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Buying un-American: Bribery Case Spotlights DoD’s Covert Effort To Obtain Foreign Weapons

Mar. 1, 2013 - 03:25PM   |  
By ARAM ROSTON   |   Comments
Russian air-to-air missiles - an AA-11 Archer and an AA-8 Aphid - are displayed for then-Chief Master Sgt. of the Air Force James A. Roy at the National Air and Space Intelligence Center in Ohio, home of the Foreign Material Exploitation Lab.
Russian air-to-air missiles - an AA-11 Archer and an AA-8 Aphid - are displayed for then-Chief Master Sgt. of the Air Force James A. Roy at the National Air and Space Intelligence Center in Ohio, home of the Foreign Material Exploitation Lab. (Air Force)
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In the high-end suburb of University Park, 15 minutes east of downtown Sarasota, Fla., there’s a three-bedroom, single-story home within walking distance of the local country club. Attached three-car garage. Screened-in porch. Assessed value: $618,772.

Not the sort of place you’d go to buy a Soviet anti-aircraft system with four automatic 23mm cannons. But records indicate that a ZSU-23, a Russian-built air-defense system deployed by dozens of countries from Armenia to Zimbabwe, was indeed brokered for sale by a company registered at the home. The company is a small defense contracting firm named Atlas International Trading.

The customer in the transaction? That might come as the biggest surprise of all. It was the U.S. government.

And that wasn’t even one of Atlas’ most exotic deals. Records indicate it wanted to sell the U.S. a Scud missile launcher — like those once used by Saddam Hussein and still prized in the arsenals of countries such as Iran, Syria and North Korea.

And there was an SA-8, a 17-ton, Russian-made anti-aircraft missile mounted on a six-wheeled amphibious assault vehicle. The SA-8 — this one with digital electronics rather than the antiquated vacuum-tube version — has an integrated radar that can track incoming targets and take out a plane flying three miles overhead.

The principals behind Atlas are also the owners of that innocuous-looking house in University Park: Sylvester Zugrav, 69, a former Romanian diplomat who is said to speak five languages, and his wife, Maria, 67. In all, these transactions of Russian military technology, the buyer of record was Hill Air Force Base in Ogden, Utah.

Atlas International Trading and the suburban Sarasota home of the Zugrav family offer an introduction into one of the most important, yet unexplored, parts of the intelligence industry. Atlas is just one member of a small web of competing companies that make up the Pentagon’s Foreign Materiel Acquisition and Exploitation program and its classified cousins. It is an unusual specialty: buying up foreign-made weaponry and selling it to various U.S. agencies so that technicians can figure out how it works.

In the aggregate, the program aims to procure every Russian or Chinese plane any adversary may, one day, fly in combat. It means getting hold of surface-to-air missiles around the world to see how to evade them, every radar ever invented so that stealth technology can stay stealthy, and every Multiple Launch Rocket System to look into how barrages of rockets might be evaded.

“You have to know your enemy in order to defend yourself against him,” one former government official said. “And you can’t know your enemy unless you can replicate his abilities and train against them. And you can’t do that unless you can acquire his advanced technology.”

The case of the Zugravs offers a rare window on a secretive trade. Their activities are coming to light only because they are now facing criminal charges. Their alleged crime was bribing a U.S. federal official to steer business to Atlas.

Most contractors in this exclusive world won’t talk about it. Four did agree to be interviewed by C4ISR Journal, though all insisted that their names not be used to avoid complications with either the U.S. government or the foreign nations where they ply their trade.

What is clear, from interviews and documents, is that this can be highly risky enterprise. Contractors work hard to stay on the right side of the law, while still ingratiating themselves with officials in the former Soviet Union. The history of the business is fraught with drama. There have been arrests and near escapes.

“It’s very difficult to get into this business,” one arms dealer. “You have to be asked to get into it. You can’t find out whose door to knock on in the government if you don’t know already.”

“It’s extremely lucrative, but there are very few people who can actually pull it off,” said another arms dealer. “If you have the right pull, you can get into the market.”

Each service has its own program for acquiring enemy technology. The Navy, for example, does such work out of its Office of Naval Intelligence. In the Air Force, much of the work is centered at Wright-Patterson Air Force Base, Ohio, the home of the National Air and Space Intelligence Center, where the service’s Foreign Material Exploitation Squadron operates.

“NASIC has been there at Wright-Patterson since Christ was a lance corporal,” quipped one arms consultant who has worked with companies in the foreign material acquisition business for over a decade, in places around the world. “NASIC is an organization which has had a bunch of different names over the years. Now they belong to Air Force intelligence.”

It is NASIC that determines many of the requirements of the Air Force, dictating which radar system, which plane, which anti-aircraft missile, the Defense Department should try to buy or steal so it can learn to defend against it.

Rep. John Culberson, R-Texas, chairman of the House Armed Services subcommittee on military construction and veterans affairs, has been pushing for a major expansion of the Foreign Material Exploitation Lab at NASIC.

