Sales To Dr. Guenther Forgber

German Customs Agent Ulrich Schulz and U. S. Customs Agent Roger Urbanski developed information on June 23, 19S1 indicating that the Watkins- Johnson 900 microwave receiving systems had not been sold to the Yugoslav Defense Ministry but directly to Mashpinborintorg in Moscow. It was reported that only one of the Fairchiid/Xincom memory test systems was sold to Tungsram of Hungary and three had been sold to Dr. Guenther Forgber of East Germany.

Schulz and Urbanski obtained documentation from Ulrichshofer's sales of American manufactured electronic equipment to Soviet and Soviet Bloc customers including the sale to Dr. Guenther Forgber of Narda microwave amplifiers and power dividers and a Fairchild automatic testing system and Xincom manuals; and to Mashpinborintorg of Moscow of Watkins-lohnson 9*0 microwave receiving systems, manuals and tuners.

Koenig Described Work In CTC Syndicate

On June 6 and 12, 1981, Hans-Juergen Koenig was interviewed in the U. S. Embassy in Bonn, West Germany by Stephen Dodge of the U. S. Customs Service, Robert Rice of Commerce and Theodore Wu, an Assistant U. S. Attorney in Los Angeles.

Koenig, reciting his recollections in fluent English, said that he first went to work for the CTC group of companies in June of 1977, serving as general manager of Analog and Digital Technik, or ADT, of Dusseldorf.

Koenig said ADPs sales were largely electrical components to West German firms but one department of the enterprise, managed by Sybille Ziogas, was devoted exclusively to the sale of electronic equipment to the Soviet Union. Ziogas worked in ADT from August of 1977 until late 1978 when she joined another CTC entity.

His tour at ADT lasted six months, Koenig said. While he was not trained in technical matters, Koenig did learn the technical side of the business and how the CTC enterprises operated. Koenig came to realize that ADT had two principal interests — sales to West German firms, and sales to the Soviet Union.

CTC executives explained to Koenig that all sales by ADT to the Soviet Union were made through Electronorgtechnika, also known at Elorg, the Soviet state purchasing agency for electrical components, test equipment {or components and computers. Koenig said he learned while working (or ADT that the CTC group bought most of the electrical components and computers for the Soviet Union from the United States. Koenig said CTC was managed by Tony Maluta, a Russian born American who spoke English, German and Russian and who had technical experience and knowledge of high technology equipment. Maluta was assisted by Sabina Dam Tittel, a German woman whom Koenig met for the first time in Dusseldbrf in 1977 shortly after he joined ADT.

It was the opinion of CTC executives in Germany that AOTs sales of American manufactured high technology to the Soviet Union did not violate German laws because the goods never formally entered West Germany but instead were only "in-transit" — or passing through — in route to Switzerland and then on to the U.S.S.R-, Koenig said. They felt they were breaking no law when they shipped high technology freight through Vest Germany and on to the Soviet Union with no German export licenses.

But Koenig doubted this legal interpretation, pointing out that export licenses were required for freight shipped "in-transit* through Vest Germany and that it was apparant that Vest German authorities never knew about CTCs sales to the Soviets.

West German executives of CTC also held the legal opinion that Tony Mahitas shipments out of the U. S. did not require American export licenses because Maluta declared the shipments in a deceptive way, describing them in deliberately vague terms such as "electricals." Because their destination was Vest Germany, CTCs shipments were undetected.

However, Koenig said, CTC officials knew that if they had listed the Soviets as recipients of the goods, export licenses would have been refused. Koenig said Tony Maluta declared Fairchikl/Xincom computer equipment as being "electricals" when he knew the machinery was more sophisticated than that. Because of Maluta** "deceptive methods," Koenig said, he believed that Maluta recognized the legal requirement for proper export licenses was being circumvented.

While he was learning ADT procedures, Koenig said, he had differences with management over how the firm should be run. The differences led to Koenig's quitting ADT. However, he remained on good terms with ADT. In fact, company officials put up »,000 Deutschemarks of their own money to enable Koenig to establish another enterprise, Elmasch, GmbH. The founding of Elmasch enabled Koenig to put into practice an idea he had of selling electrical and computer components to the Warsaw Pact nations. Koenig explained how and why Elmasch came into being:

• By early 1978, 1 was knowledgeable of ADT's methods of doing business with the Soviet Union. During this period, 1 discussed.. .my ideas about doing business with the other Eastern Bloc nations. As part of my attempts to establish business contacts with the Soviet Bloc customers after the establishment of Elmasch, I attended a trade fair in Hannover, West Germany, in April, 1978. At that time, I anticipated selling electrical components and semiconductors to my customers, but I learned that certain electric components were very easy for Soviet Bloc customers to obtain from West Germany and Austria. I determined that.. ..the price for such components was relatively low and their sale to Eastern Europe was not profitable. In about Tune, 1978, I obtained from Bulgaria an inquiry for U. S. ball-bonding , die-bonding and etching equipment used in semiconductor manufacturing, and this inquiry became an official order in September, 1978. This inquiry was sent by me in Bulgaria to ADT then to Maluta at CTC... Later on, less than a week after my return from Bulgaria, ...I talked with Tony (Maluta) about this inquiry by telephone from ADT's office, using a telephone loud speaker.

While Koenig was in the process of setting up Elmasch, GmbH, he established another business, Techma, GmbH, to take over ADT's transactions with the Soviet Union. ADT officials wanted to have no further sales to the Soviets. Koenig was listed as Techma's general manager but Sybille Ziogas, who had supervised ADT's Soviet sales, took on the same assignment with the new entity.

CTC executives held a party in April or May of 1978 near Dusseldorf which was attended by about 20 persons, including Maluta and Koenig. Koenig and Maluta were told to get to know each other and to be on good terms.

Koenig discussed an order he had received from Czechoslovakia for Intel 2708 integrated circuits and an Intel microcomputer develoment system model MDS231. Maluta's judgement was that Koenig was on the right track in planning to use Elmasch, GmbH, as a vehicle to supply Eastern Bloc orders. Maluta told Koenig to accept orders from Warsaw Pact nations and to transmit them directly to him at CTC in California. Maluta said there would be "no problem'' with CTC delivering U. S. machinery to Elmasch.

Koenig said he frequently heard CTC officials talking long distance with Maluta. They talked about the availability of machinery and prices. It was obvious what they were talking about, Koenig said. CTC executives in Germany were afraid their telephones were monitored and were careful not to mention Soviet Bloc customers by name.

Koenig remembered one telephone conversation between one CTC executive and Ualuta that he overheard on the loud speaker. The two men discussed a possible order from Bulgaria which Koenig knew about. But neither man referred to Bulgaria or the prospective buyer by name.

The circuitous nature of the telephone conversations did not prevent Maluta from knowing what was happening, Koenig said. Maluta knew that alt the orders from Elmasch were from Eastern Bloc nations.

The Soviets' invasion of Afghanistan in late 1979 triggered new U. S. government assurances that the flow of high technology to the Soviet Bloc would be made more difficult. The grain embargo was imposed and, Koenig said, there were indications that illegal shippers like Maluta were likely to face stronger U. S. export controls.

To prepare for such an eventuality, the CTC group called a meeting with Koenig and Maluta for London in February of 1980. Maluta said a tightening of export controls might be attempted but that they would not succeed, Koenig recalled. Moreover, Maluta added that he had noted no increase in efforts by the U. S. government. In short, Maluta declared, there was no need to devise a new method for shipping high technology out of the U. S. because no new safeguards had been set up. But, Maluta did say that a Commerce Department agent had visited him, a recollection by Maluta which was doubted by both Koenig and other CTC representatives. They believed Maluta was exaggerating the "dangers involved in ordering U. S. goods" as a ploy to get the CTC syndicate to pay him more money, Koenig said.

