GOJ RESPONSE ON BLUE LANTERN LEVEL 3:

C O N F I D E N T I A L TOKYO 000728

SIPDIS

SENSITIVE
SIPDIS

DEPARTMENT FOR DTCC - BLUE LANTERN COORDINATOR

E.O. 12958: DECL: 03/18/2048
TAGS: ETTC JA KOMC
SUBJECT: GOJ RESPONSE ON BLUE LANTERN LEVEL 3:
POST-SHIPMENT END-USE CHECK ON LICENSES 050055671,
050040344, 050027799

REF: A. STATE 09478

B. TOKYO 05551

Classified By: Ambassador J. Thomas Schieffer, Reasons 1.4 (b) (d)


1. (C) Summary: Post was unable to determine definitively
that the end user for the SH-60 helicopter parts listed in
reftel is the Japanese Ministry of Defense (MOD) because MOD
has been unable to provide inventory records. Describing it
as a general practice, trading company officials told us they
often increase the number of parts for ITAR license requests
to maintain an extra inventory to avoid MOD fines for late
delivery on future contracts. Company executives and MOD
officials refused to provide copies of contracts to verify
their commercial relationship. The Blue Lantern check for F4
parts (Ref B) was also incomplete because MOD could not
provide inventory records for products received. End Summary.


2. (C) Post contacted Japanese Maritime Self Defense Force
(JMSDF) Staff Officer Lt Commander Koshu Nagayama concerning
the Ministry of Defense's receipt of SH-60 helicopter parts.
On February 19, Nagayama told us the JMSDF does not have
inventory records against which to verify the receipt of the
parts in reftel. As the unit has no inventory records,
Nagayama contacted the trading companies and reported back
the following information:

DTC Case: 05002779
Some of the shipment has not been delivered. The delivery is
being coordinated between Mitsubishi Heavy Industry (MHI) and
foreign consignee, Daicel Chemical Industries. JMSDF reports
this is their first purchase via Daicel Chemical. However,
Nagayama believes Daicel has sold defense articles to the
Japanese Ground Self Defense Force (JGSDF) and Japan Air Self
Defense Force (JASDF) in the past.

DTC Case: 050040344
The goods have not arrived yet. They are scheduled to be
delivered in seven shipments between March 6, 2008, and July
9, 2009. JMSDF reports they have purchased from foreign
consignee Ishikawajima Harima Heavy Industries (IHI) in the
past. The previous purchase was a T-700 engine and its parts.

DTC Case: 050046738
The goods have not arrived yet. MHI ordered FCRS (Flight
Control Reference System) via Mitsubishi Precision on March
29, 2007 with delivery due July 8, 2009.

Site Visits
--------------


3. (C) Because JMSDF had no record of their own parts or of
ordered and incoming parts, Post conducted site surveys of
both MHI and Ishikawajima Harima Heavy Industries, Ltd. (IHI)
to determine the movement of helicopter parts with greater
clarity than our MOD contacts were able to provide.


4. (C) On February 27, EconOff met with Mitsubishi Heavy
Industries (MHI) Defense Aircraft Manager Nobuhiro Kawahara,
who said he was nervous; no one from the Embassy had ever
visited the company before on a Blue Lantern check. Kawahara
explained the MHI function for these licenses is the assembly
of completed helicopters for delivery to MOD, along with the
delivery of some spare parts. We asked MHI to provide a copy
of the contract to confirm definitively the end user of all
parts on these licenses, but Kawahara said he would have to
check with MOD for permission. (Note: Other companies have
provided copies of contracts in the past. End Note.) On
March 11, Kawahara told us, per MOD's advice, the contracts
would not be provided.


5. (SBU) On February 29, EconOff met with IHI executives led
by General Manager Masato Kawaguchi. Kawaguchi explained
IHI's role in this series of cases is to machine the products
provided by U.S.-based companies and provide them to HMI.
That company then builds the SH-60 helicopters for delivery
to MOD. IHI also specializes in testing and refurbishing
engines. The end user for the parts from IHI is HMI. After
HMI receives the parts from IHI, they assemble them and
deliver the final product to MOD. As such, IHI's
relationship is with HMI, not MOD.


6. (C) On February 29 in relation to DTC Case 050055671,
Tamagawa Seiki Company Manager Toshimi Kajita told us that
sometimes their company orders parts in advance with no MOD
contract. Some of the advanced ordered parts are stocked in
his company, but not all are listed as "stock," because some
are "defective," so they need to order replacements. For
example, they ordered and received two shipments of 20, a


total of 40 gear bevels P/N 1050201, of which 24 will be used
for the contract with MOD. The remaining parts are simply in
stock. This information was forwarded as an email attachment
(DTC D) to defense trade controls on March 11, subject line:
0500727799: Blue Lantern SH-60 Helicopter Parts.


7. (C) Daicel also told us they routinely order parts in
advance without MOD contracts to support them. In attachment
DTC A of the aforementioned email, it shows how items for the
current contract were filled with products obtained via
previous licenses, shipped and held in stock. (Note:
Japanese trading companies are most likely stocking USML
items because MOD charges high penalties for any delays in
delivery. End Note.)


8. (C) Comment: Given MOD has been unable to provide
inventory records, Post is unable to make a final
determination of the end user in this case.

SCHIEFFER