MORE CONCERNS FOR ELINT, BLUE LANTERN CASE

UNCLAS MADRID 000777 SENSITIVE SIPDIS FOR STACIE ZERDECKI, EUR/WE PM/DTCC FOR BLUE LANTERN COORDINATOR TIM MAZZARELLI, PM/DTCC LISA STUDTMANN, PM/DTCC FOR JOAN VANDERLYKE, L E.O. 12958: N/A TAGS: ETTC KOMC SP SUBJECT: MORE CONCERNS FOR ELINT, BLUE LANTERN CASE 05-971940 REF: A. MADRID 453 ¶B. 2008 STATE 63427 ¶C. INVENTORY SPREADSHEET BY SERIAL NUMBER ¶D. SECSTATE 75563 ¶E. STITZIEL-MURRAY E-MAILS ¶F. MAZZARELLI-MURRAY E-MAILS OF 16 JULY 2009 ¶1. (SBU) SUMMARY: After a recent site visit, Post cannot account for 111 of the 350 Night Vision Devices (NVDs) bought by the Spanish consignee ELINT. The July 9, 2009 check on ELINT highlighted the same lack of compliance with the terms of license 05-971940 that Post noted in two February 2009 visits (ref A); ELINT has sold 13 NVDs to unauthorized end users and has kept poor records. Post is cooperating with the Spanish National Police (SNP) in an ongoing criminal investigation of ELINT. In early June 2009, ELINT requested a license to import another 862 NVDs; in light of ELINT's poor track record, Post does not recommend further licensing to ELINT. END SUMMARY. //BACKGROUND ON ELINT: TROUBLE FROM THE START// ¶2. (SBU) ELINT, S.A. received a license in 2005 to buy NVDs from U.S. exporter ITT Industries for immediate sale to the SPMC (refs A, B). In three shipments throughout 2006 and 2007, ELINT received 350 NVDs under license 05-971940. Through numerous sales from 2006 to 2008, ELINT sold 121 NVDs to the SPMC. PM requested Post conduct a post-shipment site visit, after ITT Industries had filed a voluntary disclosure letter alleging ELINT had stored devices without authorization. During two visits to ELINT headquarters in February 2009, Post determined ELINT stored 114 NVDs at its warehouse. ELINT stores the NVDs securely in a locked safe to which they claim only two employees have keys. After confirming with the Spanish Ministry of Defense (MOD) the serial numbers of the NVDs purchased under license 05-971940, Post determined 102 NVDs remained unaccounted after the February site visits. NOTE: Ref A referred to 102 NVDs unaccounted for, and a possible 100 tubes (the sensitive technology inside a NVD) transferred to the Spanish Army. The serial numbers of the tubes were subsequently determined not to match the missing numbers under license 05-971940. Further, two of the NVDs reported missing in ref A were inventoried at ELINT on July 9. END NOTE. //SPANISH NATIONAL POLICE CRIMINAL INVESTIGATIONS// ¶3. (SBU) Pursuant to Post's queries and shared concerns over ELINT's handling of NVDs, the MOD conveyed internal questions to the Spanish National Intelligence Center (CNI) - which was also buying NVDs from ELINT. MOD also forwarded the information to the Spanish Ministry of Justice, which triggered an investigation by the SNP. The SNP requested a meeting with Embassy officials to gather more information for a possible investigation into ELINT's actions. Following guidance from L, Pol-mil Officer, ODC Chief, a DOD Amcit civilian, and LEGAT met with SNP and CNI on June 18 to discuss the case. The USG delegation participated voluntarily, did not waive any immunity, and made it clear that the SNP would need to pursue an MLAT should they wish to request evidence or testimony in court. The SNP shared with Post the possible charges: export violations, tax evasion (untaxed sales),fraud. The SNP is assisting ITT Industries in its intellectual property rights claim against ELINT. The export violations are for a worst case scenario - if ELINT has exported the NVDs out of Spain. Regarding tax violations, the SNP explained that ELINT should have charged sales tax if the firm were selling materials to another Spanish company (para 5). The meeting closed with the understanding that Post would conduct another visit to ELINT to see whether anything had changed since the February visits, and to assist SNP with grounds for seeking a search warrant in pursuit of the missing devices. //STATUS OF NVDs FROM JULY 9 SITE VISIT TO ELINT// ¶4. (SBU) On July 9, Pol-Mil Officer, ODC end-use monitoring officer and POL intern visited ELINT to check on the status of the NVDs. Out of the 121 NVDs that the pol-mil delegation had observed in secure storage in February, only 110 were inventoried at ELINT during this third visit. As noted in para 2, an additional two were counted July 9 that ELINT did not appear to have in February (and which had not been accounted for by the MOD). ELINT also showed the USG delegation eight broken NVDs that it claimed were returned by the SPMC. However, the USG delegation had seen one of those eight in the February checks. ELINT had no comment as to that discrepancy. ELINT employee Santiago Orus, who presided over the inspection in the absence of Carlos Dominguez, company officer who signed the original DSP-83, speculated ELINT might have provided the Spanish Marines with eight substitute NVDs to replace the broken returned devices. Orus further speculated that those would account for eight of the 11 NVDs seen in February that were not at ELINT during the July visit. ELINT showed no invoice or official document detailing the exchange, and Post has not requested confirmation from the MOD. ¶5. (SBU) Asked why ELINT continued to store 114 devices purchased under license for the use of the Marines, Orus first expressed surprise about the 111 NVDs that the USG considers unaccounted (ref C). He provided a sheet that purported to account for many more NVDs (see para 8). Orus then claimed ELINT had purchased all the observed NVDs in connection with its (ultimately unsuccessful) bid for a large contract. Orus seemed defensive and may have attempted to distract the delegation by describing "malicious acts" by a rival Spanish provider called TCA (NFI),which caused ELINT to lose the contract after it had already ordered the NVDs from ITT. He went on to complain that ELINT now