DATE=9/16/98 TYPE=BACKGROUND REPORT NUMBER=5-41387 TITLE=DEFENSE FRAUD BYLINE=PAMELA TAYLOR DATELINE=WASHINGTON CONTENT= VOICED AT: INTRO: THE SENTENCING LAST MONTH OF TWO OFFICIALS OF A U-S ELECTRONICS COMPANY HAS EXPOSED THE POTENTIAL DANGERS IN ALLOWING UNAUTHORIZED COUNTRIES TO MANUFACTURE SENSITIVE MILITARY TECHNOLOGY. IN THE CASE OF ELECTRODYNE, IT GAVE MANUFACTURERS IN UKRAINE SPECIFICATIONS FOR COMPONENTS OF A SECRET AIRBORNE RADAR SYSTEM; THE UKRAINIAN FIRMS BUILT THE COMPONENTS AND THEN SHIPPED THEM BACK TO ELECTRODYNE AT A MUCH LOWER PRICE THAN IT WOULD HAVE COST THE COMPANY IF IT HAD MANUFACTURED THE RADAR SYSTEMS IN THE UNITED STATES. IN AN INTERVIEW WITH VOA, THE SPECIAL AGENT WHO UNCOVERED THE FRAUD, SAYS THE U-S CUSTOMS SERVICE IS AGAIN SEEING A SIMILAR PATTERN OF EVENTS AND IS INVESTIGATING OTHER DEFENSE CONTRACTORS. VOA'S PAMELA TAYLOR HAS MORE: TEXT: LAST MONTH TWO OFFICIALS OF THE NEW JERSEY BASED ELECTRODYNE CORPORATION PLEADED GUILTY TO SMUGGLING MILITARY PARTS MADE IN UKRAINE BACK INTO THE UNITED STATES FOR USE IN ADVANCED U-S RADAR AND OTHER MILITARY SYSTEMS. THE OFFICIALS DENIED THEIR ACTIONS COMPROMISED U-S SECURITY AND ARE APPEALING THEIR SENTENCES, BUT THE U-S DISTRICT JUDGE IN THE CASE (ALFRED LECHNER) SAID THE FIRM HAD 'EXPOSED, AND EXPOSES, AMERICAN TROOPS TO THE DANGERS ASSOCIATED WITH THE COMPROMISE OF WEAPONS COMMUNICATIONS AND RADAR SYSTEMS USED DURING COMBAT.' U-S CUSTOMS SPECIAL AGENT ERIC CARON, WHO FIRST UNCOVERED EVIDENCE OF THE FRAUD FIVE YEARS AGO BY GOING THROUGH ELECTRODYNE'S GARBAGE DUMPSTER, SAYS THE CUSTOMS SERVICE IS NOW FINDING EVIDENCE OF SIMILAR ACTIVITIES BY OTHER U-S DEFENSE COMPANIES THAT ARE DOING BUSINESS WITH DEFENSE CONTRACTORS IN THE FORMER SOVIET REPUBLICS . MR. CARON SAYS THE BACKGROUNDS OF THESE CONTRACTORS -- AS WELL AS THE CONNECTIONS THEY HAVE IN THE UNITED STATES -- IS OFTEN A CAUSE FOR CONCERN: // ACT ONE // A LOT OF THE COMPANIES IN RUSSIA ARE CONTROLLED DIRECTLY OR INDIRECTLY BY ORGANIZED CRIME AND BASICALLY ITS FOLKS HERE, LIVING IN THE UNITED STATES WHO ACT AS BROKERS FOR OUR MANUFACTURERS. THEY SPEAK THE LANGUAGE, THEY HAVE CONTACT WITH FOREIGN COMPANIES, THEY KNOW HOW TO ACQUIRE WEAPONS, BE IT AK-47'S OR A RADAR SYSTEM. THEY ARE WORKING DOMESTICALLY AS WELL AS INTERNATIONALLY, AND I THINK YOU'LL BE SEEING MORE OF THIS TYPE OF ACTIVITY AS THE MONTHS AND YEARS GO BY. // END ACT // AGENT CARON SAYS ALTHOUGH THE U-S CUSTOMS SERVICE PREVENTED ANY COMPROMISE OF NATIONAL SECURITY IN THE ELECTRODYNE CASE, HE IS WORRIED ABOUT THE DAMAGE THAT COULD BE DONE TO THE UNITED STATES BY COMPANIES THAT HAVE NOT YET BEEN EXPOSED: // ACT TWO // WE HAVE OUR SONS AND DAUGHTERS OPERATING VERY SOPHISTICATED MILITARY EQUIPMENT. AND THIS COUNTRY OPERATES LARGELY ON ITS ABILITY TO OPERATE SOPHISTICATED, HIGH TECH SYSTEMS WITH THE CONFIDENCE THAT THEY ARE SAFE AND SECURE AND ACCURATE. WE DON'T NEED INFERIOR RUSSIAN OR UKRAINIAN COMPONENTS BEING PUT INTO OUR MILITARY SYSTEMS. // END ACT // AGENT CARON SAYS THERE IS ALSO THE VERY REAL CONCERN THAT IMPOVERISHED DEFENSE CONTRACTORS IN THE FORMER SOVIET BLOC MAY SELL SENSITIVE MILITARY COMPONENTS TO THE HIGHEST BIDDER, WHETHER TO AN EMBARGOED COUNTRY OR A TERRORIST ORGANIZATION. ASKED ABOUT THE POTENTIAL THREAT TO U-S NATIONAL SECURITY POSED BY CASES LIKE ELECTRODYNE, PENTAGON SPOKESMAN SUSAN HANSEN WOULD ONLY SAY THAT THE CASE HAD BEEN DEALT WITH BY THE PROPER AUTHORITIES OF THE FEDERAL GOVERNMENT. SHE SAID SHE WOULD NOT SPECULATE ABOUT OTHER DEFENSE CONTRACTORS, SAYING THE PENTAGON HAS REPRESENTATIVES ASSIGNED TO INVESTIGATE ALL DEFENSE CONTRACTORS AND THEIR WORK. (SIGNED) NEB/PAM/KL 16-Sep-98 1:43 PM EDT (1743 UTC) NNNN Source: Voice of America .