The three men met in a darkened parking lot in Hartford, Conn., near dawn last Nov. 15. One man produced security badges enabling the three to get into the nearby Pratt & Whitney Aircraft building; in exchange for the badges, he received an envelope containing "plenty" of money.
The security badges got the trio past armed guards at the Pratt & Whitney facility, but once inside, they ran into a barrier--a combination lock on a door. Two of the men ducked into a nearby office while the third--the one who had provided the badges--got a guard to open the door.
Finally they reached their destination--a room containing one of International Business Machine Corp.s' newest pieces of equipment, an advanced memory-disc-storage device recently acquired by Pratt & Whitney. One of the men quickly snapped photographs of the device.
Two of the men returned to a Hartford hotel, where one gave the other $3,000 in $100 bills. An additional payment of $7,000 was promised.
According to affidavits filed in federal district court in San Francisco, that was how the first transaction in an alleged industrial espionage plot involving two of Japan's largest computer companies took place. The man taking the pictures and paying the $3,000 allegedly was an employe of Hitachi Ltd. The other two were undercover agents being used by the FBI to crack the alleged piracy of IBM's computer secrets.
Over the next seven months, Hitachi executives allegedly paid $622,000 to FBI agents for top secret IBM information and equipment. Separately, U.S. officials charged, Mitsubishi Electric Corp. employes allegedly paid $26,000 to the undercover agents for IBM data.
Earlier this week, the government arrested eight men in connection with the alleged plot, four of them Hitachi employes and two of them Mitsubishi employes. The government has also issued warrants for the arrests of 12 other men, all of them Japan-based employes of Mitsubishi and Hitachi.
Government officials say the "sting" operation originally was not aimed at the two Japanese companies. The undercover operation, which involved the set-up of a bogus "storefront" company, dubbed "Glenmar Associates" and located in Santa Clara in California's Silicon Valley high-technology center, originally was intended to snare people who might be selling computer secrets to eastern European interests.
"The best thing we thought we could do was to do a storefront operation to see what was out there," said John C. Gibbons, assistant U.S. attorney for the northern district of California and chief of the district's criminal division.
The Japanese companies allegedly made their initial contact with the undercover operation through an unnamed confidential source, a former FBI agent now employed as a senior consultant to IBM.
The affidavits describe a series of transactions in which Hitachi officials allegedly paid for a variety of IBM proprietary information, which the company provided the FBI for use as bait.
By obtaining the secret information, Hitachi and Mitsubishi could gain considerable advantage on their competitors in the computer industry by quickly matching IBM advances or producing accessories compatible with new IBM products.
The confidential IBM data "gave them a significant headstart in preparing for their own programs and anticipating what IBM, as the leader in this field, might do," said Joseph P. Russoniello, U.S. attorney for the northern district of California.
The Japanese executives allegedly asked their contacts for a wide variety of IBM design and operating data. As their confidence in the undercover agents' abilities to produce the desired information and equipment grew, the demands--and the prices paid--escalated until Hitachi officials were willing to pay $525,000 for a package of IBM design manuals, programming codes, and equipment, according to the affidavits.
Hitachi and Mitsubishi officials have denied the charges against their employes--Hitachi saying that it thought it was buying the IBM information legitimately.
In early January, Kenji Hayashi, a senior engineer with Hitachi who was allegedly the chief negotiator of the deals with the undercover agents, wrote the agents a letter saying that he "needs to bring back some present sic to our plant." At the same time, he allegedly wrote the FBI's confidential source that he would soon introduce a "Mr. X" who would handle the payments and described the two methods of indirect payment for the IBM information: "Normal channel--through bank payment" and "abnormal channel--cash payment," according to the affidavits.
The FBI says "Mr. X" was Tom Yoshida, president of NCL Data Inc., a California company. Payments were to go from a Hitachi division through NCL to Glenmar Associates, the FBI's company, the affidavits allege.
In mid-January, the FBI's confidential source was allegedly contacted by Takaya Ishida, assistant to the president of Mitsubishi Electronics America. According to the affidavits, Ishida said he wanted to obtain "very much inside information" on IBM's advanced computers. The confidential source put the Mitsubishi official in touch with Glenmar Associates.
The affidavits allege that Ishida gave an undercover agent a "questionnaire" asking a number of technical and other questions on IBM equipment, and agreed to pay the agent $25,000 for the answers. He also allegedly gave the agent a "list of requests" for more detailed documents. Later, he would allegedly ask for specific computer programs, and according to the affidavits, even specified the IBM department in Poughkeepsie, N.Y., where one program could be found.
Hitachi allegedly increased its requests for information to include design data on IBM's advanced new model 3081 computer, due to hit the market this spring, and for an advanced version of the control program used by IBM to operate large computer systems. This program, known as MVS/SP Version 2, is not scheduled to be generally available until next year, although some early shipments are to be made next month.
In late March, according to the affidavits, the undercover agents told Hayashi that the model 3081 design documents would cost $150,000. Hayashi tentatively accepted but also asked for more information.
Negotiations on and modifications of the deal--including Hitachi's alleged revelation that it had obtained some MVS/SP data from another source, eventually cut the price to $525,000, according to the affidavits.
In mid-May, the FBI's confidential source called Sadao Kawano, deputy general manager of Hitachi's Odawara Works, to stress security, because U.S. laws make it "dangerous to sell this product," the affidavits say. Kawano allegedly replied that he understood, because the laws are the "same in Japan."
When Hayashi and two other Hitachi officials arrived Tuesday to confirm the money transfer and pick up the documents and equipment, they were arrested and charged with conspiracy to transport stolen property from the U.S. to Japan.
It was also reported that the Yankee Group, a Boston consulting company, said today that Mitsubishi officials asked it two months ago to obtain the same kind of information sought by the Japanese businessmen charged in the IBM case. At least two other high-technology firms reported similar approaches but all three firms say they rebuffed the requests as unethical.