“It’s highly classified,” Culberson said, declining to discuss it in detail. “They exploit foreign materials.”

He compares the work done there with one of the major intelligence successes of World War II, the capture and exploitation of the German Enigma code machine.

“James and Jane Bond,” he said, “really do exist and they live in Ohio.”

In January, defense contractor MacAulay-Brown received a $39 million contract to help maintain the lab. The contract gives some broad insights into the work, which requires prying open and testing foreign “integrated weapons systems communications systems,” “missiles” and even “space systems.”

One mission: “Perform reverse engineering of software and software-based systems to include proficiency in exploiting systems with anti tamper and complex encryptions technology.”

What the contract doesn’t explain is how the Air Force gets hold of all that foreign technology to poke and prod and shoot down in the first place. Some of it is done through classified missions, and some is done through business dealings with companies such as Atlas.

Can the Russian-made ADROS system, built to keep helicopters safe from shoulder-fired missiles, foil a Stinger? There’s only one way to find out: Get one and see. Can a Russian anti-missile system — the “Chestnut” — detect and intercept U.S. missiles? Sources say the U.S. managed to buy one in 2009, through a contractor, to operate and test.

Throughout the Cold War, there was a huge demand for Soviet technology, but it was the breakup of the Soviet Union that finally made it easy to acquire. There was a bit of irony in that only after the chance of war diminished did it become easier to figure out how their weapons worked.

Countries such as Ukraine, Bulgaria, Hungary and Moldova could sell off their hardware in a grand bazaar of some of the Soviet Union’s most prized technology. And meanwhile the Russian arms business itself thrived, as Moscow continued selling weapons around the world, to countries that remained U.S. threats.

One corner of this unusual business came to light in 2000, when what appeared to be a new spy scandal hit the wires. “Russia’s security services today detained an American citizen in Moscow on spying charges,” The Associated Press reported. “Russians Nab Ex-Navy Officer As Spy,” blared the New York Post.

It turned out to be not a spy but a private American businessman named Edmond Pope, who was in the foreign materiel acquisition business. Like many in the field, Pope had formerly been in U.S. military intelligence.

In his possession, allegedly, was information about a Russian torpedo called the Shkval. The U.S. government considers it one of the most significant threats in submarine warfare. The anti-ship weapon is capable of an astonishing 200 knots underwater, far faster then any other known torpedo. To travel that speed, it relied on “supercavitation” — that is, a layer of gas created by its nose cone as it moved forward. The U.S. and its allies had long been concerned that such a fast torpedo couldn’t be countered by the usual means — decoys, for example, or evasive maneuvers. So it was at the top of the Pentagon’s secret list of technology.

Russian authorities charged Pope with stealing classified information about the Shkval. He was convicted within months and sentenced to a grim 20 years in a Russian prison. Then, suddenly, he got a reprieve. Vladimir Putin, the new president of Russia, pardoned the former Navy intelligence officer, who had a history of bone cancer, after discussing the case with then-President Clinton.

In an interview, Pope said he was researching the Shkval in collaboration with Penn State’s Applied Research Lab, which had a contract with the Navy’s Office of Naval Research.

“We have to be aware of a threat like this,” he said, “and we have to be able to potentially counter it.”

He maintains that he wasn’t working covertly when he was arrested but believed that he had cooperation of Russian authorities. While he was in captivity, he says, he was told by his interrogators that 50 of the torpedoes had been approved for sale to the Chinese government.

Certainly, the Pope incident chilled the Navy’s efforts to get a Shkval. “They shut down after Pope,” said a veteran arms dealer who has dealt with sensitive Navy programs. “They went dark in that particular program.”

In the turmoil that followed the fall of the Soviet Union, American contractors tried all sorts of tricks to get their hands on expensive Russian weapons.

One arms dealer says he managed to get his hands on a prototype airplane in the Baltic region because his contacts pretended to their superiors that the aircraft had crashed at sea. He says he tried to broker a quick sale to Air Force intelligence, but things moved slowly. When there was no immediate sale, locals had to dismantle the plane to cover their tracks.

But the rest of the operations continued, though U.S. businessmen were now skittish. Here’s one effort that proceeded: a multipronged effort to obtain a supersonic, sea-skimming anti-ship missile the Russians call the Moskit, or 3M80. (NATO calls it the SS-N-22 “Sunburn.” The U.S. was interested in obtaining both the original Russian version and an adaptation which the Russians were selling around the world.)

Flying close the water, it was difficult to detect by radar, so it was potentially an immense threat to naval operations in the Persian Gulf. Could an Aegis missile system detect it and knock it down? What about Raytheon’s SeaRAM anti-missile ship defense system? There was no way to know without running tests on a Sunburn.

Among the men who tried to obtain it was Dale Stoffel, a former staffer at the Office of Naval Intelligence who had gone into the foreign materiel acquisition business. In March 2001, he was subcontracted by Boeing’s McDonnell Douglas subsidiary to obtain Sunburns, but he never did deliver everything he was supposed to. Stoffel was killed in Iraq in 2004, in pursuit of another arms deal.

