n063  1540  10 Oct 81
BC-CODE 3takes
(EXCLUSIVE, 6:30 p.m. EDT Embargo)
    The following article is based on reporting by Philip Taubman and
Jeff Gerth and was written by Gerth.
c. 1981 N.Y. Times News Service
    WASHINGTON - Edwin P. Wilson, a former American intelligence agent
charged with illegally shipping explosives to Libya, attempted to
divert American technology used in electronic intelligence gathering
and reconnaissance to the Soviet Union, according to two former
associates familiar with the scheme.
    The 1977 plan, they said, called for stealing the computer program
for highly sophisticated American equipment in Iran that was used for
detecting submarines and analyzing aerial reconnaissance information.
The equipment, known as a digital image processing system, can
enhance sonar and satellite data and has been sought by the Russians
so that they can improve their own reconnaissance capabilities.
    According to William J. Perry, undersecretary of defense for
technology in the Carter administration, the program, called source
codes and usually stored on tapes or disks, has a ''direct and
powerful'' military application.
    One former associate of Wilson said that Wilson had asked him to
''appropriate'' the program and that he had refused to do so. It is
not known whether Wilson was able to obtain the program from some
other source or whether it was ever obtained by the Russians.
    The account of the planned diversion is the first indication that
Wilson's private business activities after he left the Central
Intelligence Agency may have extended to the Soviet Union. The
computer code scheme also shows Wilson's interest in marketing
military-related electronic equipment far more sensitive and
difficult to obtain than the ordnance devices that he is charged with
having sold to Libya.
    The transfer of advanced American technology to the Soviet Union is
considered by senior government officials, including Defense
Secretary Caspar W. Weinberger, to be a major threat to American
superiority in military technology.
    Discussions about the planned diversion involved David P. Shortt, an
English businessman who acts as a key middleman for the transfer of
Western technology to the Soviet Union. Shortt managed the Austrian
office of the Hewlett-Packard Corp. in 1973 when two of the company's
computers were transferred by that office to Czechoslovakia without
the required government approval. Senior intelligence officials said
that the Central Intelligence Agency considered the diversion to be a
''serious loss'' at the time.
     Shortt, according to federal law-enforcement officials, has twice
been the subject of government investigations concerning his ties to
the Soviet Union and to Wilson and Frank E. Terpil, another former
intelligence agent indicted with Wilson. G9vernment officials say
they have evidence that Shortt has met in Iran and the Soviet Union
with officials of the KGB, the Soviet government's intelligence
service, but they do not know if Shortt is aware of the intelligence
connections of his Russian associates.
    The federal investigations, which have not dealt with the computer
code scheme, were considered routine until the recent emergence of
Wilson as a major subject of investigations, Justice Department
officials said. They added that the two investigations of Shortt had
thus far proved inconclusive.
     Wilson, responding to questions through his Washington attorney,
John A. Keats, said that he had no recollection of the scheme to sell
digital imaging processing technology to the Soviet Union. Wilson,
currently a fugitive and living in Libya, also told Keats that he
remembered meeting once with Shortt in 1977 but that they never did
any business together.
    According to Keats, Wilson thought that Shortt was connected with
Terpil at the time.
     Shortt, in an interview in his London office last week, denied any
impropriety in his business affairs. He acknowledged a past
association with Wilson, including participating in the discussions
about transferring the computer code to the Soviet Union, but denied
that he had ever participated in a business deal with Wilson.
    He also denied having any improper association with Soviet
intelligence officials, and said that his role as a middleman in
sales to the Soviet Union put him in contact with many Soviet
officials and made him a natural target for suspicion.
    ''It's a very fine line you walk down when you're working in hostile
territory,'' he said.
    Asked whether he ever worked with the KGB, Shortt replied with a
question of his own. ''What is the KGB?'' he asked, adding that it
was almost impossible to know whether Soviet officials he dealt with
had intelligence connections.
     Shortt continued: ''Do I work for the KGB? No. Would I work for the
KGB? No.''
     Shortt and Wilson worked in 1976 and 1977 as marketing
representatives for a California electronics company that
manufactured the image processing equipment Wilson apparently hoped
to sell to the Soviet Union. The company, the Stanford Technology
Corp., not related to Stanford University, is based in Sunnyvale and
applied to the Commerce Department in 1976 for an export license to
sell the same equipment to the Soviet Union but was subsequently
denied approval, according to Defense Department officials who
reviewed the application.
    These officials said that, because of the military applications of
the technology, the request was eventually denied by Perry, then
undersecretary of defense for research and engineering and formerly
the head of a company that manufactured digital image processing
equipment.
