During the analysis of the embargoed equipment supplied by both Videoton and Elektromodul, we saw that the US authorities endeavoured to impose very stringent restrictions on the foreign trade of its allies at the start of the 1980s to prevent countries in the Eastern Bloc from gaining access to banned technologies.
However, US political expectations were constantly overridden by economic interests, and western companies always found ways around the embargo. In fact, in holding out hope of lucrative deals, they were also willing to inform socialist companies about the latest actions and plans of the US authorities by passing on information they received in relation to the boycott. One source of such information was Semcotec in Vienna, which was mainly involved in the trade of electronic components, but, with a healthy dose of discretion, it was also willing to sell military-grade equipment to any country in the world.
393 ÁBTL 2.7.1. NOIJ 1986-III/II-62, 2 April 1986 394 ÁBTL 2.7.1. NOIJ 1986-III/II-69, 11 April 1986 395 Kaposi 1994, p. 7
With one exception: it did not sell directly to the Soviet Union.396 Thanks to the company’s owners, Hungarian counterintelligence received up-to-date information on how the superpower across the Atlantic wanted to impede the transfer of technologies. All the firms involved had to inform the trade advisers at all US embassies of supplies of electronic products to socialist countries, and they were obliged to report the data obtained from their customers with regard to the use of the supplied products. By aggregating this information, the United States was able to paint a picture of the electronics industry in the socialist countries.397 They also strove to discourage western companies from illegal trading with the east, and created separate state institutions for this. A division with 43 people was created within the Department of Trade in the USA with the main task of surveying the black market for embargoed products.398 According to representatives from Semcotec, a willing informant, a bill was prepared that provided for two years’ imprisonment for those breaching the rules on the embargo, but the prospect of punishment was also held out for those who simply had knowledge of such illegal supplies.399 The US secret service gave special training to around 150-200 experts in microelectronics to bring the illegal export of electronic products even more under its control.400 However, the scope of products considered to be sensitive technology was growing. What is more, there was no way of knowing in advance what equipment designed for civil use could be transformed for military purposes by Soviet engineers.
Western intelligence agencies managed to draw up a survey on the military use of a few products imported by the Soviet Union, from which it transpired, for example, that 160 grinders purchased in 1978 were used for special rifling for missiles, engines purchased from Rolls-Royce were fitted to MiG-25 fighter planes, while production lines delivered to the ZIL car factory were used to make armoured vehicles, and the IBM computers obtained via illegal channels
396 ÁBTL 2.7.1. NOIJ 1980-III/II-212, 31 October 1980 397 ÁBTL 2.7.1. NOIJ 1981-III/II-70, 9 April 1981 398 ÁBTL 2.7.1. NOIJ 1981-III/II-119, 23 June 1981 399 ÁBTL 2.7.1. NOIJ 1981-III/II-155, 13 August 1981 400 ÁBTL 2.7.1. NOIJ 1982-III/II-193, 22 October 1982
were used in anti-missile systems.401 This is all reminiscent of the popular joke in Budapest in the 1950s, where the punchline goes: it doesn’t matter how you assemble the parts stolen from the “baby buggy factory”, you’ll always end up with a tank.
To close these “loopholes”, the US Administration needed a precise idea of what technology the Soviet Union was interested in, and so the main goal of American intelligence was to sound out the enemy’s intelligence needs for the purpose of putting together an effective COCOM list. They involved the FBI in this work too, and gave the agency free rein to intercept and keep watch on any traders under suspicion.402 It was not only American companies that felt this pressure because the US was fully aware of the close involvement of West German and Austrian companies too. This is why they called upon the governments of the two countries to immediately desist from supplying strategic technologies to the Soviet Bloc and minimise their trade with socialist countries.403 Since Austria was officially a neutral country, it was not part of the NATO network. At the time, it was not even a member of the EEC, so the American administration maintained the threat of even more severe sanctions:
if Austria failed to meet the USA’s requirements, the country would be penalised with an embargo similar to that of the Eastern Bloc, and the US would force companies in West Germany to withdraw their capital from Austria.404 Given Austria was in principle a sovereign country, this latter aspect gives rise to some rather gripping questions.
Parallel to these threats, work proceeded at pace to identify the channels used to move embargoed products, and as we saw earlier, investigative authorities in the West succeeded in preventing certain supplies from reaching their destination on several occasions. Overall, however, their success was debatable because there were always new opportunities arising to circumvent the rules.
Due to the stricter monitoring of Western European companies, greater
401 ÁBTL 2.7.1. NOIJ 1982-III/II-81, 4 May 1982 402 ÁBTL 2.7.1. NOIJ 1982-III/II-216, 25 November 1982 403 ÁBTL 2.7.1. NOIJ 1983-III/II-9, 13 January 1983 404 Ibid.
attention was paid from the early 1980s to partners in the east with regard to obtaining embargoed equipment. As Asia’s most industrialised country, Japan was the obvious choice as a supplier of embargoed goods for the countries of the Eastern Bloc. While Japan was part of the USA’s system of allies, and the United States involved Japan in preparing the stricter list of embargoed goods to prevent electronic products and licences flowing into Eastern Europe,405 Japan still did not extricate itself fully from the anti-embargo efforts.
