Toshiba sale: only the tip of espionage iceberg?

The Toshiba scandal over illegal high-tech sales to the Soviets is only one part of a widespread pattern of security violations by Japanese trading companies that operate in communist countries. According to Japanese police and government officials, as well as a former employee of a corporation involved in the Toshiba scandal, the Soviet intelligence force (KGB) actively encourages and helps arrange such transfers.

The KGB uses blackmail and intimidation in attempting to divert these high-tech wares into Soviet hands, these officials say. The KGB's efforts are aided by the companies' fierce desire for business, and by the Japanese government's failure to effectively control strategic exports to communist countries.

The facts of the Toshiba case were first made known to the Japanese authorities in December 1985, when one of those intimately involved in the deal, Kazuo Kumagai, wrote a letter to Cocom, the Paris-based international body regulating trade with communist countries. The letter detailed not only the Toshiba deal, but also mentioned the names of other Japanese firms engaged in similar illegal deals.

The broader picture of illegal trading comes from lengthy interviews with Mr. Kumagai, formerly the Moscow-based head of a Japanese trading company, with senior Japanese police officers, and with officials in government departments here, including MITI, the Ministry of International Trade and Industry.

Kumagai speaks dramatically about his Soviet contacts. For instance, whenever one Soviet ``businessman,'' Igor Alexandrovich Osipov, came to the Moscow office of his company, Kumagai says he shivered. Mr. Osipov is nominally the vice-president of Technology Machine Import Corporation (TMI). In reality, Kumagai says, Osipov is a KGB agent who was always interested in ``special'' things.

According to Kumagai, Osipov asked questions about the possibility of exporting various items prohibited by Cocom regulations. When Osipov came calling, Kumagai said, it was difficult to say no - ``To refuse some proposal, we must be ready to retire from the whole market.''

Kumagai's trading company, Wako Koeki, is one of about 100 smaller trading companies that specialize in doing business with communist countries.

In the fall of 1980, Osipov came to Wako Koeki with what turned out to be his most ``special'' request: ``We want a robot that makes propellers for large ships. Japan is a shipping giant. You must have that kind of machine.'' Wako Koeki - along with Toshiba Machine Company, the C. Itoh Trading Company, and a Norwegian company, Kongsberg Vaapenfabrikk - readily met Osipov's needs. The result is that the Soviet Union now possesses machines that help make its submarines far quieter, and thus less detectable.

Kumagai eventually reached the difficult decision to expose the deal. In December 1985, after he had left both Moscow and Wako Koeki's employ, he wrote his letter to Cocom, creating the spark that led to uncovering the Toshiba case, according to US and Japanese officials. The letter, later combined with US intelligence, finally persuaded Japanese authorities to act, the officials say.

Wako Koeki was established in 1952, its main business trade with China. Like many such companies, it was backed by a larger trading firm. Kumagai, who studied Russian at university, joined Wako in the early 1960s. By then, Wako had expandedinto business with the Soviet Union, North Korea, and Eastern Europe. Such companies are given privileged access, but with the threat of losing that opportunity hanging over them. Kumagai says similar patterns apply to many European companies operating in the Soviet Union.

Such companies, according to MITI officials, have been involved in the five cases of Cocom violations prosecuted since 1983. In most cases, officials say, the companies are simply out to make money. Usually, say Kumagai and police officials, several of the companies contacted are not aware of the military applications of what they sell. The Soviets, they add, are very clever at disguising their requests.

``Cocom rules are very strict,'' says an official of one Japanese company. ``These days, even children's toys have computers chips which don't comply with Cocom, so tightening the regulations is like saying, `Don't sell anything to the Soviet Union.'''

In Moscow, Kumagai asserts, the KGB utilizes a variety of forms of pressure against individuals. They are offered money, women, and business deals that can lead to promotions. He admits to many involvements with women.

Links with the Soviets, however, are hard to prove. In 1969 Japanese police arrested an Indonesian student, known as Odantala. He was found passing industrial secrets from a large Japanese company, where he was employed, to KGB agents working under the cover of the Soviet trade representatives' office in Tokyo.

One of the key agents involved promptly left Tokyo. Police say he was Vyacheslav A. Sedov, who then became Osipov's predecessor at the Soviet company, TMI. Sedov, says Kumagai, was a key contact for Wako Koeki. Later, Sedov is thought to have overseen the Toshiba deal, working with Osipov and Anatoly Troitsky, vice-president of the Soviet Industrial Machine Export-Import Corporation. Japanese police identify both Osipov and Mr. Troitsky as top KGB agents. Troitsky was expelled from Britain as a Soviet spy in 1971.

The small trading companies, says another senior police official involved in counterintelligence, are now being watched very closely as part of an ongoing police investigation. The main focus of that investigation, he says, is Wako Koeki. The investigation also includes trading firms and other companies named by Kumagai, whose testimony is considered reliable by police.

According to Kumagai and police officials, Wako Koeki played the key role in setting up the Toshiba deal. Following Osipov's visit to the company's Moscow office, a telex was sent to Wako Koeki's Tokyo office describing the requirements of the requested machine. The company went to many possible suppliers, says Kumagai. Toshiba Machine best met the exact needs. Very quickly, at the end of 1980, a Toshiba representative came to Moscow with catalogs and technical data.

As for whether the machine violated Cocom restrictions, ``I think they knew at the beginning,'' says Kumagai. But ``Japanese companies are always hungry'' for business. The contract was signed April 24, 1981. The Norwegian company, Kongsberg Vaapenfabrikk, was asked by Toshiba, Kumagai says, to supply computerized controls needed to use the machine for more sophisticated purposes.

Kumagai acted as the interpreter for the Toshiba technicians who went to install two of the machines at the Baltic Shipyard in Leningrad. Submarines are not built there, but at the nearby United Admiralty Shipyard, where Kumagai suspects the other two machines - four were sold - were installed by Soviet technicians.

``At that time,'' he claims, ``I began thinking about letting someone know about this.'' Although he admits to arranging many illegal exports before, this was the most serious by far. He describes himself as ``scared ... hesitating every day.'' He returned home at the end of 1984, about the time the installation of the machines was completed. He expected to be promoted to head of the Soviet division after taking care of ``such kind of dirty business.'' Instead he was left behind.

Kumagai admits, and police and MITI sources agree, that this personal complaint finally drove him to act. He left the company in April 1985. Kumagai's letter to Cocom was relayed to the Japanese government. Early in 1986, says the senior police official, MITI, police, and Foreign Ministry officials met to discuss the letter. In January 1986, according to Hiroyuki Fukano, a senior MITI official, Toshiba Machine, C. Itoh, and Wako were formally asked about the sale. All asserted the truth of false documents they had filed. MITI did not talk with Kumagai himself until April of this year, two days before the police raided Toshiba Machine's offices.

According to Noboru Hatakeyama, director-general of the International Trade Division of MITI, Kumagai was not considered ``reliable'' at the time. Kumagai, without benefit of questioning, was essentially dismissed as a disgruntled former employee.

Only when US officials brought evidence of the security implications of the machine transfer, MITI's Mr. Fukano says, last December and March, did MITI finally take Kumagai seriously.

``There is not enough staff in the Cocom section,'' says a police official, ``and MITI would like to encourage exports, so limiting exports is not on their mind.'' The Toshiba case, all officials agree, has dealt a huge shock to this system. ``MITI has now changed its attitude,'' says the police official, pointing to recent other Cocom cases caught.