     Perry, in a telephone interview, said he did not specifically
remember the Stanford Technology application but that, in general, it
would be a ''serious mistake'' to give the Russians a ''free ride''
in obtaining digital imaging technology, an area in which the
Russians lag behind America. He said it would be difficult to
determine whether the Soviet Union had actually come into possession
of the technology.
    A former Stanford Technology official said that Shortt asked him in
late 1976 to ''make sure'' the export application ''passed,'' an
instruction that the employee, Glenn Peterson, said he interpretted
as calling for him to ''lie or fill out the form inaccurately.''
Peterson said he had left the company in large part because of
Shortt's request and the attempted sale to the Soviet Union.
     Shortt said he told Peterson to ''prepare the information for the
licensing form.''
     Shortt said he met Wilson and Terpil, another former CIA employee
indicted last year with Wilson on charges of shipping exposives to
Libya, in Iran in 1976 through Albert Hakim, an Iranian businessman
who controlled Stanford Technology. At that time, Stanford Technology
was selling sophisticated surveillance systems as well as digital
image processing equipment.
    The imaging systems were designed for civilian agriculture
applications, such as enhancing and interpreting data about the
earth's topography and soil composition gleaned from satellites. By
1975, Iran's Ministry of Agriculture was using Stanford Technology's
101 imaging system, considered by experts to be one of the most
advanced systems in the world at that time.
    Through his contacts in the Soviet Union, Shortt had obtained
commitments from two nonmilitary Soviet institutions to purchase the
101 system, and in late 1976 the company applied to the Commerce
Department for an export license for those sales. Despite the
civilian uses spelled out in the license form, Defense Department and
CIA officials were concerned about the potential military
applications of the 101 system, according to a former Defense
Department official.
    These concerns, the official said, centered less on the hardware,
which included a Hewlett-Packard computer and a viewing screen, than
on the software, the actual programming instructions and codes. The
software for the 101 can be applied to the enhancement of satellite
reconnaissance information and sonar data, according to Perry.
    The United States government's reservations, which eventually led to
a denial of an export license to Stanford Technology, were well known
by company officials, including Shortt and Wilson, former Stanford
Technology employees say.
    It was in early 1977, when Wilson was beginning to disassociate
himself from Hakim and Stanford Technology, that the scheme to divert
the 101 system to the Soviet Union unfolded.
    A former Stanford Technology employee said in an interview that
Shortt and Wilson approached him in Stanford Technology's Tehran
office on three occasions in late February and early March of 1977,
asking him to ''appropriate'' or steal the source codes, or software,
for the 101 in order to sell the system to the Soviet Union.
    In the course of these conversations Wilson explained, according to
this source, that in general he and Shortt could do a better
marketing job than Stanford Technology and that specifically by using
a company in Scotland they could avoid the export licensing
''problem'' for sales to the Soviet Union.
    The former Stanford Technology employee said that after he told
Shortt and Wilson that it would be difficult to appropriate the 101
source codes, Wilson suggested a cover story to facilitate stealing
the codes. The former Stanford Technology official said he declined
to steal the technology, adding that he was opposed to legal
transfers of sensitive technology to the Soviet Union.
    After these three conversations, in which Wilson did most of the
talking and Shortt functioned as a concurring partner, according to
the former employee, Shortt and Wilson never discussed the matter
with him again.
    United States officials say they are not sure whether the Soviet
Union ever obtained the 101 system or its software, although the
former Stanford Technology employee who declined to obtain the source
codes for Wilson and Shortt in Iran says they could have been
obtained elsewhere.
    Another former associate of Wilson said that around the spring of
1977, shortly after the conversations in Iran about diverting the 101
technology to the Soviet Union through a Scottish company, Wilson did
set up a company in Scotland. This company was used, among other
purposes, for selling timers and detonation devices to Libya,
according to this former Wilson associate, who was not familiar with
the computer code diversion plan.
    Shortt, in an interview, acknowledged being at the meetings where
the plan to divert the computer codes was discussed, but initially
said that Wilson had done the talking. Later in the interview, when
asked about a specific conversation from those discussions, he said,
''I don't remember who said what at this conversation.''
    Upon further reflection, Shortt said that his participation in the
discussions about diverting the computer codes to the Soviet Union
was ''kind of pipe-dreaming on my part.''
     Shortt also said that some time later, Wilson brought two Scottish
engineers who were working on detonating devices to meet with him at
a London hotel to get Shortt's ''technical advice,'' but that his
association with Wilson never included any ''business deal.''
