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Toshiba Suggests French May Have Sold Sub Technology First

September 9, 1987

WASHINGTON (AP) _ The Toshiba Corp., seeking to quell U.S. anger over a subsidiary’s sale of submarine technology to the Soviet Union, issued a report Wednesday suggesting that a French company may have sold similar equipment to the Soviets first.

The report, prepared by the U.S. accounting company Price Waterhouse and two law firms, said the Soviets may have purchased as many as 10 advanced submarine propeller milling machines from the French company of Forest Line in the mid-1970s.

At least one of the Forest Line machines was seen by employees of Toshiba Machine in 1983 and 1984 when they were installing their own equipment in a Baltic factory in the Soviet Union, according to the report.

U.S. officials have claimed that the illegal sale by Toshiba Machine of eight of the sophisticated machines to the Soviet Union in 1983-84 enabled the Soviets to make quieter-running submarine propellers, thus making it harder for the subs to be detected electronically.

Disclosure of the sale last spring prompted the resignation of Toshiba Machine’s president and resulted in criminal charges against the company and two of its other officials. It also prompted outcries in Congress and a near- unanimous Senate vote to ban all Toshiba imports for up to five years.

Toshiba issued the report at news conferences in Washington and Tokyo at the same time it announced new procedures for keeping closer tabs on foreign sales of its subsidiares and affiliates.

″If these had been in place then, we wouldn’t be here today,″ said Donald Cameron, a partner in the New York law firm of Mudge, Rose, Guthrie, Alexander and Ferdon, which helped conduct the investigation.

The report appeared to buttress the parent company’s contention that it knew nothing about the dealings of its subsidiary.

″No one at Toshiba Corp. knew of or had reason to know of the wrongful activities of Toshiba Machine Co. As a leader in its own field of business, Toshiba Machine Co. conducted its business independently,″ the report said.

Toshiba Corp. owns 50.08 percent of Toshiba Machine, but ″we found that no one at Toshiba Corp. had any involvement in, knowledge of or reason to know about these illegal activities,″ John Altieri, another Mudge Rose partner, said in Tokyo.

Shoichi Saba resigned in July as chairman of Toshiba Corp. to take responsibility for the subsidiary’s illegal exports.

The report released Wednesday asserted: ″The key decision to proceed with the sales in violation of Japanese export control laws was made by the president of Toshiba Machine Co. At small group of upper management personnel ... evolved the overall plan for exporting the equipment.″

The report said lower-level officials who questioned the legality of the sales were warned to keep quiet by superiors and that the Soviet-bound milling devices were deliberately mislabeled so that the shipments would not arouse the suspicions of Japanese trade enforcement officials.

When information on the sales began to be disclosed, Toshiba Machine attempted an extensive coverup to hide the illegal dealings, the report said.

The report said the Soviets first approached Toshiba Machine in 1974 about buying the advanced milling machines, but that the overtures were rebuffed by company officials because of stringent Japanese export laws.

The Soviets then turned to Forest Line for the equipment, the report suggested.

″Loss of the 1974 milling machine order to a European company (and other similar incidents) led Toshiba Machine Co. personnel to conclude that Japanese export control laws were being more stringently enforced than those governing their foreign competitors,″ it said.

Forest Line became a wholly owned subsidiary of Machines Lourdes Francaises, or MLF, in 1982.

″If there was any irregular activity by one of the companies that became MLF in 1982, then it could only have involved equipment that was ordered and delivered in the 1970s,″ MLF managing director Gerard Borgneit said on Aug. 26. ″I have no knowledge of this, since I joined MLF at the time it was created.″

The Toshiba Machine sales violated restrictions set by the Paris-based Coordinating Committee for Export Control, a pact that regulates sales of Western high-technology and strategic materials to communist countries.

Toshiba Corp. is waging an ambitious lobbying campaign to persuade Congress that it is taking care of the situation, and that sanctions on all Toshiba products would be an over-reaction.

″Toshiba Machine’s sales of milling machines to the Soviet Union were reprehensible acts, and the wrongdoers must be punished,″ said Nobuo Ishizaka, chairman of Toshiba America. He urged against ″sanctions that attempt to punish an entire company for the actions of one independent subsidiary.″

AP-NY-09-09-87 1412EDT

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