IBM Unit Admits It Made Illegal Sales
Computers Sold to Russian Weapons Lab

By Bill Miller
Washington Post Staff Writer
Saturday, August 1, 1998; Page C01

A subsidiary of International Business Machines Corp. pleaded guilty yesterday to federal charges that it illegally sold 17 high-performance computers to a Russian nuclear weapons laboratory in 1996. U.S. officials said that Russia has declined to return the machines.

IBM East Europe/Asia Ltd., the Moscow-based subsidiary of IBM, admitted in U.S. District Court here that it failed to obtain licenses from the Commerce Department and that it had prior reason to believe the equipment would be used to design, build or test nuclear weapons.

The Moscow subsidiary told IBM headquarters the machines were for oil field research, court papers said. But a Russian national who worked for IBM later personally installed at least 16 of the computers at Arzamas-16, a weapons laboratory run by the Russian Federal Nuclear Center in Sarov.

F. Amanda DeBusk, the Commerce Department's assistant secretary for export enforcement, said the subsidiary initially sought a license to sell computers to the weapons facility but was turned down. That, in turn, led to an effort to hide the sales through a series of maneuvers in the United States, the Netherlands, Germany, Japan and Russia. "This was a very, very complicated transaction," DeBusk said.

Though the Cold War has ended, the U.S. government continues to restrict foreign sales of computers that might be used in weapons development. High-speed systems such as the RS-6000s that IBM sold can speed up weapons programs by allowing researchers to simulate the likely effects of design changes.

John Pike, a defense analyst for the Federation of American Scientists, said the lab that got the computers is "their equivalent of Los Alamos." Pike said the RS-6000 units it received are powerful, but nowhere near top-of-the-line supercomputers, which he said sell for up to $50 million each.

Assistant U.S. Attorney Eric A. Dubelier, who prosecuted the case, said the Russian government so far has refused to return the computers, despite repeated efforts through diplomatic channels. "Any computers are valuable to the Russian laboratory because their computer technology is so far behind that of the United States," Dubelier said.

Mikhail Shurgalin, a spokesman for the Russian embassy here, said he understood that discussions were continuing. Russian officials believe they acquired the equipment legally, he said, but are willing to talk about returning it.

Authorities said they believed the case marked the first time that IBM or its subsidiaries pleaded guilty to criminal charges. Prosecutors said the parent corporation was not involved in any wrongdoing.

Officials with IBM Corp. in New York said they have tightened internal controls abroad. "We regret the involvement of our Russian subsidiary in this case," said Rob Wilson, an IBM spokesman. "IBM will not tolerate any violation of its standards of business conduct. We cooperated fully with the federal government, and we're pleased that this matter has been resolved."

As part of a plea agreement approved by Chief U.S. District Judge Norma Holloway Johnson, the company agreed to pay an $8.5 million criminal fine, the maximum allowable, within the next 10 days. In addition, the firm will pay $171,000 in civil penalties levied by the Commerce Department. The plea agreement stemmed from the subsidiary's dealings with Russian firms acting as agents for Arzamas-16. The sales generated $2.1 million of revenue in late 1996 and 1997.

Prosecutors said the subsidiary knew that Arzamas-16 was responsible for research involving nuclear explosives when it began negotiating with the lab's agents in early 1995.

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