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CONSARC

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On July 19, 1990, the USG successfully stopped the shipment of CONSARC furnaces going to Iraq that might have been used in sensitive nuclear applications.

Contrary to reports in the press, the handling of the CONSARC furnaces case clearly demonstrates that existing interagency mechanisms and relationships work.

Commerce rules provide that nothing may be exported if it is to be used in sensitive nuclear activities. Accordingly, when allegations were made in mid-June 1990 about the possible diversion of the CONSARC furnaces to sensitive nuclear uses in Iraq, the Customs Service detained the shipment until a proper investigation could be completed.

The Commerce Department working with State, Defense, the NSC, and other agencies managed to obtain additional information indicating that the furnaces might be used by Iraq in sensitive nuclear activities.

Based on this information, the Commerce Department halted the export on July 19, 1990.

The furnaces were not shipped and remain in the United States.

STATISTICS ON U.S. LICENSING FOR IRAQ

1985-1990

Each of these licenses was processed in accordance with the prevailing export policies and interagency procedures described in the BXA Facts - Iraq Export Licensing Fact Sheet.

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** This figure included $1 billion worth of cargo trucks that were not shipped to Iraq.

*** Included in these approval statistics are those cases in which State asserted that no foreign policy controls applied and returned the license without review; cases in which Defense stated that it had no statutory role in reviewing the license; or in which any agency voiced objections but did not continue to escalate them.

# Returned Without Action

## SNEC is the Sub-Group on Nuclear Export Coordination. This is a State Department-chaired committee with representatives of Defense, Commerce, Energy, the Arms Control and Disarmament Agency and the intelligence community.

I would also like to insert a chart in the record at this point to give the Subcommittee an idea of the enforcement activities which the Administration has taken to apprehend and sanction EAA violators. These are based on the Export Administration Annual Report for FY 1990 and show that 46 individuals were criminally convicted in FY 1990 and 70 individuals and firms were administratively sanctioned for violating the EAA or its regulations. In the first six months of FY 1991, Commerce has already surpassed the total number of criminal convictions which it obtained in FY 1990.

EXPORT ADMINISTRATION ACT
ENFORCEMENT STATISTICS FOR FY 1990

In FY 90 there were 374 special agents enforcing the EAA -- 74 from
Commerce & 300 from Customs On a per agent basis both agencies
produced approximately the same number of criminal convictions for
a total of 46 convictions In addition, Commerce administrative y
sanctioned 70 individuals and firms

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Mr. Moody. Thank you, Mr. Chairman.

Mr. ANTHONY. All right, Mr. Moody. We are ready to go to panel four and I think, Mr. Deliberti, you are still on that panel. We need Randall Sike, Special Agent in Charge, and Jerry M. Hobbs, Special Agent, Office of Export Enforcement, San Jose, Calif.; and Portia Moore, former assistant U.S. attorney, San Francisco, Calif. If those witnesses could come forward.

Mr. Deliberti, are you ready? We will take your testimony, and then Mr. Sike and then we will take Ms. Moore. You are recognized at this time.

STATEMENT OF FRANK W. DELIBERTI, DIRECTOR, OFFICE OF EXPORT ENFORCEMENT, BUREAU OF EXPORT ADMINISTRATION, U.S. DEPARTMENT OF COMMERCE, ACCOMPANIED BY RANDALL SIKE, SPECIAL AGENT IN CHARGE; AND JERRY M. HOBBS, SPECIAL AGENT, OFFICE OF EXPORT ENFORCEMENT, SAN JOSE, CALIF.

Mr. DELIBERTI. Mr. Chairman, I will now turn to the C-TEK case. In outlining this case for you I would like to discuss how we received the initial information, our investigation, the parties to the case, and our sting operation.

In February 1989, we learned that a Minnesota company had become suspicious about a purchase order for two micro VAX II computers. The company became suspicious about the sale when a firm in Iowa first indicated the computers were to be exported, but later said they would be sold to C-TEK Computers of Kirkland, Wash.

Because Kirkland is in the jurisdiction of the San Jose field office, they handled the investigation. They arranged with a Seattle freight forwarder to make a controlled delivery of computers to C-TEK. Posing as a representative of the freight forwarder, our agents delivered the computers to C-TEK, looked over its facilities and later called C-TEK to determine the identity of any other freight forwarders they had been using.

