U.S. Customs Special Agent Eric J. Caron found the smoking gun in a Dumpster.

He was working a tip that a defense electronics company in New Jersey had tried to increase its profits by secretly hiring former Soviet bloc defense concerns to manufacture sensitive U.S. military components when he went "Dumpster diving" early one morning five years ago.

Rooting through the trash outside Electrodyne Systems Corp.'s headquarters in South Hackensack with a flashlight in hand, Caron discovered documents from a defense firm in the Ukraine.

"There was a lot of smoke there, a lot of smoke," Caron said in a recent interview. "And it turned into fire."

So began the U.S. government's first successful prosecution of a U.S. defense contractor for illegally farming out work on sensitive military components. In this case, specifications for amplifiers used in an airborne radar system were sent to a former Cold War adversary in the Ukraine and the parts then were smuggled back to the United States.

With two top Electrodyne executives -- one a Russian emigre with ties to the Soviet defense industry -- facing federal prison sentences, Customs agents now are looking into a strikingly similar sequence of events in which another Russian emigre who formerly worked in the Soviet defense industry imported sensitive electronic components from Russia to his own import firm in the United States.

Once the components cleared customs, the Customs officials said, the importer shipped them to a U.S. defense contractor making similar items for the Pentagon.

Some former Soviet defense engineers and scientists, the Customs officials said, now live in the United States and act as brokers for arms manufacturers in the former Soviet bloc. "They speak the language, they have contact with their former employers and they know how to acquire weapons, be it radar or AK-47s," one Customs source said. "They're acting as brokers for domestic deals here in the States, as well as international deals."

A large percentage of former Soviet defense manufacturers, the source said, "are controlled by Russian organized crime. Not that much comes in and out of that country without somebody getting paid off."

The Electrodyne Systems case showed how easily the firm's president, an Iranian immigrant named Dennis Nathan, and its marketing director, Victor A. Lander, who worked in the Soviet defense industry before immigrating to the United States in 1976, lined up low-cost manufacturers of military electronics in Moscow, Rostov and Kiev, according to the government's original indictment filed in 1996.

Nathan was sentenced to 30 months in prison and Lander to 18 months by U.S. District Judge Alfred J. Lechner Jr., who wrote in an opinion last month that the firm "exposed, and exposes, American troops to the dangers associated with the compromise of weapons, communications and radar systems used during combat."

The two Electrodyne officials each pleaded guilty to a single felony smuggling count but denied their actions endangered national security; both are appealing their sentences. The firm pleaded guilty and was fined $500,000 for a felony violation of the U.S. Arms Export Control Act, which requires defense contractors dealing abroad in military items subject to export controls -- or providing related technical services -- to obtain licenses from the State Department.

"It's a fascinating story and it raises some important issues," said Rens Lee, president of Global Advisory Services, a McLean-based firm that does research on international organized crime and other economic trends for federal government clients.

"With the globalization of the assembly of almost anything these days, there's no reason why this wouldn't extend into the military sphere," Lee said. "But the requirements of national security are very different from the requirements of managing a successful economic enterprise. Therefore, you don't want to have your sophisticated missiles built in Ukraine, even though it may be tremendously economical to do so."

Beyond national security concerns, the Electrodyne case also raises more prosaic issues related to Defense Department procurement.

In 1989, when Electrodyne bid on a $753,468 contract to make a sophisticated component for satellite antennas used on all Navy ships, the Navy concluded that the firm lacked the technical capability to build the part, according to Caron, the Customs special agent.

But Electrodyne appealed to the Small Business Administration, Caron said, which essentially ordered the Navy to award the contract to the fledgling New Jersey firm.

And when Electrodyne started smuggling U.S. military parts made in Ukraine back into the United States for delivery to the Naval Research Laboratory, Caron said, those parts were doctored with phony labels at the firm's plant despite the presence of a Defense Department quality assurance representative, who had an office on site.

Caron got on Electrodyne's trail after one of the firm's competitors alleged in a letter to Customs that Electrodyne had not registered with the State Department to conduct business abroad.

At a meeting with the competitor -- who knew nothing about Electrodyne's dealings with subcontractors in Russia and the Ukraine -- Caron obtained the name of a possible source inside Electrodyne. Days later, during a six-hour meeting with that source, Caron first learned of the overseas connection.

But before Caron raided Electrodyne's headquarters, confiscating 50,000 pages of documents, his source called to say that Electrodyne had received a shipment of amplifiers and that employees were busy painting over Ukranian markings on the parts and replacing them with Electrodyne labels.

Electrodyne was being paid $1,595 per amplifier by the Defense Department, according to Lechner's sentencing memorandum, more than seven times what it had paid Enterprise Saturn in Kiev -- $210 per unit -- to make the components.

Caron confiscated the amplifiers at the Naval Research Laboratory and used a heating device to burn off the bogus Electrodyne markings and expose Ukranian markings from Enterprise Saturn -- markings he had first seen on documents fished from Electrodyne's Dumpster.

"Where this could have gone, but not for the Customs Service, I don't know," Caron said. "We got involved early on in {Electrodyne's} relations with the Russians, and I thank God for that, for national security reasons." CAPTION: U.S. Customs Special Agent Eric Caron retrieved documents from Ukrainian defense firm in Electrodyne Systems' Dumpster.