Horst Jonas, a customer of CTC, was suspected by the West German national police (Bundes kriminal amt or BKA) of having illegal dealings with the Soviet Bloc. The BKA interviewed CTC executives about 3onas. The encounter troubled them to such an extent that they moved ADT to new quarters in Ousseldbrf in 1977 and then moved the company offices to Munich in 1979, Koenig said. Donas was arrested and imprisoned for IS months by German authorities for alleged espionage activities.

Referring to his contention that Tony Maluta was well aware of the activities of the West German businesses in the CTC syndicate, Koenig recalled a conversation he had during the London meeting with Maluta. He told Maluta that Bulgaria was Elmasch's biggest customer. To conceal the true destination of the Bulgarian shipments, Elmasch gave them the order code of 7200. Maluta knew all 7200 codes were for Bulgarian customers, Koenig said. Similarly, Maluta also knew that Techma, GmbH, was selling to the Soviet Union, Koenig said. He added:

• I am of the opinion that Maluta knew all orders from Elmasch and Techma were for Eastern European and Soviet customers, except for a very small portion of Techma orders for Zabel, a West German firm. My opinion is based on the fact that I told Maluta in May 1978 that Elmasch was set up specifically to do business with Eastern Europe other than the U.S.S.R., and Maluta had to know Techma was selling primarily to the U.S.S.R. because it followed ADT in the Soviet business, and simply was a change of name for business with the Soviet Union already being conducted by ADT.

Early in 1980 CTC executives began to suspect that Maluta and his assistant, Sabina Dorn Tittel, were cheating them, charging them exorbitant prices for U. S. equipment.

On a Monday morning in May, Werner 3. Bruchhausen and Koenig made an unexpected visit on CTC in Los Angeles. Their arrival caused tension between Bruchhausen and Maluta. Later that day the two men quarreled. When Maluta left the offices, Bruchhausen and Koenig searched the files and found evidence that Maluta was overcharging his employer 10 to 20 percent. Bruchhausen fired Maluta and Sabina Tittel.

Maluta's pay, Koenig said, had been $2,000 to $3,000 a month but he was given another $25,000 a month by charging the CTC entities through a fictitious advertising account which CTC executives had agreed to. The CTC executives set aside another $150,000 to be used by Maluta should he be arrested and face big legal fees. Suspicions that Maluta was stealing from CTC were well founded and Koenig estimated that Maluta embezzled about $800,000 from CTC entities.

Koenig recalled his first meeting with Sabina Dorn Tittel, saying he met her in August of 1977 while she was on vacation in Dusseldorf. He said Tittel may not have known about ADT's Soviet sales at the time but that it was his "common sense assumption that Maluta must have told her at some time."

The following summary of the CTC case was written by Fred Asselin of the Subcommittee Minority staff. It is based on information provided by Commerce and Justice Department, U.S. Customs and other sources.

CTC Network Was Formed In 1977

On October 23, 1974, Werner Jurgen Bruchhausen, a 34-year-old West German residing in Los Angeles, incorporated four companies in Southern California for the purpose of buying and selling sophisticated electronic equipment. The firms all used the address of 4676 Admiralty Way in Marina Del Rey. Subsequently, Bruchhausen incoporated eight other entities in Southern California.

Bruchhausen, who was born on November 5, 1939 in Dortmund, West Germany and who listed his home as being D8019 Niederseeon 21 in West Germany, enlisted the aid of two associates in setting up his firms -- Anatolij T. M. Maljuta of 231 Calle Mayor, Redondo Beach, California; and Sabina Dorn Tittel of 30605 Cartier Drive, Rancho Palos Verdes.

Maljuta, who was born in Kharkov, Russia on January 25, 1920, was a naturalized American citizen. He used three aliases -- Anatoli T. M. Maluta, Tony Maluta and Tony Metz. Tittel was born on January 13, 1950 in Gumbsheim, West Germany. Divorced, Tittel was unmarried, as was Bruchhausen. Maluta's wife was named Aida.

Of the four companies Bruchhausen created in 1974, the principal enterprise was CTC California Technology Corporation. From its inception through 1980, CTC utilized 18 other trade styles, 12 of which were incorporated in California. In the four-year period of 1977 to 1980, CTC and its variants, under the direction and supervision of Anatoli Maluta and Sabina Dorn Tittel, purchased high technlogy electronic equipment, peripherals and components valued in excess of $10.5 million. Most of the items they purchased were classified as strategic commodities, controlled for national security purposes and requiring United States export licenses granted by the Departments of State and Commerce.

In the same four-year period, CTC exported from the United States to Germany, the Soviet Union, or the Soviet Bloc more than 300 shipments consisting of strategic commodities. None of the commodities had proper export licenses. The shipments were documented with fraudulent U. S. Shipper's Export Declarations (SED's). Most of the exports were sent to West Germany consigned to companies controlled by or associated with Werner 3. Bruchhausen. From West Germany, most ol the commodities were transshipped to Switzerland or Austria or to other intermediate countries and then transported to the USSR or to a Warsaw Pact nation.

The entities located in Southern California that comprised the Bruchhausen or CTC group were as follows:

CTC Group Used Companies Overseas

In addition to the California-based entities comprising the CTC group, Bruchhausen also controlled or was associated with several other enterprises, including entities in West Germany, Austria and Switzerland.

The CTC group's associates in West Europe included Dietmar Ulrichshofer, Hans-Jurgen Koenig, Sybille Ziogas, and Frank and Karin Nassauer.

Ulrichshofer, born in Austria on May 27, 19*0, owned electronics supply companies in Vienna and Bad Reichenhall, West Germany. Koenig, who lived in Bonn, was born on May 12, 19*0, and was general manager of electronics supply firms in Dusseldorf, and the West German capital.

The foreign entities utilized or owned by the Bruchhausen group were as follows:

Techma Technische Maschinenhandels - Gesellschaft Mbh Koeingstrasse 10, D-4000 Dusseldorf, West Germany Commenced Business: February 27, 1978, under Registry Number HRB 13228, dated February 27, 1978 General Manager: Hans-Jurgen Koenig Ownership: Hans-Jurgen Koenig - 100% Operation: Distribution, import and export of machine and products of the mechanical engineering, as well as electric devices Elmasch Vertriebsgesellshaft Fur Produkte Der Electrotechnik Und Des Maschinenbaues Mgh Bergstrasse 185, 5300 Bonn 1, West Germany Commenced Business: February 27, 1978, under Registry Number HRB 2478, dated June 19, 1979 General Manager: Hans-Jurgen Koenig Ownership: Hans-Jurgen Koenig - 90%, Stefan Wagner - 10% Operation: Distribution, import and export of electrotechnical and mechanical products Electronic Elektronechnische Bauelmente Handelsgesellshaft 4951 Ameisasse, 1140 Vienna, Austria Commenced Business: October 30, 1974, under Registry Number B-9060, dated November 23, 1964 Managers: Dietmar Ulrichshofer, Helmut Hartner Ownership: Dietmar Ulrichshofer Operation: Distribution of electronic component parts and apparatus as well as other technical articles, mainly in Eastern Europe (80%) Ing. Ulrichshofer, Dietmar Vertrieb Electronischer Bauelmente Und Elektronischer Gerate Baderstrasse 5,823 Bad Reichenhall, West Germany Commenced Business: November 1974 under Registry Number HRA 3530, dated 1976 Sole Proprietor: Dietmar Ulrichshofer Ownership: Dietmar Ulrichshofer Operation: Wholesale in (5%) import of (20%) and export (75%) electronic components, mainly semiconductors. Exports to European countries. Solid State Electronics SA DBA: SSC Solid State Commerz AG, Zurich, Switzerland Commenced Business: April 26, 1971 Director: Dr. Juraj Tamas Zabratzky Operation: Trade in products of the electronic industry and related products, take-over of agencies of all kinds, rendering of commercial services of all kinds, acquisition of participations and real property as well as acquisition, registration and exploitation of patent rights of all kinds. Intra-engineering, GmbH Goethestrasse 11, D-4000 Dusseldorf, West Germany Commenced Business: December 30, 1977, under registry HRB 13197 General Manager: Ing. Gerhard Drost Operation: Development, planning and construction of plants. Universal Transport GmbH Cologne, Dusseldorf and Munich, West Germany

