Why Would Anyone Want To Buy A Building Bugged By The KGB? New Reasons For Greater Transparency In East-West Trade

(Washington, D.C.): The State Department acknowledged this week that Dwayne O. Andreas has offered, on behalf of the American Trade Consortium (ATC)⁽¹⁾, to buy the partially constructed U.S. embassy in Moscow. Andreas is a controversial American industrialist, co-chairman of the US-USSR Trade and Economic Council (USTEC) and a principal in ATC. Work on the embassy stopped in August 1985, when analysis revealed that Soviet intelligence had systematically compromised the security of the facility by lacing it with eavesdropping devices. Last year, the U.S. government concluded that there was no way to defeat the KGB’s penetration of the embassy and that the structure would have to be razed.

Approximately $30 million dollars has already been spent on the construction project. Millions more have gone into the executive and legislative branches’ investigations into the causes and consequences of this security breach and examination of the options available for correcting it.

Hence, on its face, the offer by the ATC to buy the incomplete, compromised building appears to be a godsend. It would seemingly reimburse the taxpayer for vast sums wasted on this project. It would also offer a way to obviate a mortifying embarrassment for the American government and remove a significant irritant in U.S.-Soviet relations — assuming the Soviets would accommodate this transfer and find another site for a new embassy compound in Moscow. On closer examination, however, the Andreas-led proposal raises troubling questions, questions that argue for a hard look at evolving trade relations with the USSR and greater transparency in all East-West economic and financial transactions.

Facts and Discussion:

Even before its present economic crisis became evident, the Soviet Union had an aggressive program for acquiring Western technology through legal and illegal means.

This program is multifaceted, aggressive and highly sophisticated. It employs every resource available to the Soviet government from the KGB to the USSR Chamber of Commerce and Industry, from military attaches to scientists, students and other individuals dispatched to the West.

According to the U.S. government⁽²⁾, one facet of this acquisition effort is managed by the Military-Industrial Commission of the Presidium of the USSR Council of Ministers.

This effort "seeks one-of-a-kind military and dual-use hardware and blueprints to improve the technical levels of Soviet weapons and military equipment."

A second facet involves the Ministry of Foreign Trade and Soviet intelligence services.

These agencies divert "dual-use manufacturing and test equipment into the production lines of weapons industries."

Naturally, American industrial concerns are prime targets for the Soviet Union’s technology acquisition efforts. So great is their appetite for U.S. equipment and manufacturing know-how that the Soviets have frequently been quite brazen in their collection efforts.
- USTEC is a curious organization. It was chartered by the U.S. government in the Nixon administration to promote East-West trade. Incredible as it may seem, its membership list is classified by the Executive Branch, and yet it is without official standing on the American side.
- For their part, of course, the Soviets regard USTEC as an important official activity; their participants are representatives and organizations of the Soviet government.

One striking example was the assignment by the USSR of a Lieutenant General in the KGB, Yevgeniy Pitovranov, to the governing board of USTEC.

The evidence suggests that the Soviets’ brazenness is, at least in part, due to their confidence that Western capitalists will not be deterred from pursuing business opportunities in the USSR by repugnance over aiding the Soviet Union’s military and intelligence capabilities.

This is a confidence level that can only have grown during the last years of the Reagan Administration. Commerce Secretary William Verity, himself a former co-chairman of USTEC, and Deputy Secretary of State John Whitehead placed high priority on legitimizing, facilitating and greatly expanding U.S. trade and financial relations with the Soviet Union, the Warsaw Pact countries and Soviet client states.

The selective indifference of some American businessmen to the penetration or exploitation of their services by Soviet intelligence has rarely been more palpable than in the willingness of ATC to buy a building custom-made by the KGB for espionage.

Of course, surveillance is a fact of life in Moscow and the KGB seeks to penetrate U.S. businesses there wherever they were housed. That said, ATC’s apparent willingness to pay upwards of perhaps $90 million (for the present embassy structure and the costs to complete it) for the best KGB microphones money can buy, seems odd.

Indeed, the Andreas-led proposal and the State Department’s acknowledged support of it (i.e., "informal" discussions of this idea through diplomatic channels with the Soviets) raise a number of troubling questions:

Given the complete penetration of the building by Soviet intelligence, what use would be made of such a facility by American companies?

What are the terms and conditions for financing this acquisition?

Will the purchase price, if the building is sold instead of razed, include only the cost of construction — or will it also reimburse the taxpayer for the substantial costs associated with ferreting out and assessing the implications of the breach of security at the embassy?

What specific arrangements would be utilized by the U.S. government for transferring this facility, bought with taxpayers’ monies, to private hands?

Does the apparent support of the U.S. government for the proposed purchase not smack of preferential treatment for the would-be buyers?

Questions like these deserve full answers. Perhaps the congressional hearings that produced such damning evidence of the penetration of the Moscow embassy could usefully be reconvened to elicit them.

Conclusions:

This proposed transaction and the issues it raises of questionable judgment on the part of the prospective purchasers and the executive branch underscore Secretary of State James Baker’s recent endorsement of the need for more transparency in East-West economic and financial relations.

There is a distinct possibility that the leak of the proposed purchase of the embassy may have been an important, if small, step on the part of the State Department toward fostering such transparency. Secretary Baker may be persuaded that the frenzy of concession-making conducted (largely behind the scenes) by his predecessor — particularly during the final, post-election days of the Reagan administration — must be terminated, even reversed. The following are but a few of these concessions to the Soviet bloc:

the former administration’s abandonment of its principled opposition to holding a human rights conference in Moscow in 1991 under the auspices of the Conference on Security and Cooperation in Europe (CSCE);

the Reagan administration’s reversal of long-standing U.S. opposition to convening an East-West economics conference in Bonn in early 1990 also under CSCE auspices;

approval over Defense Department objections of joint ventures offering the Soviets advanced automated controls with great potential for manufacturing chemical and nuclear arms;

conducting secret negotiations with the USSR aimed at effecting a quick settlement of defaulted czarist bonds. Resolution of this matter could clear the way for Soviet bond sales in the U.S. market for the first time. By definition, such Soviet bond sales would constitute untied, general purpose borrowing by the USSR, which is currently prohibited pursuant to the Johnson Debt Default Act of 1934;

indications of growing sympathy with efforts to repeal the Jackson-Vanik and Stevenson amendments inhibiting trade and financial transactions with the USSR;

campaigning for an end to the "no-exceptions" policy on technology transfers to the Warsaw Pact adopted by COCOM in 1980.

It is still unclear to what extent Secretary of State Baker was involved in or supportive of these "eleventh-hour" actions. However, his call for increased transparency in East-West economic and financial transactions would — if realized — make their pursuit without full, informed debate much more difficult in the future.

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1. The member companies of the American Trade Consortium include Archer-Daniels-Midland, RJR Nabisco, Eastman Kodak, Johnson & Johnson, Chevron Corporation, Ford Motor Company and the Mercator Corporation (a merchant bank whose president is James Giffen, former president of USTEC).

2. "Intelligence Collection in the USSR Chamber of Commerce and Industry," U.S. Department of State, 1987.