The Japanese firm Kurimoto was active in trade with Hungary from the late 1970s and early 1980s as a business partner of Intercooperation Rt. supplying semiconductors to Hungarian companies produced by US subsidiaries operating on Japanese soil.406 It also played a key role in the Videoton scandal that erupted in the early 1980s, when it was the transit link in the deals between Control Data Corporation and the Székesfehérvár company.407 It was not long before the activity of the Japanese firm was noticed by the US authorities monitoring shipments of embargoed equipment. In July 1985, news channels in Japan reported that Kurimoto had supplied products on the COCOM list through the Iron Curtain via an embassy of a socialist country.408 The scandal erupted because of a shipment in 1983, when Intercooperation bought equipment from Kurimoto needed to manufacture microchips. The equipment was first delivered to a fake user in Tokyo, before being sent by diplomatic mail via the Hungarian embassy to Budapest in an embassy container. The end-user was Mikroelektronikai Vállalat.409
The representatives of Intercooperation were subsequently banned from entering Japan by the Japanese authorities, but not even they took the sanction seriously: in spring of the following year, the company’s general manager himself was issued an entry visa. The justification for the visa was that the company’s general manager was not travelling to Japan to acquire technologies under
405 ÁBTL 2.7.1. NOIJ 1981-III/II-200, 21 October 1981
406 ÁBTL 3.1.2. M-41115/6 17. Report from agent codenamed “Győri”, 27 April 1980 407 ÁBTL 3.1.2 M-41115/6 27. Report from agent codenamed “Győri”, 23 June 1980 408 ÁBTL 2.7.1. NOIJ 1985-III/II-149, 8 August 1985
409 Ibid.
the embargo, but instead to hold talks about opening a Japanese restaurant.410 The state security report did not say whether the Japanese restaurant actually opened its doors in Hungary, but it transpires from a snippet of information that Kurimoto had an office in Budapest in 1988, which was established in association with Intercooperation.411
A network was created in the second half of the 1980s in the region around the Pacific Ocean that helped the Soviet Bloc acquire banned technologies, and Hungarian companies as well as Hungarian foreign trade entrepreneurs played key roles in this network. Kurimoto was part of this system of contacts, which aimed to bring embargoed products into socialist countries undetected, primarily through Australia and Singapore. The Australian government came under great pressure from producers of advanced technologies in the Far East to allow their products to be delivered to the Soviet Union and its satellite states.412 While Australia did not sign the COCOM agreement, it did not officially bend to these calls, nor did it oppose the USA’s demands. Nonetheless, a “procurement team” did work on illegal shipments in Australia, and this team was led by Hungarians.413 Through re-exporting, a communist party company in France delivered special products to Hungary through Austria with the help of a Swiss company called Ewetco – the deal involving complicated strands was organised by the same Hungarian who previously coordinated the Kurimoto shipments.414 According to a state security report, Ewetco celebrated the opening of its Budapest office on 28 May 1987. According to its somewhat vague wording, the representative office was engaged in “all kinds of trading activity”, but the Swiss embassy in Budapest knew nothing of the company, nor of its founding.415
The US embassy informed ASIO, the Australian secret service, of the activity of the Hungarian procurement team operating in the southern
410 ÁBTL 2.7.1. NOIJ 1986-III/I-105, 30 May 1986 411 ÁBTL 2.7.1. NOIJ 1988-III/II-132, 6 July 1988 412 ÁBTL 2.7.1. NOIJ 1988-III/I-177, 9 September 1988 413 ÁBTL 2.7.1. NOIJ 1987-III/II-211, 30 October 1987 414 Ibid.
415 ÁBTL 2.7.1. NOIJ 1987-III/II-100, 25 May 1987
hemisphere, as, although the host country was not party to the multilateral COCOM agreement, the embassy, like every US embassy, had a task force responsible for supervising the trade of embargoed products.416 After this warning, Australian counterintelligence conducted a strict customs inspection of one of the suspects, Gábor Kiska. Kiska was the son of the Hungarian trade attaché in Sydney, Dr. Ferenc Kiska. During the inspection, he was found to be in possession of blacklisted computer components, so the authorities expelled him from the country.417 The western media reported heavily on the news after it was disclosed by the AP news agency in a press release on 19 October 1987.418 The Australian secret service starting following Gábor Kiska’s trail because of his frequent trips to Singapore. Using a local trader there, he forwarded the goods onto Europe with the help of a fictitious shipping company.419 When arrested, he was preparing to return to Singapore with 99,000 US dollars worth of computer equipment in his luggage.420 The Australian authorities blamed trade advisor Ferenc Kiska for the events and expected the Hungarian government to recall its diplomat to “preserve bilateral relations.”421
416 ÁBTL 2.7.1. NOIJ 1988-III/I-65, 1 April 1988 417 ÁBTL 2.7.1. NOIJ 1987-III/II-201, 16 October 1987
418 East bloc export scheme alleged. AP, 19 October 1987, http://www.joc.com/maritime-news/east-bloc-export-scheme-alleged_19871019.html
419 ÁBTL 2.7.1. NOIJ 1987-III/3-116, 2 December 1987 420 ÁBTL 2.7.1. NOIJ 1987-III/I-230, 24 November 1987 421 Ibid.