Commenced Business: July 19, 1968, under Registry No. HRB 2296, dated July 27, 1978 Operation: Forwarding and transports of all kinds (air, road and water); especially international forwarding for import and export; customs clearance and air freight. Panalpina AG Zurich, Switzerland Commenced Business: 1920 Operation: Freight forwarder to all parts of the world. Wholesale trade with various butcher articles, such as sausage machines, guts, etc. The firm does mainly transit trade, and there is practically no activity in Switzerland. Copex Air B. V. Subsidiary of shipping and forwarding "SAFF" B. V. Schiphol, Metherlands Commenced Business: January 18, 1977 Managers: G. H. F. Smit, A. M. Hageman Operation: Air freight forwarding.

A West German businessman described as one the world’s top “techno bandits” did “tremendous harm” to U.S. security by illegally diverting millions of dollars worth of American high technology to the Soviet Union, a federal prosecutor declared Tuesday.

Assistant U.S. Atty. William F. Fahey charged in Los Angeles federal court that Werner Bruchhausen, 47, had provided “tremendous benefits” to the Soviets by selling them more than $6 million worth of high technology and military equipment.

Bruchhausen, an electronics engineer who conducted his worldwide operation from a mansion outside Munich before his arrest in Britain in May, 1985, is on trial on 15 counts of mail fraud. He was extradited to the United States in June.

Fahey declared in an opening statement that the Soviets recruited Bruchhausen in the early 1970s to obtain U.S. technology that could not be shipped outside this country without export licenses issued by federal authorities.

The Soviets were so eager to obtain American-made electronic and computer equipment for military and civilian use that they were willing to pay Bruchhausen up to 10 times the value of the gear, Fahey said.

Just how well the Soviet Union succeeded in its buying efforts will be explored by expert government witnesses during the trial, according to Fahey. But he offered examples outside of court on Tuesday.

The Soviets acquired an entire plant enabling them to greatly improve their quality control in computer microchip production, increasing the number of good chips from 10% to 70% or 80%, Fahey said. Also, he said, they acquired U.S. military communications equipment that permitted them to monitor North Atlantic Treaty Organization forces.

Bruchhausen’s attorney, Alan M. May, portrayed his client as an ambitious businessman who set out to make his fortune during a period of detente between the United States and the Soviet Union and ended up being a victim who was betrayed by lying associates and set up by federal officials.

Bruchhausen never talked to any U.S. manufacturers about sensitive equipment and never falsely filled out a government form, May said. “And now they say, ‘Werner made me do it.’ ”

Quite a different opinion of Bruchhausen’s role in securing U.S. technology was expressed when the British agreed to extradite him.

“We have spread our net wide and caught one of the biggest fish,” said Customs Commissioner William Von Raab. “Werner Bruchhausen is one of the most important members of a small fraternity of shady characters who handle most of the transfers of forbidden technology to the Soviet Bloc.”

Fahey alleged that Bruchhausen designed an elaborate scheme to smuggle American high-tech gear by setting up dozens of companies, several of them in California, and instructing his agents on how to export components without detection either by U.S. manufacturers and federal authorities.

The prosecutor charged that two of Bruchhausen’s companies operated under different identities out of the same office, one to buy equipment and the other to illegally ship it out of the country by falsely declaring what was being shipped and concealing its value and final destination.

Fahey accused Bruchhausen of setting up two companies in Marina del Rey in October, 1974, to purchase and export technical commodities. He said the names of the firms were changed twice within six years before authorities became suspicious.

According to Fahey, Bruchhausen and his agents made at least 13 attempts to export high-tech equipment between 1978 and 1980, starting with his first successful attempt in November, 1978, when Bruchhausen purportedly acquired a Data General S/230 computer.

Sometimes equipment was sent to Switzerland, or West Germany, or Austria, Fahey said. But, he said, “Eventually all of it ended up in the Soviet Union.”

Bruchhausen was originally named, along with two Southern California residents, in a 60-count indictment returned by a federal grand jury in Los Angeles in August, 1981.

The others, Russian-born Antoli (Tony) Maluta and Sabina Dorn Tittel, were sentenced to prison in 1981 for illegally diverting U.S. technology. Bruchhausen avoided arrest for four year.

Bruchhausen’s lawyer described Maluta on Tuesday as a snake who, as Bruchhausen’s agent, had lied to equipment manufacturers and U.S. Customs officials, and stolen $750,000 from the defendant.

The trial, which U.S. District Judge Alicemarie Stotler is hearing without a jury, is expected to last three or four weeks.

A West German imprisoned for selling classified technology to the Soviet Union and Eastern European countries tried to escape the Federal prison here in a helicopter Saturday, officials said today.

Federal officers were there to halt the escape of the prisoner, Werner Bruchhausen, before he could board the helicopter at the Federal Correctional Institution, a prison spokesman said.

Mr. Bruchhausen, 48 years old, began serving a 15-year prison sentence for wire fraud in May 1987.

A crew from a Tallahassee television station, WCTV, which had been notified that an escape was planned, waited outside the prison and videotaped the helicopter descend into the compound Mr. Bruchhausen was in the recreation yardat the time, said Lieut. Roy Gay, operations supervisor at the prison.

The authorities released few details about the escape attempt. WCTV said it had been told that Mr. Bruchhausen had offered to pay more than $100,000 to get out of prison.

Mr. Bruchhausen, was transferred to an undisclosed, more secure prison, Lieutenant Gay said.

Mr. Bruchhausen had fled the United States after a Federal grand jury in Los Angeles accused him and three others in August 1981 of conspiracy and violating the Export Administration Act, the Arms Export and Control Act and Federal income tax law. Mr. Bruchhausen was arrested in London on May 8, 1985, on immigration violations.

W.D.Tenn.

1. AFFIRMED.
2. Before KENNEDY and RYAN, Circuit Judges, and FEIKENS, Senior District Judge.*
3. ORDER
4. Werner Bruchhausen, a pro se federal prisoner, appeals the district court's dismissal of his petition for habeas corpus relief filed pursuant to 28 U.S.C. Secs. 2241-2256. This case has been referred to a panel of the court pursuant to Rule 9(a), Rules of the Sixth Circuit. Upon examination of the briefs and the record, this panel unanimously agrees that oral argument is not needed. Fed.R.App.P. 34(a).
5. In 1987, Bruchhausen was convicted during a bench trial of wire fraud in the United States District Court for the Middle District of California. He was sentenced to a total of fifteen years imprisonment and was fined $15,000. His direct appeal is presently under review in the United States Court of Appeals for the Ninth Circuit.
6. Bruchhausen filed this habeas petition alleging that he has been denied his right to an appeal because his appeal "languishes" in the Ninth Circuit. Bruchhausen also complained that he has been unable to obtain a trial transcript. He requested that his conviction be overturned. The district court dismissed the petition for lack of jurisdiction, finding that the validity of Bruchhausen's conviction was an issue currently on appeal in the appropriate appellate court, and that it could not assume jurisdiction over Bruchhausen's appeal in the Ninth Circuit.
7. On appeal, Bruchhausen has filed a motion to expand the record and reasserts his claim that his conviction is invalid.
8. Upon review, we affirm the district court's judgment. Neither this court nor the United States District Court for the Western District of Tennessee has the statutory authority to review Bruchhausen's conviction. Cf. Cohen v. United States, 593 F.2d 766, 770 (6th Cir.1979) (a challenge to the legality of a conviction and sentence must be brought under 28 U.S.C. Sec. 2255 in the court that imposed the sentence). Only the Court of Appeals for the Ninth Circuit can review Bruchhausen's conviction and rectify any errors.
9. Accordingly, the motion to expand the record is denied as moot, and the district court's judgment is hereby affirmed pursuant to Rule 9(b)(5), Rules of the Sixth Circuit*

The Honorable John Feikens, Senior U.S. District Judge for the Eastern District of Michigan, sitting by designation

ATTORNEYS - William F. Fahey, Assistant U.S. Attorney ., Los Angeles , Cal., for plaintiff-appellee.

