The U.S. intelligence community took far too long to discover the illegal sale of submarine propeller-making machinery to the Soviets by C. Itoh and Toshiba -- especially since major clues on such diversions from Japan were available as early as 1984.
We can say this with some authority because we were reporting that year on the Soviets' legal and illegal acquisition of high technology from Japan. Dale Van Atta flew to Tokyo to investigate, while our associate Michael Binstein developed Washington sources.
The result was columns in April and May 1984 that offered solid evidence that "the KGB has found Japan a rich source of high-technology products that can be turned to military advantage by the Kremlin."
We reported that the Central Intelligence Agency had uncovered "about three dozen documented cases of high-tech diversion by the Soviets through Japan since 1968." More than half of these, we noted, had been approved by the Japanese government, which "put short-term profits ahead of the West's long-term security needs."
Even if the CIA brass wasn't reading our columns, they might at least have paid some heed to a highly sensitive report completed in 1984 by their analysts. Still classified "secret," the report not only described the kind of tricks that C. Itoh and Toshiba later used to disguise their illegal sale, but actually identified C. Itoh as one of five Japanese companies to watch for illegal trade with the Soviets. The others were Mitsubishi, Mitsui, Marubeni and a small trading company, Tairiku.
"No two cases involving illegal shipments of goods to proscribed destinations are ever the same," the secret report stated. But it cited as a "typical example" the following scenario:
"First the Soviets, through a foreign trade organization, would indicate to one of the 'friendly' Japanese companies that it is interested in obtaining a certain piece of . . . restricted technology. The friendly company . . . contacts a local wholesaler, who would place an order with a major trading firm to import the equipment that contains the restricted technology from the United States . . . . The wholesaler arranges to resell the item to either the friendly company or to a 'cutout' firm.
"Ultimately, the friendly firm takes possession of the article and extracts the restricted portion of the equipment. The extracted portion is then installed inside a low-grade piece of machinery that is sent to an exporter for shipment to the Soviets.
"The exporter and wholesaler are often unwitting of the illegal nature of the transaction, and the cursory check by Japanese customs officials is not sufficient to determine the exact nature of the machinery's internal components."
In the C. Itoh/Toshiba case, this scenario was followed almost exactly. The Soviet foreign trade organization, Tekmashimport, contacted a "friendly" Japanese company, Wako Koeki, which then found a company that would supply the desired technology (in this case made in Japan). The company was Toshiba Machinery, a subsidiary of Toshiba Corp.
Toshiba Machinery then asked its regular export broker, C. Itoh, to be the "cutout" firm that actually handled the sale.