US ire grows as details of Toshiba Machine affair unfold. Investigation expected to reveal other illegal sales to Soviets
The Toshiba case is the next-to-the-last straw that snaps United States patience. And the final straw may be about to fall. This week the Toshiba Corporation chronicled in harsh detail how its subsidiary, Toshiba Machine, sold the equipment to the Soviet Union that let that country develop superquiet submarines. The chronicle was perhaps the finale in a campaign to assuage the wrath of the US Congress, which has threatened to ban some or all Toshiba imports.
Even if Toshiba is able to minimize US retaliation, the case ``has served as a focus for a lot of scattered feelings'' against Japan, says Clyde Prestowitz, a former Reagan administration trade negotiator and specialist on Japan. ``I don't think the Toshiba case is going to get much congressional action, but if there is another one, all bets would be off.''
And there appears to be another one. According to a source close to the investigation, the US suspects that several other companies, mainly Japanese, have been letting strategic goods find their way to the Soviet bloc. One particularly controversial case is ``so heinous that if it is established - and I think it will be - it will send the whole thing into orbit,'' says the source.
Congressional members have gotten wind of such an investigation, but haven't been filled in on the details yet, says Laurie Snow, a staff aide to Sen. Jake Garn (R) of Utah, who introduced an amendment, passed 92 to 5, to ban most Toshiba imports from the US.
At the very least, economic sanctions against Toshiba would set a frightening precedent for Japanese companies and cost Toshiba up to $4 billion a year in sales.
In a press conference Wednesday, Toshiba's lawyers said ``no punishment would be acceptable'' for Toshiba Corporation, which claims to have had no knowledge of its subsidiary's misdeeds. They pointed out that with the exception of banning imports from Kongsberg Vaapenfabrik, the Norweigian company that helped Toshiba Machine ship the illegal equipment to the Soviet Union, the US has not singled out British, French, German, or other companies that have sold strategic equipment.
Perhaps with the Iran-contra affair in mind, Toshiba decided to tackle the problem head on. It hired two law firms, one American and one Japanese, to handle the investigation. ``We found these diversions were done knowingly ... and that they were authorized at the highest level of Toshiba Machine Corporation,'' says Donald Zoeller, the partner at the US law firm Mudge Rose Guthrie Alexander & Ferndon who headed up the investigation.
The story began in 1980, when the Soviets wanted to buy Japanese equipment to cut very sophisticated propellers. To cut such propellers, which would be so quiet that they would avoid detection when mounted on submarines, they needed special milling machines. However, no member of COCOM, which regulates exports to communist countries and includes most Western allies and Japan, could legally sell to the Soviets.
So Toshiba Machine, hungry for the $17 million contract, colluded with the Norwegian firm Kongsberg to alter the four large propeller-milling machines to a lower technology and send them off. To avert suspicion from export watchdogs at Japan's Ministry of International Trade and Industry (MITI), they called them ``vertical boring and drilling machines'' rather than milling machines. Then, when the machines arrived in a Leningrad factory, Kongsberg employees reconverted them to the higher, illegal technology.
That shipment took place in 1983. In 1984, Toshiba made another shipment, of four, smaller milling machines, which would be even more appropriate for subs. This time it called them ``drilling machines,'' and again, MITI allowed the deal to go through without question. In the second case, Toshiba Machine left Kongsberg out of the $10.7 million deal. In each case, two trading companies, Wako Koeki and C.Itoh, facilitated the deal. The former was fully aware of the deception, but C.Itoh appears to have been kept in the dark.
When interrogated, some Toshiba employees justified the diversion because they believed other countries were also violating Cocom laws. Employees visiting the Baltic factory said they saw a ``very twisted propeller'' suitable for quiet subs, being milled by a machine built by Forest Line, a French company.
Things began to unravel for Toshiba Machine after a former Wako Koeki employee wrote MITI about the diversion. MITI investigated early last year. Toshiba Machine employees began destroying documents and lied about the diversion, apparently with the approval of the company's president. MITI closed its investigation until a Washington Times story March 20, 1987. Toshiba Corporation says this was the first time it got wind of its subsidiary's actions. MITI opened another investigation and again, Toshiba Machine sent statements - stamped with the president's seal - that were baldly untrue.
A month later, Japanese police seized company documents and employee diaries and interrogated employees - one for 22 days. Admissions began to roll, as did the heads of most of the executives, including the president of Toshiba Machine, who admitted in court Thursday to breaking Japanese export laws,and the head of Toshiba Corporation.
Toshiba Corporation has installed a tighter monitoring procedure in which any subsidiary wanting to sell strategic goods - this includes at least 300 subsidiaries - must first get approval from the parent corporation. Toshiba, with its government's support, is urging other Japanese companies to adopt the same procedures.
The Japanese government seems to have gotten the message as well. A week ago the Japanese parliament passed a law that tightens controls on exports. It has also said it will double the number of export monitors to 80 - a figure that most people consider inadequate. (The US Commerce Department alone has more than 500.)