~ JUDGES William Cameron Canby , Alex Kozinski , Ferdinand Francis Fernandez

CANBY, Circuit Judge:

Werner J. Bruchhausen appeals his conviction for wire fraud in violation of 18 U.S.C. § 1343 and 18 U.S.C. § 2(b).

We reverse.

BACKGROUND

This case arises out of a scheme to smuggle American technology to Soviet Bloc countries. Bruchhausen, a German citizen, engineered the effort by deceiving the United States government and manufacturers. The deception spanned more than ten years and led to the diversion of millions of dollars in equipment.

Bruchhausen often relied on his American agents to deal directly with the manufacturers. With Bruchhausen's blessing, these agents assured company representatives that all equipment would be used in the United States. No manufacturer was told that the equipment actually was going to West Germany and then on to the Soviet Bloc. Representatives from these companies testified that they would never have sold to Bruchhausen had they known the truth .

The deception also took other forms. Bruchhausen's agents prepared two sets of invoices: one stating the shipment's true value, and a second reflecting only ten percent of this amount. The first invoice was sent to Bruchhausen in Germany. Meanwhile , the second invoice would accompany the delivery to freight forwarders and to United States Customs. Bruchhausen believed that this method would reduce the likelihood that officials would search the crates.

In addition, agents mischaracterized the shipments when preparing Shipper's Export Declarations. For example, they would label shipments of computers and military communications equipment as "electrical" or "meters." Further, Bruchhausen instructed them not to apply for export licenses in order to limit Customs' control over the shipments.

Throughout the deception, Bruchhausen relied on telex machines to communicate with these agents.

On August 19, 1981, a federal grand jury indicted Bruchhausen and his confederates for offenses ranging from tax evasion to export violations. During the next four years, Bruchhausen eluded authorities. On May 8, 1985, however, British authorities apprehended him. He was extradited to the United States.

On June 6, 1985, a second grand jury indicted Bruchhausen on sixteen counts of wire fraud, in violation of 18 U.S.C. § 1343 1 and 18 U.S.C. § 2(b). 2 After a *467 bench trial, he was convicted of fifteen of these counts. On May 1, 1987, the district court sentenced Bruchhausen to fifteen years in custody and fined him $15,000. Bruchhausen appeals.

The statute provides:

Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined not more than $1,000 or imprisoned not more than five years, or both.

The statute provides:

Whoever willfully causes an act to be done which if directly performed by him or another would be an offense against the United States, is punishable as a principal.

18 U.S.C. § 2(b) (1984).

DISCUSSION

Bruchhausen contends that the wire fraud indictment was insufficient as a matter of law. We review this issue de novo. See United States v. Buckley, 689 F.2d 893, 897-98 (9th Cir. 1982), cert. denied, 460 U.S. 1086, 103 S.Ct. 1778, 76 L.Ed.2d 349 (1983).

The indictment defined Bruchhausen's objectives as follows:

a. [to] defraud American manufacturers of high-technology commodities of their property and their right to make business decisions based on truthful information and representations;

b. [to] defraud the United States and its executive agencies, namely the Department of Commerce, the Department of State and the Customs Service of their right to conduct their affairs free from stealth, chicanery, fraud, false statements and deceit.

According to Bruchhausen, the indictment improperly relies on intangible property rights. This contention is without merit. The wire fraud statute is not limited to possessory interests, and can extend to rights in intangible property.

;:,ee <.,,-arpenrevr . umrea ;:,rares, 4~4 u.~. I l::1,~ ::>, 1u ~ ~.L;t. 316,320, 98 L.Ed.2d 275 (1987) (information's "intangible nature does not make it any less 'property' protected by the mail and wire fraud statutes"); 18 U.S.C. § 1346 (Supp. 1992) (amending fraud statutes to include schemes to deprive another of "the intangible right of honest services").

The real question is whether the government's and manufacturers' interests can be considered property rights within the meaning of the statute. The government contends that two other statutes recognize its interest in the future alienation of American high technology products - the Arms Export Control Act, 22 U.S.C. § 2751 et seq., and the Export Administration Act of 1979, 50 U.S.C. App. § 2401 et seq. To enforce these statutes, Congress enacted forfeiture provisions that permit the government to seize the products. 50 U.S.C. App. § 2410(g); 22 U.S.C. § 401(a) .

From these provisions, the government would have us derive a property right.

We reject this construct. The government's potential forfeiture interest is too ethereal to fall within the protections of a statute that "had its origin in the desire to protect individual property rights." Cf. McNally v. United States, 483 U.S. 350, 358-59 n. 8, 107 S.Ct. 2875, 2881 n. 8, 97 L.Ed.2d 292 (1987).3 We accordingly hold that this interest cannot support Bruchhausen's indictment.

Congress overrode the result in McNally in 1988 by passing 18 U.S.C. § 1346, which provides that a scheme to defraud includes a scheme "to deprive another of the intangible right of honest services."

Section 1346 does not affect the analysis in McNa//yupon which we rely.

A closer question is whether the manufacturers were defrauded of "Property" withiin the meaning f the statue.

The manufacturers received the full sale price for their products; they clearly suffered no monetary loss. While they may have been deceived into entering sales that they had the right to refuse, their actual loss was in control over the destination of their products after sale. It is difficult to discern why they had a property right to such post-sale control.

The government argues, however, that the manufacturers lost part of their bargain because they would not have sold the products if they had been told that the products were destined for the Soviet Bloc. *468 Thus, the assurance that the products would be used domestically was, in the government's view, part of the consideration for the sale, and the manufacturers were defrauded of that portion of their bargain. The government relies on Carpenter v. United States, 484 U.S. at 25-28, 108 S.Ct. at 320-22 , in which the Supreme Court held that the Wall Street Journal was defrauded of "property" when its employees leaked to conspiring brokers the prepublication contents of columns discussing stocks. The Court stated that the Journal "had a right to decide how to use [the confidential information] prior to disclosing it to the public," and that a scheme to defraud did not "require a monetary loss." Id. at 26, 108 S.Ct. at 321. The government analogizes the Journal's intangible interest in controlling prepublication information to the manufacturers' intangible interest here in controlling the destination of their products.

The government's argument is not without force, but the analogy is a strained one. Carpenter relied in part on the fact that "[c]onfidential business information has long been recognized as property. [---]. There is no comparable understanding that a manufacturer has a property interest in the destination of its products. Of course the manufacturer may have an interest in assuring that its products are not ultimately shipped in violation of law, but that interest in the disposition of goods it no longer owns is not easily characterized as property.