has "millions" of Euros worth of inventory that is stuck without a purchaser. Orus also attempted to deflect attention away from the inventory at hand and the missing NVDs by telling Embassy officers about another 170 similar devices, serial numbers beginning with 300- (30087 to 30278),suggesting perhaps the labels might have been changed, before concluding they did not match the list for license 05-917940. ¶6. (SBU) Of the 112 NVDs viewed on July 9, ELINT identified 33 as broken. There were three categories of broken NVDs: significant damage beyond repair, NVDs with slight damage pending repair and damaged NVDs returned from the SPMC (para 4). Apart from the eight returned by the SPMC, there were 18 that had slight damage, and were pending repair. All 18 had been at ELINT during the February checks. Post is unsure whether they were in need of repair in February. Orus told the July 9 delegation that the 18 NVDs would each require 4-5 hours of repair, and that ELINT had not bothered to fix them yet because they could more easily sell the other NVDs in stock that did not require repair. //POINTING THE FINGER// ¶7. (SBU) Orus told the USG team that ELINT was seeking retribution in the Spanish courts for what the company felt was shady business ("malas artes") in a 2006 competition to supply a Spanish legion headed for Congo. The idea of the request for bids was to introduce the Spanish Army to night vision devices and allow them to train for their deployment. According to Orus, ELINT had acquired 167 monocular devices before losing the bid. He said the case was currently before Spain's National Supreme Court. Orus seemed to suggest that all 112 NVDs on display for the July 9 delegation had been ordered "on spec" in hopes of winning a 2006 contract. Without apparent regard for the end-use assurances associated with license 05-971940, Orus lamented "millions" in inventory stuck at ELINT's facility and concluded it was "for the courts to decide." (COMMENT: At no point in our previous dealings with ELINT and with the Spanish MOD on this case had any interlocutor mentioned such a competition to supply the Spanish Legion. The deflection and belated expression of sour grapes seemed insincere and defensive in the context of the third inspection. End comment.) //NEW LIST OF ELINT CUSTOMERS// ¶8. (SBU) At the July 9 site visit, ELINT furnished Embassy officials with an updated list of ELINT customers and the distribution of 212 of the total 350 NVDs it had purchased under license 05-971940. In addition to MOD entities, ELINT's list included a March 2009 sale of 2 NVDs to "MOWAG." MOWAG appears to be a private Swiss company that specializes in armored military vehicles. The list also included the Spanish Army and Spanish National Intelligence Center (CNI), neither of which were on the license (ref A). Although ELINT provided receipts for many of the sales to the SPMC, Spanish Army and CNI, they provided no receipts for any sales to MOWAG. The same document accounts for a total of 83 NVDs sold to the Spanish Army (75) and to the SPMC (8) without specifying serial numbers. The license requires strict accounting for the serial numbers of NVDs; Post therefore has to consider those 83 NVDs unaccounted for. ELINT considers the 83 sent to be accounted for. However, by ELINT accounting, there are still 26 unaccounted for. Orus had no response to questioning about the missing NVDs. //OTHER OBSERVATIONS FROM JULY 9 SITE VISIT// ¶9. (SBU) ELINT operates out of a facility that appears to be a former residence on the outskirts of Madrid. Although ELINT did show the delegation a locked, temperature controlled, walk-in safe where they claim to keep NVDs, there is no way of assuring that ELINT locks the safe each night or follows other safety procedures. Furthermore, the security of the inventory is undermined by evidence that NVDs exported under license 05-971940 have come and gone via numerous transactions in the five months since February 26, despite managers' claims that ELINT is stuck with the stock. On an impromptu tour of the laboratory where ELINT engineers clean and repair optical equipment, EMBOFFs noticed two tags marked "ITT Night Vision Goggles," similar to the tags bearing serial numbers on the NVDs being inspected. The serial numbers on the two tags are 10341 and 10354, neither of which correspond to any NVDs on license 05-97Q40. Once Embassy officials noticed the tags, the ELINT employee immediately explained that the tags come from two NVDs that are available publicly, not from the NVDs under the license. There were two NVDs of another model on the table, but Post cannot confirm to which devices the tags correspond. ¶10. (SBU) COMMENT: In light of the irregularities reported above and in ref A, Post reiterates its unfavorable assessment of ELINT, S.A. as a recipient of U.S. Munitions List (USML) items. ELINT staff are evasive, do not keep diligent records and disregard the terms of the license. Combined with the perception the company has been wronged by the Spanish defense procurement system and the considerable financial costs associated with not being able to sell what appear to be surplus NVDs, the potential exists for diversion of extremely sensitive equipment. Post will continue to cooperate voluntarily with Spanish law enforcement, providing such documentation as is available from ELINT and defense entities on the whereabouts of the 350 NVDs exported under license 05-971940. In early June 2009, ELINT requested a license to import another 862 NVDs, ostensibly to fulfill an additional order from the SPMC (DTC license application No. 050177626 - ref D). Post is pursuing the pre-license check requested in ref E. However, given that ELINT claims to be unable to sell the 100 devices in stock as of July 9, Post questions the validity of an order for 862 more devices and urges strong caution in proceeding with ELINT's license application 050177626. CHACON