministries that are involved in
military production as well as in the assimilation of
Western technology into that production. 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 a central clearinghouse for the
program and is responsible for collecting the
requirements and reports submitted by the defense
industrial ministries to the VPK, and 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 the savings in this foreign technology into
their weapons program. The collection requirements are
gathered by the Technical Center, blessed by the VPK,
and given to the collectors for action. The Soviets
designate as the collectors the KGB and the GRU as well
as the State Committee for Science and Technology, the
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Soviet Academy of Sciences, the Ministry of Foreign
Trade, and the intelligence services and foreign trade
missions of their Warsaw Pact allies.
From our knowledge, the KGB and the 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
systems components, but also such key dual-use and
export-controlled items as computers, microelectronics,
fiber optics, powder metallurgy, composite materials,
lasers, and associated production technology. In the
recent French report that I spoke of, it was estimated
that during the last three years the KGB alone acquired
30 percent of France's latest high technology
achievements. It is interesting to note that 80 percent
of this 30 percent was acquired on the open market.
The role of the State Committee for Science and
Technology--the GKNT as we call it--and the Soviet
Academy of Sciences in acquiring Western technology is
of particular relevance to this gathering. The GKNT is
responsible for coordinating all applied research in the
Soviet Union. It also plays an important role in
acquiring Western technology. GKNT's scientific and
technical information gathering and processing
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activities are vital to the generation of Soviet
requirements for foreign technological acquistions.
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. This we know for a fact. 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
academic exchange programs with Western universities and
research centers to acquire sensitive scientific
information for use in their weapons programs. Western
magnetic bubble memory technology, microelectronic and
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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 closely with Soviet intelligence services. Soviet
scientists traveling to the West are briefed by Soviet
intelligence services on S&T intelligence requirements
before they leave the country. They also are expected
to assess their Western colleagues for their potential
as intelligence agents. Moreover, an increasing number
of intelligence officers are given S&T training to allow
them to masquerade as scientists in part of these
exchanges.
The Ministry of Foreign Trade (MFT) is responsible for
the majority of the illegal trade conducted through
normal trade channels. The MFT operates a large network
of trade offices, joint companies, and purchasing
missions whose staffs are quite adept at obtaining
Western equipment. The KBG and the GRU regularly co-opt
members of the MFT foreign trade organizations for
special collection tasks abroad, and both intelligence
services use the MFT trade missions abroad as cover for
some of their personnel. Many of the 100-plus Soviets
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who have been expelled by Western countries for
espionage within this past year were attached to these
trade missions.
Finally, the Soviet Union has made increasing use of
its East European surrogates to acquire Western
technology, for two reasons. First, the East European
countries generally have a better image in the West than
the Soviet Union, and thus, their intelligence
collectors are often able to blend and operate more
freely. Second, the Soviets 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 Industry,
for example, acquired embargoed items routinely through
the 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 U.S. and other Western
technology. Let's discuss illegal trade through third
countries, because this is the area where international
export controls are the weakest. Unlike classic
espionage operations, illegal trade, also known as
diversions, rarely employs covert trade craft. Although
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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.
A main target of diversion efforts is computers and
semiconductor production equipment. In this area of
diversions, we have identified already some 300 firms
operating from more than 30 countries, and there are
probably many more that remain unidentified. We know of
at least five major diversion networks operating in
Western Europe. Two of these, Debrukhausen and Meuller
Networks, are some of the Soviet Union's largest
suppliers of semiconductor production equipment, and
they operate on a global scale. Meuller and Brukhausen
were both indicted in 1977 in the United States Federal
Court for illegal trade activities. However, because
illegal trading is not an extraditable defense, they
remain at large. Werner Brukhausen, a West German, at
one point in the 1970s had more than 50 front companies
operating in Austria, France, the United Kingdom,
Switzerland, West Germany, and the United States. From
1977 to 1981, millions of dollars of equipment used to
make microprocessors, computers, and integrated circuits
were transferred through Werner to the network to the
Soviet Union.
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Richard Meuller, 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, Meuller smuggled
some $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 U.S. Vacs-11 782 computers and
related equipment that Meuller was attempting to smuggle
to the Soviet Union. The diversion route followed a
typically roundabout course, from the United States to a
Meuller front company in South Africa, from there to
another in West Germany, and then Sweden, finally, on
their way to the Soviet Union. Fortunately, they were
intercepted. Meuller's whereabouts at present are
unknown. He may be residing in a Soviet bloc country.
None of our allies, of course, condone the use of
their territory for illegal trade activities, but the
penalties 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 goes to the tens
of millions of dollars. In 1982, Brukhausen, for
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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 technological
acquisition 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 are 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 to COCOM countries
goods that are subject to the multilateral COCOM
controls could jeopardize our whole export control
mechanism. It is the opinion of the intelligence
community that removal of validated licenses for goods
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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 it is
a massive program on the part of the Soviet Union. It
does work. When we see the Soviet weapons system that
is actually ours or a derivative of ours, it convinces
us of the enormity of this problem and the success that
the Soviets enjoy. The insights that we have into the
Soviet Union and what they are doing to us and the
Western world convinces us that this merits the
attention of the National Academy of Sciences as well as
every American, including our industrial base.
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