If we are to rely on an analogy, McNally provides a closer one than Carpenter. In McNally, government employees purchasing insurance for the state required the seller to share its commissions with other companies in which the government employees had an interest. There was no showing that the state paid more for its policies than it otherwise would have, or that it received less insurance. The employees were convicted of mail fraud on a theory that their actions defrauded the citizens and government of the state of their right to have the state's affairs conducted honestly. The Supreme Court reversed, holding that, under such a theory, no "property" had been taken by fraud within the meaning of the mail fraud statute, 18 U.S.C. § 1341.

The Court noted that "the original impetus behind the mail fraud statute was to protect the people from schemes to deprive them of their money or property." McNal/y, 483 U.S. at 356, 107 S.Ct. at 2880 .

In McNally it was doubtless true that the state would not have permitted the policies to be purchased if it had known of the arrangement for sharing of commissions. Yet the state's or the citizens' legitimate interest in preventing dishonest redistribution of commissions paid by the government did not qualify as "property" within the meaning of the mail fraud statute. We see no reason why a similar result should not obtain under the wire fraud statute. the relevant language of which is identical to that of the mail fraud statute. We conclude, therefore, that the interest of the manufacturers in seeing that the products they sold were not shipped to the Soviet Bloc in violation of federal law is not "property" of the kind that Congress intended to reach in the wire fraud statute.

Our decision is colored by the rule of lenity. As the Court instructed in McNa/ly, we may choose the harsher view of the statute only when Congress has spoken in clear and definite language. Id. at 359-60, 107 S.Ct. at 2881-82 .

Section 1343 provides no guidance, and section 1346 refers only to the intangible right to honest services. 18 U.S.C. § 1343, 1346. In the absence of definite language, we must conclude that the manufacturers' interest cannot support a criminal prosecution. McNally, 483 U.S. at 359- 60, 107 S.Ct. at 2881-82 .4

In this regard, we respectfully disagree with the Second Circuit's approach in United States v. Schwartz, 924 F.2d 410 (2d Cir. 1991). In assessing the manufacturer's interest, that court did not address McNallyand Carpenter. Id. at 420-21.

In light of this conclusion, we hold that the second indictment was insufficient as a matter of law. We therefore reverse *469 Bruchhausen's convictions. 5 Bruchhausen may be subject to punishment under other statutes, but his alleged conduct does not constitute wire fraud against the United States or the manufacturers.

We find it unnecessary to address Bruchhausen's argument that the indictment failed to provide notice of the charges against him. We also decline to address his arguments based on the statute of limitations, the sufficiency of the evidence, and delay on appeal.

REVERSED; CONVICTION VACATED; REMANDED.

[23] KOZINSKI, Circuit Judge, concurring:

Because the majority opinion and Judge Fernandez's concurrence are entirely consistent, and each interprets the applicable law correctly, I join both.

[25] FERNANDEZ, Circuit Judge, concurring:

I agree with the majority that the United States was not defrauded of its property within the meaning of McNally v. United States, 483 U.S. 350, 107 S.Ct. 2875, 97 L.Ed.2d 292 ( 1987). I also agree that the right of manufacturers to make decisions based on truthful information is far too ethereal to be a property right for the purposes of the wire fraud statute. See Carpenter v. United States, 484 U.S. 19, 25, 108 S.Ct. 316,320, 98 L.Ed.2d 275 (1987).

However, I do not agree that a person has not been defrauded of his property when he is induced by fraudulent representations to transfer that property to another. In reaching the contrary conclusion, the majority puts far too much weight on the fact that the defrauded companies received a monetary payment equal to the fair market value of the property.

In my opinion, at the very least ownership of a tangible object, whether it is a pen, a desk, or a piece of equipment, includes the right to retain that object and to refuse to transfer it to others. The right persists even if others are willing to pay fair market value for the object. Were it otherwise, everyone would have a private right of condemnation over the property of others; everyone could simply take another's property at will as long as fair market value was oaid. That concept is far outside our traditions. It is an acceptance of Holmes's "bad man" theory of the law which, though realistic in some sense, should not define this area.

See Oliver W. Holmes, The Path of the Law, 10 Harv. L. Rev. 457, 459-62 ( 1897). Perhaps a contracting party can properly consider the contract to be one to perform or pay damages, although I am dubious. Surely, however, the duty owed to a person who owns property is not merely a duty to respect that person's rights or pay damages. In short , a person can wrongfully invade another's property even when willing to pay fair market value. By the same token, a person can fraudulently deprive another of property even when willing to pay fair market value. The strictures an owner puts on his willingness to sell an item are not mere ephemera. When a prospective buyer lies in order to evade those strictures , a fraud has been committed upon the owner of the item just as surely as if the buyer had issued a rubber check.

This is not an exotic proposition. See, e.g., Walker v. Galt, 171 F.2d 613, 614 (5th Cir. 1948) ("'The vendor has the right to select the person to whom he will sell. ... [F]raud may be predicated upon misrepresentations as to the identity of the purchaser .... "') (citation omitted), cert. denied, 336 U.S. 925, 69 S.Ct. 656, 93 L.Ed. 1086 (1949). Cf., Earl V. Saks Co., 36 Cal.2d 602, 610-13, 226 P.2d 340 (1951) (a contract can be rescinded when induced by fraud, even if no pecuniary harm has been suffered); 37 Am.Jur.2d Fraud and Deceit§ 284 ( 1968) ("If one obtains from an owner, by a false representation of a fact which he deems material, property that he would not otherwise have parted with ... there is such an injury as will he redressed by equity."). Also, as the majority points out, the •410 Sec and Circuit agrees with the position taken in this concurrence.

United States v. Schwartz, 924 F.2d 410, 420-21 (2dCir . 1991) .

Here the various sellers simply refused to sell to persons like Bruchhausen who intended to export equipment from the United States without permits. Indeed, at least one of them, Watkins-Johnson Co., required a certification that the property would stay in the United States, period. If a buyer would not cert ify to that , the company would not sell its goods to that buyer . When Bruchhausen lied in order to evade that condition, he did commit a fraud. That fraud was the obtaining of the property of another (the equipment) by means of false representations. Thus, I cannot agree with the majority's conclusion that Bruchhausen's behavior could not constitute a violation of the wire fraud statute.

the concept of a tangible deprivation of property, even though there was evidence to support a determ ination on that basis. Thus, the finding of guilt was at best based upon an undefined mixture of legal theories too ephemeral to support that finding and an essentially unarticulated legal theory which would support it. Given that , Yates v. United States, 354 U.S. 298, 77 S.Ct. 1064, 1 L.Ed.2d 1356 ( 1957), militates in favor of the majority's determination. I say this with much hesitation because we deal here with a bench trial rather than with a jury trial. Here, however, given the fact that McNally overturned what had long been our approach to the wire fraud statute, it would be taking theory to an extreme to insist that the learned district judge who presided over this case could have been following the Mc Nally strictures. See, e.g., United States v. Bohonus, 628 F.2d 1167, 1170-73 (9th Cir.), cert. denied, 447 U.S. 928, 100 S.Ct. 3026, 65 L.Ed.2d 1122 ( 1980). Moreover, the district judge's comments made it rather clear that she was not following the McNally approach and that she saw the whole matter as one unified decision rather than as discreet legal elements which supplied alternate pathways to a finding of guilt.

Thus, I concur in the result.

In May 1985 Scotland Yard Inspector Vernon Williams ended five years of frustration for U.S. law enforcement authorities when he arrested Werner Bruchhausen, a West German businessman, in a London hotel.

For almost 10 years Bruchhausen had smuggled sophisticated U.S. equipment and technology to the Soviet Union and its satellite countries. He made a fortune—millions of dollars—from hundreds of illegal shipments of specialized military and dual-use electronics and communications systems. He shipped enough equipment to set up a complete integrated circuit manufacturing plant complete with 100 percent spares.