We contacted the other C-TEK freight forwarder, examined documents showing the shipping history of C-TEK exports and asked to be notified of any future shipments. Within weeks we were informed by the Seattle freight forwarder that C-TEK was making shipments of computer parts to Computer Focus and W.K. Agencies companies located in Singapore.

As shown in the photos that Special Agent Hobbs has just put on the easel, our special agents accompanied by Customs examined the shipments and took photographs of the equipment. Because we did not have a reasonable basis to believe an unlawful export was about to occur, we allowed the shipment to go.

We immediately sent the information and photographs to the Digital Equipment Corp., the manufacturer of the VAX computers. DEC identified the components as a VAX 8700 superminicomputer and told us that identifying information such as logo and serial numbers had been removed, as Mr. Hobbs is pointing out. We immediately contacted U.S. Customs and asked them to work with the Singapore authorities to stop delivery of the shipment and return it to the United States. U.S. Customs made the necessary arrangements.

At the same time, we were working with the U.S. Attorneys Office in Seattle to obtain search warrants for C-TEK's office and warehouse. Two additional warrants authorized seizure of bank funds C-TEK intended to use to purchase the computer equipment which we believe would have been illegally exported. We seized approximately $851,000.

During our searches we found incriminating evidence which Special Agent Hobbs has just put on the easel. This included a fax coversheet and a December 23, 1988, Seattle Times article. Both demonstrated that Casperson, C-TEK's president, knew that a Commerce export license was required to export the VAX 8700. With the assistance of the assistant U.S. attorney we were able to convince Casperson to cooperate.

Let me take a moment to identify the parties to the diversion network. Mr. Chairman, you may wish to refer to the map at my right as I do this.

Shiv Mohan was the architect of the diversion network and directed its operations. He gave the instructions to purchase of U.S. origin, high technology equipment and fronted the funds necessary for the transactions.

Perfect Technologies located in London and Moscow is a company run as a partnership between Mohan and an Indian national, Sidhartha Bose. Commerce export license applications indicate that since 1986 Perfect has attempted to obtain U.S. origin equipment for the Soviet Union.

John Townsend, a former partner in Capricorn Computing Services of Sydney, Australia-a company which we do not believe was part of the diversion network-was responsible for establishing contacts in the United States. He was formerly employed as a field representative in Australia for a U.S. computer firm. He was the technical expert for the diversion network using his ability to disassemble and reassemble sophisticated computer equipment.

Robert Casperson is a U.S. computer broker who was Mohan's U.S. contact.

David Whyte, a computer broker employed by Computech in Toronto, Canada, assisted Casperson in diverting U.S. origin, high technology equipment to Mohan. Whyte suggested the network could move U.S. goods through Canada without detection.

W.K. Agencies and Computer Focus in Singapore. These companies were fronts used by Mohan in the diversion of U.S.-origin commodities. W.K. Agencies address turned out to be a residential apartment unit in Singapore as shown in the photograph at my right. These companies were identified on shipping documents as the intended end users for the DEC VAX 8700 shipments.

Virtual Computers of Bombay had previous business dealings with Mohan. Mohan asked Virtual for blank copies of its stationery and then used it to make false end use statements to both the United States and Canadian authorities.

A company we worked with during the investigation was Tektronix of Beaverton, Oreg. This firm is a manufacturer of highly sought after graphic terminals. The workstations were controlled by the Department of Commerce for national security, nuclear nonproliferation and missile technology reasons. Let me underscore, there is no indication that this firm had any part in the diversion scheme. They cooperated with us in the investigation.

As the investigation progressed, we advised an investigative plan to get the violators into the United States and arrest them. The chart at my right illustrates our plan. We knew from Casperson that Mohan was eager to purchase 50 Tektronix graphics workstations for export to India through Canada, using a Canadian export permit obtained under false pretenses. Although U.S.-origin commodities may normally be exported to Canada for use there without obtaining a U.S. export license, it is unlawful to make such an export when the exporter knows the goods are not intended to stay in Canada.

The diversion network believed workstations were shipped from Beaverton, Oreg., to a warehouse in Buffalo, N.Y., because we had established the bona fides of the transaction through letters and invoices on Tektronix letterhead that Tektronix provided. A meeting of the conspirators was arranged in Buffalo to inspect the workstations and to discuss the final arrangements. Casperson, Mohan, Whyte, and Townsend all attended the meeting. During the meeting, which was videotaped, they discussed the illegal diversion scheme. At the end of the meeting, they were arrested and subse

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