    Later in 1977, Wilson began to disassociate himself from Stanford
Technology, Terpil and Shortt. Shortt still represents, on a
contractual basis, Stanford Technology, which recently reorganized
under the name International Imaging Systems.
    Before his affiliation in Iran with Stanford Technology, Shortt
worked for Hewlett-Packard, as did Hakim. In the early 1970s Shortt
headed the Vienna-based Austrian subsidiary of Hewlett-Packard, which
was responsible for sales to Eastern European countries and the
Soviet Union.
    In 1973, two Hewlett-Packard minicomputers were re-exported from
Switzerland and West Germany to Czechoslovakia by the Austrian
subsidiary before obtaining the necessary licenses, resulting in a
civil remedial action in October 1975 by the Commerce Department's
Office of Export Administration. That action placed Hewlett-Packard's
Austrian unit on six months' probation and fined the company $6,000
for multiple violations of the Export Administration Act of 1969.
     Shortt said that although he did not personally handle the actual
sale or licensing, he ''accepted responsibility'' for the unlawful
transfer of the minicomputers to Czechoslovakia. The Office of Export
Administration action did not mention Shortt, nor did it evaluate the
national security implications of the transfer. While Shortt and
Hewlett-Packard officials minimize the gain for Soviet-bloc officials
in obtaining the minicomputers, some senior intelligence officials
characterized the transfer as a ''serious loss'' of vital
military-related American technology at the time.
    American counterintelligence and law enforcement officials first
became interested in Shortt in the early 1970s, about the time of the
minicomputer transfer, federal officials say. After leaving Vienna,
Shortt went to Tehran, setting up a company, Videlcom. In 1976,
Videlcom registered in Switzerland, according to Swiss public
records; in 1978, it incorporated in Massachusetts, according to
records on file with the Massachusetts Secretary of State, and in
1980, it registered in London, according to Shortt.
    According to Shortt, Videlcom represents, for the most part, small
to medium-sized Western companies interested in selling advanced
technology to the Soviet Union and other Eastern countries. Shortt's
main partner is his wife, Anne, an Iranian whose parents live in Iran
and the Soviet Union.
     Shortt says he spends considerable time in the Soviet Union, as
much as six months a year until recently, and that all his contacts
are strictly business-related.
    Federal officials say some of Shortt's past associations in Moscow
and Teheran aroused their suspicion because they involved KGB
officials. And it was Shortt's contacts with Soviet officials in
California, these officials add, that led to a counterintelligence
investigation of him by the Federal Bureau of Investigation.
    That investigation proved inconclusive, as did a later FBI
investigation into an allegation that Shortt was involved in an
unspecified illict scheme with Terpil and Wilson.
     Shortt views these suspicions as an occupational hazard. He says he
would not be surprised if the CIA had a ''big file'' on him and that
some Russians wrongly accuse him of Western intelligence
affiliations, including a connection to Mossad, the Israeli
intelligence agency.
    As is often the case in intelligence matters, American officials
seem to be ambivalent, if not contradictory, in their dealings with
Shortt, who says he was born 42 years ago in India and is a British
citizen.
    An American businessman, who asked not to be identified, said the
CIA attempted to recruit Shortt several years ago, even though the
agency has harbored suspicions about Shortt since the early 1970s.
The businessman said he had declined the request of a CIA official to
act as an intermediary in the possible recruitment. The CIA would not
comment on the matter.
     Shortt himself questions the validity of United States government
suspicions against him by pointing out that he and his wife are
allowed the use of secretaries and telex facilities at United States
offices in Moscow.
    The longtime head of the Export Administration, and the man most
responsible for setting up the apparatus to enforce United States
export laws, Rauer H. Meyer, has been a consultant to Videlcom and
Shortt on several occasions since he left the Commerce Department in
1979, according to Meyer and Shortt. Meyer says he helps Shortt's
United States corporate clients who have export licensing problems
involving sales to the Soviet Union and Eastern-bloc countries.
     Meyer, who in 1975 signed the civil enforcement action against
Hewlett-Packard's Austrian unit, says he does not remember Shortt's
involvement in the matter. In a telephone interview, Meyer spoke
highly of Shortt and said he did not know of any questionable
dealings by Short. Meyer also mentioned a recent meeting that he and
Shortt attended with a top Defense Department official, Steven D.
Bryen, the feputy assistant secretary of defense for international
economic trade and security policy.
     Bryen, who is known to oppose the sale of sensitive American
technology to the Soviet Union, said he had agreed to see Shortt
because of Meyer's past government experience and that Shortt was
primarily interested in discussing the new administration's policy
toward transfers of technology to the Soviet Union.