In all, Bruchhausen advanced Soviet computer chip manufacturing and related capabilities by perhaps a decade.

Clandestine meetings with Soviet agents, an international sting operation, double agents and a missed opportunity to apprehend him in Canada, and evidence suggesting a scheme involving East German agents to spring him from an English prison all added to the intrigue of this dramatic case of high tech banditry.

It began with a casual meeting at a trade fair in Munich, West Germany between a Russia trade official (a suspected Soviet GRU agent) and Bruchhausen, who was manning a booth at the fair. For 10 years, despite numerous legal impediments, Bruchhausen relentlessly prospered.

In February 1987 a federal judge found Bruchhausen guilty of 15 counts of wire fraud. Less than three months later the same judge sentenced him to prison. (As of this writing, Bruchhausen remains in a federal prison in Florida.)

To date, the Bruchhausen case remains the most successful investigation and prosecution by the U.S. Customs Service of illegal technology diversion. It was the catalyst for the Customs Service's Operation Exodus, the successful, ongoing high-tech diversion investigations program.

How the case developed, delays in its investigation and the methods used to snare Bruchhausen, once considered unextraditable from the sanctuary of a foreign nation, point o u t lessons to be shared by the export control community.

Bruchhausen earned a degree in communications engineering in 1962 in his native West Germany. In 1965 he opened his first independent business, representing U.S., British, and French electronic firms in West Germany. By the end of the sixties, Bruchhausen was well established in the electronics trade and had traveled extensively throughout Europe. In 1973, he established his first California corporations, all of which purchased or exported U.S. technologies.

Bruchhausen's first (documented) illegal export to the Soviet Union, a Data General 51230 computer system, occurred in 1978. Bruchhausen purchased the system for about $135,000 and sold it to the Soviets for about $263,000. This profit margin, which became typical in Bruchhausen's dealings with the Soviets, financed his opulent lifestyle. He wore cashmere coats and expensive suits, carried a walking stick, and lived in a lavish estate outside of Munich. He allegedly refused to drive a Mercedes because, "every farmer in Germany has one.”

The Bruchhausen network

Twelve California companies operating under 18 different names from many different addresses worked closely with nine European companies to coordinate Bruchhausen's illegal diversions. This complex network of companies shared an equally complex system of double invoicing, shredded records and false trails.

Incorporated between 1973 and 1980, the California companies initially purchased the high-tech items sought by the Soviets. These items were then transferred to their European counterparts for final shipment to the Soviet Union or one of its satellites. These diversions almost invariably shared several traits: (1) The California companies misrepresented the planned destination and purpose of the purchases to the manufacturers, as well as on the Shipper's Export Declarations (which typically misrepresented the real identity and value of the goods being shipped); (2) export licenses were never sought; and (3) in virtually every case, the equipment was extremely sophisticated and would not have been granted an export license.

Bruchhausen’s California companies employed only a few people, mainly to maintain appearances, but also to manage the unavoidable mundane business concerns. Through an ad in the Los Angeles Times, Bruchhausen recruited Tony Maluta, a Russian-born, naturalized American citizen, and Sabina Tittel, a German-hem naturalized American citizen, to operate these companies. Maluta was well suited for Bruchhausen's needs. As an engineer, comfortable in the world of high technology and fluent with some of its vernaculars, Maluta played well his role as a company vice-president. Most manufacturing companies had no reason to question his appearance.

Tittel, alleged at the trial to be Maluta's lover, managed the day-to-day affairs of the offices. Perhaps her most important duty was to ensure that the few other employees did not understand thae multiple invoices and other abnormal paperwork. (Evidence suggests Bruchhausen paid her well. In May of 1980, Customs seized companies' records that showed Tittel had already earned over $500,000 for that year).

Scant legitimate business

Bruchhausen‘s American companies conducted little or no legitimate business. The companies used professional stationery and business cards, and, although exporting was their business, the companies never applied for export licenses.

The European side of the network involved about nine companies in West and East Germany, Austria, and the Soviet Union. Bruchhausen owned several of these companies; a business associate, Dietmar Ulrichshofer, owned several more; and still others, financed by Bruchhausen, were legally owned by yet another individual. Ulrichshofer mainly supplied East bloc countries with equipment purchased from one of Bruchhausen's West German companies. Bruchhausen's principal company in West Germany was Analog und Digital Technik (ADT).

To protect ADT, which conducted some legal business in Europe, he created Techma, based in Dusseldorf, to deal exclusively with the Soviets. Bruchhausen formed Elmasch, in Bonn, again through the manager of Techma, to sell electronic components to East bloc countries. These buffer companies, in both California and Europe, kept the operations separate and Bruchhausen safe in the confusion they created.

Scope of operations

Maluta and Tittel's document shredder prevents us from ever knowing exactly how much money this network controlled. However, records seized in U.S. Customs raids in May 1980 give a glimpse of the scope of the companies' operations. Though incomplete, the records identified about $10.5 million of high-tech purchases made by California companies between 1977 and 1980. These purchases eventually landed in Soviet hands.

However, evidence presented at trial identified a four-year period in which Bruchhausen sent Maluta and Tittel about $100,000 a week for purchases, almost twice the $10.5 million figure.

The companies worked in pairs. For example, California Technology Corporation (CTC) would purchase equipment from U.S. manufacturers at original equipment manufacturer's prices.

Then, another Bruchhausen company, Interorga International Components, would export it, typically to an intermediary country - Vienna, Austria; Munish or Dusselford, West Germany; or Zurich, Switzerland.

Invariably, neither of the American companies took delivery of the purchases or legally transferred ownership; they went directIy to a warehouse or freight forwarder for export. Tittel rented a desk in an otherwise empty office in Santa Monica, California, to use as an address for two of Bruchhausen’s "export" companies.

In Europe, the goods typically changed hands several times before the final hop to the proscribed destination. Maluta and Tittel prepared two invoices. One, which accompanied the goods to the US. freight forwarders, falsely identified equipment as fumances, machinery, meters or other vague and innocuous sounding products, and valued it at a small percentage of its actual worth.

The Shipper’s Export Declarations, filed with the US. Customs Service at the port of export, similarly misrepresented the products to reduce the chances of a Customs inspection.

With the nation more concerned with interdicting incoming drugs than outgoing technologies at its borders, this simple hit of deception went mostly unnoticed.

A second, and accurate, invoice was sent to Bruchhausen in West Germany. The other principals generated more invoices, with varying descriptions and valuations of the goods, for the intermediate changes of ownership in Europe. The Soviets received yet another invoice; this one accurately described the goods.

In Europe, Bruchhausen “neutralized" the goods to erase records of the original purchaser or exporter. A common and legitimate business practice, neutralizing is used to prevent the ultimate customer from dealing directly with the manufacturer or original shipper; it protects the business interests of the middle man.

But Bruchhausen extended the technique to obliterate the trail. Usually, by the time the goods reached their final destination, the paperwork had gone through at least as many changes as the number of companies that had owned or forwarded the shipment. The records were so confusing, US. Customs investigators required a computer to reconstruct the Byzantine routes of more than a hundred of Bruchhausen's shipments.

Hugh profits

Bruchhausen's average markup was 199 percent; on some shipments he made as much as 1,000 percent profit. His associate Ulrichshofer, who often owned and forwarded the goods at some point in their journey to the proscribed destination, added an average markup of 215 percent.

Despite these profits, the Soviets readily paid the bill for technologies they might otherwise have to do without or develop themselves. According to Lara Baker of Los Alamos National Laboratory, an expert in computer manufacturing technologies who analyzed the equipment and information that the Soviets got through Bruchhausen,

“The Soviets knew exactly what they wanted. They showed very good taste. They got the state-of-the art equipment. They knew it down to nine and ten digit part numbers."