Another veteran of the industry says he, too, had a contract with the Navy to procure the highly prized Sunburn. There was an open-source channel to acquire it, and a classified operation, too. He said the result was a mess.

He says he worked above board, dealing with an office in the Russian military. It was a time of peace when no one thought the Russians and the Americans would be at war directly, so the Russians, he says, were willing to even send over 10 technicians to help demonstrate the missile and the American scientists could figure out what worked.

Suddenly, something went wrong. It turned out there was another mission underway, this one a covert operation to acquire the very same missile system. A major with the GRU, the Russian foreign intelligence agency, called him to tell him things were going sour.

“An American intelligence operation has been discovered in Russia,” he said.

This businessman knew his only choice to avoid the fate of men like Pope was to get out of Moscow, and fast. He called a Russian contact — “I have to get out of here now!” — and booked the next flight to London.

So did the U.S. Navy ever obtain the Sunburn missile or Shkval torpedo? The Office of Naval Intelligence isn’t saying, but the businessman who tried to procure them says he can only assume the Navy did, since the requirement doesn’t seem to be there anymore.

It is not easy to count the number of companies in the business. Some of the major powerhouses in defense contracting have dabbled in it, but because it is a specialization that depends largely on personal contacts, usually the work is done by small firms.

Which brings us back to the three-bedroom house in Sarasota, the registered office of Atlas International Trading, and the criminal case of the Zugravs.

In Ogden, Hill Air Force Base acts as a kind of procurement center for such places as the lab at Wright-Patterson.

“They buy a potpourri of weapons technology,” one businessman explained. “They don’t use it themselves; they just buy it. They seem to be a clearinghouse.”

In the FMA Support Office, a program manager named Jose Mendez was assigned to buy materiel from around the world for all sorts of customers in the U.S.

From a cubicle in a “sensitive compartmented information facility,” known as a SCIF, Mendez would find vendors who might be able to find the missiles, radar systems, tanks or personnel carriers that various intelligence offices in the Pentagon might want at any given time for testing, for reverse engineering.

Three separate vendors remember meeting him in interviews.

“He came in early some time ago. It was 2007 or so. They wanted to buy large vehicles, and spare parts,” one arms dealer remembers. “And klystrons. That’s a hard-to-get part.” A klystron is a type of vacuum tube often found in Russian systems and used in U.S. test ranges.

But this businessman says he never managed to seal a deal with Mendez.

According to criminal charges filed in Utah, Mendez was doing lots of business with Sylvester and Maria Zugrav.

Through their company, Atlas, the government purchased not only the Scud and the anti-aircraft systems, but a few tanks, some armored personnel carriers and an assortment of repair kits and spare parts.

The Russians call the spares ZIP kits, and there’s an endless demand for it all.

Mendez has admitted, in a plea deal, that he received more than $185,000 in bribes from the Zugravs to tell them what the government was looking for and what other contractors’ prices were.

It was a fairly elaborate bribery scheme that he confessed to. He says they used password-protected word documents for email communications. Mendez said he called Sylvester Zugrav “Jugo” as a kind of code name, while he himself was called “Chuco.”

Some bribes, he said, were FedExed to his home in Utah. Some of the money was wired to his bank account in Mexico. And some was just handed over as cash, he said, by Zugrav.

In a phone call while the FBI was listening, according to an affidavit filed in court, Zugrav told Mendez on the phone, “I’m going to send you the money, but I’m telling you, you have to help me on this big project.”

So how does one get generals in Ukraine, Hungary, Moldova and Bulgaria to part with Russian weaponry so it can be shipped off to America on freighters? In one court hearing, the federal prosecutor said Sylvester Zugrav admitted to “paying bribes to foreign officials.”

One veteran of the business, who says he lost contracts to Atlas International, says, “The trick of the game is to know who can get something done. It’s a personality-driven program.” He says that American officials sternly insist that foreign officials can’t be bribed, and that laws can’t be broken.

“There is a way to pay a bribe,” he said, “and that’s to make the guy do something to earn it. And that’s not a bribe, that’s a fee. You cover it with a contract and a receipt.”

The Zugravs, who have pleaded not guilty, are scheduled to face trial in April. Reached by phone at the home in University Park, Sylvester Zugrav declined to discuss the case. Meanwhile, their son, Dan Zugrav, appears to have entered the FMA business, too. He’s listed as the director of a company founded in 2010, called United Acquisition Management, whose website proclaims it “a leader in the procurement, delivery and maintenance of foreign military Air Force, Army and Navy material.”


UPDATE: On Feb. 26, after the March issue of C4ISR Journal had gone to the printer, Sylvester Zugrav and his wife, Maria, entered guilty pleas in the case. Sylvester Zugrav pleaded guilty to conspiracy to commit bribery and procurement fraud, and Maria Zugrav pleaded guilty to misprision of a felony related to her efforts to conceal the conspiracy.

(This article appears in the March issue of C4ISR Journal.)

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