Collapse

Bruchhausen's scheme eventually collapsed under the weight of suspicious U.S. manufacturers and U.S. and West German Customs investigations that included a sting operation in which Customs investigators substituted sand for the state-of-the-art equipment bound for Moscow.

In March of 1980, officials at the Gasonics Corporation, which produced the most sophisticated silicon chip manufacturing equipment in the world, contacted the Department of Commerce. They were suspicious of a company called California Technology Corporation. Its vice-president, Tony Maluta, had expressed interest in purchasing two of their high-pressure oxidation (Hipox) systems, at that time the most advanced machinery for growing oxides on silicon microchips.

According to Theodore Wu, then a federal prosecutor, subsequently head of the Commerce Department's enforcement operations, “My understanding was that at the time the Gasonics equipment was so state of the art, an export license would not have been granted even to a NATO country."

Initially, Maluta told dubious Gasonics officials that CTC needed the Hipox systems for a secret U.S. Army installation in Arizona. In May, Maluta paid cash for two Hipox systems and instructed Gasonics to deliver them directly to Kamino, an international freight forwarder, because CTC's manufacturing plant in the San Fernando Valley had just burned.

By then, both Commerce and Customs were following the developments with great interest; Gasonics was keeping Customs informed of the transaction.

Convinced that the equipment was earmarked for illegal export (the Shipper’s Export Declaration misrepresented the equipment's identity, value and ultimate destination), Customs officials had identical crates built, filled them with pounds of sand, and allowed them to continue just as Bruchhausen and his associates had planned.

The West German Customs Service in Dusseldorf agreed to cooperate in the investigation. Their agents followed the crates from Munich to an intransit holding facility near the Austrian border. By then, five separate companies had "owned" and transferred the shipment. It was now tagged for a KLM/Aeroflot flight to Moscow.

At about that time Stephen Dodge and Theodore Wu visited the West German Customs Service and entered a formal agreement to exchange documents and information. When Dietmar Ulrichshofer discovered the sand, U.S. and German Customs had served search warrants at various Bruchhausen companies and principals' residences.'

In all, they recovered about 45,000 documents. Those recovered in California‐inquiries, purchase orders, telexes between Bruchhausen and the California companies, export freight bills‐revealed the purchasing end of a major operation. The documents seized in Europe (Bonn, Munich and Dusseldorf) provided a picture of the delivery side of the operation.

Dodge spent 10 months doing nothing but reading the documents, trying to piece together a coherent picture of the magnitude and methods of Bruchhausen's operations. Eventually, using a computer to sort and correlate the information, Dodge was able to trace 102 shipments from California, through Europe, to a final destination in the Soviet Union or East bloc.

The work resulted in a 60-count indictment against Bruchhausen, Ulrichshofer, Maluta and Tittel.

In 1981 Maluta and Tittel plead guilty to illegal export. Federal Judge William Matthew Byrne, Jr. sentenced Maluta and Tittel to five and two years, respectively, in federal prison. The judge also fined Maluta $60,000 and Tittel $25,000. These were the stiffest sentences the courts had ever meted out for illegal export of high-technology equipment.

Still, the mastermind, Bruchhausen, remained free, almost flaunting the nature of his continuing business ‐ he called one of his West German companies American Data Technology.

The West German Customs Service had cooperated in the investigation, but Bruchhausen and Ulrichshofer were n o t extraditable under existing treaties. Most Western European countries consider illegal export to be a political, and therefore n o t extraditable, offense

Extradition and trial

Although untouchable, Bruchhausen was not forgotten. Unbeknownst to him, a Greek undercover informant had been shadowing Bruchhausen for several months before his arrest. (After the investigations in 1981, Bruchhausen relocated the bulk of his continuing operations to Greece, Turkey and Bulgaria.)

U.S. and British authorities were aware of Bruchhausen’s trip to England, via Zurich, to arrange the delivery of some VAX computers to Bulgaria. In fact, Scotland Yard agents awaited him at Heathrow Airport and followed him for six days before making the arrest.

U.S. authorities were elated when they learned of Bruchhausen’s arrest in London ‐ unlike West Germany, the British government was able to act on an extradition request.

Still, British law allowed authorities to hold Bruchhausen for a limited time on the false passport charge, No extradition treaties specifically covered illegal export. However, Bruchhausen was extraditable under a general extradition treaty with England and North Ireland, ratified by the U.S. Senate in June 1976. Two of the long list of offenses covered by the treaty fit Bruchhausen’s crimes: 1) obtaining property, money or valuable securities by false pretenses or other form of deception; and 2) false accounting.

But the clock was ticking‐U.S. authorities had only about two weeks to submit, through the Justice and State Departments, an extradition package to the British government.

The first order of business was to re-indict Bruchhausen for crimes that fit the treaty. He had used a teletype for all of his communications with Maluta and Tittel, which, considering the nature of his business, constituted wire fraud.

U.S. Customs had seized boxes of these telexes in their 1980s raids. In addition, the misrepresentations Maluta made to American manufacturers and the false documents that accompanied Bruchhausen’s shipments constituted fraud against both the manufacturers and the federal government.

Within a week, William Fahey and Ronald Boos, the U.S. attorneys who subsequently prosecuted the case, put together a second indictment package against Bruchhausen consisting of 15 counts of wire fraud. Although hastily put together, the document satisfied Fahey and Boos. The maximum jail term of five years for fraud was the same asthat for illegal exporting, and 15 counts were enough to justify a fair jail term. A quickly convened grand jury returned the indictment.

The next order of business was to prepare an extradition package for the British government.

Dodge flew up and down the West Coast in a Customs airplane to gather affidavits. After several false starts, Dodge became almost desperate, afraid that Bruchhausen might slip free while Dodge got more and more tangled in legal requirements. "You talk about scramble! We had about a week left to get our act together,” Dodge recalls.

The State Department sent an extradition package to the British government just days before Britain would have been forced to free Bruchhausen. The British accepted the package, and in October 1985 ordered Bruchhausen to be extradited.

Getting him on a plane proved another matter because Bruchhausen immediately appealed the British decision. Finally, in June 1986the House of Lords, Bruchhausen’s last resort, allowed the extradition order to stand. U.S. federal officials immediately flew Bruchhausen to California to await trial.

Throughout the extradition appeal process Bruchhausen remained in British prison. British authorities considered him a flight risk, particularly in view of a possible plan for escape.

Allegedly while in custody in Great Britain, Bruchhausen made arrangements with East German (GDR) agents to pick him up from an undisclosed location with a helicopter, and transfer him to the GDR. British authorities searched his cell and found maps of several London airports, a credit card, and other items that suggested an escape attempt was in the works.

The case

Dodge had put together continuous paper trails (from purchases in California to delivery to the Soviets or the East bloc) for 102 of the approximately 300 shipments attributed to Bruchhausen. Of these 102, the prosecution presented 13 during the trial.

To prove a scheme, the prosecu~ tion presented evidence regarding the purchase, lack of export license, shipment routes through intermediate countries and final delivery to the Soviet Union.

To prove false statements, Fahey and Boos presented documents, given to American manufacturers by Maluta and Tittel, that indicated no export was planned, as well as fraudulent Shipper's Export Declarations. In all, the prosecution presented 15 false statements associated with the 13 shipments.

To prove that wire communications had figured in the scheme, the prosecution presented the telexes that had been seized in the 1981 Customs raids.

Export violation cases are unique in their typical use of international witnesses and the sheer volume and complexity of documentary evidence. The Bruchhausen trial was no exception.

The prosecution submitted 218 exhibits comprising more than 2,000 documents and called 30 witnesses, including European law enforcement agents, West German Customs officials, technical experts who demonstrated the enormous benefit the Soviets gained from doing business with Bruchhausen and employees of his California corporations.

The prosecution also entered into the court record excepts from interviews the West Germany Customs Service conducted with Bruchhausen in 1982, in which he described his intent to establish a confusing network of interrelated companies. In addition, in a 1982 interview with the BBC, Bruchhausen . . . insisted that it was not illegal to ship the goods from the United States to West Germany, from there to Switzerland and from Switzerland to the Sovietbloc. He characterized his operations as follows: " I t might have been a slight infringement of the rules, but it's no crime.

The defense attorney, Alan May, presented Bruchhausen as a successful, although somewhat naive businessman interested in contributing to the spirit of detente and taking advantage of it to further his business interests. “Maluta did it" was the thrust of the defense.

After four weeks of testimony, Judge Alicemarie Stotler, in a very brief decision, found the evidence "indeed overwhelming" and Bruchhausen guilty of all 15 counts. On May 1, Judge Stotler sentenced Bruchhausen to 15 years in federal prison and fined him $15,000‐one year and $1000 for each count.

What Bruchhausen shipped

The equipment Bruchhausen and his associates shipped was among the most sophisticated of the time. In testimony to the U.S. Senate in 1982, Lara Baker described the Bruchhausen pipeline as "certainly one of the most successful for the Soviet Union, and perhaps one of the most damaging to the U.S."

Baker examined documentation (seized by Customs in the United States and Europe) on more than 400 Bruchhausen shipments to the Soviet Union and the East bloc. All of these shipments were illegal‐no export license had been sought and none would have been granted.

Among the most significant of the Soviet purchases were those used to equip a complete, medium-sized integrated circuit production plant. At the time, process control and quality assurance problems seriously hampered the Soviet integrated circuit/ microcomputer development industry.

Other equipment Bruchhausen shipped, not related to integrated circuit development and production, included high-speed oscilloscopes, military microwave and radio receivers, and hundreds of electronic cables, testers, circuits and related pieces of hardware.

Bruchhausen even instructed Maluta in a telex to get the optics from the Surveyor spacecraft. For once, in a return telex, Maluta refused.

The Watkins-Johnson microwave tuners the Soviets received had direct military applications. These systems operated in the frequency range used by NATO forces. One of the systems included an antenna designed for missile tracking and telemetry applications. Another shipment, 10,000 256-bit random access memory (RAM) circuits in military packages, had possible direct military applications.

Typically, the Soviets use Western equipment for R&D rather than in fielded military systems. At the time the Soviets were capable of manufacturing RAM circuits. A reasonable inference is that the Soviets procured these circuits for an existing system.

The continuing saga

Bruchhausen established acquisition and delivery networks at will, and continued to sell proscribed goods to the Soviet block after authorities shut down his California companies.

After his arrest, Swiss authorities seized a suitcase belonging to Bruchhausen, then turned it over to the U.S. Customs Service. He had been storing it in a Swiss locker, perhaps to protect it from possible seizure at one of his German addresses.

The suitcase contained hundreds of documents - business records, personal notes and business cards of his American, Soviet, and European associates - as well as numerous original Bulgarian and Czech shopping lists ,purchase orders, and evidence of completed sales to the Soviet bloc.

The records in the suitcase indicated that between 1983 and 1985 Bruchhausen shipped e equipment that could be used for engineering and development of logic and microcircuit technologies.

The following equipment was shipped, probably through a Zurich based company, to Czechsolvokia and Bulgaria, and additional orders worth millions of dollars were pending.

• Thousands of semiconductor devices made by Advanced Micro Devices, National Semi-conductor, Motorola, and Intersil (est. $63,000)
• One DEC Vax 11/730 computer ($135,000)
• One Intel Corporation logic development system ($105,000)
• One Hewlett Packard semiconductor analysis system ($38,360)
• Nine CAD/CAM systems (eight of which were Megatek) (est. $1,165,000)
• Two Tektronix hard disk systems ($15,000)
• One Tektronix instrument ($20,000)
• One MTS single disk certifier ($370,000)
• One GCA/D.A. Mann Mod. 4800 direct step-on wafer system ($65,000)
• Control Data Corp. disk drives and DEC computers 780/730 ($1,109,000)
• Tektronix computer graphics terminals ($150,000)

Then

Enforcement of export regulations has changed dramatically since Bruchhausen's chicanery came to light. The initial, sluggish response to reports of his activities, described below, is no longer typical.

The first tips were two anonymous letters, both signed “former employees," sent to the U.S. Consulate in Dusseldorf. The first letter arrived in 1977, and accused Bruchhausen of violating U.S. export controls and falsifying export documents.

The second letter arrived about nine months later, in 1978, and contained even more details, including copies of documents proving that Bruchhausen had shipped commodities to a proscribed country.

The Consulate translated the letters, then forwarded them to the Commerce Department Compliance Division. About a year and nine months after the first letter to the Consulate in Duseldorf, Perkin-Elmer Company reported to Commerce that Bruchhausen's CFC was probably a front; Maluta had represented several companies, with various addresses.

The Commerce Compliance Division sent an agent to interview Maluta, who could not produce an export license application for the equipment in question, a Micralign semiconductor testing machine worth $150,000. Maluta said that he knew little about export license requirements, and cancelled the shipment. Bruchhausen and his American employees later referred to the affair as the "Perkin-Elmer problem".

Eight months later, Fairchild contacted the COmmerce Department, the Office of Defense Intelligence and the FBI. Maluta had ordered $740,000 worth of semiconductor memory test systems. A routine investigation by the Fairchild export administration manager had made that company suspicious. However, none of the federal agencies expressed concern because Maluta had signed a standard declaration stipulation that Department of Commerce regulations would be observed if the equipment were resold.

About a month later, Watkins-Johnson wrote Commerce for advice. Bruchhausen's companies had changed names frequently and Maluta had four orders pending for microwave receiving and antenna systems, totaling over $980,000. Special Agent Robert Rice became involved and learned that Maluta had told Watkins-Johnson that one of the systems was to be used at the Army's Fort Huachuca, in Arizona. Headquarters there informed Rice they had never ordered anything from Maluta.

(Also, Maluta had previously purchased similar systems and refused installation, instruction or repair assistance.) At that point, more than three years after the first tip, the Commerce Department contacted Dodge and Wu and the investigation began.

… And Today

Today, the Department of Commerce plays a principal role in the enforcement of export laws. Under Title 28, 1982, the Commerce Department's enforcement staff became separate from other export administration activities and increased from a handful of investigators (who made up the old Compliance Division) to more than 160 full-time enforcement officers, with arrest and seizure authority

There are now eight domestic field offices, as well as offices in Sweden and Austria. About 35 intelligence specialists work in enforcement‐more than the entire staff of the Compliance Division when the Bruchhausen case was originally investigated.

According to Wu, who became Deputy Assistant Secretary for Export Enforcement (created under title 28), "The foreign field offices have raised international sensitivities and increased cooperation in investigations and prosecution." In addition, the cooperation among U.S. enforcement agencies has improved dramatically. Joint Commerce, Customs, and FBI investigations are common Again, according to Wu, 'The working atmosphere between Commerce and Customs has improved enormously. We have daily contact."

The Customs Service has also increased and redirected its exports enforcement activities. The Exodus operations are supported by the Office of Enforcement and the Office of Intelligence, which employ about 1,600 people. Twelve hundred work in criminal investigation and about 400 work in intelligence, including about 200 analysts who identify trends and conduct other analyses.

A Customs-to-Customs agreement with Sweden, signed during the summer of 1987, allows the US. Customs Service to cooperate directly with the Swedish Customs agency on investigations of illegal diversions of technology and armaments, bypassing other diplomatic channels.